Thursday, October 7, 2010

Iraq Signs New Oil Pipeline Deals, But Who Will Pay For Them?

In September 2010 Iraq signed two new agreements to expand its oil infrastructure. First, on September 19 the Oil Ministry inked a deal to extend the use of the northern pipeline that goes to Turkey for another 15 years with a 5-year option. The line has a 1.65 million barrel a day capacity, but usually only pumps around 450,000 barrels. The two sides plan to expand that capacity by another 1 million barrels a day, but there is no timeline for when that will happen. The problem is the pipeline is plagued by attacks and technical difficulties. On September 24 for example, it was announced that the flow through the line dropped 20% due to a problem on the Iraqi side. At the end of August it was shut down for four days because of another technical issue, and on August 20 it closed for another four days due to a bombing. Baghdad also came an agreement with Syria to build a 1.25 million barrels a day crude oil pipeline and a 1.5 million barrels a day heavy oil pipeline that are meant to service the Najma and Qayara petroleum fields in Ninewa, which were auctioned off to Angola’s Sonangol in 2009. A natural gas line to supply fuel for the pumping stations for the oil pipelines is also part of the deal. Previously two pipelines were built between Iraq and Syria in 1952 and 1962 respectively, but both are out of date, and were shut down during the invasion of Kuwait in 1990. (1)

These are the latest steps by the Oil Ministry to expand its infrastructure in anticipation of a large increase in petroleum production expected from the twelve oil deals it signed in 2009 and this year. The problem is Iraq has no idea where it will get the money to build these new pipelines. The Ministry has gone to the oil companies it signed contracts with to see if they want to contribute to their construction or actually manage the projects and operate the lines afterward. The price tag is probably several billion dollars. According to the deputy Oil Minister four to five companies have expressed some interest. At the same time an oil executive told Reuters that all the talk of new lines and finding financing is just that, talk, with Baghdad having no actual plans on how they will build or pay for them. Iraq better come up with something concrete soon, otherwise there is no way that it will be able to reach its lofty goals for petroleum production and exports.

FOOTNOTES

1. Tanner, James, “After the War Iraq Is Fast Rebuilding Its Ravaged Oil Trade Into a World Leader,” Wall Street Journal, 1/8/90

SOURCES

Agence France Presse, “Iraq and Syria agree on two new oil pipelines,” 9/20/10

Ajrash, Kadhim and Razzouk, Nayla, “Iraq’s Crude Exports via Turkey – ‘Suddenly Drop’ 20% After Technical Fault,” Bloomberg, 9/24/10

Aswat al-Iraq, “Iraq on the road to become leading world oil exporter – report,” 9/21/10

Commodity Online, “Iraq upgrades oil pipeline to boost exports,” 9/18/10

El Gamal, Rania, “Iraq eyes oil firms funding for export projects,” Reuters, 9/26/10

Rasheed, Ahmed, “Iraq, Turkey sign renewed oil pipeline accord,” Reuters, 9/19/10

Tanner, James, “After the War Iraq Is Fast Rebuilding Its Ravaged Oil Trade Into a World Leader,” Wall Street Journal, 1/8/90

2 comments:

Uwodzenie said...

I think, for few firs years most problematic is not who pay for this. Probably Turkey pay barter for oil. Problem is in building this pipe safe, and stay whithous some terrorism.

Joel Wing said...

Yes, that's especially true for the northern pipeline which has proven the most vulnerable in recent years.