Monday, Dec 10, 2012

(This article was first published on Sunday.)

By Hassan Hafidh and Sarah Kent

VIENNA--Iraq is planning to increase its crude oil production to 3.7 million barrels a day next year from current production capacity of 3.4 million barrels a day, the country's oil minister said Sunday.

Abdul Kareem Luaiby told a news conference ahead of the meeting of the Organization of the Petroleum Exporting Countries, or OPEC, scheduled Wednesday, that Iraq is also planning to raise exports to 2.9 million barrels a day in 2013 from its current 2.6 million barrels a day.

Most of the increase next year would come from Iraq's supergiant Majnoon oil field in southern Iraq. "Majnoon is going to produce more than 100,000 barrels a day at the beginning of April," Mr. Luaiby said. Royal Dutch Shell PLC (RDSA, RDSA.LN) is developing the 13 billion barrels Majnoon.

Other increases will come from Rumaila, Zubair and West Qurna-1 which are producing now 1.35 million, 300,000 and 400,000 barrels a day respectively, the minister said. They are being developed by BP PLC (BP, BP.LN), Eni SpA (E, ENI.MI) and Exxon Mobil Corp. (XOM). The figure also includes 200,000 barrels a day of supply from Kurdistan.

Iraq's crude oil exports have been increasing steadily over the last few months, thanks to new single-point mooring, SPMs, buoys built in the Gulf and the resumption of crude oil exports from the semi-autonomous region of Kurdistan in northern Iraq.

But Mr. Luaiby said that recently exports from Kurdistan had fallen below 100,000 barrels a day, while they should, according to an agreement reached with Baghdad in October, export 200,000 barrels a day via the Baghdad pipeline. The minister gave no explanation for why the Kurds reduced exports. Analysts said that the Kurds have reduced exports because of payment issues with Baghdad.

Earlier in October, the Kurdistan Regional Government and the federal government in Baghdad resolved issues relating to oil payments to foreign companies producing crude oil in the region and Kurdish control of oil exports from Kurdistan. According to the agreement, Baghdad would pay the Kurdistan Regional Government 1 trillion Iraqi dinars ($858.3 billion), some IQD650 billion of which was paid last week, while the remaining IQD350 billion will be paid either by the end of this year or the beginning of 2013, depending on the central government's budgetary procedures.

However, the minister said the Iraqi government would not make the second payment unless Kurdistan met its export commitments and also supplied data on their sales records since 2008.

Baghdad has paid the IQD650 billion to producing firms, while it hasn't yet paid the remaining IQD350 billion.

The minister Luaiby also accused the Kurds of smuggling some of the produced oil from their oil fields to Iran and Turkey. "They are producing 200,000 barrels a day as they said and they are pumping through the national export pipeline less than 100,000 barrels a day: what is happening to the rest?," the minister asked.

Mr. Luaiby also said that Iraq is holding a road show in London on Friday in order to attract international companies to build two export pipelines--one to carry Iraqi crude oil to the Jordanian port of Aqaba and the other to a Syrian port.

"The first stage of the project is from (the oil hub of) Basra (in southern Iraq) to Haditha in western Iraq near the borders with Jordan and Syria." That part would be of 969 kilometers. The second phase would be constructing two pipelines--one goes to Jordan and the other to Syria, Mr. Luaiby said.

He expected that these pipelines would take three years to build.

The project would include supplying Jordan's Zarqa refinery near the capital Amman with 150,000 barrels a day, he said. Iraq is currently shipping to Jordan via trucks some 10,000 barrels a day, which constitutes only 10% of Jordan's crude oil needs. Iraq is selling the crude to Jordan at discount price of $18 a barrel below Dated Brent.

Write to Hassan Hafidh at Hassan.hafidh@dowjones.com and Sarah Kent at sarah.kent@dowjones.com

(END) Dow Jones Newswires

10-12-12 0337GMT