Iraq Oil & Gas Production: Geopolitical Compromises and Kurdish Autonomy
Posted by Robert Rapier on January 15, 2010 - 10:15am
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As Royal Dutch Shell and other majors increase their investments in Iraq, some oil market analysts argue that Iraq could export over 12 mb/d (million barrels per day) within a decade, significantly shifting global production closer to 100 mb/d from the present 83.5 mb/d inventory supply. Are Iraqi oil production estimates too ambitious or perhaps, not optimistic enough?
As American forces draw down as a part of the U.S. exit strategy, many oil and gas uncertainties remain. Specifically, the KRG possess few incentives to accurately report proved reserves or encourage oil investment while the U.S. hands over political and military control to the Iraqi people—meaning that Kurdish-Iraq could possess even greater reserves than publicly stated.
Kurdistan Sovereignty over Oil Reserves
When some in the U.S. were encouraging partitioning Iraq several years ago, one could only imagine that the Iraqi-Kurds were not exactly disappointed at the prospect of having sovereign control over the future of their nation, including its oil reserves. Thus, one would be rational to assume that many Iraqi-Kurds had little intention and few incentives to cooperate with the Iraqi Central Government after liberation in 2003 from Saddam Hussein’s control of Kurdish territory Iraq.
After 2003, 7.5 million Iraqi-Kurds immediately secured their own perimeter within Iraq and set up a visa system requiring Arab-Iraqis to obtain permission to enter KRG-governed territory. The KRG then asserted themselves as an autonomous international power by establishing diplomatic channels with a number of countries including the US, UK, Germany, France, Russia, and Italy via consulates and representative offices independent of Baghdad. The KRG simultaneously took control of their oil fields and signed Exploration and Production (E&P) contracts with Hunt Oil, Det Norske Oljeselskap AS, SK Energy, and countless other oil companies to explore, develop, produce, and export oil without intending to share profits with the Iraqi Central Government.
The KRG only began to take a real interest in working with the Iraqi Central Government after the U.S. started to focus on stabilizing Iraq, which included the surge as well as encouraging sectarian cooperation and parliamentary coherence. Following the success of the U.S. troop surge in 2007 and the stabilization of Iraqi’s political affairs in 2008, the Iraqi Central Government, now more organized and confident, ruled in June 2009 that all foreign investment oil contracts made directly with the KRG are illegal.
The Iraqi Central Government now takes 83% of all oil export revenue from Kurdish territory. Because the U.S. is drawing down its forces and turning internal conflict matters over to Iraq, the world should expect the KRG to ignore central government authority and revenue-sharing agreements after the U.S. is gone.
Once the Iraqi Central Government is unable to enforce their legal authority over the KRG after the U.S. exits Iraq, the KRG will likely encourage more wildcat drilling, draw soil samples, and collect the data necessary to potentially transition reserve classifications from possible and probable to proved reserves (U.S. Reserve Classification System). The Iraqi-Kurds will then both claim all, or most, of the potential oil profits and potentially increase their commercially recoverable proved reserves estimates.
Geopolitics, Intervention, and Energy Supply Compromises
Some analysts argue that the official establishment of a Kurdistan state could create a domino for anywhere from 21 to 28 million other Kurds to stand up and demand autonomy in Kurdish-dominated regions across the Middle East. Therefore, these analysts argue that Turkey and Iran might take military action to prevent the KRG from asserting autonomy over Kurdish territory in Iraq in order to prevent the dominos from falling. However, it is unlikely Turkey and Iran would undertake such military action for fear of a blowback from Kurds within their own border regions, an outcome that would only emboldened regional Kurdish solidarity. What is more, Turkey and Iran would also be wary of taking responsibility for nation building in Iraq given the very costly U.S. experience. Thus, it is unlikely any outside forces will forcefully intervene in the Kurdish pursuit of sovereign control over northern Iraq.
Moving past the domino fear, economics proves to be the true ruler of Kurdish regional relations. Insofar, Turkey and Iran appear to prioritize investment over fear of this domino theory as both countries continue to send millions of dollars in Foreign Direct Investment (FDI) into Kurdish-Iraq due the neo-liberal nature of the KRG’s economy. In fact, in June 2009, a Turkish oil company investing in Kurdish-Iraq began exporting 40,000 b/d of oil back to Turkey through an agreement with the KRG: an estimated one billion dollars worth of oil per year at $80 per barrel.
In addition to potentially becoming a significant oil import source for Turkey and the rest of the Western world, the KRG also controls strategically located natural gas reserves that could become increasingly valuable to Europe’s diversification strategy. With almost 89% of Iraqi’s natural gas reserves within Kurdish territory—an estimated 2.83 Trillion Cubic Meters (TCM)—the European Union will likely pressure Turkey to work with the KRG—even should it become sovereign—to bring this gas to European consumers.
The KRG may be able to support some of Europe’s greater strategic needs to diversify their gas import sources and supply their fastest growing energy input source—natural gas—over the next two to three decades, particularly due to the increasing use of combined cycle gas turbines to generate electricity. Thus, if the KRG asserts itself as a sovereign country by ignoring Iraqi Central Government authority, Turkey will not cease oil and gas imports from Kurdish-Iraq out of fear of a Kurdish autonomy domino theory, whether this be by dint of personal economic interest or foreign pressure. In fact, such an outcome may induce Turkish leaders to work more closely to resolve internal conflicts with Kurds living in Turkey.
With foreign investment coming into the KRG from all over the world, these nations are sending a subtle message to the KRG: “Our governments prioritize economic development and energy security over politics.” Although regional leaders make speeches discouraging a sovereign Kurdish-Iraq, their investment actions juxtapose their rhetoric, particularly in the case of Turkey. More important than the words in a leader’s speeches are the measurable actions of their government.
Kurdish Nationalism, Oil, and Power
Like Israel after 1945, the KRG have not wasted anytime to ensure they are powerful enough to never be dominated by an occupying culture or military force, including by Arab-Iraqis that once forced on Kurds their language, culture, and rule of law. The Iraqi-Kurds are securing support from the international business community, tapping into economic integration, organizing a loyal and professional military, and developing close ties with liberal nations that prioritize development over ideology.
While Kurdish-Iraq could hold one of the keys to increasing or decreasing the expected Iraqi oil production over the next 10 years, we must remember that asking the Kurds in northern Iraq to remain unified with the rest of Iraq would be like asking Koreans after 1945 to remain unified with their previous Japanese occupiers. Thus, Iraq will not be unified should the Iraqi-Kurds have their day to decide for themselves, and that day may be coming soon.
