Iraqi oil bottlenecks bigger obstacle than unrest: IEA

PARIS - Agence France-Presse

A picture taken on August 10, 2014 shows a chimney at an oil field in Sheikhan, northeast of the city of Mosul in northern Iraq. AFP Photo

Fighting in Iraq threatens Baghdad’s oil exports less than structural bottlenecks, but an Islamic offensive near the north oil hub of Kirkuk is “worrisome,” the IEA has said.

“The situation on the ground is highly fluid and infrastructure bottlenecks in the south, rather than the humanitarian disaster in the north, may remain the biggest hurdle to Iraq’s ability to deliver the supply growth expected from it,” the International Energy Agency said.

The analysis in its monthly report was written as U.S. air strikes appeared to help Kurdish peshmerga fighters push back an advance by Islamic State (IS) fighters on the crucial Bai Hassan oil field in northern Iraq.

Fighting has forced the country’s biggest refinery at Baiji offline however, and “has also brought the battle to a number of blocks operated by international oil companies - including two run by Exxon,” the IEA noted.

It added that cracks in Kurdish defenses and the evacuation of expatriate staff from northern oil facilities were “worrisome developments.”        

The fighting and sabotage on a pipeline to Turkey has halted exports from the north since March, making shipments of Basrah Light crude from the south the federal government’s sole source of exports.

But “scheduling snags and technical glitches at the loading terminal prevented higher shipments in July ... and these hurdles could yet stand in the way of increased loadings this month,” the report warned.
Iraq is the second-biggest crude producer within the OPEC cartel, and markets have been anticipating increased output from the country.

Meanwhile, Kurds in the north are working to boost their own production, which the government in Baghdad says belongs to the nation as a whole, and which the IEA currently estimates at about 400,000 barrels/day (bpd).

The capacity of a pipeline from Kurdish controlled fields via Turkey is expected to double “to around 300,000 barrels per day shortly - possibly within weeks,” the report said.

Six cargoes of disputed crude oil, some of it transported by truck, have already been loaded, “but only one has been successfully delivered - to Israel,” it noted.         

About one million barrels of such crude is anchored off the US state of Texas, but a legal challenge from the Iraqi government has prevented it from being offloaded.

Finally, the recent Islamist drive in Iraq has allowed the IS to seize two small oil fields in the northwestern Nineveh province, the IEA said.

When added to five others captured in mid-June, output under IS control now totals about 80,000 barrels per day, it estimated.

The IS also holds small fields in the Syrian province of Deir al-Zor, which “allow the militants to secure their own fuel supplies and offer a potential source of revenue via smuggling.”