Iraqi Kurdistan sees itself soon becoming a major energy player hosting the world’s biggest oil companies - including one that may tap part of Iraq’s giant Kirkuk oilfield - and making use of its own strategic export pipeline system across Turkey.
Kurdistan’s Energy Minister Ashti Hawrami said the developments are for the good of Iraq although the policies also show the emergence of a northern region in control of its oil reserves, estimated at 45 billion barrels.
Oil and land rights have been at the center of a long-running dispute between Kurdistan and Iraq's central government. Last week, the Kurdistan Regional Government (KRG) reached a deal with Baghdad to end a dispute over oil payments and agreed to sustain oil exports of 140,000 barrels per day (bpd) this month - rising to 200,000 bpd for the rest of the year.
By 2013, the KRG’s exports are expected to climb to 250,000 bpd and will continue to be shipped through a Baghdad-controlled pipeline to Turkey. Hawrami unveiled a plan earlier this year to build pipelines to Turkey to cope with an expected rise in exports to 1 million bpd for 2015.
He’s sticking with it.
“Kurdistan’s oil is going out and the revenue will be for all of Iraq. It will not be for the Kurdistan region alone,” Hawrami told Reuters after speaking at an FT energy conference in London. “We recognize that we need investment in the infrastructure to boost export capacity, and we are doing that. We are ahead of the game, so we'll continue with it.”
Last week’s oil export and payment deal will resolve only part of a broader feud between Baghdad and Kurdistan over oil and territory that has involved major companies including Exxon Mobil, Chevron and Total who have signed exploration deals with the KRG, contracts the central government says are illegal.
Big Oil’s foray into Kurdistan began last October with Exxon. Hawrami says more majors are on the way. Norway’s Statoil and U.S. ConocoPhillips are actively looking. Sources say Royal Dutch Shell - which was close to moving into the region twice before - may be tempted to look again.
“I’m expecting within this year to see more major companies coming in and negotiating for whatever we have - whether by mergers and acquisitions or farming in between companies,” said Hawrami, who became energy minister in 2006.
“Within a couple of years, Kurdistan will be home to 12 to 15 companies as opposed to 50. So there will be significant consolidation, which is normal.”
One of the oil majors may be awarded a contract to treble output at the Khurmala dome - the northernmost part of Iraq’s giant Kirkuk oilfield that’s now being revived by private Iraqi Kurdish KAR group. By the end of this year, Khurmala is expected to be pumping 100,000 bpd - up from current capacity of 85,000 bpd.
“We’re looking at taking it to 250,000 to 300,000 barrels a day. This is something that probably requires three or four years, but that’s part of our plan,” said Hawrami. “The field is complex and has a lot of technical issues and challenges. It requires investment, high technology and management.”
The Kirkuk oilfield is a flashpoint in relations between Baghdad and Arbil - the KRG’s seat of government. But Hawrami said Arbil'’s agreement with Baghdad over oil payments and exports could pave the way for a wider rapprochement.
“I believe the problem will go away. Everybody will be looking at thanking the other party that’s increasing production because he’s really increasing production for the benefit of the Iraqi people,” said the KRG energy chief.
Baghdad is meanwhile in talks with BP about a project to revive Kirkuk. The ageing oilfield is composed of three main geological formations, or domes: Khurmala, Baba, and Avana. Khurmala straddles Arbil province and is administered by the KRG under a 2008 agreement with Baghdad. The Oil Ministry’s new development of Kirkuk would not include Khurmala.
Hawrami said the KRG, autonomous with its own government and armed forces since 1991, would also be interested in capturing the gas that is now being flared from the Avana dome, although Arbil would consult with the Kirkuk governorate and the federal government first as is required by Iraq’s constitution.
The KRG minister said the region was also looking to expand its gas capacity first to meet domestic requirements, then to increase power generation capacity and fuel industrial use and provide power to neighboring Iraqi provinces.
Exports to energy-hungry Turkey and beyond would come in the next year or two, he said.
The first steps for exports are already being made. KAR group is building a gas pipeline from Khurmala to a power station in Dohuk, near the border with Turkey.
Hawrami said the pipeline would be finished by the end of the year and there would be enough gas by then to feed to the power station, which is now running on more expensive diesel fuel.
Hawrami said construction of a parallel, 1 million bpd crude oil pipeline, which will run from Khurmala to Fish Khabour near the border with Turkey, has not started but is expected to be completed by 2014.
“We haven’t asked anyone to do it yet. We’re looking at the other part of the pipeline on the Turkish side,” said Hawrami. “So when that comes together, it might be one large project.”
In the meantime, small quantities of Kurdish condensate are being trucked into Turkey in exchange for much-needed diesel and kerosene, he said. Baghdad has said that only the central government has the right to ship oil and gas.