Iraq’s Oil Ministry has criticised a deal between the Kurdistan Regional Government (KRG) and Germany’s RWE over gas supplies to the Nabucco pipeline, saying it contravenes Baghdad’s existing export rules.

The deal falls in the same legal grey area that has been disputed with Baghdad since the writing of Iraq’s constitution in 2005.

While sources in the KRG acknowledge that marketing oil and gas production comes under the authority of the State Oil Marketing Organisation (Somo), the RWE deal focuses on developing a domestic piped gas distribution network and a midstream gas transport network in the Kurdish region (MEED 29:8:10).

It also envisions the eventual negotiation of gas supply agreements to enable as much as 20 billion cubic metres a year of natural gas from the region to be transported to Turkey and Europe via the planned Nabucco pipeline.

“Building gas export infrastructure would be a long term project. The KRG expects that by the time it can start a [national] oil and gas law should be in place” says a source close to the KRG based in Erbil.

“The deal with RWE was signed for Iraq not just for Kurdistan – it could be used to export gas from Iraq’s associated field” adds the source.

The semi-autonomous KRG passed its own hydrocarbons law in 2007 and has signed oil production sharing, development and exploration contracts with more than 35 energy companies over the past two years, worth nearly $5bn to the ire of Baghdad. But it has not seen any oil exports from the region since October 2009 as a result. The region has the capacity to export some 100,000 barrels a day (b/d) of crude oil, a figure which was expected to rise to 250,000 b/d in the first half of 2010.

The Oil Ministry demands contracts negotiated by the KRG be amended to bring them into line with its own deals. In addition, the Oil Ministry says it is the KRG which must pay the contractors. The KRG proposed that the Iraqi government pay international oil companies (IOCs) operating in the region directly for the revenue to pass through Kurdish authorities.

A compromise was reached in May after week long talks in Erbil, which would see all revenues handed over to the State Oil Marketing Organisation, with Baghdad responsible for paying the extraction expenses in Kurdistan. However, the agreement still awaits the formation of a new Iraqi cabinet before it can be ratified.