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Analysis-Kurdish tensions stymie Iraqi region’s gas export ambitions

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© Reuters. General view of Sulaymaniyah city, Iraq, June 9, 2022. REUTERS/Mohammed Jalal

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By Amina Ismail and Maha El Dahan

SULAIMANIYA, Iraq (Reuters) – The prime minister of Iraqi Kurdistan, Masrour Barzani, has been touting the autonomous region’s gas export capabilities as an alternative to Russian supply, but division between the region’s two main parties suggest the plan is, for now, a pipe dream.

While his political party is selling the project as part of a solution to Europe’s gas woes, its regional partner has effectively blocked it after complaining that it has been sidelined from negotiations with companies and potential buyers.

And Kurdistan does not even have enough gas to supply its own needs, with power blackouts a daily phenomenon.

Barzani’s ruling Kurdistan Democratic Party (KDP) has long tussled for influence with its junior coalition partner in government, the Patriotic Union of Kurdistan (PUK), led by the Talabani clan.

Those tensions have escalated in recent months, both because of the gas row and after the KDP put forward its own candidate for the Iraqi presidency – a position traditionally held by Kurds from the PUK under a power-sharing arrangement.

Five Kurdish officials from both sides said senior officials from the parties barely talked for months, not even discussing security and elections scheduled for October. Recent meetings had now touched on those issues but had still yielded few results, Western diplomats said.

That leaves Kurdish gas export plans stranded for now, dealing a blow to the region’s aspirations to boost energy revenues and offering small relief to global markets desperate to diversify supplies.

The impasse could also undermine stability in Iraq’s north, where both ruling families have their own security forces.

Widespread economic hardship among young Kurds was one of the main factors behind the migrant crisis on Belarus’ borders in late 2021 and early 2022.

“If we are a coalition government, we should decide things together,” PUK President Bafel Talabani told Reuters.

The KDP did not respond to requests for comment on the row. But the Kurdistan Regional Government, which is led by the KDP, said it wanted to use oil and gas resources to benefit all.

Both sides need to agree. Two of the biggest gas fields in Iraq, Khor Mor and Chemchemal, produce around 450 million cubic feet of gas a day and lie in PUK territory.

To get gas to markets outside Iraq, the easiest route is north to Turkey, through land controlled by the KDP.

NO BREAKTHROUGH

Pearl Consortium, majority-owned by Abu Dhabi-listed Dana Gas and its affiliate Crescent Petroleum, has the rights to exploit the two fields. It plans to more than double production to up to 1 billion cubic feet per day in the next few years, enough to cover domestic needs.

With 15 trillion cubic feet of proven reserves, output could potentially ramp up to 1.5 billion cubic feet a day, leaving a sizeable quantity for exports.

Last year, the KDP-led Kurdish government signed a contract with domestic energy company KAR Group to extend a gas pipeline from the fields to the regional capital Erbil and the northern city of Dohuk, close to the Turkish border.

Once the pipeline reaches Dohuk, it could easily be extended a few more kilometres (miles) to Turkey, paving the way for gas exports to Europe.

But Talabani complained that the KDP excluded his party from talks and there was no tendering process or transparency about how KAR was awarded the pipeline construction contract.

A senior KAR official said it signed a contract with the regional Ministry of Natural Resources in December 2021 to upgrade and extend the gas pipeline network to Dohuk.

It referred questions about the process to the ministry, which did not respond to a request for comment.

The PUK has blocked even the first phase of expansion intended to serve the domestic market by preventing technicians from entering gas fields in areas under their control.

Further undermining the export plans is Iran, which has considerable sway over its neighbour. Some analysts said it was opposed to a project that could undermine its influence in the region.

Iran’s foreign ministry did not respond to a request for comment.

Last month, Kurdish president and cousin of Masrour Barzani, Nechirvan Barzani, visited Sulaimaniya and met top PUK officials, the first senior meeting involving both sides in months. There were a few more meetings following the visit in which the leaders discussed security and the parliamentary elections set for Oct. 1.

‘BAD MARRIAGE’

Talk of exports comes despite the fact that Kurdistan is struggling to produce enough electricity.

Of Kurdistan’s 13 power stations, five are gas powered and are only working at about 50% to 70% capacity because of shortages. Power blackouts are commonplace, meaning domestic expansion would likely be the immediate priority.

And as for exports, no deal has been inked with Turkey yet, according to Kurdish officials.

The Turkish government did not respond when asked for comment.

But Barzani’s trips overseas, including to neighbouring Istanbul where the gas issue was raised, have irked the PUK, according to three officials, one of whom described the relationship between the two Kurdish parties as a “very bad marriage.”

When the mayor of PUK-controlled Chemchemal province was told in January that the government had awarded KAR group a contract to extend the domestic pipeline network, a source with direct knowledge of the matter said it was the first time the PUK was officially informed.

As a result the PUK blocked it, indicating that the party wanted an equal say in all matters concerning gas in an attempt to avoid what it considers to be the mistakes of the past.

Kurdistan began direct oil sales to world markets in mid-2015 after accusing the central government in Baghdad of depriving the region of funds to pay state and army salaries, even though it had been instrumental in defeating Islamic State.

Most of the Kurdistan government’s revenue comes from those oil exports, which the PUK says are unfairly distributed among the provinces by the KDP-controlled administration.

The KDP did not respond to a request for comment on the issue.

