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Kurdish oil exports are under threat in Iraq
8/7/2015 15:40:00
The fight against ISIS has taken a turn for the worse in recent weeks, with strategic cities and territory having been captured by the militant group.
To make matters worse, one of the key factions fighting ISIS is running out of cash. The Kurdish Regional Government (KRG), a semiautonomous provincial government in northern Iraq, says that its battle against ISIS is weakening due to the failure of the Iraqi government to promptly transfer necessary funds.
The KRG and Baghdad have long been at odds, as questions over sovereignty, revenue sharing, and oil exports have led to years of political gridlock. The tentative deal reached in December 2014 raised hopes of political progress, but the current standoff over money indicates that the two sides have not entirely resolved their differences.
The deal reached in late 2014 allowed the KRG to export 550,000 barrels per day in exchange for cash. Under the terms, Kurdistan is supposed to receive its portion of the national budget, pegged at 17%. But the flow of money has dried up, cutting off salaries to fighters in the Peshmerga, Kurdistan's militia.
Baghdad has responded by saying that the KRG is overestimating how much money is owed.
Without the funds, it will be difficult for the Kurdish forces to keep up the fight against ISIS. The Peshmerga has been critical to keeping ISIS from advancing farther than it already has.
Related: Seeing Some Success, OPEC Maintains Market Share Strategy
The lack of money could also start affecting oil production in Kurdistan. Several private international companies operate there, but have not received payment from the KRG. The Kurdish government owes a combined $3 billion in back payments to oil companies.
If they are not paid, they could pack up and leave.
"We need to stabilize the payment situation," Ashti Hawrami, the KRG's natural resources minister, said on June 9. "We can't keep saying to oil companies: 'Give us one more month.' Eventually this will collapse around us. We need more money."
Related: A Glut For Natural Gas Too?
If oil companies did reduce or stop production, that would only worsen both the KRG's and Iraq's budgetary picture.
That in turn could have serious implications for both the fight against ISIS and the health of Iraq's oil sector over the long-term.
The Kurdistan Regional Government (KRG) exported 17,130,639 barrels of crude oil (an average of 571,021 barrels per day (bpd)) in the month of June through the Kurdistan pipeline network to the port of Ceyhan in Turkey. Of this amount, fields operated by the KRG contributed 12,740,711 barrels (424,690 bpd on average), while fields operated by the North Oil Company (NOC) contributed 4,389,928 barrels (an average of 146,331 bpd). In June, the KRG supplied SOMO in Ceyhan with 4,493,334 barrels (average of 149,778 bpd). Due to circumstances beyond the KRG’s control, during June there were 45 hours of downtime for the export pipeline. In June, the KRG was obliged to increase independent oil sales due to the significant debt backlog arising from the budget cuts of 2014 imposed by the federal government, and the need to pay down debts accumulated in 2014 from pre-payments for oil sales — sales that kept the Region financially afloat at a crucial time for the security and stability of Kurdistan and Iraq. This year, the difficult economic situation facing the Region has been exacerbated by the partial payments made to the KRG by the federal government. Nevertheless, the KRG remains committed to the 2015 federal Budget Law in its entirety. It will continue to work with its counterparts in Baghdad to reach a resolution on all the outstanding issues of oil and gas as described in the joint statement of June 17, 2015 by the KRG’s Regional Council for Oil and Gas Affairs and the five political parties in the Kurdistan Regional Government.
The Kurdistan Regional Government exported a record amount of oil last month, emphasizing that most of it was delivered to the central government’s oil marketing arm as it tries to resolve a long-standing dispute over control and revenue sharing.
The KRG issues only sporadic reports on its oil output and exports, but the ministry of oil and minerals put out a statement earlier this week saying nearly 18 million barrels, or about 578,000 barrels per day, were exported in May through the pipeline that runs north to the Turkish port of Ceyhan.
The ministry said that about 407,000 bpd came from fields in the Kurdish region, with a further 171,000 bpd coming from fields operated by Iraq’s Northern Oil Company. Most of the latter came from the Kirkuk oilfield that lies on the Iraq border with the Kurdistan region.
