Al-Uloum, aware of the problems ahead, has just concluded a whirlwind Gulf tour. The aim has been to source additional products. 'Kuwait has agreed to provide whatever supplies it can. We are looking at other options,' Al-Uloum said on 20 November. Two days later, Tehran announced that it would supply liquefied petroleum gas (LPG), mogas (petrol) and kerosine to help Baghdad tide over the impending crisis.
Age, sanctions and, most recently, extensive looting have all taken a heavy toll on Iraqi refineries and landed the State Organisation for Marketing Oil (SOMO) with the daunting task of trying to bridge the supply shortfall. Its cause has not been helped by the state of import facilities, particularly Iraqi ports, which are still handicapped by draught limits. 'Going into Umm Qasr and Khor Zubair is a nightmare,' says a Kuwait-based oil trader. With no immediate improvement in sight, Kuwait Petroleum Corporation (KPC) has opted to supply product by road.
Payment is also an issue for oil traders looking to supply Iraq. At present, the government in Baghdad is offering a swap deal. 'For a tonne of mogas, we are paid back three tonnes of fuel oil,' says a Dubai-based trader. 'But what we really want is cash.'
Iraq may be in the most acute situation, but product shortages are becoming evident elsewhere in the GCC. 'At the macro level, demand is rising sharply in the GCC for low sulphur gas-oil and unleaded mogas for both Arabian Gulf [AG] and Mediterranean [Med] blends,' says another Dubai-based trader.
The upsurge reflects the recent change in product specification in the region. As part of an environmental drive, the sulphur content in the GCC has been cut to 0.25 per cent from the previous 1 per cent. The GCC figure still remains relatively high. In Europe, sulphur cannot exceed 0.035 per cent; even in Bangladesh and Sri Lanka the sulphur levels are below 0.2 per cent.
The introduction of stricter environmental specifications - both within the region and in Asia, the main market for Gulf products - has prompted Gulf states to proceed with major refinery upgrades (see pages 30-32). However, the upgrades will not provide immediate relief so, at least in the short term, most Middle East states will remain net importers of unleaded petrol.
The tight market for condensate is also having an impact. The Emirates National Oil Company condensate refinery at Jebel Ali is running at about 50 per cent of capacity as a result of the high premium being charged for condensate produced in the region. In Saudi Arabia, the recently commissioned condensate splitter at Ras Tanura is running at 18 per cent below its nameplate capacity of 200,000 barrels a day (b/d).
With the Middle East accounting for more than 4 million b/d of products being sold through spot and term deals, oil traders are looking ahead to trying times. '[In 2004] it can be anybody's call,' says the Kuwait-based trader. 'Supply will stay ahead of demand, but only just.'
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