Carola Hoyos A turning point for Iraq’s oil industry?

Good news travels fast. Shares in DNO, the Norwegian oil company, whose greatest claim to fame is that it produced Iraq’s first new oil since the end of the US invasion, rose as much as 29 per cent today. The company has been given the go-ahead to use the main Turkey-Iraq pipeline instead of exporting its oil via truck.

As long as all goes to plan, DNO will be able to send the oil via the pipeline from June 1. Addax, the Swiss company, sits in a similar boat. The volumes involved add up to less than 100,000 barrels a day: a lot for the two small companies, but for Iraq – given its huge 2m + production and huge potential – it’s not enormous.

Bigger volumes will be at play once oil majors, such as BP and Royal Dutch Shell, are allowed back in to boost declining reserves. That their return – after nearly 40 years – appears closer now than it has done any time since the end of the US invasion – comes down to the same thing as the agreement that has boosted the fortunes of DNO: the oil price.

As the oil price is sharply lower since July, Iraq can no longer rely on current revenue to fulfil its budget and is forced to look to the future. It is likely this that has helped bring about the apparent agreement between KRG and Baghdad, just as it prompted Baghdad to finally get serious about drawing up a contract on which the big oil companies can bid for the right to work on the fields within its (rather than the KRG’s) control.

So what comes next – a hydrocarbons law, the planned overarching legislation which would enable greater international involvement in the country’s fossil fuels sector? Or is that one just too hard to crack and less critical now that Baghdad and the KRG seem to have found their interim solutions?

Another big question about the announcement is whether the pipeline switch will in fact happen as declared, after so much delay and disagreement.

Ashti Hawrami, the Kurdistan regional government’s oil minister was confident that it would go ahead in an FT interview on Friday – but his fighting words indicate that he’s under no illusions that this will go 100 per cent smoothly:

We are absolutely certain oil will flow on that day. Otherwise we wouldn’t put  out the release.

There has never been a dispute that this oil belongs to all of Iraq, including Kurdistan. Nobody objects to that.  Also Iraq desperately needs the oil revenues, and no one can deny that. The rest that needs to be worked out is just rough edges – I am talking about the oil law, the constitution, the legalities.

The oil operations are under KRG control. The operators have been allowed to reach the point of tie-in to the pipeline. The operators have been notified (that June 1 is the first flow date). Anything that is left pending to complete is just hiccups.

All of this is about something very simple: barrels of oil flowing. Barrels of oil flowing for everyone’s benefits. As of June, (the oil) will create 20 more dollars per family per month for all of Iraq.

The rough edges of course still need to be worked out. But if someone says, I wouldnt allow it. I would say, how would you not allow it. Are you going to shut down the Kirkuk pipeline? Once we do this (flow oil), it’s gone. period.

Related links:

Baghdad and Kurds near oil pact (FT 04/12/09)