“The KRG remains on track to meet its oil export commitments under the 2015 federal budget and is pleased that KRG export volumes, already at record levels, continue to increase,” the ministry said.
The KRG had a long-running bitter dispute with the Iraqi central government for years that, while ostensibly about control over oil exports and revenue sharing, was mainly about political control. The result was a complete breakdown in the relationship early last year when the KRG sought to export its oil independently and Baghdad cut off revenue to pay for government employees, including security personnel.
However, relations have improved since the election of Haider Al Abadi last year, and especially the installment of Adil Abdul Mahdi as the oil minister. The two sides reached an agreement in December under which the KRG would deliver 550,000 bpd for export to the State Oil Marketing Organization (SOMO) and the central government would share with the Erbil government 17 per cent of Iraq’s oil revenue, or about US$1 billion a month.
This deal soon broke down, however, because of disputes about the amount of oil delivered, the methods for accounting for oil and expenses, and shortfalls in Baghdad’s payments. According to the KRG, only $409m was paid in April.
According to local news reports in Kurdistan, the central government warned on Tuesday – before the ministry issued its oil exports report – which it planned to lower regional government employees’ salaries this month.
“If they can get to that 550,000 bpd number of agreed exports through SOMO] and show that they are making good on their end of the deal, then they can get closer to a full agreement,” said an Iraq analyst at an international organization who did not want to be quoted by name.
“It is important to realize that if an agreement is to be reached, now is the time to reach it.”
Mr Mahdi has a very good relationship with the Kurdish leadership, including the deputy prime minister Rowsch Shaways.
A deal will have to wait at least several weeks now, though, with parliament in recess and Ramadan starting in a few weeks.
UAE companies have extensive interest in the Kurdistan region and are hopeful that a deal will resolve issues that have contributed to large arrears in payment.
Pearl Petroleum, for example, which is 40 per cent owned and operated by Dana Gas, with another 40 per cent owned by Crescent Petroleum – both of Sharjah – produced 76,000 bpd of oil equivalent from the Khor Mor and Chechemal fields, including 20,000 bpd of condensate.
It has been earning revenue from the sale of the condensate through the state marketing system and domestic sales of liquefied petroleum gas and natural gas. But the disputes have contributed to it falling short of world export prices and prevented it from reaching agreement with the KRG about future development of the project, according to Robinder Singh, the head of investor relations at Dana Gas.
“Since there is no pricing agreed for the surplus gas to the extent it affects the KRG’s liquidity, it prevents us from reaching an agreement,” Mr Singh said.
Iraqi Kurdistan cut transfers of oil to state marketing firm SOMO to an average of 149,779 barrels per day (bpd) in June as the autonomous region ramped up independent exports, its ministry of natural resources said on Thursday.
Overall exports via pipeline from the Kurdistan region to Turkey were roughly in line with the previous month at 571,021 bpd, but the share allocated to SOMO dropped by almost two thirds.
That put independent oil sales at their highest level since last December, when the Kurds agreed to export 550,000 bpd via SOMO in exchange for the reinstatement of budget payments from Baghdad, which reduced funding to the region last year.
The deal was hailed as a breakthrough in a long-running dispute over oil rights and revenue sharing, but it has looked increasingly fragile, with each side accusing the other of violating the agreement.
The Kurds say they have not been paid in full by Baghdad, which in turn accuses them of failing to export the agreed volumes.
"In June the KRG (Kurdistan Regional Government) was obliged to increase independent oil sales due to the significant debt backlog arising from the budget cuts of 2014 imposed by the federal government, and the need to pay down debts accumulated in 2014 from pre-payments for oil sales," the Ministry of Natural Resources said in a statement.
"This year, the difficult economic situation facing the region has been exacerbated by the partial payments made to the KRG by the federal government."
The statement said the region remained committed to the deal nonetheless.
Most of June's exports came from fields under the Kurds' jurisdiction, with only 146,331 bpd contributed by Iraq's state-run North Oil Company in Kirkuk.
