Iraq excludes Kurds from ambitious 2014 oil output target

LONDON - Reuters

In this Dec. 13, 2009 file photo, Iraqi laborers work at the Rumaila oil refinery, near the city of Basra. AP photo

Iraq aims to ramp up oil production by nearly 45 percent by the end of next year - without any input from its autonomous Kurdistan region - which suggests a lasting compromise in their long-running oil feud may be a way off.

Baghdad's ambitious 4.5 million barrels per day (bpd) target specifically excludes output from the northern Kurdish region, senior Iraqi officials said, and relies on new oil pumped from southern oilfields and higher flows from ones already producing.

Thamir Ghadhban, energy adviser to Iraq's prime minister, said Baghdad had lost confidence in Kurdistan Regional Government (KRG) after it stopped exporting oil through the federal pipeline system.

"The 4.5 million barrels a day is based on the development of the resources within the 15 governorates excluding Kurdistan because of this issue," Ghadhban, a former oil minister of Iraq, said at an energy conference in London on June 18.

KRG says it is owed more than 4 trillion Iraqi dinars, or $3.5 billion, by Baghdad to cover the costs accumulated by oil companies operating there, while the central government rejects those contracts as illegal.

The northern region used to ship crude through a pipeline network controlled by Baghdad, but exports via that channel stopped last December due to the payments row.

"We are not going to start again and make the same mistakes," said Ashti Hawrami, natural resources minister of the KRG.

He confirmed that Kurdish oil is excluded from the 4.5 million bpd target, part of Iraq's blueprint for long-term energy development - launched last week in Baghdad.

Hawrami said the strategy document - first seen by him on June 18 - was "for the rest of Iraq, not northern Iraq".

"I'm afraid we have never been consulted and we do not have any input into this document," he said. "It excludes the Kurdistan region's potential completely."

The dispute between Baghdad and Kurdistan is part of wider disagreements over who controls the world's fifth-largest oil reserves. Iraq says it alone has the exclusive right to export oil and sign deals, but Kurdistan says the constitution allows it to agree contracts and ship oil independently of Baghdad.

Iraqi deputy prime minister Rosh Nuri al-Shawish said talks last week in the Kurdistan regional capital Arbil between the prime ministers of Iraq and Kurdistan had resulted in the formation of a high-level committee to focus on the oil and gas law and revenue-sharing legislation.
 
Triple production in 2017

Reaching the high output level of 4.5 million bpd by the end of 2014 will be a real stretch for OPEC's no. 2 producer, given myriad logistical and infrastructure bottlenecks and the disruption caused by the dispute between Baghdad and Arbil.

After stagnating for decades due to wars and sanctions, Iraq's oil output and exports began to rise in earnest in 2010 after Baghdad secured service contracts with companies such as BP, Royal Dutch Shell, Eni and Exxon Mobil. 

Swift gains have raised Iraqi production by 600,000 bpd over two years to 3.15 million bpd. Iraq is due to reach 3.4 million bpd by the end of this year and export 2.9 million bpd - but that includes 250,000 bpd from Kurdistan.

For its part, the northern region is producing just under 200,000 bpd and exporting about 65,000 bpd by truck through Turkey to world markets. It has secured exploration contracts with the likes of Exxon, Chevron and Total.

Reaching Iraq's 2014 target will require the start-up of the giant Majnoon oilfield, operated by Shell, and West Qurna-2, run by Russia's Lukoil, along with Garraf and Badra - further north. 
 
Under a high-production scenario, production would reach 13.5 million bpd by 2017 and be maintained until 2023. A low-production scenario targets 6 million bpd by 2025.

Baghdad is expected to enforce the medium-production scenario, where output reaches 9 million bpd by 2020. That will require renegotiating service contracts with foreign firms. Lukoil - at West Qurna-2 - and Italy's Eni - at Zubair - have already agreed to reduce production targets. Other companies, such as BP, Exxon and Shell are in similar talks.