Crude production shut in as Iraq, KRG talks deadlocked
Quantum Commodity Intelligence – Talks between Iraq and the semi-autonomous Kurdistan Regional Government (KRG) remained at a stalemate Thursday, missing the deadline to avoid field shutdowns as limited storage capacity quickly reached tank tops.
Pipeline exports to the Ceyhan export terminal in Turkey were halted last Saturday following a ruling by the International Court of Arbitration last week in favour of Baghdad, jeopardising around 450,000 bpd of crude from production fields in the Kurdish region of northern Iraq.
Norway's DNO said it has started shutting down its Tawke and Peshkabir fields, taking out around 100,000 bpd of output.
Genel Energy has also begun the shutdown process, while HKN Energy has said that it will shut output from the 30,000 bpd Sarsang Block within a few days if export flows do not resume.
Iraq Oil Report said Thursday that despite dispatching negotiating teams to Baghdad, KRG officials have been unable to strike a deal that allows oil exports to resume, and there is no indication a quick resolution can be reached.
"Both sides' proposals have been rejected," an Iraqi MP who is a senior member of the Kurdistan Democratic Party (KDP) told IOR, the primary ruling party of Iraqi Kurdistan.
IOR also commented several officials familiar with the negotiations said Baghdad leaders are asserting that exports can only resume if Kurdish oil is sold by the federal government's marketing company, SOMO.
The KRG had been marketing and around 375,000 bpd of Kirkuk crude prior to the pipeline shutdown.
The ruling follows a legal dispute raised nine years ago by Federal Iraq's government in Baghdad, claiming Turkey was allowing the unsanctioned exports from the KRG via the Kirkuk-Ceyhan pipeline. Federal Iraq has long considered these exports to be illegal.
"For the sake of oil revenue, it is in the interest of all parties to resolve this dispute as soon as possible. History, ownership, and control of the assets is important to understand the situation (which we outline below). If it were not for the KRG's intervention during the ISIS offensive of 2014 and the KRG constructing its own pipeline, it is likely that output from the region would be just a fraction of what is produced today," said consultants FGE.
"The KRG is very much in the driving seat, given it has control over the pipelines from the Kurdistan region to Turkey, since the original Iraq Kirkuk-Ceyhan pipeline is now defunct due to continued militant attacks. However, while Erbil still has control, the court ruling gives Baghdad significant leverage," added FGE.
FGE concluded: "For now, negotiations will be ongoing between Ankara, Erbil and Baghdad on how to restore the 450,000 bpd of exports. We expect the shut-in will only lead to a short-term disruption measured in weeks rather than months."