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8/7/2015 15:40:00
The fight against ISIS has taken a turn for the worse in recent weeks, with strategic cities and territory having been captured by the militant group.
To make matters worse, one of the key factions fighting ISIS is running out of cash. The Kurdish Regional Government (KRG), a semiautonomous provincial government in northern Iraq, says that its battle against ISIS is weakening due to the failure of the Iraqi government to promptly transfer necessary funds.
The KRG and Baghdad have long been at odds, as questions over sovereignty, revenue sharing, and oil exports have led to years of political gridlock. The tentative deal reached in December 2014 raised hopes of political progress, but the current standoff over money indicates that the two sides have not entirely resolved their differences.
The deal reached in late 2014 allowed the KRG to export 550,000 barrels per day in exchange for cash. Under the terms, Kurdistan is supposed to receive its portion of the national budget, pegged at 17%. But the flow of money has dried up, cutting off salaries to fighters in the Peshmerga, Kurdistan's militia.
Baghdad has responded by saying that the KRG is overestimating how much money is owed.
Without the funds, it will be difficult for the Kurdish forces to keep up the fight against ISIS. The Peshmerga has been critical to keeping ISIS from advancing farther than it already has.
Related: Seeing Some Success, OPEC Maintains Market Share Strategy
The lack of money could also start affecting oil production in Kurdistan. Several private international companies operate there, but have not received payment from the KRG. The Kurdish government owes a combined $3 billion in back payments to oil companies.
If they are not paid, they could pack up and leave.
"We need to stabilize the payment situation," Ashti Hawrami, the KRG's natural resources minister, said on June 9. "We can't keep saying to oil companies: 'Give us one more month.' Eventually this will collapse around us. We need more money."
Related: A Glut For Natural Gas Too?
If oil companies did reduce or stop production, that would only worsen both the KRG's and Iraq's budgetary picture.
That in turn could have serious implications for both the fight against ISIS and the health of Iraq's oil sector over the long-term.
The Kurdistan Regional Government (KRG) exported 17,130,639 barrels of crude oil (an average of 571,021 barrels per day (bpd)) in the month of June through the Kurdistan pipeline network to the port of Ceyhan in Turkey. Of this amount, fields operated by the KRG contributed 12,740,711 barrels (424,690 bpd on average), while fields operated by the North Oil Company (NOC) contributed 4,389,928 barrels (an average of 146,331 bpd). In June, the KRG supplied SOMO in Ceyhan with 4,493,334 barrels (average of 149,778 bpd). Due to circumstances beyond the KRG’s control, during June there were 45 hours of downtime for the export pipeline. In June, the KRG was obliged to increase independent oil sales due to the significant debt backlog arising from the budget cuts of 2014 imposed by the federal government, and the need to pay down debts accumulated in 2014 from pre-payments for oil sales — sales that kept the Region financially afloat at a crucial time for the security and stability of Kurdistan and Iraq. This year, the difficult economic situation facing the Region has been exacerbated by the partial payments made to the KRG by the federal government. Nevertheless, the KRG remains committed to the 2015 federal Budget Law in its entirety. It will continue to work with its counterparts in Baghdad to reach a resolution on all the outstanding issues of oil and gas as described in the joint statement of June 17, 2015 by the KRG’s Regional Council for Oil and Gas Affairs and the five political parties in the Kurdistan Regional Government.
The Kurdistan Regional Government exported a record amount of oil last month, emphasizing that most of it was delivered to the central government’s oil marketing arm as it tries to resolve a long-standing dispute over control and revenue sharing.
The KRG issues only sporadic reports on its oil output and exports, but the ministry of oil and minerals put out a statement earlier this week saying nearly 18 million barrels, or about 578,000 barrels per day, were exported in May through the pipeline that runs north to the Turkish port of Ceyhan.
The ministry said that about 407,000 bpd came from fields in the Kurdish region, with a further 171,000 bpd coming from fields operated by Iraq’s Northern Oil Company. Most of the latter came from the Kirkuk oilfield that lies on the Iraq border with the Kurdistan region.
