Kurdistan is home to an estimated 12 billion barrels of proven oil reserves as well as 45 billion barrels in unproven oil resources, and oil production in the Region is expected to rise to a record high of 400,000 bpd by the end of 2014 from a level of around 250,000 bpd at the beginning of the year.

Growing Exports

The KRG’s Ministry of Natural Resources recently announced that the Region has exported 34.5 million barrels of oil since January. In total, $2.87 billion-worth of oil has been sold to customers around the world. In addition to a recently completed pipeline that allows the Kurdistan Region to export oil independently through Turkey, the KRG plans to build a second, 1 million-bdp-capacity oil pipeline to transport heavy crude from Kurdistan’s northern oil fields to international markets and raise oil exports from the Region to 2 million bpd. In the meantime, the KRG is targeting overall oil sales of 1 million bpd by the end of 2015.

Production Rebounds

An ISIS charge towards the borders of the Kurdistan Region at the beginning of August prompted the evacuation of staff by major international energy firms in the area, yet production levels have remained largely unaffected. Oil production during the height of the crisis at the beginning of August averaged around 360,000 bpd, down just 5,000 bpd from levels before the ISIS offensive against Kurdish forces. Genel Energy exceeded its 2014 production target of 200,000 bpd. The company has interests in the Region’s two largest oilfields at Taq Taq and Tawke, with estimated gross proven and probable reserves of 1.3 billion barrels. Both fields operated as usual despite the surge of ISIS forces in August, and the firm maintained combined production levels of nearly 250,000 bpd as of November. DNO has achieved production levels of 130,000 bpd at its Tawke operations and aims to increase production there to 200,000 bpd by the end of the year. Oryx’s operations at Demir Dagh currently have a capacity of 5,000 bpd, with the company projecting capacity to rise to 20,000 bpd by the end of 2014 and reach 40,000 bpd in 2015. Operations continued at Gulf Keystone’s Shaikan field, although the company evacuated its staff and increased security at the site. Gulf Keystone aims to increase oil production at its Shaikan operations to 40,000 bpd and eventually reach production levels of 100,000 bpd once a field development plan has been agreed for the site with the KRG. Currently, production at Gulf Keystone’s Shaikan operations is averaging around 23,000 bpd. Taqa, the state-owned oil exploration company from Abu Dhabi, saw its exploration operations at the Atrush site disrupted by ISIS activities, but the group maintains that the interruption of work will not affect its plans to begin oil production at the site in the area of 30,000 bpd at the beginning of 2015. Over the summer, Canada’s WesternZagros formally declared a commercial discovery with KRG authorities for the Kurdamir block it operates jointly with Talisman Energy. WesternZagros estimates that the Kurdamir field holds around 1 billion barrels of contingent oil resources and nearly 1.6 billion barrels of prospective oil resources. WesternZagros also operates in the Garmian block, where its Sarqala well is expected to produce up to 10,000 bpd of oil through the second half of 2014. Pending KRG approval of its field development plan for the Garmian block, WesternZagros aims to raise oil production at the site to 35,000 bpd. Russia’s Gazprom Neft has begun exploratory drilling at the Shakal block and commenced geological surveys at the Halabja block. The company is also set to become the main operator of a project in the Garmian block in 2015.

Natural Gas

The Kurdistan Region possesses approximately 708 billion cubic meters of proven gas reserves, and an estimated 2.8-5.6 trillion cubic meters of unproven gas resources. At the end of 2013 the Turkish government and the KRG signed the KRG-Turkey Gas Sales Agreement, which included plans for the construction of a pipeline to export natural gas from the Kurdistan Region to Turkey. The Agreement foresees an initial export of 4 billion cubic meters in 2017 and envisions gas exports eventually climbing to 10 billion cubic meters per year by 2020. Turkey, which used nearly 40 billion cubic meters of gas in 2013, is set to become one of Europe’s top three consumers of energy in the next decade, and the Agreement holds out the option of increasing export capacity to 20 billion cubic meters per year in the future.

Genel Energy announced in November that it had purchased the entirety of Austrian energy firm OMV's 36% stake in the Bina Bawi gas field at a cost of $150 million. This agreement gives Genel sole ownership of the Bina Bawi field, in addition to the Miran gas field it also controls. Genel further announced the conclusion of a combined production sharing agreement with the KRG for the Bina Bawi and Miran fields that promises to bolster revenues and decrease risks associated with operations. The large gas reserves at the two fields will likely be crucial to the KRG's efforts to meet export goals under the KRG-Turkey Gas Sales Agreement. The Bina Bawi and Miran fields hold an estimated 238 billion cubic meters of combined natural gas reserves and have the potential to export up to 20 billion cubic meters of gas to Turkey per year over the next two decades.

