Iraq’s Kurds, who have defied the central government by selling oil independently, are working to quadruple the capacity of their export pipeline within months, according to an official with knowledge of the situation.
The Kurdistan Regional Government, or KRG, more than doubled daily capacity to 300,000 barrels on its pipeline to Turkey as of yesterday with installation of a new booster station at Fishkabur, the official said, asking not to be named because of policy. The region is considering a fourth booster to allow delivery of as much as 500,000 barrels a day to the Mediterranean port of Ceyhan within as little as three months, he said. The KRG didn’t answer phone calls to its press office outside working hours today.
The KRG’s efforts to export their own crude has provoked legal action by authorities in Baghdad and fanned speculation that the semi-autonomous region will pursue greater independence. Their new exports, expanding even as Kurdish forces combat an Islamist insurgency in territory nearby, are reaching what the International Energy Agency says is an oversupplied global market where the return of lost Libyan supplies pushed prices to a 14-month low.
“The Kurds are getting more autonomy and can rely more on their production, so we’re going to see more supply coming out of Iraq,” Hakan Kocayusufpasaoglu, chief investment officer at Archbridge Capital AG, a Zug, Switzerland-based hedge fund, said by e-mail. Global supply is expanding as more oil comes from “areas that were causing problems last year and early this year,” he said.
The export plans come after explorers including Chevron Corp. and Afren Plc evacuated staff and halted drilling in the Kurdish region as fighters from the Islamic State advanced through northern Iraq. DNO ASA, the Norwegian company that operates the Tawke field, said yesterday that it may need to push back production-growth targets for Kurdistan after companies that provide it with oilfield services evacuated workers.
The explorer, which exported 35 percent of its output in the second quarter through the pipeline to Turkey, said it may fail to reach a goal of boosting capacity at Tawke to 200,000 barrels a day by year-end, after reaching a peak of 130,000 barrels a day. At the same time, DNO said the KRG had cleared it and other producers to export oil on their own.
For the Kurds, whose armed forces have played a central role in countering the Islamist insurgency in Iraq over the past three months, oil is an economic lifeline as they consider moves toward greater independence.
“The increased capacity is needed to allow delivery to Ceyhan of growing volumes from the Taq Taq and Tawke fields,” Bloomberg oil strategist Julian Lee said today. The “300,000 barrels per day through the Kurdish pipeline would boost Iraq’s exports by 12.5 percent and could make an important contribution to revenue, if accepted by Baghdad,” he said.
Turkey has ignored objections by Iraq’s central government, which says the oil exports are illegal and must be stopped. Seven tankers have so far loaded 6.5 million barrels of Kurdish oil transported to the Ceyhan terminal, Turkey’s Energy Minister Taner Yildiz said on Aug. 18. Iraqi Kurds have also separately been exporting crude on trucks via Turkey.
Baghdad has tried to block the KRG from exporting oil on its own, citing a constitutional clause making the central government responsible for oil shipments and revenues. A tanker carrying Kurdish crude has been waiting off the coast of Texas since July after a magistrate ordered the cargo be seized should it enter U.S. territorial waters, in response to a legal complaint from Iraq’s central government.
“The Kurds are becoming more confident of their ability to export crude independently of Baghdad,” said Lee, who writes for First Word and whose views are his own. “At least four of the seven tankers that loaded Kurdish crude from Ceyhan have successfully discharged their cargoes, suggesting that willing buyers are starting to emerge.”