KRG and Baghdad reach export agreement: Update 2

Update adds Mol talking with KRG.

The Kurdistan Regional Government (KRG) has reached agreement with Iraq's federal government in Baghdad over crude exports and payments.

The agreement has been confirmed by the Iraqi prime minister's office and by a KRG spokesman. It has been approved by Iraq's council of ministers.

The KRG will increase the allocation to Baghdad of crude produced in fields under KRG control to 250,000 b/d, from the 150,000 b/d currently allocated under a temporary deal. Additionally, Iraq's state-owned marketing company Somo will use KRG infrastructure to carry 300,000 b/d of Kirkuk crude to the Iraq-Turkey export pipeline to the Turkish port of Ceyhan.

It has not been clear whether all of the 150,000 b/d allocated by the KRG to Somo in recent days is crude from fields within the KRG proper, or whether some is from the Avanah dome of the Kirkuk field and nearby Bai Hassan. Both fell under the control of the KRG peshmerga forces in June after the Iraqi army withdrew from the area in the face of an attack led by insurgents. Equally, it is unclear how much of the additional 300,000 b/d of Kirkuk crude that Iraq's federal government will export through the KRG pipeline system under the new deal will come from fields under Baghdad's control or under KRG control.

The flow of crude from Baghdad-controlled Kirkuk fields ceased in March after an explosion on a pipeline section. The routing of the new volumes of crude from the Kirkuk region through the KRG's infrastructure is expected to start within days or weeks, after technical teams have dealt with connections and pumping stations. There are no major technical issues.

Baghdad has assured the KRG that it will pay the regional government the 17pc of total Iraqi oil revenues specified in the constitution.

Asked whether the agreement allowed the KRG to continue to export crude on its own account, the KRG spokesman was more circumspect, saying exports would depend on how much production was left over after the allocation to Somo and after meeting domestic demand. But he said that the Iraqi economy requires every possible barrel to be exported, indicating that the KRG intends to continue exporting as its production rises.

The KRG has projected that production from fields it controls are set to rise to 400,000 b/d the end of the year and 500,000 b/d in the first quarter of 2015. Turkey-based KRG producer Genel said today that exports of crude produced by KRG-controlled fields to Ceyhan have already reached 350,000 b/d. Local refineries were running some 100,000 b/d earlier this year. These figures suggest that the regional government will have excess crude to sell.

And Hungarian oil oil company Mol is currently negotiating with the KRG to buy crude for its refineries in Croatia and Slovakia in 2015. In October, Mol completed a test run of KRG crude exported from Ceyhan at its 160,000 b/d Szazhalombatta refinery in Hungary.

The agreement between the parties also includes provision that Baghdad will pay Erbil some $1.2bn for the role of its Peshmerga fighters within the Iraqi armed forces.

News of the agreement was greeted by Turkey's oil minister Taner Yildiz who said: "This is extremely important…we have been saying that Baghdad and Erbil need to share their resources. We put in place a system to allow that and, although many countries opposed this system, confirmation of it from Baghdad and Erbil is pleasing for the region."

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