Tech Talk - More on Iraq

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.

OGPSS - An update on Russian plans and the OPEC MOMR

The Arctic is a less forgiving place than many folk care to recognize. Shell have just moved back the date on which they plan to restart drilling in the Chukchi Sea and won’t be going up there this year. At the same time, last August, Gazprom announced that the development of the Shtokman gas field off the Russian coast and also in the Arctic had been put on an indefinite delay. Yet the region still shows considerable promise. ExxonMobil and Rosneft have agreed to exploration in the Chukchi, Laptev and Kara Seas, with the latter considered as possibly having the highest potential.


Figure 1. Location of the Kara and Laptev Seas. (Google Earth)

The blocks that will be explored are South of the island of Novaya Zemlya, in relatively shallow water. They lie north of the Yamal Peninsula, and the Shtokman field is on the other side of the island.


Figure 2. The locations of the East Prinovozemelsky blocks south of the island of Navoaya Zemlya (Rosneft)

Rosneft estimates that the reserves that are recoverable are 6.2 billion tons of oil, and a total of 20.9 billion tons of oil equivalent when the natural gas content is included. The first wildcat well is scheduled to be drilled in 2015.

While Gazprom and Rosneft share access to these offshore resources, Lukoil has found a site at Khatanga Bay in the Laptev Sea where it believes that it can be successful. Despite the difficulties, the need for Russia to sustain production is forcing the companies offshore into more difficult waters, it is where the future production lies, and the Russian economy needs the income.

The February OPEC Monthly Oil Market Report notes that Chinese demand has now topped 10 mbd on a quarterly average, the highest to date and growing at 6%. The greatest increase has been in the use of gasoline. Global demand is anticipated to top 91 mbd by the end of the year. Russia is anticipated to produce some 10.42 mbd on average this year. OPEC has, however, a few caveats:

The Vankor oil field is expected to average 435 tb/d in 2013, a minor increase from the level of 410 tb/d achieved by the end of 2012. Some operators provided that new technologies will be utilized to stop natural decline. On the other hand, the supply forecast remains associated with a high level of risk, due to technical, political, geological and price factors. On a quarterly basis, Russian oil supply is expected to average 10.43 mb/d, 10.42 mb/d, 10.42 mb/d and 10.42 mb/d, respectively. Preliminary figures indicate that Russian oil production stood at 10.46 mb/d in January, steady from the previous month.

As usual it is interesting to compare the OPEC production results for the last few months, based both on the reports obtained from secondary sources, and those numbers that the individual nations provide.


Figure 3. OPEC crude production based on secondary sources (OPEC February MOMR )

It is important to note that Saudi Arabia has dropped its production by around 300 kbd or so for the last couple of months. While I suspect that this to keep markets a little tighter and thus hold prices stable, others might suggest that the may have some slight difficulty sustaining the higher numbers.


Figure 4. OPEC oil production figures as reported by the producing countries. (sources (OPEC February MOMR )

Iran continues to have a disparity of around 1 mbd between the two tables, Iraq still seems to be struggling to get over 3 mbd, and Venezuela has a discrepancy of around 400 kbd. In short, not much new.

Turning back to look for just a moment at Gazprom activities, although they have continued to keep Lukoil out of the Arctic, they have also continued to seek resources abroad. The company has acquired territory in Iraqi Kurdistan and is reported to have an 80% stake in the Halabja project with reserves of around 700 mb. The field lies on the Iranian border in the Kurdish part of the country, and Baghdad objected to the deal going forward. It might, however, help raise Iraqi overall production. Gazprom has two other projects in the region at Garmian and Shakal, and one at Badra which falls under the control of the central government.

And, still in the Middle East, Gazprom is in talks with Israel to buy LNG from the offshore Tamar field and ship it to Asia to serve markets that it cannot easily reach with its pipelines. The intent is to use a floating liquefaction plant that will take gas from both Tamar and Dalit, at the rate of around 3 million tons a year with production starting in 2017.

Gazprom recognizes that, if it is to develop Asian customers it must provide LNG and so it has begun work on an LNG plant in Vladivostock with three trains, each capable of producing 5 million tons of LNG a year, from the Sakhalin, Yakutia and Irkutsk gas fields. With production aimed to begin in 2018, the market will, again, be in the Asia-Pacific region and may be one of the reasons to accelerate production from the Kovyktinskoye field. At the present time Gazprom has brought the Zapolyarnoye up to full production, and they estimate that this will produce 20% of Russian natural gas as the field moves to be the largest producer in the country.

And, while tracking down some of the information for this post, I did find a picture of a polar bear and cub in the region that ExxonMobil is venturing into. It was taken on the island of Novaya Zemlya. Hopefully environmental concerns won't raise the same sort of difficulties in developing these sites that they have in other places further East.


Polar Bear and cub on Novaya Zemlya on the Shores of the Kara Sea (the photo is on Google Earth and was taken at the red arrow in Figure 2 by

Oh, and before I forget the Alaska pipeline continues to run below 600 kbd with an average of 577, 604 bd. for January.