“The KRG remains on track to meet its oil export commitments under the 2015 federal budget and is pleased that KRG export volumes, already at record levels, continue to increase,” the ministry said.
The KRG had a long-running bitter dispute with the Iraqi central government for years that, while ostensibly about control over oil exports and revenue sharing, was mainly about political control. The result was a complete breakdown in the relationship early last year when the KRG sought to export its oil independently and Baghdad cut off revenue to pay for government employees, including security personnel.
However, relations have improved since the election of Haider Al Abadi last year, and especially the installment of Adil Abdul Mahdi as the oil minister. The two sides reached an agreement in December under which the KRG would deliver 550,000 bpd for export to the State Oil Marketing Organization (SOMO) and the central government would share with the Erbil government 17 per cent of Iraq’s oil revenue, or about US$1 billion a month.
This deal soon broke down, however, because of disputes about the amount of oil delivered, the methods for accounting for oil and expenses, and shortfalls in Baghdad’s payments. According to the KRG, only $409m was paid in April.
According to local news reports in Kurdistan, the central government warned on Tuesday – before the ministry issued its oil exports report – which it planned to lower regional government employees’ salaries this month.
“If they can get to that 550,000 bpd number of agreed exports through SOMO] and show that they are making good on their end of the deal, then they can get closer to a full agreement,” said an Iraq analyst at an international organization who did not want to be quoted by name.
“It is important to realize that if an agreement is to be reached, now is the time to reach it.”
Mr Mahdi has a very good relationship with the Kurdish leadership, including the deputy prime minister Rowsch Shaways.
A deal will have to wait at least several weeks now, though, with parliament in recess and Ramadan starting in a few weeks.
UAE companies have extensive interest in the Kurdistan region and are hopeful that a deal will resolve issues that have contributed to large arrears in payment.
Pearl Petroleum, for example, which is 40 per cent owned and operated by Dana Gas, with another 40 per cent owned by Crescent Petroleum – both of Sharjah – produced 76,000 bpd of oil equivalent from the Khor Mor and Chechemal fields, including 20,000 bpd of condensate.
It has been earning revenue from the sale of the condensate through the state marketing system and domestic sales of liquefied petroleum gas and natural gas. But the disputes have contributed to it falling short of world export prices and prevented it from reaching agreement with the KRG about future development of the project, according to Robinder Singh, the head of investor relations at Dana Gas.
“Since there is no pricing agreed for the surplus gas to the extent it affects the KRG’s liquidity, it prevents us from reaching an agreement,” Mr Singh said.
Iraqi Kurdistan cut transfers of oil to state marketing firm SOMO to an average of 149,779 barrels per day (bpd) in June as the autonomous region ramped up independent exports, its ministry of natural resources said on Thursday.
Overall exports via pipeline from the Kurdistan region to Turkey were roughly in line with the previous month at 571,021 bpd, but the share allocated to SOMO dropped by almost two thirds.
That put independent oil sales at their highest level since last December, when the Kurds agreed to export 550,000 bpd via SOMO in exchange for the reinstatement of budget payments from Baghdad, which reduced funding to the region last year.
The deal was hailed as a breakthrough in a long-running dispute over oil rights and revenue sharing, but it has looked increasingly fragile, with each side accusing the other of violating the agreement.
The Kurds say they have not been paid in full by Baghdad, which in turn accuses them of failing to export the agreed volumes.
"In June the KRG (Kurdistan Regional Government) was obliged to increase independent oil sales due to the significant debt backlog arising from the budget cuts of 2014 imposed by the federal government, and the need to pay down debts accumulated in 2014 from pre-payments for oil sales," the Ministry of Natural Resources said in a statement.
"This year, the difficult economic situation facing the region has been exacerbated by the partial payments made to the KRG by the federal government."
The statement said the region remained committed to the deal nonetheless.
Most of June's exports came from fields under the Kurds' jurisdiction, with only 146,331 bpd contributed by Iraq's state-run North Oil Company in Kirkuk.
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