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Kurdistan develops its oil industry independently
2.9.2007
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September 2, 2007
TAQ-TAQ, Kurdistan region (Iraq), --
The sticky-sweet smell of raw crude oil lubricates
the dusty air as oilmen in orange overalls prepare
to test one of the few new oil wells to be drilled
in Iraq since the 2003 invasion. Then, with a gentle
whoosh, a huge tongue of orange flame and dense
black smoke shoots across the bare, undulating hills
of this sparsely populated corner of northern Iraq.
It's a sight for sore eyes in a country where such
fires are usually the result of sabotage, where the
gasoline queues still stretch for blocks on end and
where fierce political squabbles are delaying
enactment of a law to regulate Iraq's oil industry,
one of the key benchmarks set by the Bush
administration to measure Iraq's progress.
But this is Kurdistan, a world apart from the rest
of Iraq, and Kurdistan isn't waiting for a political
solution in Baghdad to get on with the job of
tapping its own potentially vast oil reserves. While
Shiite, Sunni and Kurdish politicians bicker over
the new oil law, the Kurdish regional government has
been busily promoting investment in its own oil
fields, signing deals with foreign oil companies and
moving ahead with its own, investor-friendly oil law
in the regional legislature. |
Taq Taq oil fields. The
field is located in Kurdistan autonomous region near
the town of Koya, and is about 50 miles east of
Erbil and 74 miles northwest of Sulaimaniyah city |
''Kurdistan is working,'' said Ashti Hawrami, the
Kurdistan Regional Government's minister of oil and
gas. ''If we sit down and do nothing we are not
doing our job. We are doing our job for the
country.''
But whether Kurdistan is developing its own oil
resources for the sake of Iraq, or on its own
behalf, is a question being asked by many Iraqis.
''The law clearly requires a unified policy, and for
any one region or province to go its own way means
you no longer have a unified policy,'' said Tariq
Shafiq, a former head of the Iraq state oil company
who helped write the proposed national oil law.
''And if everyone goes their own way, you won't have
a unified Iraq and then what kind of policy do you
have?
''This is not a chess game,'' he added. ''Either you
are part of the family, or you are not.''
Under existing agreements with Baghdad, the
Kurdistan government has pledged to pool all of its
oil resources with the rest of Iraq, with the
revenues to be distributed around the country,
according to Hawrami.
But as long as there is no law regulating the
industry nationwide, uncertainties loom over who
will control Kurdistan's oil resources in the
future, how they will be managed and who will
profit.
Kurds have emerged as the most vociferous opponents
of the current draft of the new oil law, because,
they say, of amendments added to the version they
had agreed to that assign management of all newly
discovered fields to a state-run oil company and
restrict the ability of federal regions to make
their own deals with foreign firms - such as those
already made with at least five foreign
partnerships.
In the meantime, Kurdistan's ambitious plans for its
oil industry could see the enclave transformed in a
few years into a significant oil-producing region in
its own right.
The Kurds' decades-old struggle against Saddam
Hussein's regime left Kurdistan largely ignored in
the race to develop Iraq's oil resources. Of Iraq's
proven oil reserves of around 115 billion barrels,
Kurdistan is known to have only between 2 and 3
billion barrels.
But Hawrami cited recent independent surveys that
put the estimated, though still unproven, reserves
higher, at around 25 billion barrels - a figure that
would put Kurdistan ahead of the United States in
terms of oil-producing potential.
Much exploration would have to be done to confirm
these amounts, and much of the oil is likely to lie
beneath mountainous terrain where the steep cost of
recovery may make it unprofitable.
Kurdistan nonetheless is confident it will be able
to produce 300,000 barrels of oil a day within the
next year, a figure that will rise to 1 million
barrels a day within the next 5 to 7 years,
according to Hawrami.
Given that Iraq's total oil production averages 2
million barrels per day, that would put Kurdistan in
the position of supplying a third of the country's
total oil production - and on a par with numerous
independent oil-producing countries.
