Iraqi Deputy Prime Minister Husain al-Shahristani is not afraid to speak his mind and his remarks at a news conference on 16 October on the sidelines of the World Energy Congress in Daegu, South Korea, were both revealing and candid.
Having previously called on the KRG to link their newly completed export pipeline to the federal system, Mr Shahristani revealed that the KRG had tied the pipeline beyond the metering station. That, he said in a strong message to both Irbil and Ankara, would be considered an act of smuggling and an unfriendly act by Turkey.
The Iraqi government would take action in due course, he added but left unsaid what such action might entail.
Mr Shahristani also seemed to suggest that a recent gas purchase agreement concluded with Tehran for the import of Iranian natural gas was a 10-year deal to supply Baghdad and the southern province of Basra.
It has previously been reported that the agreement was for five years, renewable by another five.
Also on the subject of gas, he said Iraq may export gas at some point in the future but only for a limited period of time until the Iraqi economy picks up and domestic demand increases.
Mr Shahristani gave a detailed report on current and future oil export capacity expansion and the status of oil marketing efforts in India and China, which he said may be seeking to nearly double its imports of Iraqi crude next year. But he may have inadvertently raised some eyebrows in neighboring Arab states when he declared that, unlike some other oil producers, Iraq had more requests than it could supply.
The following is a transcript of his remarks in Daegu.
Q: The Kurdistan Regional Government (KRG) plans to export oil independently through a 300,000 b/d pipeline to Turkey. What measures will Baghdad take to prevent this?
A: The government of Iraq has warned Turkey and the KRG that this action is illegal and is considered as smuggling of Iraqi crude without the permission of the Iraqi government.
Iraq will have to take action if Iraqi crude is exported without its permission and the revenues are not paid to the Iraqi government.
Q: What action?
A: You will hear about it when Iraq announces its action.
Q: What progress has been made with India on increasing export volumes?
A: Our increased production is mostly directed to the Asian market. 60% of Iraqi crude goes to Asia and the remainder is almost divided equally between Europe and America. In the Asian market, China is the largest importer followed by India. We have had a number of discussions with our Indian counterparts and we have assured them that Iraq stands ready to supply India with any additional crude oil that India may require.
We give priority to this particular market, which is a very promising market for our additional crude production…. (SOMO Director Falah al-‘Amri said Indian requirements for 2014 are likely to be more than the current 400,000 b/d, because some companies have requested more, but the exact volume is not known.)
Q: What about long-term deals?
A: Iraq normally markets its oil annually. We receive requests and we give priority to customers like the Indian companies. If India needs any more oil, Iraq is always ready to supply it, but we don’t sign long-term deals.
Q: And Chinese imports?
A: China has already made a request for the next year for 900,000-1 mn b/d and we are considering whether we can meet all the additional requests. India has so far made a request for the same quantity that it is importing this year… a bit over 400,000 b/d.
Q: What about Chinese NOC exports of Iraqi crude?
A: In the contracts that we have signed with oil companies to develop oil fields – the Chinese are very active in Iraqi oil fields – the companies are paid in crude oil for the investments they make in Iraq. That is separate from the direct purchase of Iraqi crude oil. So in China we are supplying the market with crude oil for the investment that they have made in Iraq and we also sell them as much crude oil as they ask for directly.
Q: How are Iraq’s relations with Turkey?
A: Turkey depends heavily on Iraqi oil and gas, and Iraq is committed to supply Turkey with all its oil and gas needs.
However, some of the latest statements made by KRG officials and by some Turkish officials indicate that they are considering allowing Iraqi oil that is produced in the KRG to be exported without the permission or knowledge of the Iraqi government.
The connection that has been made is beyond the metering system to prevent the Iraqi government knowing how much oil is actually being exported. That is why the government has announced that it would consider such action by Turkey, if it is allowed, as unfriendly and the oil as smuggled oil.
Q: South Oil Company (SOC) has said more work is needed at Basra. What impact will this have on exports for the rest of the year?
A: Last month, exports were impacted by work on the export system. That work is finished and actually this month we could have gone back to 2.5-2.6mn b/d.
As a matter of fact, we have increased production. We have three new oil fields that came onstream – Majnoun with 175,000 b/d, Halfaya and Gharaf. However, for the last three to four days there has been bad weather. But as soon as the weather improves, hopefully in the next couple of days, we will go back to the original export capacity or even higher.
Q: What about reports that Basra province has signed a deal with Iran for a gas pipeline?
A: There was a misunderstanding. Any deal concerning oil and gas in Iraq, whether exporting oil and gas or importing products, has to be approved by the federal government, ie by the Ministry of Oil.
