Kurdistan to export oil from February

20 January 2011

Baghdad and Irbil agree tentative deal for 100,000 barrels a day

In a sign that tensions between Baghdad and the Kurdistan Regional Government (KRG) are easing after the formation of a government by Nouri al-Maliki, exports from the northern region will resume from 1 February. Exports will reach 100,000 barrels a day (b/d) from the semi-autonomous region following a meeting between the prime minister and a delegation from the KRG.

Officials in Baghdad and Irbil have confirmed that crude oil will be sent from two fields; the Tawke and Taq-Taq to the Kirkuk pipeline which runs to Ceyhan in Turkey. The fields are being developed by Norway’s DNO, and Turkey’s Genel Enerji in consortium with China’s Sinopec.

No further details have been revealed.

The export agreement was initially signed on 25 December, just four days after the government came into power and the new Oil Minister, Abdulkarim al-Luaibi assumed his new portfolio, says Thomas Donovan, Partner at the Baghdad-based Iraq Law Alliance. 

“It shows the real impediments to the agreement were in the former ministerial power structure and the change of such was a main concession that needed to happen to have Maliki retain the Prime Minister position,” says Donovan.

The US’ Marathon Oil Corporation signed up to two exploration blocks and joined two others in the KRG in August. The entry of a medium-sized international oil company (IOC) into the semi-autonomous region was a significant confidence booster, at a time when the KRG’s dispute with Baghdad was still ongoing and oil exports were shut in (MEED 24:10:10).

Marathon itself appears confident in the KRG, sources close to the company say.

“They can ramp up production really quick. They will have a branch office within 90 days and a compound ready in 180 days. It’s an impressive time scale.”

Further details on the agreement are unlikely to be known until the issue is cleared through the passage of the 2011 national budget, analysts say. The draft budget for 2011 is yet to be presented to parliament which is closed until the end of January.

At the core of the dispute is how the international oil companies will be paid. Sources in Irbil say the region has the capacity to export more than 100,000 b/d of crude oil, a figure that was expected to rise to 250,000 b/d in the first half of 2010. Talks between Irbil and Baghdad over the issue were held in early 2010 to resolve payment.

The Oil Ministry in Baghdad says the KRG must pay contractors from its regional budget, while the KRG argues that the central government must make the payments.

There is also the issue of distributing oil revenues. According to the proposed budget, the KRG must export 150,000 b/d, but faces a reduction in 17 per cent allocation of government revenues if it fails to do so. This has led to walkouts from Kurdish parties, but the new deal appears to have brought the export figure down to a more achievable 100,000 b/d.

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