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Perhaps Royal Dutch Shell can do for Iraq what they have done for Oman. Here is a 2004 New York Times article about what Shell was able to achieve in Oman, by applying what the then chairman of Shell described as major advances in drilling.
http://www.nytimes.com/2004/04/08/business/08OIL.html?pagewanted=1
Incidentally, based on the last six years of consumption data (EIA), Iraq has to increase their total liquids production at about 2.2%/year, just to maintain their 2009 net export rate, which was down slightly from 2008. But if we are to believe Sir Philip, that shouldn't be a problem.
Also, I think that it is imperative that Shell and other major oil companies be given unrestricted access to Texas & the North Sea. If major advances in drilling and other improvements in technology could just bring these two regions back to their peak production rates, we could easily add another 6 mbpd or more of total liquids production.
Peak oil is a process, not an event. Part of that process is an incrementally changing perspective on the discount rate that should be applied to reserves. As various peaks come into full rear-view, peak conventional oil, peak net oil-based energy, peak liquids, peak exports, peak efficiency of oil-energy conversion devices, etc., the discount rate falls pushing the current price higher. The higher price will not increase production, but within the emerging wisdom of the peak-oil-era will tell exporters that minimum production is the best and wisest economic choice.
The probability of annual oil production exceeding that achieved in 2005 grows ever more minute.
Ironically, the long suffering people of Iraq will, after bringing the Kurds into line, are likely to be the biggest beneficiaries of peak oil.
The Iraqi Central Government lacks the ability to influence Kurdish-Iraq, both politically and militarily. I take it you have not been to Iraq or talked to anyone in the government there.
You can imagine otherwise, but its not going to change the reality on the ground.
Judging from the Kurdish grip on their own borders--almost non-existent suicide bombers and acts of terrorism within their territory--the KRG appears to know how to create a stable territory. The Kurds are organized a the lowest levels and they are following their government's direction without significant disruptions at the grassroots level. The Kurds have a stable environment not by dint of luck, but by sound governance and an economic culture conducive to stable investment. Thus, drawing from their success so far, they will likely keep it together if Iraq falls apart.
Iraq's President Jalal Talabani is Kurdish. Imagine Sunnis and Shia trying to pick a president between the two of them without Kurdish participation, and what that dispute would do to investment in Arab-Iraq, and expected oil production.
You can't argue your way out of reality.
Speaking of reality, the autonomy that the Kurds have enjoyed in recent times emerged during a period of historical weakness for the Iraqi central government. Yet the bulk of revenue from supposed Kurdish petroleum resources still flows to Baghdad.
But then reality has no permanence. I have no difficulty imagining Sunnis and Shia picking a president between the two of them. Especially as American influence wanes. 'You get this, we get that, and together we remind the Kurds of the rightful division of petroleum revenue.' The power of the Iraqi Shia flows in part from their ties with Iran, and nothing good comes to the Iraqi who is both Arab and Sunni if the Iraqi Kurds try to stop acknowledging the revenue collecting authority of Baghdad.
Toilfoil,
"No difficulty imagining Sunnis and Shia picking a president between the two of them"There's an uninformed statement if I ever read one, ha ha. Keep dreaming your way into a false reality. You're dreams are not going to change the outcomes.
I am taking you have not interviewed any Kurds either. The bulk of the revenue they send to the weak central government--one weaker than the KRG--is partly because they need their transit routes, that is until they likely take Kirkuk in time, since they are trying now.
Here are some solid verifiable facts for you: "Krikuk’s present status is a “special zone” in Iraq. The Kirkuk population—mostly Kurdish—were not permitted to participate in Iraq’s last election cycle. The Central Government fears the change in share of votes due to their participation.
The KRG proposed a referendum--commensurate with the wishes of the Kikruk population--to vote to adopt Kirkuk as a part of KRG territory. The central government refused. Thus, its only a matter of time before the KRG absorbs Kirkuk."
The term "rightful division" is a subjective one. Who decides. You and your opinion? Not a chance! International law! Yes! rightful oil is what is under your territory, and so in time all of the oil under Kurdish territory will be there's since even Turkey recognizes the KRG as a legitimate authority over their territory.
You are so confident, but ironically your statements are gleaming with subjectivity. I said it before, and I will say it again, you can't argue your way out of reality.
We will see what happens, but one things is for your sure, your opinions won't change the outcome.
History is replete with sworn enemies who learn, surprisingly quickly, to accomodate each others interests, especially when their interests are mutual, as is the case with the Iraqi Arabs with respect to the petroleum below the Kurdish zone.
Kurdistan's current status reflects the recent history of Iraq with its weakened and then shocked and awed central government. That's the reality. The changing reality.
Mr. Kane. Thanks for touching on this all to important topic. Brevity will be a partial curse on this site so dont take the comments here to harshly and consider posting with regard to geo-politics of other areas as well. Thanks
Mr. Westexas. Pray Sir.... Deign not! Do not shirk your responsibilities!!!! What would I do without the reminder of ELM. I'm curious about the decline rate of fields in Iraq and their maturity.....
Respectful Regards
TG80 sends
Comparing the supposed fledging Kurdistan with Israel is evidence of wishful thinking, not sound analysis. Or did I miss the piece about christo-caucasian guilt regarding an apparently underreported Kurdish holocaust, and the piece about a large and influential movement of American evangalical 'Kristins' who believe that salvation comes following the establishment of Kurdistan, as fortold somewhere in a book of revelations.
If partially informed speculation is the order of the day as this post suggests, then I offer the following: Kurdish nationalism will be a lifeline for the Iraqi state, uniting the factionalized Arabs of Iraq in common cause. Iran and Turkey with the support of several greater powers will aid the Iraqi state re-establish its integrity. The Kurds will be encircled, supplies cut and any Americans reminiscing about no-fly zones will be told to shut tf up.
Nonetheless, thanks for this post. It reminds us of one of the main reasons Iraqi oil production is unlikely to reach half of SS's anticipated total: ongoing domestic strife. And by the time this mess is sorted, the reasons for permanently limiting annual production will be clear enough to all oil exporters.
Thanks for your comments on my analysis, although it is likely more informed than you are in a position to measure. The Israeli analogy is reasonable so long as it only applies to their shared intention to create a home for themselves in volatile region. I am not aware of the backround behind your religious comments, although I do not pay attention to conspiracy theorists and fundamentalists.
Your tone in our own "analysis" suggests you could be including your personally desired outcomes with your observations. An unsound analysis would be to imagine other middle powers in the region to encircle Kurdish-Iraq when they have an economic interest there, something more important than their emotional concerns or nationalism, especially with the EU interested in their natural gas possibly more than their oil. Turkey is already cooperating tremendously with the KRG, likely more than with the Iraqi Central Government. For these same reasons the EU would like to construct a pipeline from Iran to Europe: economics are more important.
