Iraq's energy sector needs political deal

Approval of plans to expand Iraq’s oil output and export capacity awaits the formation of a new cabinet, following May’s inconclusive election results. As Petroleum Economist writes in an article "Iraq's energy sector needs political deal", the Iraqi leader with the biggest share of the votes in the latest poll was Shia cleric Moqtada al-Sadr. But the 54 parliamentary seats that his bloc won aren't anything like enough to form a government. So Iraq's political parties are engaged in frenetic deal-making, aimed at creating some kind of coalition. Based on past experience, this could take weeks or even months.

In the meantime, the energy sector sits and waits—wondering who will eventually emerge as the new oil minister and when there'll be a sufficiently robust government to approve oil expansion plans.

One problem that the flourishing energy sector faces is that all exports are channelled to terminals in the south of the country. While the central authorities have taken back control of the Kirkuk oilfield in the north from the Kurdish Regional Government, the restart of exports to Ceyhan in Turkey await the construction of a new pipeline.

The Baghdad government is unwilling to pump the potential 325,000 barrels a day of Kirkuk crude through the KRG export infrastructure. Talks on this issue and several other contentious ones remain on hold, pending the creation of a new federal administration.

Southern export capacity is a healthy 4m b/d. But it won't rise much above this until the approval of plans to carry out a major upgrade of infrastructure at the Basra oil terminal and Khor al-Amaya. New pipelines and storage tanks will enable Iraq to pump more oil onto tankers from the ports and single-point mooring buoys.

Also awaiting new-government impetus is a long-delayed plan to pump seawater to Iraq's southern oilfields. This is urgently needed to maintain water pressure, and if it doesn't become available soon, then output expansion plans will be scaled back. The Common Seawater Supply Project was conceived back in 2010. Various efforts to involve international oil companies in the scheme have floundered. Most recently, talks between the Iraqi authorities on the one side and ExxonMobil and China National Petroleum Corporation on the other, broke down. So there's no hope of the planned 5m b/d of seawater in the first phase reaching the fields until well into the next decade. Then there's another delayed scheme: to build an export pipeline to Jordan's Red Sea port of Aqaba. The Amman government has approved plans. Now it's up to the Iraqi government to respond.

So when a coalition is eventually formed, there'll be no shortage of to-do items on its energy agenda.