Kurdish Oil Begins Flowing to International Market

By THE ASSOCIATED PRESS Published: June 1, 2009

IRBIL, Iraq (AP) — Iraq's self-ruled Kurdish region officially started pumping crude oil to the international market on Monday, a development that will boost Iraq's cash-strapped economy.

The move could also bolster the Kurds' political clout and ease tension with the central government that has threatened to erupt into new violence.

Kurdish leaders hailed the exports as a chance to make up for lost time in Iraq's oil industry. The country sits on the world's third-largest known oil reserves, but the industry has been devastated by sanctions, sabotage and insurgent attacks as well as the inability of Iraqi politicians to agree on an oil and revenue sharing law.

"It is an important and historic day for Iraq when its people make use of their natural resources properly," Iraqi President Jalal Talabani, a Kurd, said during a ceremony in the regional capital, Irbil.

Nearly 100,000 barrels of oil were sent from the Taq Taq and Tawke oil fields to the national pipeline that carries it to the Turkish port of Ceyhan. Previously, oil pumped in the region was used for domestic consumption.

About 40,000 barrels per day will initially be sent from Taq Taq, which is in a remote area of Irbil, with another 60,000 barrels a day from the Tawke field in nearby Dahuk province.

The two fields are expected to reach a total capacity of 250,000 barrels per day within a year and 1 million barrels per day in the coming two to three years, said Khalid Saleh, a spokesman for the region's Natural Resources Ministry.

Samuel Ciszuk, a Middle East energy analyst with the consulting firm IHS Global Insight, said the million barrel projection seemed "a bit over-optimistic," but the exports should "stimulate exploration investment" among international oil companies.

Iraq currently produces about 2.4 million barrels of oil per day and exports about 1.9 million — most from ports in the Shiite south.

The Kurdish exports represent a breakthrough after months of bitter disputes between the Kurds and the Arab-dominated central government over the country's oil riches.

The two sides have been at loggerheads over nearly two dozen deals signed by the Kurds after the U.S.-led invasion in 2003 and foreign companies.

The Baghdad government maintained those deals were illegal since it had not approved them. The Oil Ministry threatened to blacklist the international companies involved.

But facing a budget crisis due to falling oil prices, the central government earlier this month approved the Kurdish plans to export crude. Oil prices pushed to nearly $68 a barrel on Monday but remained well below last summer's high of $150.

Iraq, which depends on oil revenues for more than 90 percent of its budget, had to cut its spending plan for this year from $79 billion to $58.6 billion.

According to the agreement, revenues will be deposited in a federal account. The Kurds will receive 17 percent, the share allotted to them in the federal budget.

Tawke is being developed jointly by independent Norwegian oil company DNO and Turkey's Genel Enerji, while Swiss-Canadian Addax Petroleum Corp. is jointly operating the Taq Taq field with Genel Enerji.

The Western companies were the first to develop fields and export oil from Iraq since 1972 when Iraq nationalized its oil industry.

Still pending, however, was the issue of how the international companies will be reimbursed for their investment. Kurdish officials said only that negotiations with the central government on the issue will start soon.

Company executives called for quick resolution.

"If this issue is not going to be solved soon, then it would have an impact on our future investment (in the region)," DNO's chief executive Helge Eide said on the sidelines of the ceremony.

The Kurds, who comprise about 20 percent of Iraq's population, hope the exports will thaw chilly relations with the central government.

The Kurds, who faced persecution under Saddam Hussein's regime, have been key U.S. allies and major players in the national governing coalition.

But tensions have been rising because of allegations the Kurds are attempting to expand their self-ruled area. Many Iraqi Arabs feel the Kurds have a disproportionate share of power.

Oslo-based DNO became the first independent Western oil company to secure an oil deal in post-Saddam Iraq, signing a production sharing contract with the Kurds in June 2004 to develop the Tawke field.

Three years later, the field came on stream but DNO was forced to sell the produced oil on the local market where prices are lower because it could not obtain an export permit due to the standoff between the Kurds and Baghdad. The field has 14 wells and more will be drilled.

Earlier this year, Genel Enerji teamed up with DNO in the Tawke development project.

In July 2005, the Swiss-Canadian independent Addax Petroleum joined Genel Enerji in a production sharing contract to develop Taq Taq.

The field, which has 11 wells, came on stream in November 2006 and faced the same export problem.

The northern Kurdish region has reserves of at least 40-45 billion barrels of oil, nearly half of Iraq's proven 115 billion barrels.