Just because people hate something, or dislike something, does not mean they have the will power to do anything about it, as is with many people--an observation generalizable to countries as well. This is why Turkey and Iran will not step in and involve themselves. Observing that countries do not want to see something happen, is not evidence they will do anything to stop it, even if they say otherwise. If we want to know what a country will do, let's look at their economic might, military capability, potential losses and gains, interests and their relative value, and then estimate their actions. Although leaders can inject irrational emotion early on in a escalating diplomatic dispute, as conflict nears people tend to sharpen their focus and become pragmatic, calculating their gains and losses more carefully. For these reasons, Turkey and Iran will not involve themselves in Kurdish and Arab Iraqi affairs. And the U.S. is leaving, so we can imagine what the outcome will be.
I just spoke with a reporter who was in Kurdish-Iraq last week. One KRG representative said to him, "We have everything except a seat at the UN - and we can live without that!" Kurdistan may already exists even if we do not recognize it, much like Taiwan from the view of China.
I offered my comments as partially informed speculation, not analysis. And that is how I view your post. If you can provide some evidence that your speculation is "more informed" than I am "in a position to measure", then please do so.
Do you suggest that Europe will stand behind Kurdistan when the latter decides to stop sharing rent payments with Baghdad? Why would this even matter? Does anyone care what Brussels thinks?
Ignoring for the moment the likely policies of the recently regionally empowered Iran and those of the conflicted elites of Turkey, where does China stand? What about India? Russia? Do the state apparati of these UN members contain influential defenders of Kurdistan? Or do their interests lie more closely with those of Iran with respect to Iraq? I speculate that they do, and that this is important and relevant.
As for "personally desired outcomes", mine have nothing to do with any of these issues. Although, on a slightly related question, I would be happy to see pluralist liberal democracy emerge in this part of the world, including in Israelestine.
You wrote" Do you suggest that Europe will stand behind Kurdistan when the latter decides to stop sharing rent payments with Baghdad? Why would this even matter? Does anyone care what Brussels thinks?"
I do not think you read the article closely. Europe would because they may prioritize natural gas import sources more than idealism in the Middle East: as do all Great Powers. Great Powers--EU, U.S., Russia, etc.,--care more about economic outcomes than ideological ones. Liberal democracy comes after development, not before. Thus the world will import Kurdish goods to assist their economic development regardless of their political arrangements. Until recently, the U.S. even allowed American companies to trade with North Korea. The world cares more about economics than politics. Check your history.
Secondly, if the KRG stops sharing money with the Central Government, no one will do anything about it once the U.S. leaves, not Europe, not Turkey, not Iran, and not the U.S. Why? The nature of man to be risk averse.
Who is "anyone" in your sentence "Does anyone care what Brussels thinks?" Turkey cares deeply what Europe thinks since Turkey wants badly to be a member to the EU. Turkey will likely follow Europe's pressure. And the U.S. won't even be in Iraq soon, so their opinions on Iraq soon won't be heard.
I would never suggest that economics was anything more than politics.
The people who "will do [something] about it" are the Iraqi arabs, Sunni and Shiite. No one will intervene, except to support the central government as it acts to maintain the flow of revenue.
But if as you postulate the nature of man is to be risk averse, I don't suppose the Kurds will dare to declare economic independence.
In terms of risk averse, I should have qualified. It depends on one's cost-benefit analysis. In regards to your view of Kurdish intentions, dispelling that is easy: interview a Kurdish person. Time will tell.
From everything I've heard, the Kurds do have a very strong sense of their own nationality and don't identify at all strongly with Iraq. Their leaders are cagey enough to realize that declaring themselves an independent nation at this point would be unwise for a number of reasons, not the least of which is that it might prompt Turkey to invade (a possibility I don't think we can yet rule out, in spite of your optimistic views on this front).
I actually think that the area now occupied by Kurds does have a pretty interesting religious background (but that would get me into discussions of ancient Hurrians and Mitanni...), but you don't need religion if you've got oil.
kurdish culture in Iraq is far from monolithic.. Eastern kurds around the Halabaja for instance are surprisingly fundamental in there belief system compared with the metropolitan city of Erbil. Honor killing of teenage girls is not an unheard of practice. Also the Kurds themselves are divided politically, quite often expressed violently
I hope it will not be, but I suspect Iraq/ Kurdistan without US military assistance will be like Yugoslavia without Tito in charge.
The Northern pipelines are still being sabotaged on a regular basis. Kirkuk is still a potential flashpoint of ethnic and nationalist violence.
Deep lying issues going back many decades have been bottled up. They aren't going to go away for generations.
Decades? Feuds in the Middle East go back centuries!
Landlocked.
Hear that folks? Peak Oil has been POSTPONED. You can all go back to happy motoring and stop your doomster hand-wringing, at least for another decade or two. Out with Kunstler, in with Friedman.
"Significantly closer to 100mbd". I assume the author is discounting declines in existing fields. As far as being better informed or having more knowledge, anything that doesn't exist today is nothing more than speculation and/or wishful thinking. Absolutely no one knows the future hence the age old interest in fortune tellers, glass balls, astrology, numerology and dozens of other "forecasts". I fully understand the driving need to attain a sense of security in extremely uncertain times but lets not mistake the search for security for anything other than what it is. Long ago, I learned facing my fears was much more helpful than creating realities to make myself feel better.
Not really, not at all - as an Asia specialist perhaps it would be wise to check facts rather than draw specious conclusions, I note without any references.
The Kurds like everyone outside of Arabia have been subjugated since their capitulation.
Why don't you mention that they are not Muslims at all, they pretend to minimise the killings, rapes and forced conversions that the Arabs inflict on them.
It is a proper analogy, and I have not only checked, but exhausted my facts. The Kurds were occupied by Saddam, and then liberated, and then forced to stay together. The Kurds were forced to learn Arabic. Koreans were forced to learn Japanese. Both had a foreign culture imposed on them. Both had a foreign ruler (Saddam) dictate their future. Perhaps you are beginning with the wrong perspective by giving merit to the state in a region where ethnic nation and religion are more important. The Kurds are not Arab, and never intended to have anything to do with Arabic.
In regards to your comment about the conditions at which the KRG developed, what is your point? Most nations rise at a time of weakness, with the exception of the U.S. and modern China. Your comment doesn't change the outcome.
The whole idea of nation-states is a creation of the West.
A Kurdish perspective on the whole thing would be that they fought a civil war against Saddam until 1991, when they brought him to a standstill. US command of the airspace helped, but basically on the ground they gained de-facto autonomy in 1991.
