Kurdistan’s export strategy: an oil-filled natural By John Roberts | June 5, 2013 12:01 AM
https://blogs.platts.com/2013/06/05/kurd-line/
Question: When is a gas pipeline not a gas pipeline? Answer: when it’s carrying oil.
This is a Q & A of particular relevance to the Kurdistan Region of Iraq, where ongoing tensions with the Federal Government of Iraq and a rapidly changing hydrocarbons investment profile are prompting innovative approaches to getting stranded hydrocarbons to market.
The line in question was originally intended to carry gas from near Erbil, the capital of the Kurdistan region, to a new power station serving the northern city of Dohuk. As recently as December 2012, Kurdish regional government officials were asserting that the line would be ready for use in February or March, making Dohuk the third Kurdish power station to receive gas from the Khor Mor gas field in southern Kurdistan.
Just a few months on and the line is undergoing testing, but for oil, not gas. And, what’s more, it’s part of a system that is quite definitely aimed at providing the Kurdish region of Iraq with a way of exporting oil to Turkey that is not reliant on lines primarily serving output from Federal Iraq.
The line has an interesting history. After the Danagas/Crescent group completed construction of its initial 180-km gas pipeline from the Khor Mor gasfield to Erbil in 2009, there were persistent reports of Kurdish plans to extend the line to supply gas to the power station at Dohuk, which currently runs on oil.
But while Dohuk was reckoned to need just 100 mcf/d of gas, for most of its length the line was to be built with the ability to carry at least 400 mcf/d, with some suggesting it could carry as much as 600 mcf/d. It was generally assumed that the extra capacity was intended to supply gas to Turkey, most likely to provide fuel for a power station just across the border at Silopi, which would then supply power to Mosul and other northern cities governed by the Federal Iraqi Government in Baghdad.
Now the line is being tested with a view to checking that it possesses a capacity to carry as much as 300,000 b/d of crude.
It’s not a long line. It runs for just under 100 km from the Greater Zab River to Dohuk, but it is hugely significant. First, at the southern end it plugs into the Khurmala Dome. This is one of the three key elements of the supergiant Kirkuk oilfield complex and the only one that falls within the boundaries administered by the Kurdistan Regional Government. Secondly, Khurmala is becoming the gathering center for a cluster of other oilfields currently under development, notably Genel Enerji’s Taq Taq field.
Thirdly, at its northern end, pipe is already being laid for a 50-km extension from Dohuk to Fish Khabur on the border with Turkey. This line should be ready for testing in September.
At Fish Khabur, however, there is a problem. It’s essentially political rather than technical. Fish Khabur constitutes the last point on the main Kirkuk-Ceyhan system that carries oil produced at Iraq’s northern oilfields, notably Kirkuk itself, on behalf of the Federal Iraqi authorities. For the last ten or so kilometers, the line runs across terrain administered by the KRG, and in that small stretch of line there is an input connection from the Tawke field, operated by Norway’s DNO under a production sharing agreement with the KRG.
But would any new pipeline coming up from Khurmala copy DNO in plugging its throughput into Kirkuk-Ceyhan at a point in a system still operated on behalf of the Federal authorities? Or would it continue a few extra kilometers across the border into Turkey?
The KRG authorities are keeping very, very quiet on this. In essence, so long as they plug it into Kirkuk-Ceyhan on the Iraqi side of the border, they can argue that they are acting within what they consider to be their rights as an autonomous authority operating within a Federal structure.
But Baghdad does not share this view. It considers that the KRG’s award of a host of PSAs to international companies is unconstitutional. And in the absence of any settlement to this dispute, Baghdad has opted to halt reimbursements to companies that have invested in the KRG region. That has prompted the KRG to order to clampdown on exports from the KRG area, since export revenues go direct to Baghdad, albeit with 17% of them subsequently supposed to be returned to the KRG.
The ongoing dispute means that there have been no pipeline exports from Kurdistan-Iraq, as the KRG terms the territory it administers, since late December. Instead, companies operating in the KRG area have resorted to trucking their oil to Turkey, just as Saddam Hussein’s Iraq did more than 20 years ago in the wake of UN sanctions imposed on Iraq for invading Kuwait. From Taq Taq, Genel Enerji in May was trucking around 40,000 b/d directly to Turkey in contrast to pre-cutoff exports of around 55,000 b/d achieved by trucking export-oriented crude to the Khurmala connection with the Kirkuk-Ceyhan system.
