Two words will dominate the Kurdistan history books for 2014: ISIS and oil exports. While ISIS spread its truly abhorrent version of governance, the oil industry in Kurdistan emerged from the exploration and discovery phase to production and monetization. Although many deemed the KRG goal of one million barrels per day in 2015 as overly aspirational, works on the ground continued to prove otherwise. Oil companies endured the ambition of a nasty enemy and quickly accelerated production of petroleum in 2014. At the end of 2014, production in the Kurdistan Region stood at approximately 600,000 barrels per day. Exports via pipeline sustained 450,000 barrels per day with the remaining 150,000 barrels per day being delivered to the local refining market. Kurdistan’s peer group for oil exports includes countries such as Brazil, Ecuador, Indonesia and the UK. Continued expansion of production in 2015 will see Kurdistan eclipse other producing countries, such as Oman, Azerbaijan and Algeria, and continue to forge its place as a world oil producing and exporting leader.
Geopolitical relations on energy issues made notable progress at the end of 2014 and are on a positive path for 2015. As new leaders settled in their positions in Baghdad, constructive engagement on the energy sector emerged. Previous evacuation routes for oil from Iraq to Turkey were completely destroyed by the enemy leaving stranded oil and missed revenue opportunities. As pragmatism set in, the newly constructed and operational Kurdistan pipeline network shined as a beacon of possibility both for oil exports and political compromise. Many deemed the pipeline construction as an obstacle to relations and asserted that it heightening tensions between Erbil and Baghdad, but events are showing that the pipeline system is a linkage and an opportunity. The Kurds have committed 300,000 barrels per day of pipeline space to move stranded oil from greater northern Iraq to international markets. With declining oil prices, increased flows are necessary to bridge the shocking budget issues facing Iraq.
Oil prices will continue to make headlines in 2015. The unprecedented declines in the oil price at the end of 2014 will sustain in 2015 and cause revenue generation issues for oil producing countries throughout the world. Governments living the largesse period of oil prices above $100 per barrel will have to reassess government spending and think austerity. Although short-term pain is inevitable, especially in Iraq which is so highly tied to oil exports for government revenues, a reset of spending and reprioritization toward efficiency will benefit longer term growth. As oil companies decide where to invest, the relatively cheaper oil production costs in Kurdistan will be prime targets for oil investors. Match that with a vastly improving security situation and the emergence of better geo-political relations and 2015 indeed looks like another banner year for the Kurdistan energy sector.
Gas is slated to be an important issue for 2015. The KRG will embark on a major gas development program that will see increased gas availability for domestic power generation and industry as well as gas production for export for the Turkish market. A new gas regime has been established offering new investment opportunities with measurable returns for investors. Billions in new foreign investment is needed to exploit the gas opportunities, and this will greatly boost the overall economy of Kurdistan as we move through 2015. As reliable gas comes to market, new industries will emerge leading to additional foreign investment and employment opportunities. The dawning of the gas age will pay dividends for generations and allow for a more diversified and productive economy.
From the accomplishments and challenges of 2014 to the upward trajectory of 2015, Kurdistan remains a choice destination for energy sector investors. The years of exploration and discovery are delivering production and development. The challenge of an enemy is building smart resilience and resistance. The emergence of self-sufficiency is delivering mutually respectful regional cooperation. Indeed Kurdistan remains as a choice destination in the energy world.