In GWII we didn't have to bother much with Kurdish areas; we left those to the Kurds, so Kurdistan wasn't much affected. They did push South as we were pushing North, however, and I distinctly recall reading about the Kurdish armies overrunning major Iraqi arms depots, and being allowed discretion as to keeping what they had uses for, against the objections of Turkey (who had, at the last moment, denied us a Northern point of entry anyway).
After the war they were left to their own devices, and managed to run things well again. Erbil remained prosperous and peaceful (though very well armed) from the end of GWII, right through the bad days of the occupation.
From a Kurdish perspective, they have been a free country for close to 20 years now, which is long enough for most people there to know no other condition. I can't imagine them accepting any attempt by Baghdad to claim rights to their oil reserves, and I can't imagine Baghdad getting very far in trying to take them.
Kurds really don't have much in oil reserves, and Kirkuk which is actually an ethnically divided city.
I don't see the Kurds as an oil power. Ironically they mainly fuel Turkey.
The Kirkuk field produces ~.4 Gb/year(1 mbpd) but the reserve is only 8.5 Gb accourding to wikipedia.
2-3 Tcf isn't a lot of natural gas either.
The East Baghdad oil field is as big as Kirkuk, the rest of the 100 Gb in oil reserves is in south Iraq.
Krikuk’s present status is a “special zone” in Iraq. The Kirkuk population—mostly Kurdish—were not permitted to participate in Iraq’s last election cycle. The Central Government fears the change in share of votes due to their participation.
The KRG proposed a referendum--commensurate with the wishes of the Kikruk population--to vote to adopt Kirkuk as a part of KRG territory. The central government refused. Thus, its only a matter of time before the KRG absorbs Kirkuk.
Hmmmm ... hope rest of your analysis is not as faulty as this one. Sunny awakening (a.k.a. protection money we pay sunni tribal leaders) was the main cause of pacification.
I am well aware of the factors behind success in 2007 and 2008. If I wrote everything out in detail, it would be too long and off topic from the main point. Thank you for you comment though.
An Interesting Article
“The KRG simultaneously took control of their oil fields and signed Exploration and Production (E&P) contracts with Hunt Oil, Det Norske Oljeselskap AS, SK Energy, and countless other oil companies to explore, develop, produce, and export oil without intending to share profits with the Iraqi Central Government”.
I think “countless” is a slight exaggeration.
“Once the Iraqi Central Government is unable to enforce their legal authority over the KRG after the U.S. exits Iraq, the KRG will likely encourage more wildcat drilling, draw soil samples, and collect the data necessary to potentially transition reserve classifications from possible and probable to proved reserves (U.S. Reserve Classification System). The Iraqi-Kurds will then both claim all, or most, of the potential oil profits and potentially increase their commercially recoverable proved reserves estimates”.
Just gotta write it – “I can tell that you’re not an Explorationist.”. See below.
“The Iraqi-Kurds are securing support from the international business community, tapping into economic integration, organizing a loyal and professional military, and developing close ties with liberal nations that prioritize development over ideology”.
This is the Awl Bidness; Money Talks, Ideology Gets Ignored.
*****
Kurdistan Regional Government’s (KRG) production is presently ~200,000 BOPD of Iraq’s 2.3 MM BOPD. KRG’s target is 1,000,000 BOPD by 2012. I don’t think that they will come close, but they will get approximately half way there. 500,000 to 600,000 BOPD is a lot of oil.
In comparison, Sudan produces 466,000 BOPD and exports 388,000 BOPD, Oman produces 715,000 BOPD and exports 632,000 BOPD, Egypt produces 665,000 BOPD and imports 10,000 BOPD, Viet Nan produces 350,000 BOPD and exports 92,000 BOPD … Kurdistan would be a middle ranked exporter. I wouldn’t mind an exploration or development project there.
I notice that Canadian juniors have been very successful in Kurdistan. It has become a core area for Canadian international exploration. The structures in the Kurdistan part of the Zagros Fold Belt are “very interesting” and very large. (Even Exxon couldn’t miss. Oh, on second thoughts … wot about Hungary, he asked? As for Shell, horizontal drilling in Oman, anybody? Oh, thanks WestTexas.).
Addax Petroleum sold to Sinopec in September 2009 for $7.2 B; Sinopec thus obtained control of Taq Taq oil field and potential production of 180,000 BOPD.
Heritage Oil Corp. took over their partner Genel Energy International of Turkey, September 2009, to develop Miran giant oil field PSC, containing potentially at least 2.3 to 4.6 B bbls OOIP gross potential resources.
Niko Resources Canada + Vast Resources + Groundstar Exploration at Oura Dagh PSC, on trend with Miran.
Western Zagros + Talisman at Kurdamir and Sarquala PSC’s, containing 4.5 to 9.2 B bbls OOIP gross potential resources.
Longford Energy Ltd + Genel in Chia Sukh PSC. Expecting to spend up to $100 MM on 250 km 2-D seismic and 2 wells.
Plus Gulf Keystone Petroleum (LSX) + MOL at Sheikh Adi and Ber Bahr PSC’s.
KRG is determined to control Kirkuk Governorate through the ballot box and to make the city of Kirkuk the capital of Kurdistan; the DPAK received 59% of the vote in the last Iraqi election in Kirkuk Governorate (and 91 to 95% of the vote elsewhere in Kurdistan).
Three other disputed Governorates, Siniar, Shikhan, Makhur, have smaller Kurd populations (and lower oil potential) and are of lesser importance to KRG.
On the other hand, Irbil, Kirkuk and Mosul in adjacent Nineveh Governorate are still targets for Al Qaeda. (Nineveh Governatorate has a 38% Kurdish population and is probably not an immediate KRG political target to control). However, no international oil company has yet pulled out of Kurdistan because of terrorist activities.
*****
The international Majors are focused on PSC’s involving Super Giant and Giant oil fields in southern and southeastern Shia Iraq, and much less on Kurdistan. I hope they keep it that way.
*****
As of last week, “I was informed that” revenues from Kurdish oil production was still being withheld from the producers, not by the Iraqis in Baghdad, but by the Kurdish government in Erbil, the provisional capital. This is a source of “great concern” to the producers and their investors.
*****
Iraqi production presently 2.4 MM BOPD
Consumption 0.6 MM BOPD
Exports 1.8 MM BOPD
Export capacity presently 2.3 MM BOPD, 1.97 MM BOPD through Basrta Termianl and 0.3 MM BOPD through Kirkuk – Ceyhan
Spare export capacity 0.4 MM BOPD, probably mostly at Basra
Need to reconstruct Kirkuk – Ceyhan oil export pipeline, designed capacity 1.5 MM BOPD, present useable capacity 0.3 MM BOPD. A Russian group associated with Kukoil got a contract in 2007, but pulled out PDQ.
