ERBIL, Kurdistan Region - The Kurdistan Regional Government appears close to finding a regular buyer for its oil after approving on Thursday the development of a major oil field by Hungary’s MOL Group.
MOL was the only one of dozens of foreign operators with equity stakes in Iraqi Kurdistan to make public its purchase of Kurdish crude after a cargo of 600,000 barrels was delivered to MOL’s refinery in Croatia in late August.
The integrated oil and gas company has indicated it wants to buy Kurdish crude for its European refineries on a regular basis.
Baghdad has claimed that Kurdish oil shipments that started in May via a pipeline to Ceyhan in Turkey are illegal and it launched legal action against the Kurdish Regional Government (KRG) in the US.
"MOL Group is committed to maintain its presence and increase investments in the region,” Alexander Dodds, MOL's upstream executive vice-president said on Thursday after receiving approval to develop the Akri-Bijeel block from the KRG’s Ministry of Natural Resources.
MOL's wholly-owned subsidiary, Kalegran, declared the block commercial a year ago.
A KRG official told Rudaw that Kurdish crude was being sold at only a modest $8 discount. Brent crude, an international benchmark is currently trading at around $87. Heavier crude from Kurdistan would attract a lower price, even without the discount.
Many analysts had speculated the discount was much larger.
The KRG has been tight-lipped about its oil deals because of their commercial sensitivity. But it also is involved in a dispute with Baghdad, which has withheld the KRG’s 17 per cent share of budgetary revenues for several months.
The Kurds have given a three-month deadline to the new Iraqi government formed last month to resolve these issues but it has not said what it would do if they are not.
In an interview with the Middle East Economic Survey earlier this month, Dodds said MOL was negotiating a long-term agreement to buy Kurdish crude. He declined to say at what price the KRG sold the 600,000 barrels to MOL earlier this year.
“For MOL upstream as a whole, we are looking to increase the size of our upstream portfolio,” he said. “Kurdistan is important to us and if the opportunity to add to our portfolio comes at the right price, we will do it.”
In August, the KRG reportedly started to allow foreign operators to market their entitlement of equity oil directly, which would help them to recoup their losses and perhaps offset the legal threat to the KRG from Baghdad.
“What’s been put on the table is that there needs to be a decision on who markets the crude from the licence areas,” Dodds said in the interview. “That’s yet to be closed.”
Baghdad made only a small protest against MOL when it bought the Kurdish oil, he said. “There was some arm-waving and a formal letter [from Baghdad] sent to us but no repercussions.”
China is also reportedly keen to become a regular purchaser. US companies were likely to remain cautious about buying Kurdish oil but European and Asian buyers would be tempted by its competitive price, Carl Larry, a former oil trader who runs Oil Outlooks & Opinions, a research firm in Houston, told Rudaw.
“In the US, the oil price is generally four to five times lower than the global price so the Kurds have a good chance to sell in Europe and Asia,” he said.
Lawyers for Iraq’s Oil Ministry have until November 13 to convince an American judge not to throw out its case to prevent the KRG from selling crude in the US via the United Kalavrvta. The tanker has been moored in international waters near the port of Galveston, Texas, since July, when Baghdad filed lawsuits to halt the delivery.
The KRG official said keeping the tanker off the US coast for months would be worth the millions in charter costs if a legal precedent was set against Baghdad.
Basil Karatzas of Karatzas Marine Advisors & Co, a ship broker in New York, told Rudaw it would make more commercial sense to turn the ship around to Asia.
“I think there will be better prospects for selling the oil to someone who will not ask many questions. I suppose with the Kalavryta staying off the US, they are trying to exhaust legal remedies and create a beachfront for selling additional cargoes once there is a decision or court order allowing for sale in the US,” he said.
“The US is flooded with domestic oil so I think it doesn’t make any commercial sense chasing this market. But I suppose setting a legal precedent is very important to the sellers.”
Larry of Oil Outlooks & Opinions said he believed Baghdad would raise the issue of independent Kurdish exports at next month’s Vienna meeting of the Organisation of the Petroleum Exporting Countries, at which the recent slide in the oil price will dominate.
“Aside from quotas, Iraq might well want to draw attention to [what it calls] illegal crude sales by the Kurds,” he said.
A total of 19.2 million barrels of oil have been exported via Ceyhan, Turkish officials have said, and around $400 million has been deposited with Turkish state lender Halkbank as a result, Reuters reported this week.