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Tech Talk – More on Iraq

Tech Talk – More on Iraq thumbnail

A single picture is sufficient to tell the story of the fate of the Baiji Refinery in Iraq. Recently reached by the ISIS forces, it has been the largest refinery in Iraq, with a capacity of 310 kbd, and has been used to provide products for domestic use. Since it would provide fuel for both sides in the conflict it had been left largely intact, but that “understanding” seems to have fallen apart.

Figure 1. View from space of the fire at the Baiji Refinery in Iraq (Slate)

The remaining significant refineries in Iraq are at Daura near Baghdad which can produce 210 kbd, although promised at 280 kbd and Basra in the south, which can produce 140 kbd. There are an additional 11 very small refineries located around the country.

The conflict has already led to a drop in Iraqi exports of around 300 kbd and while this will not immediately impact the United States, given that imports have been declining in the face of growing domestic production, it will affect the overall global market, with longer term impacts on price and availability. India, for example, is already worried. It is quite possible that Iraq will partition, with the northern tier ending up Kurdish.

Figure 2. The Kurdish part of Iraq (Talking Points Memo)

This region has already run a separate pipeline through its own territory up into Turkey and thence to Ceyhan. From there it is tankered, and the Kurds have just sold a shipment to Israel, which arrived at Ashkelon on Friday and unloaded that night. The report has, however, been denied by the Kurdish Ministry. Three more tanker-loads destined for other customers are now in process at Ceyhan. The tanker was one which has, until recently, been unable to find a market.

In May, the Kurds took a further step by leasing two tankers, loading them in Jihan and looking for buyers. Attempts to sell oil to Morocco and other countries were rebuffed, out of solidarity with Iraq and concerns over legal action. It now seems that the Kurds have re-discovered their old ally Israel, which agreed to purchase the oil. To avoid a direct sale, the Kurdish tanker unloaded its oil onto another tanker. It’s unclear if the purchase is a one-off deal or the start of a permanent arrangement.

But the Kurdish pipeline is currently limited to a capacity of 100 kbd, whereas the main pipeline running up the center of the country (and through ISIS territory and control) can handle 600 kbd. The potential for a continued drop in Iraqi exports flowing north to Turkey of over 500 kbd is thus now quite possible. However the oilfields in the Kurdish territory are only, at present, producing around 120 kbd. Yet, by the end of the year it is projected that the pipeline can be expanded to handle flows of up to 400 kbd, with that capacity being reached as additional oilfields around Kirkuk are connected into the system and production raised. In the meantime additional oil is being trucked up to Turkey.

The impact of the conflict has already caused bidding on the Nassiriya oilfield and refinery to be postponed indefinitely.


Figure 3. Location of Nassiriya (Red point) (Google Maps)

Bidding on development of the 4 billion barrel oilfield, and associated 300 kbd refinery, was scheduled to have taken place on Thursday, but after being postponed in December and January has now been put off indefinitely.

At the same time Lukoil remains optimistic about expanding the West Qurna 2 field over the next year. The field has started production, and reached 200 kbd and Lukoil is hoping to start filling tankers in the third quarter of this year. The project was shared with Statoil, but they dropped out in 2012. West Qurna is in the South of Iraq, and at present a considerable distance from conflict.


Figure 4. The location of the West Qurna 2 field. (Statoil)

The field is anticipated to ultimately be capable of yielding 1.8 mbd of oil. In order to handle higher flow rates a new agreement has just been signed in which Lukoil will build two new pipelines from the field down to the off-shore terminal at Fao.

As long as the conflict remains north of Baghdad, and the oilfields in the South are not threatened then the major restriction on plans to grow exports from the south to 6 mbd may continue to lie with the Iraqi bureaucracy and the delays in installing the necessary infrastructure needed to support both production and also transport of the oil to the offshore terminals. There has also been some reduction in targets, for example Zubair which had been producing at 200 kbd was originally scheduled to produce at 1.2 mbd a target that was dropped to 850 kbd last year. A 200 kbd gas and oil separation plant (GOSP) has just been contracted, with completion in 2016.

