Iraq's Kurdish region aims to resume oil exports

The government of Iraqi Kurdistan hopes to resume talks with Baghdad to restart crude exports from the semi-autonomous region.

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The government of Iraqi Kurdistan hopes to resume talks with Baghdad to restart crude exports from the semi-autonomous region, as a power struggle to form Iraq's next government puts development of the country's biggest oilfields in limbo. The Kurdistan regional government (KRG) plans to send a delegation to Baghdad this week to discuss the resumption of exports from new oilfields in north-east Iraq, Barham Saleh, the Kurdish prime minister, said in remarks published on the KRG website.

"The delegation would discuss oil exports from the region as well as the contracts signed by the KRG with oil companies," the statement said. The KRG also said it had sent two of its oil contracts to Baghdad in an unusual move for a regional government that had steadfastly resisted giving up control over natural resources. The contracts were signed with Norway's DNO International and Turkey's Genel Enerji, which pump oil from the Tawke and Taq Taq oilfields, respectively.

The more than two dozen contracts the KRG has signed with foreign oil and gas companies have been contentious with Baghdad, which has declared the deals illegal. The Kurds have argued they conform to Iraq's constitution that, according to legal experts, is loosely worded and subject to varying interpretations. The spat over the Kurdish oil contracts led to the suspension last October of between 40,000 and 60,000 barrels per day (bpd) of crude exports from Tawke and Taq Taq.

"We hope that the new talks would solve the problem," Mr Saleh said. But it is unclear whether the Kurds in pursuing a resolution are now ready to give in to Iraqi oil ministry demands that it review and ratify the Kurds' oil and gas contracts before recognising them. That would be tantamount to handing Baghdad jurisdiction over the region's natural resources and would be a huge concession by the KRG.

"I don't think they sent the contracts asking for ratification," said Samuel Ciszuk, the Middle East oil analyst with the consulting company IHS Global Insight. "There will be talks on how to deal with the contracts. How they go about reaching a compromise remains to be seen." Hussain al Shahristani, the Iraqi oil minister, has been a harsh critic of the Kurdish oil deals, which are production-sharing contracts rather than the technical services agreements favoured by Baghdad.

"He thinks the Kurdish exports should be put on-stream immediately, and it should be up to the Kurds to find a way to wriggle out of the deals they have signed," Mr Ciszuk said. "The KRG takes a different view." Despite having the world's third-biggest proved oil reserves and ambitious plans to boost crude output capacity to as much as 12 million bpd, rivalling that of Saudi Arabia, Iraq pumps only 2.4 million bpd, or less than Kuwait or the UAE. It has recently exported between 1.9 million and 2 million bpd of crude.

The Kurdish fields hold the best immediate opportunity for Baghdad to boost oil exports and foreign revenue: some of Iraq's big oil deals are running into trouble; sectarian violence is threatening output from the country's biggest northern oilfield, Kirkuk; and upgrades are urgently needed to the southern export terminal at Basra. The national government's finances are in such poor shape that it is unable to fund its 51 per cent share of a proposed joint venture with Royal Dutch Shell to gather and market 700,000 cubic feet per day (cfd) of gas that is being burnt as waste at Iraq's main southern oilfields, Mr Ciszuk said.

In total, Iraq flares at least 1 billion cfd of gas associated with its oil production, causing air pollution, boosting greenhouse gas emissions and wasting potential fuel for power generation. The much-needed project to reduce flaring is being held up by the financing problem, by Iraq's slow progress on refurbishing and developing gas and electricity infrastructure, and by opposition to the deal from certain parliamentarians and oil companies.

Foreign oil companies that recently signed oil development deals with Baghdad are not ready to commit to providing the Shell joint venture with large gas volumes when they may need the gas themselves to reinject into oil reservoirs if they are to meet their crude production targets, Mr Ciszuk said. That points to further delays to a final agreement on Shell's gas contract, which has already been under negotiation for a year and recently received a six-month extension.

Last month, Iraq failed to reach a deal with a Japanese consortium over the development of its Nasiriyah oilfield and said it would develop the field alone.