“Gas won’t go out of Kurdistan the way the oil has, with that level of mismanagement and lack of transparency – over my dead body,” Talabani said.

(Amina Ismail reported from Sulaimaniya and Erbil and Maha El Dahan reported from Dubai; Additional reporting by Ali Sultan in Sulaimaniya; Editing by Mike Collett-White and Edmund Blair)

Commodities

U.S. increased forecasts for crude oil and natural gas production in the country in 2022

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Crude oil and natural gas production will be raised. The U.S. Energy Department raised its 2022 domestic crude oil production (excluding other liquid hydrocarbons) forecast from 11.83 million to 11.87 million barrels per day, the Energy Information Administration (EIA) said in its monthly forecast. The forecast is 0.62 million bpd higher than the 2021 result.

The agency also slightly increased its 2023 production forecast by 30,000 bpd, to 12.34 million bpd. It is close to the annual average. This figure is close to the average annual record for oil production in the United States, set in 2019, – 12.3 million bpd.

Also, the Department of Energy slightly raised its 2022 and 2023 U.S. gas production forecasts. Gas production will be 98.13 Bcf/d in 2022 and 100.38 Bcf/d in 2023 (nearly 1.2 trillion cubic feet of gas per year).

The previous forecast had assumed production of 98.07 and 99.69 Bcf/d, respectively. In 2021, the country produced 94.6 Bcf/d of gas.

While the EIA still expects gas production in the Permian Basin to be constrained in early 2023, it anticipates that these constraints will be removed sooner than previously projected, although risks remain.

The Department of Energy expects natural gas prices to rise from their November level of $5.5 per MMBtu to over $6 per MMBtu in Q1 2023 because of both higher winter demand for natural gas and increased LNG exports. This will impact crude oil and gas prices.

U.S. LNG exports are expected to be 10.6 Bcf/d in 2022, up from 10.85 Bcf/d a month ago, and rising to 12.25 Bcf/d in 2023 (nearly 145 Bcf/d); the previous forecast of 12.33 Bcf/d.

Earlier we reported that the Expert revealed the reason for the sharp fall in oil prices.

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The expert revealed the reason for the crude oil price chart dump

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World oil prices have fallen to the level of early January, as expectations of a sharp decline in oil supplies from Russia after the start of the embargo and more aggressive actions by OPEC+ to maintain prices have not materialized. This is the reason for the crude oil price chart dump.

Live crude oil price in dollars – what’s going on?

On Wednesday, Brent crude oil prices fell below $78 a barrel for the first time since January 3. February futures are trading at $79.6 a barrel.

Prices were probably driven by expectations of a sharp drop in oil supplies from Russia due to the embargo, and more aggressive action by OPEC+ to maintain prices; i.e., production cuts. Neither of these things happened; OPEC+ decided on Sunday not to change its production quota and, judging by media reports, Russian companies prepared for the embargo, including tanker fleet acquisitions.

Meanwhile, the Financial Times newspaper reported on Monday, citing oil traders, intermediaries and vessel-tracking services, that a traffic jam of oil tankers has formed off the Turkish coast since the start of restrictions on oil prices from Russia due to Ankara’s requirements to provide insurance data. According to the expert, a delay in the passage of ships could have led to an increase in oil prices on expectations of a shortage, but this has not happened yet.

According to marinetraffic, a ship-tracking portal, there are about 30 tankers, mostly Turkish, off the Turkish coast near the strait. Five tankers out of this number are Russian. Russia is concerned about the situation off the coast of Turkey, where Russian oil tankers have piled up; this problem is now being discussed through transport and insurance companies. but it may also be taken up at a political level.

Western oil sanctions came into effect on December 5: The European Union stopped accepting Russian oil transported by, and so also the “Big Seven” countries. Australia and the EU, imposed a price cap on such oil at $60 per barrel. Deputy Prime Minister Alexander Novak said Sunday that Russia is considering possible mechanisms to ban the application of the price ceiling for Russian oil supplies.

Earlier, we reported that oil prices fell before the release of statistics on inventories in the U.S.

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Crude oil prices today declined before the release of U.S. inventory statistics

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crude oil prices today

World oil prices on Wednesday afternoon moved to some decrease, according to trading data. Markets are waiting for weekly statistics on commercial oil reserves in the U.S.

Brent crude oil prices were down 0.67% to $78.82 per barrel, while WTI January futures decreased 0.67% to $73.75. Oil prices were weak in the morning.

Later Wednesday, the U.S. Department of Energy will report data on the country’s commercial oil inventories for the week through December 2. Analysts believe the figure fell by 3.3 million barrels. On Wednesday night, the American Petroleum Institute (API) said it estimates a 6.4 million-barrel decline in inventories.

Crude oil prices today continue to be affected by uncertainty regarding the prospects of oil supplies. From December 5, the oil sanctions of the West came into effect: the European Union stopped accepting Russian oil transported by sea; also the G7 countries. Australia and the EU imposed a price cap on such oil at $60 per barrel.

The Russian authorities are developing three possible responses. The first one is a complete ban on sales to the countries that supported the restriction, including through intermediary countries or even their chain; the second one is a ban on exports under contracts that include a price ceiling condition; and the third one introduces an indicative price – the maximum discount of Russian Urals oil to the benchmark Brent grade, and a ban on selling at a higher discount.

Earlier we reported on the Big Tanker Jam in the Bosphorus due to the price cap on Russian oil.

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