Initial volumes flowing through the pipeline averaged 50,000 barrels per day. The target is to achieve 100,000 barrels per day in the coming weeks with the potential for significantly more in the future, Poten & Partners recently said in a report.
The resumption of exports is the result of a tentative agreement between Iraq and the semi-autonomous Kurdistan Regional Government (KRG). The 50-100,000 barrels will be in addition to the 300-350,000 barrels per day of Iraqi crude that is already exported through Ceyhan.
Most Iraqi barrels are destined for Mediterranean countries. Israel, Italy, Greece and Croatia are some of the largest recipients. If we assume that the new barrels will target countries in the Mediterranean, the extra volumes will mostly benefit Aframax and Suezmax tankers, Poten said.
The Kirkuk oil fields still have the capacity to produce up to 1 mill barrels per day. In recent years, the fields have changed hands several times. The Kurds took control of Kirkuk in 2014 when Islamic State swept into Northern Iraq and federal troops fled the area.
Because the Iraqi part of the pipeline had suffered substantial damage after years of conflicts, the KRG and its international partners needed to build an alternative export-oriented pipeline to link up with the Turkey pipeline to Ceyhan.
Using this pipeline – which was sold to Russia’s Rosneft last year – the Kurds boosted exports of Iraqi crude out of Ceyhan to well over 500,000 barrels per day. However, in September, 2017, when the Kurds held an independence referendum, Iraq’s army decided to retake the fields from Kurdish forces.
As a result, Ceyhan exports of (KRG controlled) Iraqi crude dropped to around 300,000 barrels per day. This situation lasted for about a year. During this period, the KRG and Rosneft upgraded the pipeline and raised its capacity to 1 million barrels per day.
Today, the pipeline has the capacity to accommodate the volumes from both the fields operated by the KRG, as well as the fields controlled by the Iraqi government.
It is probably no coincidence that the Kurds and Iraqi’s reached a deal shortly after the US sanctions against Iran became effective, Poten said. After the Iraqi forces seized the Kirkuk fields, they were unable to sell any meaningful quantities of crude to Iran because the Kurds controlled the export pipeline.
Instead, Iraq started to sell small quantities (around 30,000 barrels per day) of crude to Iran, delivered by oil trucks.
At the moment, Iraqi exports from Ceyhan are relatively small in comparison to the volumes being shipped out of Iraq’s Al Basrah terminal in the Arabian Gulf. In 2018 to date (mid November), Iraqi exports out of Basrah average 3.57 mill barrels per day, compared to 330,000 barrels per day from Ceyhan.
Basrah exports are close to capacity and are unlikely to grow much without significant additional infrastructure investments. Ceyhan exports, on the other hand, could easily double potentially going even higher if the Iraqi government and the KRG continue to co-operate.
The one thing that could derail the Iraqi export growth, at least in the short term, is a decision by OPEC to curtail production.
Although Iraq did not fully adhere to the previous production cuts, there could be more pressure on them to comply during the next round.
How Iraqi production and export cuts will impact the tanker market will depend to a large extent on whether they decide to cut flows to Ceyhan or to Basrah or split it between the two terminals.
As mentioned earlier, Ceyhan flows mostly impact short-haul trips in the Mediterranean on Aframaxes and Suezmaxes, while exports from Basrah tend to be longer-haul voyages, predominantly on VLCCs, Poten pointed out.