Baghdad: Iraq can’t count on self-governed Kurds in the country’s north or international oil companies to help it cut crude production as promised at an Opec meeting last week. That may leave the country with no option but to slash state-controlled supplies to comply with its quota.
Under the deal the Organisation of Petroleum Exporting Countries reached last Wednesday, Iraq must reduce crude output by 210,000 barrels a day from October levels. Uniquely among Opec members, it shares production with a semi-autonomous region that accounts for about 12 per cent of its total output. International companies including BP Plc and Royal Dutch Shell Plc pump most of the rest.
“It looks complex for Iraq to deliver all the cuts it signed up to,” Richard Mallinson, an analyst at consultant Energy Aspects Ltd, said by phone from London. “In most cases the international oil companies will probably not be ready to do it on their fields.”
Opec’s first production cuts in eight years will be a shock for Iraq. The group’s second-largest producer has had no output target since the 1990s, to help it recover from a series of conflicts. Iraq resisted having a target ahead of last week’s Opec’s meeting, arguing that it needed every dollar to fight Daesh, but relented under pressure from other members.
Oil Minister Jabbar Al Luaibi had disputed Opec’s data on Iraqi production levels and insisted he wouldn’t agree to a cut. He eventually conceded on both points at last week’s meeting after placing a phone call to Prime Minister Haider Al Abadi, who supported the deal, according to two Opec delegates.
For a detailed account of the Opec meeting, click here
The Kurdistan Regional Government in northern Iraq controls about 550,000 barrels a day of oil production — as much as Opec member Ecuador. Iraq as a whole pumped 4.58 million barrels a day in November, according to data compiled by Bloomberg. The KRG is so far indicating it doesn’t plan to scale back its production.
KRG officials haven’t spoken yet to the Oil Ministry in Baghdad about the Opec deal, Natural Resources Minister Ashti Hawrami said Monday at a conference in London. Opec’s agreement probably won’t have much effect on the KRG, he said. Iraq’s Oil Ministry spokesman Asim Jihad declined to comment.
The two operating companies pumping the most oil in the KRG have no plans to reduce output. KAR Group, a local company producing about three-fifths of the Kurdish region’s oil, hopes to increase its output next year by 40,000 barrels a day, President Baz Karim said at the London conference. Norway-based DNO ASA, the Kurdish region’s second-largest producer, hasn’t received any indication that it’s expected to pump less oil, Executive Chairman Bijan Mossavar-Rahmani said last week.
Curtailment Fee
Outside Iraq’s Kurdish enclave, almost 90 per cent of the country’s oil production comes from fields operated by international companies, Oil Ministry data from September show. These companies could charge the ministry a curtailment fee under their contracts if they are ordered to decrease production, Deputy Oil Minister Fayyad Al Nima said in October at a news conference in Baghdad.
Rather than reimburse companies for any barrels they would have produced, the government will probably curb output instead at fields where it has complete control, said Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy.
Oilfields in southern Iraq are likely to bear the brunt of the decrease, Mills said. Of the 440,000 barrels that state-run oil companies pump daily, about 280,000 are produced at fields in the south. The Oil Ministry exports the remainder, which comes from northern fields around the city of Kirkuk, through a Kurdish-owned pipeline to Turkey, and it shares the revenue with the KRG.
“Cutting that off would clearly raise tensions with the KRG,” Mallinson said.
