KRG pipeline expansion offers local, federal benefits

14 November 2018, Week 45, Issue 700

The Kurdistan Regional Government (KRG) in early November announced completion of the capacity expansion of Iraq’s main crude export pipeline, running from Kirkuk to Ceyhan on the Turkish border.

Erbil hailed the development as enabling the accommodation of increases in output from fields within the Kurdish-controlled area – with another production boost, from the Atrush field, reported days later.

However, the statement also noted the potential for pipeline sales to resume by the federal government of output from the fields around Kirkuk, which has been stranded as a result of disputes between the two authorities.

The KRG’s Ministry of Natural Resources (MNR) issued a press release on November 4 announcing the expansion of capacity of the Kirkuk-Ceyhan pipeline from 700,000 bpd to 1 million bpd.

The enlargement was said to have been accomplished by means of the installation of a new pumping station near the Shaikan oilfield in the north-west – operated by London-listed Gulf Keystone Petroleum and where the company has plans to expand production from 40,000 bpd first to 55,000 bpd and later to 110,000 bpd by early next decade.

The statement opened by celebrating the recent milestone achieved by Norway’s DNO, the territory’s largest producer, in raising output to 50,000 bpd at the newly-developed Peshkabir field in the north-western Tawke licence, where total production averaged 126,000 bpd in October. It noted that “the extra pipeline capacity will accommodate future production growth from KRG producing fields”.

Current exports were said to be running at around 400,000 bpd – a public release of sales data that has become rare since the breakdown of a revenue-sharing agreement with Baghdad in 2016.

The MNR also pointedly noted that the enlarged pipeline “can also be used by the federal government to export the currently stranded oil in Kirkuk and surrounding areas”.

Crude from these fields ceased flowing through the link in October last year when Baghdad recaptured the northern part of federal territory from the KRG – which had taken control in order to expel so-called Islamic State (IS) three years earlier, depriving Erbil of production and exports of around 230,000 bpd from the Bai Hassan and Avana fields.

Since then, production by central government-controlled North Oil Co. (NOC) has been deployed mainly for use in domestic refining – with the trucking of small volumes to Iran due to cease this month ahead of the imposition of US sanctions against Tehran. Negotiations over resuming pipeline exports and over division of the revenues have been ongoing between Baghdad and Erbil but have yet to yield a settlement.

The glaring omission in the announcement was the involvement of Russia’s Rosneft, which acquired majority control of the pipeline, along with five exploration blocks, in October last year. Rosneft injected US$1.6 billion into Erbil’s depleted coffers and the state-run firm thus became a key player in any settlement.

The KRG has reportedly insisted that an agreement be contingent on Baghdad paying transit fees to Rosneft while the federal Ministry of Oil (MoO) has at times seemed to signal willingness to work with the firm.

A statement from the ministry in February shortly after signing a contract with the UK’s BP to resume providing technical assistance at the giant Kirkuk field explicitly stated having “no objection if Rosneft wanted to expand its work in all of Kirkuk’s oilfields [close to the federal border] after co-ordination and agreement with BP”. Incoming Oil Minister Thamir Ghadhban took office last month with an immediate pledge to restart talks with Erbil.

Fellow Russian NOC Gazprom has more-quietly become increasingly important to the Kurdish oil industry – raising production earlier this year at the operated Garmian block in the southeast to 23,000 bpd, making the licence the third most-prolific, behind Tawke and Shaikan.

In early November, Vadim Yakovlev, deputy CEO of Gazprom subsidiary Gazprom Neft said that his company was assessing the results of the Shakal-1 well in the eponymous block, while production from the Sarqala field reached 28,000 bpd, with an aim to hit 35,000 bpd with the addition of a third well before deciding on further drilling. He added that the company ‘maintains its interest in expanding its presence’ in the region.

Garmian is set to be overtaken by year-end by the Atrush field in the north-west, operated by Abu Dhabi government-owned TAQA – according to a third-quarter report from Canadian junior partner ShaMaran Petroleum on November 7.

Average third quarter output at the field – belatedly commissioned in July last year with a processing capacity of 30,000 bpd – increased by 5,900 bpd to 21,700 bpd while the October average was 26,800 bpd.

ShaMaran explained that an issue with an accumulation of salts in the heat exchanger, which had cut output earlier in the year, had been resolved – at the cost of increasing average 2018 lifting costs from US$6.8 to US$7.6 per barrel. Full-year guidance remains at 25,000-30,000 bpd.

A professed belief in the potential for production to reach 100,000 bpd over the longer-term was affirmed by the partners having initiated the procurement process for two 10,000-bpd early production facilities to take total processing capacity to 50,000 bpd.

Edited by

Ian Simm

Editor

Any questions? Please get in touch