That particular pipeline to import Iranian gas was negotiated by the Iraqi government with the Iranians.. The agreement was signed between these two parties, and the governor of Basra was misquoted.
The agreement was negotiated and signed by the Iraqi government.
Q: What is the timing for the southern export works? When will that be finished? Is it adding export capacity to the offshore terminal or other work?
A: The new floating terminals are single point moorings (SPMs). The total number is five, four to be used for loading simultaneously and the fifth on standby, in case any terminal goes out of operation.
The loading capacity of each is 900,000 b/d, so between them the four will provide 3.6mn b/d of additional oil export capacity. Of these five, three are in operation and the fourth will come into operation in the first quarter of next year. Once we have this export capacity of 3.6mn b/d, it will give us a chance to upgrade our fixed terminals. We have two, the Basra terminal with a capacity of 1.6mn b/d and Khor al-’Amaya terminal with a nominal capacity of 1.6mn b/d, but which was damaged during the war and is being used at a much lower capacity.
Our priority as soon as the SPMs are in operation is to upgrade the ‘Amaya terminal to its nominal capacity of 1.6mn b/d and then work on upgrading the Basra terminal. So between the two fixed terminals with total capacity of 3.2mn b/d and the four floating terminals with a total capacity of 3.6mn b/d, Iraq will have an export capacity from the south of 7mn b/d. Of course we will have additional pipelines through Turkey to Ceyhan on the Mediterranean. We are also in the final stages of signing a contract to build a new pipeline to the port of ‘Aqaba on the Red Sea in Jordan. And we are considering a number of pipelines to the Mediterranean through Syria once the situation there settles down.
Q: When will the work on Basra and Khor al-’Amaya begin?
A: We have not signed contracts for those. As soon as we have capacity of 3.6mn b/d we will move to those ports.
Q: What about gas imports from Iran in view of the sanctions?
A: We have signed contracts with Iran to import gas for our power generation stations in the central part of the country, and we are about to sign another contract to import Iranian gas in the south of the country. These are short-term contracts to give us time to run our new power stations on gas, till our oil production is increased to a point where we have sufficient associated gas to be used for our own domestic needs.
Q: Is the pipeline infrastructure sufficient to import the gas or do you have to build more pipelines?
A: The pipelines have to be constructed. We have already signed a contract for a gasline, which is under construction and should have been completed by last July. But now they tell us it should be ready next month. The capacity of that pipeline is 850mn cfd, which will eventually be increased. The contract that we are negotiating with the Iranians for gas imports into the Basra area, again purely for power generation, is for a bigger pipeline.
Q: What are Iraq’s plans for refining?
A: Iraq has three operating refineries and plans to construct four new ones at Nasiriya (300,000 b/d), Karbala (140,000 b/d), Misan (150,000 b/d) and Kirkuk (150,000 b/d).
The Karbala refinery is under construction. We have signed an MOU with a consortium of European and Chinese companies to build the Misan refinery as an investment. The Nasiriya refinery is being offered as part of a bigger project for the development of the Nasiriya oil field that will be offered in a bid round before the end of the year.
Q: Do you expect Chinese imports to rise? Which companies are requesting an increase?
A: ‘Amri: I think China at the moment is importing nearly 600,000 b/d, and next year may go to 800,000 or 850,000 b/d, but I cannot reveal which companies have asked for more oil.
A: Shahristani: Iraq normally calls for its customers to submit their requests before the end of the year. So far we have received requests from Chinese companies, but we have made no final decision because we have to see what total we will get.
Iraq is in the fortunate position of getting more requests that we can actually supply, unlike other neighbouring countries. In Iraq we have requests for 850,000 b/d from Chinese companies so far, and there will be more coming in.
Q: Are October exports likely to average 2.5mn b/d?
A: Bad weather has prevented Iraq from maintaining this average level. However the oil has been placed in our new storage capacity and we will be able to make up for the days during which exports could not be made.
Q: What is the outlook for Iraq as a major gas exporter?
A: Iraq has major plans to build new power generation capacity. So far we have signed contracts for 20GW and more are in the pipeline. All these will be gas fired.
Although our production of associated gas will increase by 2017-18, we will be needing all our gas for our domestic power plants. Beyond that date, there will be some surplus available for export. All our neighbours, with the exception of Iran, have asked Iraq to supply them with gas, and so has the European Union. However, that Iraqi surplus will be available for perhaps five to ten years.
Beyond that as our economy develops and as our local consumption increases, we will have to see if we find new non-associated gas fields.