Iraq sees no 'real' cut in oil output from Kurdish region

Dubai — Iraq has seen no "real" contribution from the semi-autonomous Kurdish region to OPEC+ cuts in crude oil production which the federal government has had to shoulder, the country's oil minister said Oct. 20.

In the Kurdish region, "they did not follow the OPEC+ cuts," Ihsan Ismaael told the Iraq Petroleum Virtual conference. "They have internal challenges."

Iraq, OPEC's second-largest oil producer, has been a constant laggard in sticking to its OPEC+ quota for most of this year as it struggles with its finances. Officials from the federal government have blamed the Kurdistan Regional Government for failing to contribute its share of the cuts.

The KRG, which had denied accusations that it is not complying with the cuts in a Sept. 24 statement, could not be immediately reached for comment Oct. 20.

OPEC+ compliance

In September, Kurdish oil exports rose 5.6% month on month to 450,000 b/d, according to a shipping report seen by S&P Global Platts. Federal exports rose to 2.613 million b/d from 2.597 million b/d in August, according to oil ministry figures.

Baghdad and Erbil were supposed to share the OPEC+ production cuts proportionally, but SOMO figures released Sept. 10 showed the KRG at just 79% compliance with its quota in August, while the federal government hit 102%. SOMO has yet to release September data.

Iraq lowered its crude oil output in August to 3.578 million b/d, SOMO figures showed, but remained above the 3.404 million b/d it had pledged to hold production to under the OPEC+ supply accord during that month.

It has pledged to make up for overproduction in May through July by implementing compensation cuts up to December.

The OPEC+ alliance has received plans from quota busters, including Iraq, to implement extra reductions until the end of 2020. The OPEC producer's 698,000 b/d of catch-up cuts will be divided into 203,000 b/d in September and 165,000 b/d in October, November and December, according to an internal document seen by S&P Global Platts.

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7 million b/d

Iraq is on track to boost its oil production capacity to 7 million b/d by 2027 despite the OPEC+ cuts and low prices, the minister said.

The country, which has a production capacity of around 5 million b/d, will continue to work with international oil companies to reach its oil production levels, although the current OPEC+ cuts have slowed down some development projects, he added.

Iraq does not plan to change contracts with IOCs operating in the country, the minister told the MEA Energy Week organized by Siemens Energy earlier in the day.

"Our contracts with our IOCs in Iraq will stay as they are,” Ismaael said. "There are no canceling for the projects. There is some slowdown due to cash shortage. The recovery of the payment for them is not as normal but it is acceptable for both sides.”

IOCs operate fields such as Exxon Mobil's West Qurna 1, BP/CNPC's Rumaila, Lukoil's West Qurna 2, and ENI's Zubair. The IOCs are paid for the oil they produce and under complex terms of their technical service contracts, they get quarterly payments for a fixed fee/b linked to production.

2023 growth

In 2023, "will start the normal oil demand increase of 3% per year,” Ismaael told the MEA Energy Week.

OPEC has forecast a "catching up" by the sectors most affected by COVID-19 lockdown restrictions to help a rebound in oil demand back to previous volumes by about 2022.

However, other organizations have more bearish views for an oil demand recovery.

BP, most notably, said in September the market may never recover to pre-pandemic levels of roughly 100 million b/d, as the company charts a future invested heavily in renewables.

Global oil consumption, which has plunged a record 8% this year, will return to pre COVID-19 levels in 2023 if the pandemic is contained, the International Energy Agency said in its annual World Energy Outlook, released Oct. 13.