Change in the Air
|November 24, 2011||Filled under Iraq Daily News|
Effective airborne logistics are vital to Iraq’s oil industry. With shifting regulatory, security and commercial challenges, how is the sector adapting?
Since 2003 Iraq has seen some widely reported logistics operations, the latest being the withdrawal of US combat troops in August last year, and the next being the final drawdown of US forces at the end of this year, when a million pieces of equipment will need to be moved in what the US’s Special Inspector General for Iraqi Reconstruction has called “an immense logistical challenge.”
Behind the headlines, feats of logistical brilliance are being carried out every day to get the oil and gas industry moving.
The US Air Force handed over Baghdad’s airspace to the domestic civil aviation authority in October. Northern airspace was transferred in August.
The Iraqi Civil Aviation Authority has a contract for air traffic control with the UK’s Serco, a major transport PFI contractor, which Eliska Hill, General Manager for aiborne logistics firm Chapman Freeborn in Dubai says has helped to keep things moving.
“The control of the airspace by Serco has introduced more structure and organisation into the picture,” Hill says. “This provides security for all air carriers and generates more confidence in operations. Faster approvals allows us more flexibility to offer last minute charters.”
Key to this flexibility is the speed of customs and passport controls, both of which have been a brake on business to date. However, there are signs of improvement: Baghdad airport opened its VIP terminal in Diwan on 1 June, which offers a break from the usual long lines and repeated searches.
The Iraqi government shook up the regulatory environment for air transport recently. The changes have caused concern within airborne logistics providers, but their final verdict is positive. Restrictions on air cargoes have been eased and airborne logistics in Iraq has become more straightforward.
“In September the restrictions on cargo flight movements to Iraq were eased, and Chapman Freeborn re-commenced operations with our own leased aircraft in early October,” says Hill. “Naturally clients are interested in alternative options for freight movement by air into Iraq. Chapman Freeborn is focused on developing both cargo and passenger charter services for the Energy industry.”
While Iraq’s business environment is improving, there is still a lot that needs to be done to make airborne logistics more efficient.
“There are still many restrictions on aircraft operators flying into Iraq, and cargo, passenger and executive flight operations are challenging,” says Paul Drew, Senior Cargo Charter Manager at Chapman Freeborn. “Cargo arriving by air is subject to severe customs requirements, which will need to be eased.”
However, the country’s ambitions are good news for logistics, and a maturing logistics sector is good news for oil and gas companies, as routine rates decrease and the rapid deployment of emergency parts is made easier.
The Iraqi government has committed $186 billion to infrastructure spending. In addition to untilties, sanitation and transport networks, 2-3 million new homes are needed, with ancillary facilities including 5,000 new schools and dozens of hospitals.
The upcoming wave of construction and oil field development will further develop the upstream logistics sector. Thamer Ghadhban, the top energy adviser to Iraq’s prime minister, recently said that ExoonMobil, Eni and BP are to spend a cumulative $100 billion on field development at West Qurna I, Zubair and Rumaila.
That translates to a lot people, and a lot of kit, that needs to get to the right place at the right time.
The sheer volume of material Iraq will need to import in order to develop should pressure the government to further reform logistics regulation and take more concerted steps to address the bureaucratic inefficiency and corruption that holds Iraq back.
Drew remains bullish on Iraq’s air cargo prospects for the oil and gas and beyond. “It is early days for the re-start of cargo movements, but the possibilities for supporting the energy industry in Iraq in the coming years are endless,” says Drew. “Chapman Freeborn is heavily focused on developing the energy market in Iraq.”
“Passenger operations are tightly controlled and restricted to bilateral agreements,” says Sandra Gilles, Senior Passenger Charter Manager. “This causes problems with offering charter services to the upstream industry. An easing of the customs situation and more flexibility for commercial operations would increase the volume of business for Iraq.”
The passenger jet network has improved dramatically, with Emirates operating regular flights to Basra and offering a new route to Baghdad from November. Lower cost airlines are also entering the mix. The improvements in Baghdad and an increase in executive travel has seen the top end of the market also pick up. “Executive jet use has become more acceptable for all levels of industry,” says Gilles.
As US forces prepare to leave Iraq and hand over full control to domestic army and oil police, oil and gas companies should reappraise their operations while the risk profile of the country increases.
“The security situation in Iraq remains fluid, dynamic and vulnerable to instability, with the oilfield areas large targets,” says Hill. “Oil companies and their sub-contractors are investigating air movements, to and from operational sites.
For personnel, however, limited availability of rotary lift in-country, and licensing rules add further constraints.”
“Road options have previously prevailed mainly due to cost,” says Drew “and the road network is already heavily supported by private security companies. With the drawdown, these companies will increase their footprint on the ground in Iraq, and we could see a split of air/road, due to increasing numbers of personnel to be moved, along with the distance of some sites from main airports.”
The fourth bidding round in Iraq will usher in a new era of cost-consciousness, which operators and service companies will push down the contractual chain. The Oil Ministry singled out security and logistics as areas where it felt costs were prohibitive.
Logistics in Iraq for the time being will (and perhaps should) not come cheap. Logistics firms often offer flexibility and a risk appetite that commands a higher price. However, the changing contracting scene requires renewed focus on competitiveness and proving value.
Companies with access to large networks can manage costs and get material delivered at the short notice and with the commercial imperative oil companies demand, especially when want of a part is keeping a rig out of action.
When it comes to getting Iraq’s oil out of the ground, some of the best moves comanies can make are by air.
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Iraq is primed to spend $50 billion on an overhaul of its airports over the next few years as part of a $150 billion transport investment program, focusing on drastic improvements to the country’s air, sea and rail transport networks.
The resurgent national carrier, Iraqi Airways, is also expanding dramatically after being forced to ground in 1990, and is slated to add 55 Boeing and Bombardier jets to its fleet soon.
H.E. Kifah Hasan Jabbar, Director General of Iraq Civil Aviation Authority and Iraqi Airways, will discuss the huge programme related to the expansion of the Iraq’s national carrier as well as the nation’s airport facilities at the Emerging Markets Airport Suppliers Conference (EMASC 2011) on 11-12 December.
Jabbar special focus will be on ongoing and new transportation projects in Baghdad, Basra, Dohuk, Karbala, Salhaddin province etc. The Umm Gasr seaport expansion and country wide railway network projects will also be under focus.
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