Kurd Oil Supply Seen Growing as Region Grabs More Territory

Jun 18, 2014 8:18 am ET

(Updates with KRG willing to export Kirkuk crude in second paragraph, analyst comment in 13th.)

June 18 (Bloomberg) -- Iraq’s Kurdish region may be able to gain more autonomy and increase crude exports after taking control of territory around the nation’s fourth-largest oil field, analysts from Saxo Bank A/S and JBC Energy GmbH said.

Kurdish troops are protecting the Kirkuk oil field and surrounding areas after an offensive by Islamist insurgents last week prompted Iraqi central-government forces to flee. The Kurdistan Regional Government is “willing to help” Iraq export crude from Kirkuk, Taha Zanghana, KRG’s deputy minister of natural resources, said at a conference in London today.

“The current situation could lead to a better environment for exports if the Kurdish region gets more autonomy and can ship its oil, and the south of Iraq continues to grow,” David Wech, the managing director at JBC in Vienna, said by phone.

The Iraqi government in Baghdad and the Kurds have been in a dispute over oil revenue and territory for years, including disagreements about Kirkuk. Tensions increased last month when the Kurds started to export crude to Turkey through their own pipeline without approval. Two tankers have loaded cargoes of crude from the Kurdish region on Turkey’s Mediterranean coast.

Double Exports

The KRG plans to double its crude exports next month to as much as 250,000 barrels a day and has built pipeline capacity that could ship Kirkuk oil to international markets, Ashti Hawrami, KRG’s natural resources minister, said yesterday at the Iraq Petroleum Conference in London.

Two more tankers will load oil exported from the Kurdish region at the Turkish port of Ceyhan this week, Hawrami said. The region will raise exports to 200,000 to 250,000 barrels a day in July, from 125,000 now, he said. Daily shipments may increase to 400,000 barrels by the end of the year, he said.

“The central government has tried to halt exports from the region, but it is weak and the Kurdish north could potentially be heading for independence,” Ole Hansen, the head of commodity strategy at Saxo Bank in Copenhagen, said by e-mail. “It could potentially mean increased supply from a region that has been relatively stable.”

Exports of Basrah Light, southern Iraq’s main crude, may reach about 2.8 million barrels a day next month, according to a preliminary loading plan obtained by Bloomberg News on June 16.

Current Kurdish exports aren’t big enough to make a difference to global oil markets “compared with what’s coming out of Basrah in the south, but political stability there could attract renewed investment and increase the effort to produce more,” Hansen said.

Kirkuk Pipeline

The Kurdistan Regional Government controls 45 billion barrels of oil reserves and has attracted international companies including Exxon Mobil Corp. and Total SA with financial terms many investors see as more generous than those available in the rest of the country.

Kirkuk contains 8.9 billion barrels of crude reserves, according to data compiled by Bloomberg. The field and its surrounding area produce 300,000 barrels a day, down from 650,000 to 700,000 before March 2, when the export pipeline to Ceyhan was sabotaged, according to a statement from state-run North Oil Co.

The government in Baghdad has declined an offer to export oil from the Kirkuk area to Turkey through a separate pipeline controlled by the Kurdish government, Hawrami said in London. The recently completed link could ship 325,000 barrels a day of Kirkuk crude, by connecting the area to an existing pipeline that runs through Kurdish territory, he said.

Calm Markets

“It’s feasible, and it will help calm global oil markets, though it may make the Kurdish situation even more complicated, in terms of revenue sharing with the central government,” Robin Mills, the head of consulting at Dubai-based Manaar Energy Consulting and Project Management, said in an interview.

Brent crude futures rose 4.4 percent in London trading last week, the most since July, as the conflict in Iraq fanned concern that oil supplies may be disrupted. The contract for August delivery was at about $113 a barrel today.

--With assistance from Rupert Rowling in London.