This does not discount, however, that sabotage and terrorist attacks will not have some impact. The main pipeline to Turkey has been closed for months due to such attacks, but while that pipeline runs through Sunni territory, the lines from the Southern fields are all within Shia controlled land, and those in the north are now controlled by the Kurds. Oil companies have, however, as a precaution, begun repatriating some of their employees. Gazprom has just begun production from the Badra field. Originally projected to begin, at 15 kbd, in 2013. Production has now begun, although it is now anticipated that it will be another couple of months before the field reaches that initial 15 kbd target, and 2017 before it peaks at 170 kbd. Gazprom have, at least publically, “no problems” at the site.

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12 Comments on "Tech Talk – More on Iraq"

  1. bobinget on Mon, 23rd Jun 2014 8:34 am 

    Labor, security expenses.
    Every foreign worker’s ‘danger’ pay, not to mention armed guards to prevent sabotage, kidnappings etc.
    has to eat into profits something fierce.

    If an oil field or refinery specialist can earn decent pay in Canada, Australia, UK, that is where they will head.
    The same has to be true for oil companies.

  2. paulo1 on Mon, 23rd Jun 2014 9:06 am 

    re: “If an oil field or refinery specialist can earn decent pay in Canada, Australia, UK, that is where they will head.”

    Or any related trade. Last year my son, an industrial electrician with 10 years experience in the Oil Sands, was offered a job in Iraq for $1500/day USD, 1 month on and one month off, everything paid for including flights, etc. Advice from Toolpush over on PO Barrel, and from Dad nixed the idea. The company he was going to work for was a big multi-national contractor, taking over from a British firm unable to find or keep workers and was falling behind on schedule. As far as I know, the project remained dead in water.

    Same son now works in Canada for $100/hour. We talk every few days and Dad knows he will not be beheaded or held for ransom any time soon.

    He has a friend who is a drilling specialist. Said friend saw one of his crew members shot by a terrorist on a job in Nigeria a few years ago.

    I concur that these projects in Iraq have just ground to a halt, and production in existing sites are only a few assasinations or explosions from shutting down. I would imagine Iran is the wild card in this. If they make southern Iraq their sectarian own, and use their military to protect, then perhaps production will continue. I don’t think the balaclava covered conscripts and volunteers will be able to do much against a determined terrorist foe. I don’t think it would be surprising to see Iraq come offline completely as this unfolds.

    Israel will still shut down the nuke sites in Iran one of these days and they won’t use red lines or words. It’s a godawful mess, isn’t it?

    Paulo

  3. rockman on Mon, 23rd Jun 2014 9:11 am 

    Bob – True. As I mentioned earlier oil patch hands are tech “mercenaries”. And just like the gun totting variety we’ll risk our ass for the big check. But members of neither group are not going to die for that payday. And this might give China another advantage in Iraq. In addition to having a greater financial incentive they may not even have the option to “volunteer” for tours in the region. Been a while but the last time I saw the stats China was killing 15 coal miners a week.

    China has a huge number of expendables and a gov’t that doesn’t seem to have a problem taking advantage of that situation. An apparent win-win combination for operating in Iraq these days.

  4. Sharpie on Mon, 23rd Jun 2014 9:19 am 

    So Iraq, how’s that 12 mbpd goal workin’ out for ya?

    2015’s just around the corner:

    http://www.businessinsider.com/iraq-could-delay-peak-oil-by-ten-years-2010-1

  5. rockman on Mon, 23rd Jun 2014 9:31 am 

    Paulo – Good for him. Sometimes the sense of invincibility in a youth will override common sense. Years ago in my foolish youth I was recruited for a gig in Libya. A tad risky since the US Navy was periodically bombing them at the time. And the minor complication that it violated US law for a citizen to work in Libya. But I had survived much worse earlier in my life so I thought…what the hell…do it. As I said: foolish youth. They were going to get me a fake Canadian passport…screw the State Dept. LOL. But then they begin talking about paying me in a foreign bank account under a false name. The Libyans, the US Navy and the State Dept didn’t worry me (again a measure of my stupid level at the time). But screw with the IRS? That scared the crap out of me and I bailed on the gig. Really. I also think my nerve was beginning to break anyway.

    Eventually I worked overseas gigs in world class sh*t holes with unskilled workers you didn’t dare turn your back on. But work where someone might take a shot at me? Nope…no one had that much money.

    But to work in Canada??? With their crappy beer??? I don’t know if anyone can pay me that much. LOL.

