Iraq exports slip, but output prospects improve

  • Apr 23, 2019
  • Newsbase

Crude exports from federal Iraq declined sharply in March, despite an upturn in sales through the two northern outlets. Government figures released in early April showed that the fall had come as a result of a slump in cargoes from the main southern terminals.

Total exports handled by Baghdad’s State Oil Marketing Organization (SOMO) decreased to 3.377 million bpd in March, 243,000 bpd less than for the previous month, the Ministry of Oil (MoO) revealed on April 1.

Sales from the Basra terminals dipped by 286,000 bpd to 3.254 million bpd on the back of bad weather affecting both upstream operations at the giant Majnoon field and loading from the export facilities.

Independent reports in mid-March suggested that flooding had knocked 100,000 bpd off the supergiant field’s typical 240,000 bpd production rate.

The export issue is relatively common for the time of year and the susceptibility of the terminals to such inclement weather and the lack of flexibility in the export system to compensate for the losses through alternative outlets are indicative of wider infrastructure deficiencies.

Efforts to expand the Basra terminal are ongoing but slow-moving. A crude export pipeline through Jordan has been on the drawing board for more than seven years.

The problems in the south in March more than offset increased sales from the north, both via the Erbil-controlled pipeline from the northern province of Kirkuk to Ceyhan in Turkey and by truck from the Qayara field in the north-west. These rose from 63,000 bpd to 99,000 bpd and from 18,000 bpd to 24,000 bpd respectively. 

Sales by SOMO through the pipeline from Kirkuk derive solely from fields in federally administered territory. Baghdad and the Kurdistan Regional Government (KRG) are yet to deliver on an agreement controversially included in this year’s central government budget. This stipulated that 250,000 bpd produced in the Kurdish-run north would be exported through SOMO mechanisms in return for an equal allocation of federal funds to Erbil.

According to reports in the Kurdish Rudaw news agency in late March, negotiations are continuing between the two authorities, with Erbil said to be pleading an inability to hand over the revenues at present owing to the depth of the territory’s fiscal difficulties. The protracted, unresolved process of forming a new government in the territory is also delaying any accord.

Output optimism

The Qayara field lies in the restive Ninevah province, far from both the main export outlets. As production has resumed following the expulsion of so-called Islamic State in 2017 and the return of Angolan NOC Sonangol last year, output has been exported by road across the border in addition to being absorbed in domestic refineries.

On April 11, the company announced that production had reached 40,000 bpd and confirmed a target of raising combined output from Qayara and the nearby Najmah field to 230,000 bpd.

Development appears to be proceeding rather more slowly than anticipated by the operator. When signing a contract in October for the drilling of 10 wells at Qayara, Sonangol said that output was targeted to reach 60,000 bpd by the end of March.

Fortunately for creaking state coffers, monthly revenues rose in March by dint of the strengthening global oil market, partly as a result of the OPEC cuts in which Baghdad is committed to participate. The average selling price for Iraqi crude rose from US$60.8 per barrel in February to US$63.8 last month, bolstering export income from US$6.18 billion to US$6.68 billion.

Beyond the current obligation to be seen to restrain output in defence of higher prices, Baghdad is desperate to raise oil production. Output has stagnated somewhat since the market crash of 2014 and persistent difficulties in reaching revised contractual agreements with the IOCs operating the majority of the main fields.

Russia’s Lukoil is one of the few to have signed an amended TCS and agreed a new field development plan, achieved in April last year for the 14 billion barrel West Qurna 2 field in Basra.

Development is also progressing at the nearby exploration Block 10 in the same province, which was awarded in 2012 and where the discovery of the Eridu field in 2017 was described by the Russian company as the most significant in the country for more than 20 years.

On March 28, Lukoil announced that the fifth well in the appraisal phase had tested at flow rates of around 9,400 bpd from the Mishrif formation and “proved the current geological model of the Eridu field as effective”. The Russian firm operates the 5,800-sq km licence with a 60% stake, with Japan’s Inpex holding the remainder.