Genel is also in discussions with the KRG to arrive at a Gas Sales Offtake Agreement for its Miran field and has been exploring supplying gas to the Kurdish market. The company recently joined with DNO to enter into a groundbreaking Gas Sales and Purchase Agreement with the KRG. Under the agreement, Genel and DNO have been supplying an average of 1.7 million cubic meters of natural gas per day to the Duhok power station from the Summail field they operate jointly nearby. Joint production for the companies’ Summail operations in the Duhok license area averaged 2.35 million cubic meters per day through the summer of 2014.

Pearl Petroleum, a consortium formed by Dana Gas and Crescent Petroleum of the UAE, has seen combined production levels at its Khor Mor and Chamchamal fields attain an average of 9.5 million cubic meters per day and continues to deliver gas via pipeline to power stations in the Slemani area, supplying nearly 4 million residents of the Kurdistan Region with electricity.

Electricity

Demand for electricity in the Kurdistan Region has increased from 925 megawatts in 2004 to nearly 3,500 megawatts in 2013. The KRG Ministry of Electricity predicts demand for electricity to grow fifteen percent annually over the next three years, noting that it has grown by this amount for the previous three-year period. The KRG plans to fully meet the demand for electricity in Kurdistan by 2016 through the expansion of electricity generating capacity to 6,000 megawatts, and officials look to begin exporting electricity to other areas of Iraq and other countries once local needs are fulfilled. The Kurdistan Region already exports electricity to the neighboring Iraqi provinces of Diala, Kirkuk, and Mosul.

Electricity generating capacity in the Kurdistan Region has grown by leaps and bounds in recent years. While residents of the Kurdistan Region could only make use of 2 hours of electricity per day in 2007, power supply has now reached an average of 23 hours per day. Generating capacity has been expanded from 482 megawatts in 2007 to around 3,000 megawatts today, made possible by the KRG’s decision to involve the private sector in power production in a bid to overcome the chronic energy shortages that had previously plagued the Region. The KRG earmarked $440 million in its 2013 budget for 112 projects with a combined value of nearly $1.5 billion in support of its plans to expand the Region’s electricity generating capacity by another 3,000 megawatts. This type of investment appears to be paying off– the Region, which experienced fifteen blackouts in just one month in 2009, has not experienced a power cut since March 2010.

The Kurdistan Region’s power generation capacity is primarily managed by the private sector, which provides the bulk of Kurdistan’s electricity generating infrastructure. The electric power industry relies largely on gas-fired power stations that are supplied from fields at Khor Mor and Khurmala, among others. This network of local gas power stations includes sites at Baadre, Chamchamal, Duhok, and Erbil. The KRG has indicated its preference for gas-fired plants due to their efficiency, ease of construction, and scalability.

Since 2003, the private sector has invested around $5 billion in electricity generation in Kurdistan. One major private player, Mass Group, operates 1,000-megawatt gas power stations in Erbil, Slemani, and Dohuk. Mass Group has enlisted Turkish construction firm Enka to increase capacity at its Erbil power plant, Kurdistan’s largest, to 1,500 megawatts by early 2015. To do so, it will convert the Erbil Gas Power Station from simple-cycle to combined-cycle gas turbine technology. The revamped plant will meet nearly 25% of the Kurdistan Region’s energy needs. Similar conversions began at the Slemani and Dohuk Gas Power Stations in 2013 and will soon increase capacity at each plant to 1,500 megawatts as well.

In 2012, the KRG signed an agreement with Korean engineering firm Posco for the construction of a 300-megawatt steam-powered electricity generating facility near Erbil, the first government-controlled plant in the Kurdistan Region.

Distribution

While the private sector handles electricity generation in the Kurdistan Region, the KRG controls electricity distribution and monitors energy consumption among the regional populace. The KRG’s Ministry of Electricity provides technical and logistical support to companies that generate the Region’s electricity, and producers underline the importance of the KRG’s efforts to provide security both generally and for specific projects. The KRG has already spent $1 billion on electricity transmission projects and will actively seek out private investors in the future if public funds cannot meet regional needs for electricity distribution. At present, all of the Kurdistan Region’s cities and districts, as well as most villages, are connected to a national power supply network.

Perhaps the most visible piece of energy transport infrastructure in the Kurdistan Region this year has been the newly operational oil export pipeline to Fishkhabour on the Turkish border. The pipeline’s capacity has now reached 300,000 bpd and will likely rise to 700,000 bpd in the near future.

Renewables

Installed capacity for renewable energy sources in the Kurdistan Region remains quite limited. KRG officials confirm that renewable energy plays a minor role in meeting the Kurdistan Region’s power needs at the moment, but they point to the important role alternative sources of energy play in their strategic energy outlook. The Region’s two hydroelectric power plants at Darbandikhan and Dukan provide 300 megawatts of electricity at peak capacity, and the KRG is currently carrying out a feasibility study for wind power. Private sector solar projects have so far been limited to a relatively small scale of around 50 megawatts. While the KRG does not believe that renewables are practical for meeting the entirety of the Region’s energy needs, Kurdish leadership does emphasize a growing role for renewable energy in a holistic strategy to meet their ambitious electricity generation goals.