SOUTH OF THE BORDER

Turkey 2014 | ENERGY | FOCUS: NORTH IRAQ PIPELINE

In December 2013, oil finally started pumping across the Northern Iraqi border to Turkey. For years previously, with the increasing independence of the Kurdistan Regional Government (KRG) and an accordingly defiant attitude toward the Baghdad administration's insistence on monopolizing resource exports, extensive convoys of trucks managed the transport of oil from the area. Though criticized by the Iraqi administration, a number of international firms signed E&P agreements with the KRG. Ultimately, however, corporations have respected official Iraqi law and waited for Baghdad's approval.

In December 2013, oil finally started pumping across the Northern Iraqi border to Turkey. For years previously, with the increasing independence of the Kurdistan Regional Government (KRG) and an accordingly defiant attitude toward the Baghdad administration's insistence on monopolizing resource exports, extensive convoys of trucks managed the transport of oil from the area. Though criticized by the Iraqi administration, a number of international firms signed E&P agreements with the KRG. Ultimately, however, corporations have respected official Iraqi law and waited for Baghdad's approval.

Turkey's demand for oil and gas is high, with local production of oil at around 7.3% and gas at just 2% of overall consumption. It is at the mercy of suppliers in Russia and Iran (the latter suffering sanctions, which are pushing costs higher), so has been searching for new sources in Central Asia, the Caspian, and the Middle East. However, its unique location between these suppliers and another area of high demand for resources, Europe, offers special opportunities. Turkey's international role as an oil transit hub is played out through Russian traffic through the Bosphorus and Dardanelles, the Baku-Tbilisi-Ceyhan pipeline, and the Kirkuk-Ceyhan pipeline.

The port at Ceyhan is the terminus and crucial outlet for the crude oil exports from the Caspian and Iraq. In order to supplement revenue derived from transit fees, several refineries have been commissioned to add value to the facilities. The terminal already counts on four crude oil loading berths, vapor incineration, wastewater, and metering facilities, as well as several storage tanks. Turkey is keen to develop the location as a regional hub for both the transport and the refining of oil, and within a short number of years, gas. “We are determined to become a regional energy hub by leveraging both our strategic and geopolitical position," explained Minister of Energy and Natural Resources, Taner Yıldız, in a TBY interview. “The Turkey-KRG pipeline project holds much promise for Turkey."

These resources are being channeled by the KRG to the original 1970s Kirkuk-Ceyhan pipeline. The first phase of the regional government's plan was to connect Taq Taq to the refinery in Erbil, and subsequently connect with the existing pipeline. The secondary phase links the region's fields directly with Fish Khabur on the border with Turkey. The current capacity of the pipeline is 300,000 bbl/d, but the KRG is aiming to reach 1 million bbl/d in exports by 2015, and double that figure by 2020. Full commissioning of the pipeline is expected for 2H2014. Gas exports are expected to begin in 2016, at a rate of 4 billion cubic meters (bcm) from 2017, and as high as 10 bcm by 2020. In addition, the first gas from the Summail field is expected within 2Q2014.

The projects will link the rich Kurdish oilfields in the northern Iraqi provinces of Dohuk and Erbil to the Mediterranean Turkish port of Ceyhan. The Anglo-Turkish firm Genel Energy Plc operates the various fields that are supplying oil to the pipeline, in cooperation with Norway's DNO, and the model represents an unprecedented divergence from the traditional control of energy infrastructure by the government of Iraq. Former BP head Tony Hayward is the CEO of LSE-listed Genel Energy, which operates seven fields in total in the region. It has a 44% interest in the Taq Taq field while the KRG holds 20%, and a target of 200,000 bbl/d in gross production capacity has been set for 2014. The field produced an average of 77,000 bbl/d in 2013, 2,500 more than the 2012 average. Of this total, 20,000 bbl/d were exported, while the rest was utilized locally. The facility's deep well reached a depth of 4,600 meters in early 2014, prompting excitement over the 300 meters of gas shows and condensate discovered.

Genel's smaller share in the Tawke and the potential Tawke-Peshkabir fields, where veteran Northern Iraq explorer DNO hold 55%, could result in another 200,000 bbl/d capacity by the end of 2014. This field produced an average of 39,000 bbl/d in 2013, smaller than in 2012 due to lower local demand and access difficulties to export markets. Two new horizontal wells were inaugurated in mid-2013 as part of DNO's ongoing field development of the field. Both wells broke records for single-well production at the field, with Tawke-20 reaching 25,000 bbl/d, and Tawke-23 managing a high of 32,500 bbl/d. An additional two wells are expected to be operational within 1H2014.

Genel has a further 44% interest, so far unapproved by the KRG, in the adjacent Bina Baqi field with estimated resources of 500 million barrels of oil equivalent (boe) and 1 billion boe overall. In addition, the company maintains a 60% interest in the prospective resources of Chia Surkh, while gas reserves of 3.75 tcf will be exploited in the Miran license along with the potential Summail oil and gas discovery in Dohuk.

The international transportation of this new source of oil and gas has come with predictable political repercussions for the KRG from Iraq. A strong response from Baghdad has included increased exports to Turkey to rival the emergent flow from the Northeast. This works in energy-starved Turkey's favor, but officials have been careful to treat both sides of the dispute with respect. The official reaction has been that though they are undisposed toward any violation of Iraq's sovereignty, oil coming from Northern Iraq will naturally be transported through Turkey.