Kurds Eye Stake in Oil’s Future
|November 8, 2012||Filled under Iraq Daily News|
Iraqi region exports 200,000 barrels a day, eyes its own pipeline to Turkey Iraq is blessed with abundant oil that is cheap to extract and close to newly built export terminals. The nation’s production has hit a three-decade high and continues to rise steadily. By 2035, according to projections by the International Energy Agency, an advocate for rich-world consumers, Iraqi output could more than double to 8.3 million barrels per day.
Western oil firms are increasingly reluctant to play a part in this boom, however. Exxon Mobil appears eager to sell its stake in West Qurna, one of the giant fields in southern Iraq that will provide much of the production growth. Royal Dutch Shell and BP are both still working in the south, but unhappily so. Suffocating bureaucracy and onerous contract terms make life difficult. Heavier than expected costs and delays to infrastructure cut into profits.
Three years ago, when they signed contracts with the Iraqi government, the oil majors were prepared to accept hiccups. Their patience has thinned, however, with the arrival of an alternative source of Iraqi oil.
Kurdistan, the semiautonomous province in the country’s north, has been offering competing and much more lucrative deals. Exxon Mobil’s decision last year to acquire six blocks in the region angered the central government, which considers the deal illegal and lays claim to Kurdish oil, but the world’s largest oil company started a trend. In July Chevron, Gazprom and Total all signed contracts with the Kurdistan regional government, potentially dooming their chances of winning future business in the south. BG, a British firm, was in Erbil, the Kurdish capital, on a scouting mission in late October. “Kurdistan is 11 years ahead of the rest of Iraq in terms of political and commercial development,” says Luay al-Khatteeb, head of the Iraq Energy Institute, a London-based think-tank.
Kurdistan’s potential oil reserves of around 45 billion barrels are less than a third of those in southern Iraq. Still, the Kurdish oil minister, Ashti Hawrami, believes that output of a million barrels a day is possible within three years.
The tricky part is getting the oil to market. The Kurds today export around 200,000 barrels a day through pipelines controlled by the central government. Hawrami wants to build a new, Kurdish-owned pipeline to Turkey, feeding long-held dreams of Kurdish independence.
That unnerves Turkey, which is fighting Kurdish separatists in its southeast. Some Turkish officials seem to acknowledge the possibility of an eventual Kurdish state in northern Iraq, and seek to make it commercially dependent on Turkey. Co-operating with the Iraqi Kurds also would generate lucrative transit fees and offer Turkey an alternative to oil from Russia and Iran.
So far Turkey has allowed the Iraqi Kurds to export oil only by truck. To win approval for a pipeline, they would probably have to support Turkish opposition to Kurdish separatism outside Iraq. That seems unlikely, but the growing civil war in Syria is helping the Kurds. Prime Minister Recep Tayyip Erdogan of Turkey is angry with the Iraqi government for supporting Syria’s murderous regime.
Backing Kurdish oil exports makes that point. Approving a pipeline, however, may be a step too far for Erdogan as yet.
The Iraqi government is pondering how to respond. It could sweeten the terms of its contracts with the oil firms in the south. That might staunch the flow of Western capital to Kurdistan.
In the meantime, the main beneficiaries of the majors’ receding interest in southern Iraq are Asian oil firms. Chinese companies will account for about two million barrels a day of Iraq’s production by 2020, and Fatih Birol, the IEA’s chief economist, talks of a “Baghdad-to-Beijing” axis.
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