Turkey and the KRG recently signed an energy deal. What impact do you think that deal will have on Kurdish oil exports going forward?
The impact will be dramatic as there is currently a 400,000 bopd capacity; however, most of it is not utilized because of disputes with Baghdad for lack of payment. There are buyers out there who are willing to buy Kurdish oil and recent export via trucking shows that there’s a market for Kurdish oil. Turkey is willing to take part in or facilitate future transactions and it is likely the cooperation will only grow. The KRG’s willingness to pursue new export opportunities is a message to Baghdad: if they aren’t going to agree on a framework for the future, then Kurdistan will do it on its own. Once initial export starts, it will lay the foundation for additional future pipelines from Kurdistan to Turkey. This pipeline could be established either by connecting to Ceyhan (either inside or outside Iraq) or by creating an independent pipeline. If Turkey is willing and is signaling to investors that it is interested in allowing Kurdish oil to flow, which is something to which Turkish PM Erdogan recently alluded prior to his trip to the US, then that is certainly a strong message to all the parties concerned.
What are your thoughts regarding the new pipeline construction between the both sides?
The pipeline, which was initially designed for gas but was converted to oil, is nearly complete inside Kurdistan. Once the Kurdish pipeline is ready, it’s less than 70 miles to connect to the Ceyhan pipeline inside Iraq or Turkey. The oils that are coming from Tawke and surrounding areas are heavy, so mixing them with the sweet crude coming from Kirkuk and other fields may create problems. Nevertheless, it can be processed and the problem can easily be overcome. The one thing of key importance is that the pipeline inside Turkey is controlled by the Turkish operator. So, it’s a matter of taking a pipeline into Turkey and then connecting to the Ceyhan line to avoid certain legal hurdles. This can be done by metering at the point of connection to Ceyhan inside Turkey, thereby bypassing Baghdad. That’s the idea behind it. There may be some technical and/or metering issues, but, again, they can be overcome. This plan removes the need for a new pipeline, at least for now. If there becomes a demand for more capacity, then things may change.
Do you think it’s fair to say that if the KRG is able to begin exporting oil to Turkey via direct pipelines, it will encourage other companies to get involved in the Region?
Definitely. Asset valuation is already skyrocketing in Kurdistan. Given the quality of the assets, it is only a matter of time before it increases even more. TAQA is a very good example. The company bought a stake in the Atrush block, which was valued at over a billion dollars . Only two years ago it wasn’t worth even a fraction of the current valuation. Once exports start, these assets will really only be affordable to the multi-nationals and the main IOCs. Of those, Total, Gazprom Neft, Exxon, and Chevron are already here. It’s only the two British companies that haven’t entered. Once they know everything is definite, they might get involved as well.