Wednesday, January 30, 2013

Despite Ups And Downs Iraq’s Oil Industry Sees Large Growth In 2012


Like every year Iraq’s oil output was up and down throughout 2012. Despite that, the country saw large gains overall. That included the highest production and exports in 30 years, and a huge increase in revenues. This was the result of the work of foreign companies operating in southern Iraq, the opening of two new mooring points that allowed for greater foreign sales, and continued tension in the Middle East that kept petroleum prices high.

Iraq ended on a down note in December. For the month, it exported an average of 2.35 million barrels a day. That was an 11% drop from November’s 2.62 million barrels. The southern pipeline exported an average of 2.022 million in December, down from 2.122 million the previous month. The northern pipeline saw a larger decline going from 426,600 barrels in November to 325,800 in December. 11,000 barrels was also trucked to Jordan a day. December’s decline was due to two main factors. First, bad weather again hit the port in Basra, which delays tankers from docking and loading their cargos. Second, the Kurds cut off their exports for the second time in 2012. Just like the last time, the Kurdistan Regional Government (KRG) accused Baghdad of refusing to pay the companies that operate there for their costs. The central government was due to make a second payment of $296.6 million, but failed to deliver. Deputy Prime Minister Hussein Shahristani said that Kurdistan was not meeting its export quotas, which it was not, but the main issue was the unresolved conflict between the two over who has the authority to sign oil deals. In September, the two sides came to a new export deal, but it quickly broke down just as the previous two did, because of the outstanding issues between Baghdad and Irbil. The Kurds ended up stopping exports on December 21 as a result. Until those differences are resolved more of these short-term agreements will come and go. The problem of bad weather in the south has afflicted Iraq for decades, and requires a large investment in new infrastructure to overcome. Baghdad has that on its to do list, but has not done anything concrete about it yet.

To go along with the decrease in exports, Iraq’s oil also declined in price last month. For December, a barrel of Iraqi crude went for $103.72, down from $104.32 in November. This was part of a three-month decline in prices. As a result, Iraq earned $7.551 billion in December, compared to $8.2 billion in November, making it the fourth lowest monthly total for 2012.

Iraq Oil Exports And Profits 2011-2012
Month
Avg.
Exports
(Mil/
Bar/
Day)
Avg. Price Per Barrel
Revenue (Bil)
Jan. 11
2.16
$90.78
$6.082
Feb.
2.20
$98.44
$6.064
Mar.
2.15
$107.13
$7.167
Apr.
2.14
$114.26
$7.342
May
2.22
$108
$7.45
Jun.
2.27
$105.17
$7.173
Jul.
2.16
$108.79
$7.311
Aug.
2.18
$104.91
$7.124
Sep.
2.10
$104.89
$6.619
Oct.
2.08
$104.04
$6.742
Nov.
2.13
$106.59
$6.833
Dec.
2.14
$106.18
$7.061
2011 Avg.
2.16
$105.00
$6.913
Jan. 12
2.10
$109.08
$7.123
Feb.
2.01
$112.92
$6.595
Mar.
2.31
$117.99
$8.472
Apr.
2.50
$116.79
$8.795
May
2.45
$103.03
$7.831
Jun.
2.40
$90.09
$6.487
Jul.
2.51
$97.14
$7.577
Aug.
2.56
$106.22
$8.445
Sep.
2.59
$107.59
$8.371
Oct.
2.62
$105.51
$8.578
Nov.
2.62
$104.32
$8.200
Dec.
2.35
$103.72
$7.551
2012
Avg.
2.41
$106.20
$7.835

Oil Exports Through Basra 2012
January 1.711 mil/bar/day
February 1.639 mil/bar/day
March 1.917 mil/bar/day
April 2.115 mil/bar/day
May 2.086 mil/bar/day
June 2.085 mil/bar/day
July 2.216 mil/bar/day
August 2.252 mil/bar/day
September 2.178 mil/bar/day
October 2.172 mil/bar/day
November 2.122 mil/bar/day
December 2.022 mil/bar/day

Oil Exports Through Kirkuk 2012
January 393,500 bar/day
February 375,800 bar/day
March 400,000 bar/day
April 393,300 bar/day
May 364,500 bar/day
June 316,600 bar/day
July 300,000 bar/day
August 312,900 bar/day
September 420,000 bar/day
October 451,600 bar/day
November 426,600 bar/day
December 325,800 bar/day

In December, Iraq and Jordan also agreed to a new pipeline that would connect Iraq’s southern fields with the port of Aqaba on the Red Sea. At the same time, Baghdad said it would increase its exports to Jordan from 10,000 barrels a day to 15,000. That petroleum is used for domestic use in Jordan, and is extremely important to the local economy there. It is also sold at below market value to maintain good relations between the two countries. The plan for a new pipeline is part of Iraq’s attempt to decrease its dependence upon the port in Basra for the majority of its exports. The potential for conflict between the West and Iran remains high, and that could cut off shipping through the Persian Gulf, which could strangle Iraq’s economy. Baghdad is exploring other possible export routes as well.

