Iraqi oil safe from violence, for now

Though the recent violence in Iraq has resulted in an exodus and loss of lives, most of the key Iraqi oil production facilities are untouched, for now. The majority of the important Iraqi oil stations are in the southern region of Basra and the fighting for power and control between government forces and ISIL rebels is concentrated in the north of Baghdad.

The field with the highest production, Rumaila, is located in Basra. The main producing field in the north is the Kirkuk field. Lately, however, production has been reduced due to the pipeline situation; it has come under attack several times in the past few months.

According to the IHS Energy’s regional manager for Middle East, Dr Sarah Haggas, most of the large fields in the south are being developed in collaboration with international oil companies (IOCs) under technical service contracts. Under this system, the Iraqi state owns a field but an international operator develops it, and is remunerated for increasing and maintaining production. Examples of IOCs working under service contracts in southern Iraq include BP (Rumaila field), Shell (Majnoon field), ExxonMobil (West Qurna, the southern part), Lukoil (West Qurna, the northern part), Eni (Zubair), Gazprom (Badrah field) and Japex (Gharraf field).

“Many of the IOCs stated that they have evacuated their non-Iraqi personnel as a precaution, while operations remain underway at the fields. Although work has been progressing on development of the fields, limited progress has been made on development of national infrastructure, says Dr Haggas, adding: “Pipelines are planned or under construction, and there are plans to build new refineries, but we expect all of this will be delayed by the ongoing unrest in the country.”

Iraqi oil production currently stands at three million barrels per day (according to Iraq’s Ministry of Oil figures). Natural gas production is approximately 1.9 billion cubic feet (BCF) per day, but roughly 70 per cent of this natural gas is currently flared. So far, it appears that there has not been an impact on production as the majority of the producing fields are concentrated in the southern part of Iraq, away from the violence. IHS Energy says it has not heard any reports of production being slowed down so far. About 80 per cent of Iraqi oil production is exported, and the majority of exports are transported via tanker from the southern Fao terminal.

However, despite ongoing dispute over oil rights, the production from Kurdistan has not been affected.

The Kurdistan region, which is in Northern Iraq, has awarded its own oil and gas contracts to international companies, some of whom, including ExxonMobil, are also operating in Southern Iraq. “These contracts are production-sharing deals, so the participating company is also entitled to a share of the field’s production,” says IHS. “There is an ongoing dispute between the federal Iraqi government and the Kurdistan Regional Government over the legality of these contracts, and the right of the region to export oil from its fields.”

“Despite the dispute, the region is exporting oil via Turkey by trucks and a newly constructed pipeline. Operations are still underway in the Kurdistan region and we have not had any reports of it being affected by the violence,” says Zaineb Al Assam, senior analyst for Middle East and North Africa at IHS Country Risk.

As the insurgents of the Islamic State in Iraq and the Levant (ISIL) expand control from Mosul to the northern cities of Tal Afar, Baiji and Tikrit, and advance on Baghdad, the Kurdistan Region has remained comparatively secure despite its proximity to locations of ISIL control. The deployment of Peshmerga into northern towns abandoned by the Iraqi army has given the Kurdish authorities de facto control of disputed territories that lie just outside the region formally under KRG control – comprising Dahuk, Erbil, and Sulaymaniyah provinces.

“An earlier sale of Kurdish crude via Turkey came with threats of a lawsuit by the Iraq government,” says Al Assam, “but these are now even less likely to hinder Turkey’s facilitation of independent Kurdish oil exports. The threats to the oil industry in Northern Iraq were also highlighted, when Sunni rebels, laying siege to the Baiji oil refinery, launched a mortar attack on the site.”