Kirkuk – Banias 0.3 MM BOPD pipeline planned reconstruction approved by both Iraq and Syria but not yet started. Pipeline is presently closed.
Need to reconstruct 1.5 MM BOPD pipeline capacity.
Need for an oil export pipeline across northern Kurdistan into Turkey to link up with the existing Iraq – Turkey Export Pipeline.
1.65 MM BOPD Basra –Saudi Pipeline is closed and likely to remain that way.
*****
With regards to what the Americans or Europeans will or will not do, it’s not their oil, its’ the Kurds’. And if they don’t want you around, you won’t get in – end of story. Besides, the Chinese would probably offer a better deal; it’s not stratigraphically deep enough for the Vietnamese to be interested, and it’s onshore, so the Brazilians don’t give a damn.
Your comments are fantastic. How can I contact you?
I'm not sure how the system works. I do not want to give my e-mail address out on the web.
GAIL, PROF GOOSE, HELP!
Harry,
You can e-mail me and I will put you in touch with him. My spam protected address is in my profile.
Harry,
You can contact me either directly at YPEKorea@Gmail.com (My YPE Email) or through Robert Rapier.
I would like to publish a more thorough article in a journal, and so if you could direct me to some sources, either on the internet, or via interview, it would be much appreciated.
Sincerely, Kevin
Harry,
I am just following up. I will not broadcast your identity if you email me. I'd like to share future articles with you in advance, particularly on Iraq.
Your depth of knowledge is remarkable. You can find my spam-protected email on my TOD page.
Sincerely, Kevin
Harry Flashman, your comments are very convincing and interesting.
Though it is intended as a general comment to this very brilliant essay by Kevin Kane, I would like to focus on that particular part:
" As of last week, “I was informed that” revenues from Kurdish oil production was still being withheld from the producers, not by the Iraqis in Baghdad, but by the Kurdish government in Erbil, the provisional capital. This is a source of “great concern” to the producers and their investors.
As part of a Danish investor blog following DNO and other of the mentioned companies very closely, this is obviously also to our "great concern" as this being first time mentioned anywhere.
Would you be so kind to specify if you mean that KRG out of the 17% indirect payment from Baghdad for oil withholds payment to the contractors or do you mean that an alternative payment solution has been found and that the money from this is not being passed on.
Any other comments to this payment status , which is of course also of general interest, would be most appreciated.
I'm not sure what is going on in KRG at this moment. I was told this by a "sophisticated investor" (according to TSX criteria) who has placed serious funds into projects into KRG. I will be talking to him again later this week to get an update.
Speaking as an explorationist, (one of those Certified Loony P.Geol.'s with lots of Prismacolour coloured pencils in a row of jam jars AND lots of maps) I do like KRG. I was told to "come back in 4 months". I'm pointing in another direction in the meantime and between time. It is so nice to be looking at two sedimentary basins which are not on any USGS World Petroleum or Total Petroleum System maps, a Rainbow-Zama somewhat lookalike and a rift basin with oil shows :)
Thank you for your kind comments.
You work for DNO, or for an investor blog? What is the blog address?
Kevin
Dear Kevin,
One again thank you for your very interesting article.
I don´t work for DNO, however I do own sharecapital in the company, however quite small.
I have for two years closely followed DNO and thus the very interesting political situation in
Iraq and Kurdistan, which greatly affect the value of the DNO shares.
I follow some Norwegian blogs but the main discussions as far as I am concerned take place on a Danish investor blog called Euroinvestor, which have a specific platform for Norwegian shares ( http://www.euroinvestor.dk/debat/debat.aspx?listno=82) DNO is the most discussed and we are a lot of committed people who daily find numerous articles from all thinkable media.
It was a pleasure to get aquainted with the high standard of the Oil Drum and the people writing here.
Let me right now pass on the suggestion to read a fresh announcement on the KRG website which is sofar only found in the arabic part :
17:47:37 17 Jan. 2010
Permission from the Kurdistan Regional Government on the oil contracts concluded in the region and revenues
In a statement, Mr. Prime Minister Nuri al-Maliki to the media day on Sunday 3/1/2010, which came after the deliberations of sovereignty with the Prime Minister of the Kurdistan Region, Dr. Barham Salih, who said sovereignty that "the time has come to open a file the oil contracts with Kurdistan region and resolution flexibility, realism reservation rights and interests in these contracts. " He stressed that "oil revenues will be part of Iraq's imports which are distributed equally to all Iraqis," and further to this statement, we believe it to be clarified as follows:
1 - Once again we stress our stated position that we believe that the proceeds of oil in the Kurdistan region will be all the Iraqi people to be distributed with the rest of Iraq's oil revenues fairly through legislation and law distribution of the proceeds as stated in the Constitution, so we concur with that stated by Mr. President Minister.
2 - It is noted that the Prime Minister to open the file confirms oil contracts with the region and resolution. That the KRG is ready to engage in serious dialogue about this topic as well as we are fully prepared for the benefit of the Iraqi people to resume the export of crude oil from fields in the region and in quantities not less than (100) thousand barrels / day and work to increase as soon as possible to more than (200) thousand barrels / day in the course of this year.
3 - that the status quo imposed on us, although there are different points of view, dealing with one of the points of disagreement on the proportion of profit allocated to the contractors that Nrtoi immediately resume the export process to allocate a certain percentage of oil producer and exporter of contractors involved in the region to cover actual expenses, and this creates appropriate and positive atmosphere to begin at the earliest opportunity to discuss other outstanding issues, particularly to make way for all to understand and absorb part of the contracts by the province and in particular the issue of how to allocate the amount of profit for the contractors, as compared to the acceptable practice in the international oil industry in the areas of exploration and production, and to indicate the seriousness of our readiness of the subject we decided to publish the contracts with Company (DNO) And Company (GENEL) To facilitate discussion and to show transparency and the economic feasibility of such contracts for all.
4 - I do not mind that we have received Sumo (SOMO) of oil produced by companies operating in the region, to be deposited in SOMO (SOMO) the proportion of revenue derived from oil region either in the calculation of the province to be transferred to the companies involved or give it a SOMO (SOMO ) directly to them that does not exceed the limits of the amounts invested by them and according to the schedule set forth below, and the rest of the proceeds deposited in the calculation of the federal government.
5 - Companies today are concerned (DNO) and Norwegian (GENEL) Turkish, and we are ready to form a Finance Committee comprising representatives from the Federal Ministry of Finance and Ministry of Finance of the province, as well as representatives of the companies involved to make sure of the actual expenditure invested by them and auditing them.