For the year, Iraq reached some impressive benchmarks. First, in March, it produced over 3 million barrels of oil for the first time in 30 years. That was surpassed in September when it reached 3.2 million barrels. Exports saw a big increase as well, hitting an average of 2.565 million barrels a day in August, again a 30 year high. That mark was passed in October and November when Iraq reached 2.62 million barrels in exports. The major cause for the impressive numbers was the opening of two new mooring stations in the port of al-Faw in March and April. The lack of onshore pumping stations and other new pipelines are still an issue. For example, the two moorings can’t operate simultaneously, so even though they have a capacity of 850,000-900,000 barrels a day each, they can only work at half of that until new lines are built. Still, exports overall went up 11% for the year to 2.41 million barrels compared to 2011’s 2.16 million. Continued tensions in the Middle East and North Africa also kept prices high at an average of $106.20 per barrel for Iraqi crude, up from $105.00 in 2011. The results were record revenues going from $82.968 billion in 2011 to $94.025 billion in 2012. The future of prices this year is more uncertain. Countries that had drops because of their internal conflicts such as Libya are starting to pump more oil. At the same time sanctions against Iran have resulted in a major decline in their exports. There is also a conflict within OPEC over whether countries are overproducing, which could result in a drop in international prices. Iraq’s plans to continue to produce and export as much as possible could run into problems as a result. They could either continue to benefit from the high prices due to problems with Iran and other countries or their policy could contribute to their decline.

Iraq is slowly, but surely recovering from the negative effects of decades of wars and sanctions. 2012 was a notable year as the country returned to its petroleum production levels of the 1980s. This year it could even surpass those figures. There is still massive work ahead, especially in terms of infrastructure before it can reach its potential. The central government’s running war of words with Kurdistan over oil contracts will continue as well, but will have little impact upon overall numbers as the vast majority of oil is located in the south. Still, Kurdish exports can be expected to come and go through the northern pipeline for the foreseeable future. The real issue facing Iraq is the world energy market. If prices drop, Baghdad might be forced to re-think some of its short-term goals. The country has already begun to re-work deals with international countries to par down its strategic production goals. Further cuts may come otherwise Iraq could end up hurting itself by pushing exports during a time when the market is being flooded with oil from other producers.

SOURCES

Agence France Presse, “Bad weather, dispute with Kurdish region weigh on Iraq oil exports,” 1/21/13
- “Iraq agrees to extend oil pipeline through Jordan,” 12/24/12
- “Iraq oil exports highest in 30 years,” 9/1/12

Ajrash, Kadhim and Razzouk, Nayla, “Iraq Kurds Halt Crude Exports, Central Government Official Says,” Bloomberg, 12/24/12

Bakr, Amena and Mackey, Peg, “Iraq-Saudi OPEC standoff over next oil curbs,” Reuters, 12/12/12

Dow Jones, “Iraq December Oil Exports Down 11% On Month,” 1/7/13

Hafidh, Hassan, “Iraq Oil Sales Revenue Falls In November, Up On Year,” Dow Jones, 12/4/12

Hatcher, Jane, “Iraq oil exports bring in over 8bln in USD in November: statement,” Xinhua, 12/25/12

Mohammed, Aref, “Iraq south oilfields to pump 2.75 mbpd by end 2012,” Reuters, 4/20/12

Al Rafidayn, “Iraq says it obscures payments for Kurdish oil exports,” 12/22/12

Rasheed, Ahmed, “Iraq sees reaching 6 man bpd by 2017,” Reuters, 9/15/12

Republic of Iraq Ministry of Oil, “Iraq Crude Oil Exports – December 2012,” 1/21/13

Reuters, “Iraq says to withhold payments for Kurdish oil,” 12/21/12

Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual Report to the United States Congress,” 7/30/12

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