Therein lies the political sensitivity of the Kurds'
push to develop their oil resources. Under current
revenue-sharing
agreements with Baghdad, Kurdistan is to receive 17
percent of Iraq's total oil revenues, proportionate
to its share of Iraq's
population.
But it could soon find itself contributing more than
a third of Iraq's oil revenues, a point at which it
may make sense for Kurdistan to go it alone.
Kurdistan's regional government has done the math.
''Obviously, if we're producing one third of Iraq's
production, it's not going to work,'' Hawrami said.
The question of Kurdish independence is acutely
controversial, and Kurds insist they are not
contemplating separation from Iraq. Turkey has
repeatedly pledged military intervention if the
Kurds declare independence.
Far from separating from Iraq, said Hawrami,
Kurdistan's goal is to pressure the Iraqi government
to increase its own oil production, to 8 million
barrels a day, a level at which the national
revenue-sharing agreements would make sense for
Kurdistan - and benefit all Iraqis.
Iraq's vast oil reserves, the world's third-largest,
make that technically feasible, experts say. But the
absence of security in Iraq and the country's
antiquated infrastructure make it unlikely any major
oil companies will contribute the investment
required to reach such a level in the near future.
Iraq's oil production currently lags its pre-war
peak by at least a third.
Shafiq, now an oil consultant in London, says he is
suspicious. ''A political guess would be that the
Kurds have decided to go their own way. Are they
preparing for independence? It seems like they
are,'' he said.
Yet there are many other obstacles to be overcome
before Kurdistan can start producing oil in
profitably meaningful quantities. Some of these
obstacles go to the core of the reasons why
independence remains an impossible dream.
Security concerns and political uncertainty have
deterred major players such as Chevron, Shell and
Exxon from entering even the relatively safe
Kurdistan oil market, so it has been left to small
speculators to blaze a trail into the still largely
undeveloped Kurdish oil fields.
They include Ttopco, a joint venture between Turkish
engineering firm Genel and a Switzerland-based
Canadian oil company Addax, which has signed an
agreement with Kurdistan to develop the Taq Taq
field, a barren stretch of undeveloped hillside that
is, in the words of Ttopco's general manager Can
Sevun, ''floating on oil''.
It's a risky business. Ttopco has invested $200
million in drilling and exploration, with no
guarantees that there will ever be an agreement on
an oil law to legitimize its investment. Over the
next two years it plans to spend another $2 billion
on infrastructure and on drilling 30 or 40
additional wells, on the understanding that it will
be allowed to reap a share of the profits.
The rewards are potentially vast. Ttopco believes
the Taq Taq field contains an estimated 2 billion
barrels of oil, worth around $140 billion dollars at
today's prices. It is already in a position to pump
75,000 barrels of oil a day, and it expects that
capacity to increase to 300,000 barrels a day by the
end of next year.
The figures are meaningless without either a
pipeline to transport the oil or a refinery to
refine it, and both are lacking. Ttopco says it is
planning a pipeline that would tie Taq Taq to the
main pipeline linking the Kirkuk oilfield to the
Turkish port of Ceyhan, and a small refinery to
refine oil for the local market. But it does not
have the resources to build a refinery with export
capacity, and it is still far from clear whether
Turkey would allow oil pumped in Kurdistan to be
delivered through Turkey.
''This is the big question mark over oil production
in Kurdistan - the export routes,'' said Jill
Junnola of the London-based Energy Intelligence
newsletter. ''This is the issue that may force
Kurdistan to make compromises to keep Baghdad happy,
and to keep Ankara happy - because they need to get
the oil out.''
Whether the central government will honor contracts
signed before any future oil law goes into effect is
another question.
Shafiq, who helped draft the law, says he does not
believe the contracts will be valid if the current
draft of the new law is adopted. And that would
leave companies such as Ttopco high and dry.
''This is our risk,'' said Sevun, a civil engineer
working in the oil business for the first time. ''If
they do not approve the petroleum law and they do
not approve our export license then we have a
problem. How to make money?''
''It was a risk and it's still a risk. But for now
we are happy.''
MCT
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