FAYSH KHABUR, Iraq | The pipeline that could pump northern Iraq’s oil for export is nearly complete but empty, ending for now in the soil near the borders with Syria and Turkey, on the side of a dirt road.
The buried pipelines are meant to carry oil from Iraq’s second-largest oil hub, Kirkuk, to the Iraqi government’s oil export metering station guarded by Iraqi Kurdish forces less than a half mile up the dirt road, and on to the Turkish port of Ceyhan.
Oil pumped by the Norwegian company DNO and the idled pipeline await the outcome of ongoing negotiations between the Kurdistan Regional Government (KRG) and federal Iraqi government over permission to export.
Oil officials from both sides say they are ready to sign an export deal but have not reached an agreement. The deal could add 1 million barrels per day to the market within five years - half of Iraq’s total exports now, according to KRG estimates.
“We have told the KRG that we are willing to receive all the oil that’s being produced by DNO and others,” said Iraq Oil Minister Hussain al-Shahristani, adding the “others” include only the four contracts signed before February 2007 when a draft oil law was agreed to by both sides. Oil produced from the more than a dozen other contracts signed since then would be confiscated outright, he said, claiming Baghdad’s sole rights to sign deals.
He said all Iraqi oil exports must take place by the state-owned oil marketing company SOMO, and all the revenue deposited into the Development Fund for Iraq, the U.N.-mandated and audited account of Iraq oil sales.
“That has always been our position. We not only encouraged that but insist that there is no other way to export oil but through our export pipelines and SOMO contracts.”
Ashti Hawrami, the natural resources minister of the KRG, said there are still a few issues on the technical side to be sorted out before they are able to actually export oil.
“When we are ready we will call our colleagues, and I don’t envisage any problem in that,” he said. “The metering station is in the KRG territory. We can just link up the pipeline, open the metering and tell SOMO that so many barrels are going through, please account for it.”
The export issue has been included in disputes between the central and regional governments over revenue sharing, the legitimacy of the KRG deals and the oil law.
Both sides say the constitution backs them, and both insist they are doing what is best for Iraq as a whole. But the structure of control and decision-making over the oil sector spread throughout the country hasn’t been finalized. Also, widespread opposition remains to such industry-friendly deals as production sharing contracts the KRG has signed, let alone the role international oil companies should play in Iraq’s oil future.
Talks are expected to resume next week over the new federal oil law and the dozen or more other contracts the KRG signed with international oil companies.
DNO’s project to find and produce oil is by far the most advanced of them all. A 45-minute drive from the end of the empty pipeline is the village of Tawke, where a pool of seepage oil bubbles. Nearby is DNO’s main KRG site, where a handful of wells produce oil and either fill up tankers there or at the central processing facility.
Tawke has produced an average 6,000 to 7,000 barrels per day since June 2007, said Magne Normann, DNO managing director for the Iraqi Kurdistan project.
He said DNO hopes to commence exporting by the end of the year.
“The design capacity of our facilities is 50,000 barrels per day, which can be delivered once export is in place. In the meantime we are delivering oil to domestic market by tanker trucking,” he said.
About 10,000 barrels per day of KRG-produced oil is sold currently, all to the domestic market, Mr. Hawrami said. He denied reports that oil exports via tanker have headed to Iran.
He said most of the new production from within the KRG boundaries will be sent to foreign markets.
“Maybe some of it will be used to feed few local refineries to satisfy the local consumption,” he said. There are plans for about 100,000 barrels per day worth of refineries in the region.
But within five years, Mr. Hawrami said, the KRG oil sector will be more robust.
“From the contracts we’ve signed, and those under negotiations, and the contracts that may be signed in a year, 18 months down the line - cumulatively out of these activities we believe we’ll get a stable million barrels a day for many years.”
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