  6. Juan Pueblo on Mon, 23rd Jun 2014 10:05 am 

    Rock, I was thinking the same as I read Paulo’s comment. China has a surplus of young, single men that they have to put to good use and sending them to Iraq to get oil sounds as good a use for them as any. I don’t think China is alone there, but they would be the most obvious choice. I have also read reports of the Chinese being treated better than white people by the terrorists in the ME.
    It seems the Baiji refinery is up in smoke. This is a great loss for Baghdad.
    I read yesterday a report (can’t remember where) that said Israel has already bought and paid for four tanker loads of oil from Kurdistan.

  7. rockman on Mon, 23rd Jun 2014 11:12 am 

    Juan – Yes…Israel is trading with the Kurds and many are upset including the US State Dept. But here’s an interesting potential: Israel exports about 25% of its refinery products. Currently those products go to countries in the Med Basin. The Kurd refineries cannot satisfy local demand. Not difficult to anticipate an oil/product trade relationship developing between Israel and the Kurds with Turkey collecting transit fees on both sides of the deal.

    And now given the apparent loss of more Iraq refining capacity there’s a greater demand for Iraq oil to be cracked outside the country. If some of the folks along the Med that had been importing Israel fuel didn’t like the Jews in the first place wait till they start sending “their” products to the Kurds. And the ultimate irony: instead of the Iraq gov’t suing Israel for buying Kurd oil they may ask to buy some of those products.

    The world is become very populated with strange bedfellows today. Consider how Syria and the US now have a common enemy…ISIS. And the Iraq gov’t (which is still technically in a declared war with Israel) might be buying fuel from Israel which was made from what they claim is illegally acquired Iraq oil.

    Oh yeah…simple inter-country relationships as it has always been in the Middle East. LOL.

  8. Juan Pueblo on Mon, 23rd Jun 2014 12:04 pm 

    Thanks, Rock, very interesting details. Iraq buying some of the stuff back would be quite funny.

  9. paulo1 on Mon, 23rd Jun 2014 1:32 pm 

    A wild assed guess on my part…but it seems to me that there is only so much oil available to world market regardless of which coountry meddles in world affairs. In other words, if US simply did what everyone wants them to do and walked away from the ME, the oil would still go to the open market. Right? So what if China gets Iraqi oil, it simply allows other sources to be freed up doesn’t it? Has the US bought one extra barrel of oil from Iraq that somebody else would have had if they didn’t go to war? Unless you take over the country with an occupying force and actually ship the stuff back home, just how is this imperialistic behaviour supposed to corner the oil supply? For all the rhetoric US is still purchasing Venezualan oil. It seems to me that playing nice would have paid off better than trying to grab it. Everyone pays world prices, everywhere, unless you produce the stuff and can afford to sell it domestically at a loss.

    Paulo

  10. Northwest Resident on Mon, 23rd Jun 2014 1:57 pm 

    paulo1 — My guess is that the ME countries are bursting at the seams with radical ideologies and plenty of crazed fanatics eager to destroy and overthrow existing regimes. America’s and “the West’s” historical policies in the ME countries of course have nothing to do with how radicalized they are (snort, cough). In any case, my guess is that the significant American/Western military presence in and around ME countries and their willingness to act is the ONLY thing keeping any kind of order and oil flowing in those countries. Take America and American military out of the ME and the whole geographic region will explode into chaos, and kiss all that oil good-bye. Just a guess.

  11. rockman on Mon, 23rd Jun 2014 2:15 pm 

    Paulo – And thus the reason I made up another damn acronym: MADOR…Mutually Assured Distribution OF Resources. How much oil is produced isn’t the central issue per se. It’s who gets to buy it. For a long time the US was alone in the realm of Deep Pockets. Now we have serious competition from China and, to a lesser extent India.

    Consider that the world is producing more oil then ever before. So good times and no worries, eh? At $100/bbl and battles ragging in various quarters of the oil producing Middle East I don’t think so. And if global production declines significantly? Supply will continue to satisfy demand just as it does today…those who can afford to pay the price will have all the oil they require.

    But that applies only to the oil in the market place. But China is circumventing that dynamic to a degree by acquisition of reserves in the ground and creating long term supply contracts and refinery JV’s with various oil exporters.

  12. Keith_McClary on Mon, 23rd Jun 2014 11:40 pm 

    ROCKMAN
    Would that be Armand Hammer’s (49% owned) Canadian subsidiary?

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