6 - In order to make things easier, we consider it necessary to form another committee comprising representatives of the Ministry of Natural Resources and SOMO (SOMO) and each of these two companies (DNO) and (GENEL) to make sure of the quantities of oil produced and exported by them, as well as make sure of the returns is aggregated by Sumo (SOMO) on sales of oil exported by these companies in order to calculate the benefits listed above are accurate and fair.
7 -- Table And Schemes Altodhip below show the following points:
A - despite the fact that the primary production begins hundred thousand barrels of oil a day, but production will increase gradually and continuously to one million barrels per day during the next four years.
B - the expected oil revenues received by the federal government of the oil produced in the region during the next five years, beginning in (2010) to the (2014) and, respectively, would be (2.75) billion, (8.23) billion, (12.45), (18.27) billion dollars (25.62 billion) while total expenditure will be the actual contractors during the same period a year are respectively (1.4) billion, (0.9) billion, (1.05) billion, (1.2) billion, (1.4) billion dollars, by the federal government (Ministry of Finance) will receive net proceeds of the companies operating in the region during the next five years and by more than (67) billion dollars and the amount retrieved at least (6) billion dollars to companies or contractors in Kklv.
T - In 2015 and beyond will be an annual total revenues of more than (27) billion dollars and a cost of no more than (1.5) billion dollars annually.
That the proceeds from oil production in the region will lead to the lifting of the general economic level and increase the welfare of citizens in Iraq, and because of the Territory's participation in the oil sector and all this in the interest of all the components of the Iraqi people, so we call upon the federal government to serious dialogue to reach a comprehensive agreement in the interest of Iraq as a whole.
D. Ashti Hawrami
And natural resources minister / Government of the Kurdistan Region - Iraq
17/01/2010
Thanks, I will pass this along
Intuition suggests that unless the KRG acquires an export route under their control (Kirkuk) this (freezes on exports) could become a reoccurring event (like Russia with the Ukraine or Belarus), particularly after the U.S. exist Iraq.
Politicians in situations like this one are almost required to make public statements not to express their sincere preferences, but instead to gain support temporarily for a shrewder goal within the short term horizon. Their underlying interests however may not change, and so I pay little attention to the words of a leader.
Harry, I am impressed with the diversity and depth of your knowledge. If you don't mind, I'd like to email you my pre-published articles in the future for your comments.
Can you share with me some of your news sources, journals, and articles you have collected. I posted an email below you can contact me with.
All of you have been a great help.
*
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Thanks for the article. It poses a series of interesting 'what ifs'.
I agree with you that the Kurdish Regional Government has their sights set on Kirkuk. Based on demographics, it seems likely that Kirkuk's residents would happily join the Kurdish region; what remains to be seen is how strenuously the central government opposes that happening, and how successful they are in preventing it.
Supposing that the Kurds do have plenty of oil and gas in the existing Kurdish region, Kirkuk, and other majority-Kurdish portions of Nineveh Province, and they are determined to control those oil and gas fields, through either de facto or de juris independence. Their problem would then be that they are landlocked, with all the neighboring states, Turkey, Iran, and Iraq, opposed to their independence. Who would be willing to cooperate with them to get the oil out?
Iran is unlikely, even though it is not an Arab state, because it will not want to encourage its own Kurdish minority to seek independence, and, as would-be leader of Shia Islam, it will not want to alienate their co-religionists in Iraq, who make up a majority of the Arab population in that country.
I agree that Turkey seems likely. They will have the same reluctance about encouraging Kurdish separatism in southeastern Turkey, but could be tempted to make a deal with the Kurds if the Iraqi Kurds agree not to cease supporting Kurdish separatism in Turkey. Relations between Turkey and Iraq's Arabs are already tense because of another resource: water. Turkey controls the headwaters of the Tigris and Euphrates rivers, and Iraq resents their control over the country's lifeline. As climate change progresses, populations grow, and freshwater sources become scarcer, I can't see this getting easily resolved. Turkey's control of Mesopotamia's chief water sources creates an inherent tension with Iraq, but also gives Turkey considerable leverage. Iraqi Kurdistan, on the other hand, is watered mostly by rivers originating in Iran's Zagros Mountains; struggles over water will not be as fierce between Turkey and Kurdistan.
I also agree that the EU countries would be very interested in accessing large quantities of non-Russian oil and gas. Being the transit state between Europe and Kurdistan could prove financially lucrative for Turkey, and could help advance its ambition of joining the EU.
To the point about Kurdistan never having been an independent state, I would point to Europe. Europe now has dozens of nation-states which were not independent countries at the beginning of the 20th Century – Estonia, Latvia, Ireland, Belarus, Slovakia, Slovenia, Poland, etc. Some of them hadn't been independent in centuries, if ever. Some gained independence, then lost it, only to regain it later (Lithuania, Latvia, Estonia, Serbia, etc.) That process isn't over in Europe; I wouldn't be surprised if Europe produces still more nation-states in the decades to come. The Middle East, like most of Africa, is just at the beginning of nation-state formation, which has been interrupted by both Ottoman and European imperialism. International boundaries in these regions, which are mostly inherited from European colonial boundaries, don't correspond to the religious and ethnic geography of the region. Kurdistan may only be the beginning; I think we will see lots more state fractures, fissures, and mergers in our lifetimes across the Middle East and Africa.
Oops; what I meant to write was "if the Iraqi Kurds agree to cease supporting Kurdish separatism in Turkey."
Rose,
Comments like yours full of information are enjoyable to read. Feel free to contact me. Do you publish work as well?
Sincerely, Kevin
The President of Iraqi Kurdistan, Massoud Barzani, has already set the tone by asserting that, if the Kurds do not obtain satisfaction, 'all options remain open, including civil war.'
Last sentence in article.
http://business24-7.ae/Articles/2010/1/Pages/16012010/01172010_aa08727ef...
Alan
Mr. Kane:
Thank you for this interesting article.
Permit me to share some of my own comments and views based on my background in Iraq and the Kurdistan region.
First, the issue identified above the break on whether Iraq can increase its production to 12 million BOPD is quite well addressed in another TOD post (and the comments that follow it) at http://www.theoildrum.com/node/6101#comments_top. It is pointed out in the comments that this potential production rate takes no account of Kurdistan region fields other than Kirkuk.
So the question of what Kurdistan can produce, and whether and how it would complement Iraqi total production, is interesting and relevant in the analysis of what impact Iraq may have on global production rates.
The oil production potential of the Kurdistan Region is indeed significant. The estimates that you quoted ('250,000 b/d by the middle of this year and up to one mb/d before 2012') are from Kurdistan Regional Government (KRG) Minister of Energy and Natural Resources, Dr. Ashti Hawrami. Attaining those targets, however, is subject to both political and exploration challenges.