Crude exports from federal Iraq declined sharply in March, despite an upturn in sales through the two northern outlets. Government figures released in early April showed that the fall had come as a result of a slump in cargoes from the main southern terminals.

Total exports handled by Baghdad’s State Oil Marketing Organization (SOMO) decreased to 3.377 million bpd in March, 243,000 bpd less than for the previous month, the Ministry of Oil (MoO) revealed on April 1.

Sales from the Basra terminals dipped by 286,000 bpd to 3.254 million bpd on the back of bad weather affecting both upstream operations at the giant Majnoon field and loading from the export facilities.

Independent reports in mid-March suggested that flooding had knocked 100,000 bpd off the supergiant field’s typical 240,000 bpd production rate.

The export issue is relatively common for the time of year and the susceptibility of the terminals to such inclement weather and the lack of flexibility in the export system to compensate for the losses through alternative outlets are indicative of wider infrastructure deficiencies.

Efforts to expand the Basra terminal are ongoing but slow-moving. A crude export pipeline through Jordan has been on the drawing board for more than seven years.

The problems in the south in March more than offset increased sales from the north, both via the Erbil-controlled pipeline from the northern province of Kirkuk to Ceyhan in Turkey and by truck from the Qayara field in the north-west. These rose from 63,000 bpd to 99,000 bpd and from 18,000 bpd to 24,000 bpd respectively. 

Sales by SOMO through the pipeline from Kirkuk derive solely from fields in federally administered territory. Baghdad and the Kurdistan Regional Government (KRG) are yet to deliver on an agreement controversially included in this year’s central government budget. This stipulated that 250,000 bpd produced in the Kurdish-run north would be exported through SOMO mechanisms in return for an equal allocation of federal funds to Erbil.

According to reports in the Kurdish Rudaw news agency in late March, negotiations are continuing between the two authorities, with Erbil said to be pleading an inability to hand over the revenues at present owing to the depth of the territory’s fiscal difficulties. The protracted, unresolved process of forming a new government in the territory is also delaying any accord.

Output optimism

The Qayara field lies in the restive Ninevah province, far from both the main export outlets. As production has resumed following the expulsion of so-called Islamic State in 2017 and the return of Angolan NOC Sonangol last year, output has been exported by road across the border in addition to being absorbed in domestic refineries.

On April 11, the company announced that production had reached 40,000 bpd and confirmed a target of raising combined output from Qayara and the nearby Najmah field to 230,000 bpd.

Development appears to be proceeding rather more slowly than anticipated by the operator. When signing a contract in October for the drilling of 10 wells at Qayara, Sonangol said that output was targeted to reach 60,000 bpd by the end of March.

Fortunately for creaking state coffers, monthly revenues rose in March by dint of the strengthening global oil market, partly as a result of the OPEC cuts in which Baghdad is committed to participate. The average selling price for Iraqi crude rose from US$60.8 per barrel in February to US$63.8 last month, bolstering export income from US$6.18 billion to US$6.68 billion.

Beyond the current obligation to be seen to restrain output in defence of higher prices, Baghdad is desperate to raise oil production. Output has stagnated somewhat since the market crash of 2014 and persistent difficulties in reaching revised contractual agreements with the IOCs operating the majority of the main fields.

Russia’s Lukoil is one of the few to have signed an amended TCS and agreed a new field development plan, achieved in April last year for the 14 billion barrel West Qurna 2 field in Basra.

Development is also progressing at the nearby exploration Block 10 in the same province, which was awarded in 2012 and where the discovery of the Eridu field in 2017 was described by the Russian company as the most significant in the country for more than 20 years.

On March 28, Lukoil announced that the fifth well in the appraisal phase had tested at flow rates of around 9,400 bpd from the Mishrif formation and “proved the current geological model of the Eridu field as effective”. The Russian firm operates the 5,800-sq km licence with a 60% stake, with Japan’s Inpex holding the remainder.