So plugging the new line into Kirkuk-Ceyhan on the Iraqi side of the border either requires Federal Iraqi approval or, in its absence, would constitute a declaration that the KRG considered it had a legal right, as well the practical authority, to control this short section of the Kirkuk-Ceyhan line. That would not go down well in Baghdad.
So will the KRG authorities opt to extend their line across the border into Turkey? This really would be entering new territory. Building a cross-border link–no matter how small, no matter how short–without the formal authority of the Federal Government would likewise pose a challenge that Baghdad could not ignore without losing an awful lot of face.
The KRG’s hope is that Turkey will not only approve any new cross-border pipeline connections but provide the political support necessary to challenge Baghdad on such an issue. But even before domestic issues rose to the top of the Erdogan premiership’s agenda, the KRG pipeline issue, which loomed very large just a few months ago, slipped down the rankings. It was scarcely mentioned when Turkish Prime Minister Recep Tayyip Erdogan visited Washington in May, although before the visit Turkish sources in Ankara and Istanbul thought that he would be asking President Obama for US support for direct KRG-Turkey pipeline connections.
Now, at least in terms of the Turkey-US diplomatic dialogue, the issue is on the back burner, supplanted first by Syria and now by the Istanbul street protests against Erdogan’s increasingly personal style of government. So, for the time being at least, the KRG authorities have to confront the dilemma of what to do with a nearly completed pipeline — quite literally, of how to terminate a nearly-completed pipeline — on their own.
Meanwhile, for the producers in Kurdistan, they must cope with the other half of the equation: how to ensure a return not only on stranded resources but on stranded production. They have already made the investments required to increase production considerably, including the provision of a direct 78-km, 200,000 b/d line from Taq Taq to Khurmala (to obviate the need for internal trucking), and now want to see a return on their investment. And, of course, they cannot afford to see their new facilities operate at reduced capacity indefinitely.
In the next two-to-three years, the KRG hopes that the producers with whom it has signed PSAs will be able to export no less than one million barrels a day as well as providing oil for domestic refineries and outlying power plants. By 2015-16 – they used to say “in 2014” –- the Kurdish authorities consider that the addition of a new pumping station at Khurmala plus upgrading of facilities in Tawke and input from a cluster of other producers could well deliver the KRG’s vaunted goal of a one million barrel-a-day export system.
The KRG authorities specifically hope that the new 78-km line from Taq Taq to Khurmala can secure a capacity increase to 400,000 b/d so that it can serve other fields, including Bina Bawi, where Genel is operator, and Safeen, in which Total has a stake. They also anticipate that by 2015-16 they will also have built a second feeder to Khurmala, capable of carrying up to 500,000 b/d from major new discoveries at Kurdamir and Garmian in south-eastern Kurdistan-Iraq and which would also serve oil produced at such fields as Khor Mor, Topkhana and Miran. This means, of course, that from Khurmala to Fish Khabur, the system currently being tested to carry some 300,000 b/d would have to be expanded to carry at least 900,000 b/d.
And there are other fields which will also have to be plugged in to whatever system finally emerges. The most important of these is Shaikan, where Gulf Keystone is operator, and, with at least 12.4 billion barrels of oil-in-place, is the biggest field to be found in Kurdistan-Iraq since its emergence as an autonomous territory. Gulf Keystone has been targeting 2015 for the production of around 150,000 b/d with hopes that it can subsequently take output to as much as 400,000 b/d.
But Shaikan produces heavy crude, so Gulf Keystone has looked at longer-term development of a dedicated pipeline to carry its output direct to Ceyhan by a wholly new system. But in the near term it has also been considering adding some Shaikan output into a blend with lighter crudes, to be carried to market via whatever new export arrangements are installed at Fish Khabur.
Oh yes, and there’s one final role that Shaikan can play. The field is located near Dohuk and possesses a fair amount of associated gas. It would be quite a simple matter to hook it up to the Dohuk power station and thus ensure that the original raison d’être for Kurdistan’s controversial new pipeline actually secured its fuel of choice.