Let me begin with the exploration challenge. The Kurdistan Region of the Republic of Iraq is undoubtedly one of the world's least-explored areas that has demonstrated petroleum potential. The exploration in this region was largely ignored during the Saddam Hussein regime. Consequently, there are large blocks of unexplored acreage that have been awarded to international oil companies (IOCs) by the KRG. DNO has made a significant discovery at Tawke, and the previously discovered Taqtaq field is now being developed by Addax (now controlled by Sinopec) and Genel Enerji. Dana Gas is developing and producing gas from Chemchemal and Khor Mor fields.
If the political and related export access issues are resolved, then significant production may be achieved by the end of this year, but one million BOPD by 2012 is going to require some exploration success and aggressive development. While there is little doubt that there will be some exploration success, particularly when some of the blocks are on undrilled structures along the same trend as the supergiant Kirkuk field, it remains quite speculative to suggest that Kurdistan Region will be producing 1 million BOPD in 2012.
The political battle for control of Iraq's petroleum industry remains the wild card in the estimates of Kurdistan's contribution to Iraq's total production. The KRG's claim of the right to award the petroleum rights in Kurdistan region, and the opposite view of the Iraq Ministry of Oil (MoO) are grounded on differing interpretations of Iraq's constitution. It is outside of the scope of this discussion to go into an explanation of these differing views. The important question is, will this issue be solved so that Kurdistan Region production can be exported?
I take the view that it will. The KRG continues to declare that it is their intent to share with all Iraqis the revenue associated with oil production in the Kurdistan region, on the same demographic basis that the Iraq constitution requires for production revenue from 'present fields' elsewhere in Iraq. So, if there is more production, there is more revenue to share among all Iraqis.
For so long as the MoO prevents exports from Kurdistan Region, Iraqis will collect less oil revenue. At some point in time, the good sense of having more money rather than less will prevail in this political battle for control. I think that a recent change at the top of the KRG, and the upcoming federal election that is likely to lead to a different coalition government, may signal a more conciliatory mood.
With the planned significant increase in the production levels in Iraq following the two bid rounds conducted by MoO in Baghdad, all Iraqis (Kurds included) stand to see increased petroleum revenue from the fields outside of Kurdistan. Kurdistan Region's population entitles it to 17% of the distributed oil revenue from 'present fields' in all parts of Iraq.
Mr. Kane, your argument is that the Kurdistan Region will have a financial incentive to declare itself a sovereign state because it would then retain all the production revenue from its region, and therefore it is likely to do so. I disagree with this for a number of reasons.
First, for so long as Baghdad complies with its constitutionally imposed obligation to share production revenue from all of Iraq's present fields, the Kurdistan Region will actually receive more oil revenue by remaining part of a federal Iraq than it would by 'going it alone'. Kurdistan Region production would need to exceed 17% of total Iraqi production before it would find an economic benefit to sovereignty. With the recent MoO bid rounds resulting in IOC commitments to increase capacity to 12 million BOPD in seven years, it seems highly speculative to suggest that Kurdistan would ever exceed 17% of that number (which would be over 2 million BOPD). Admittedly, there remains doubt about whether Iraq will actually produce at such a high level.
Second, the powers granted to the Kurdistan Region (and other regions and governorates in Iraq) are quite generous. The Iraqi constitution creates a federal state where power is highly decentralized to the regions and governorates. Although the behavior of the federal government in Baghdad may not reflect this yet, the regions and governorates are entitled to a great deal of control. It is difficult to see how much more 'control' the KRG would have as an independent state compared to its rights as a region in a federal Iraq.
Third, the KRG would be under a great deal of pressure from its surrounding states if it sought sovereignty. Turkey, Iran and Syria have ethnically Kurdish citizens, some more restive than others, and they would be concerned about the separatist tendencies in their own states that might be inspired by a sovereign Kurdistan. There is a great deal of Turkish investment into Kurdistan Region, and KRG and Turkey have been building good relations with each other-- but that has been on a very clear understanding that Turkey will only deal with Kurdistan Region as a region of a federal Iraq, with the federal government in Baghdad responsible for foreign relations.
I will concede that Iraq is a place where anything could happen in the coming months and years. However, I disagree with the suggestion that Kurdistan Region would find it in its best interest, economically or politically, to become a sovereign state. It remains my hope that Iraq remains a federal state with the Kurdistan Region as part of it. My hope is sustained by an Iraqi constitution that was designed to benefit all Iraqis, and my faith that good sense will prevail among Iraq's politicians so that this design will work in the long term.
Mr. Park,
Thank you for you comments. I have talked with Stewart briefly about Iraq via his blog and have read his article that you have referenced.
I will reply to your analysis.
"First, for so long as Baghdad complies with its constitutionally imposed obligation to share production revenue from all of Iraq's present fields, the Kurdistan Region will actually receive more oil revenue by remaining part of a federal Iraq than it would by 'going it alone' (which would be over 2 million BOPD). Admittedly, there remains doubt about whether Iraq will actually produce at such a high level."
My reply: There is an assumption here that the Kurds prioritize autonomy over their own oil with the economic gains from being unified with Iraq. I read your comment on Stewart's post on Iraq, and so it is clear you certainly are an Iraq expert. If I write again on Iraq, I definitely would like to contact you in advance.
Based on my discussions with Kurdish sources, off the record, they want little to do with Iraq in the long run, and are just counting days until the U.S. leaves. Although I did suggest that the Kurds will seek autonomy because of a financial benefit, I also mentioned that there is an ethnic issue as well. Based on my interaction, the Kurds do not feel as though they are Iraqi, and do not want to be!
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"Second, the powers granted to the Kurdistan Region (and other regions and governorates in Iraq) are quite generous. The Iraqi constitution creates a federal state where power is highly decentralized to the regions and governorates. Although the behavior of the federal government in Baghdad may not reflect this yet, the regions and governorates are entitled to a great deal of control. It is difficult to see how much more 'control' the KRG would have as an independent state compared to its rights as a region in a federal Iraq."
My reply: I can agree with this to some extent. However, from a Kurdish point of view, the KRG will have control of their territory no matter what the Central Government would like. I read early today that some KRG leaders have suggested as late as last week that this issue of oil profit sharing could lead to civil war if it is not resolved. I think you could be making too light of Kurdish-Iraqi differences. Benefits depend on what a person considers an interest worth bargaining, something your law background likely makes all to familiar in negotiations. The Kurds see personal autonomy as a high-value interest likely worth some financial loss.
What is more, leaders often say nice things because they have to, not because they believe it, including KRG leaders in regards to working with the Iraqi Central Government. I will post up the "civil war" quote tomorrow when I return to my office and retrieve the printed article that I now for some reason cannot find on Google.
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"Third, the KRG would be under a great deal of pressure from its surrounding states if it sought sovereignty. Turkey, Iran and Syria have ethnically Kurdish citizens, some more restive than others, and they would be concerned about the separatist tendencies in their own states that might be inspired by a sovereign Kurdistan. There is a great deal of Turkish investment into Kurdistan Region, and KRG and Turkey have been building good relations with each other-- but that has been on a very clear understanding that Turkey will only deal with Kurdistan Region as a region of a federal Iraq, with the federal government in Baghdad responsible for foreign relations."
My reply: I understand that Turkey, Iran, and Syria will be under pressure and do not want a sovereign Kurdish-Iraq. A real politik leader would say, "So what?" A calculating leader would probably argue "Why should the KRG leaders care what discomforts Turkey, Iran, or Syria unless discomfort results in directly tangible losses." Otherwise, who cares! I do not believe that leaders adjust their ambitions to consider the feelings of other leaders or anxieties of their populations if they know these fears will not influence the outcome. I mentioned this in my article. Many leaders in history have not taken into account what will anger a nation as something to consider unless this anger actually amounts to action. On the other hand, I am assuming they are realists only interested in tangible gains. Perhaps KRG leaders are liberal internationalists, and so perhaps they believe there is tangible value to keeping people happy in other countries. Israel is not one of those countries that plans its foreign policy around what angers other countries, and they seem to survive fine, however unpopular.
Regarding your statement that the Turkish government will only deal with the Central Government, I am inclined to believe its a bluff, and once the EU takes an interest in Kurdish gas, they will take it whether they like it or not. I estimate what a country will do based on their available physical resources and tangible cost-benefit analysis, as well as their perspective and interests that go into that formula. Many countries do not set foreign policy based on what others like or dislike, but instead on what they need and do not need, and what others will do, or not do. Turkey will take oil from their most sworn enemy, just like the US does from Venezuela. I do not believe the impact of an action on a nation's emotions or concerns should deter a leader from taking that action. Thus, I expect that KRG leaders will think the same way.
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"I will concede that Iraq is a place where anything could happen in the coming months and years. However, I disagree with the suggestion that Kurdistan Region would find it in its best interest, economically or politically, to become a sovereign state. It remains my hope that Iraq remains a federal state with the Kurdistan Region as part of it. My hope is sustained by an Iraqi constitution that was designed to benefit all Iraqis, and my faith that good sense will prevail among Iraq's politicians so that this design will work in the long term."
My reply: You mentioned that "it remains your hope," which inclines me to believe it is possible your personal desires could be included in your analysis. I respect your analysis. It is very sound. I however likely see the nature of people and international relations through a different lens. Perhaps I should seek more idealism.
Thank you for your comment. It will be helpful to me when I decide to write an official journal publication on this topic.
Mr. Kane:
As a Canadian born in Quebec, I have a special perspective on federal constitutions and sovereignty. Canada has managed to hold together as a federal state for 143 years despite having the racial, language and cultural challenges of accommodating English, French and First Nations citizens, and the many immigrants that have arrived since confederation. This has been done through a sensible constitution that seeks to give provincial autonomy where it is needed, and central control where it is necessary; and political leaders who are prepared to act in the best interests of their citizens. I see Iraq as being similar in many ways. When I meet Iraqis who rail at the problems they face in the new Iraq, I reply, "welcome to federalism!"
So, yes, my view about Iraq holding together is coloured by some personal views about how the Iraq and the world should work, but it is not lacking for precedent. I do concede that the religious and political pressures in Iraq are immense, including a history of genocide, so the analogy may not hold.
I would be pleased to share my views about Iraq and its petroleum regime, particularly if you are planning on publishing. I see that you are based in Korea. I will be in Seoul for a week in late February, if you are interested in meeting.
Here is the quote:
In a response to resolving issues surrounding the federal oil law, Massoud Barzani asserted that "all options remain open, including civil war."
Source: Emirates Business - "Rapid Rise in Iraqi Oil Output Could Undermine Market"
In line with my comment about not paying attention to the words of a leader, perhaps its a bluff or a stick intended to draw concessions from the Central Government. On the other hand, it could be a statement made at a moment of frustration, revealing a more frank feeling towards the rest of Iraq.
A number of news articles today suggest that Kurdistan Regional Government is taking a further step which may lead to the resolution of the dispute:
Iraqi Kurds accept most government conditions for exporting their oil
By Fawzi al-Hindawi
Azzaman, January 19, 2010
Iraqi Kurds say they would not mind if royalties of oil exports originating in their region are collected by the central government in Baghdad.
However, they said they would only want the central government to use part of the proceeds to pay the foreign contractors who developed their fields.
The concession may ease tension over sharing of oil royalties and allow Iraqi Kurds to use the national pipeline network for exports.
“The (Kurdish) regional government is prepared to enter in a serious dialogue on this issue. We are thoroughly prepared, and for the interests of the Iraqi people, to resume exports of not less than 100,000 barrels of oil a day,” said Ashti Horami, the Kurdish regional government’s minister of natural resources
He said the volume will be increased up to 200,000 barrels a day next year.
Central government’s insistence on having total control over all oil revenues in the country had prompted the Kurds to turn off their oil taps.
Horami’s new overtures, analysts say, signal new concessions on the part of the Kurds. In the past they wanted all the money from oil sales originating in their region for themselves.
Horami even asked the oil ministry for the immediate resumption of oil exports from their region, with SOMO, Iraq’s oil export arm collecting all the proceeds.
However, an oil ministry spokesman said issues of oil exports had to be decided by the central government in Baghdad.
The above article misspells the name of the KRG Minister of Energy and Natural Resources, Dr. Ashti Hawrami. It also suggests a more realistic target of 100,000 BOPD for 2010 and 200,000 BOPD for 2011.
In my view, this is a small step by the KRG; it has always made sense that the oil revenues would flow through Baghdad. The issue has been that Baghdad would only give back to the KRG the "Kurdistan share" (17%) of the related petroleum revenue, NOT including the cost recovery and profit share of the IOCs who signed production sharing contracts with the KRG. This is a bigger step for the Iraq Ministry of Oil; but it is sensible, because even the Technical Service Contracts that MoO has recently awarded involve concepts of cost recovery and fees to the IOCs who sign them. It would be inconsistent for MoO to say that Kurdistan producers should not receive cost recovery and profit share under KRG contracts when the MoO's own contracts provide for the same.
So here's hoping that this issue is on its way to resolution.
Mr. Park,
Your legal perspective offers special insight into Iraqi affairs. I hope you publish articles on this topic.
Kevin
I posted that quote on the morning of the 17th on this thread. Just below the Russian spam :-)
Alan