ARockyRoad:Kurdish Oil&Independence 19February2018 PublicationNumber:IEI190218 ARockyRoad:Kurdish Oil&Independence 19February2018 @IraqEnergy facebook.com/IraqEnergy www.iraqenergy.org [email protected] Thecontentsofthispaperaretheauthorsʼsoleresponsibility.Theydonotnecessarilyrepresent theviewsoftheIraqEnergyInstituteoranyofitsmembers. Thispublicationmaybereproducedinpartforeducationalornon-profitpurposeswithout specialpermissionfromthecopyrightholder,providedacknowledgmentofthesourceismade. Nouseofthispublicationmaybemadeforresaleorforanyothercommercialpurposewhatsoever withoutpriorpermissioninwritingfromtheIraqEnergyInstitute. *Non-ResidentFellowattheIraqEnergyInstituteandCEOofQamarEnergy(Dubai). Copyright©2018IraqEnergyInstitute Contents 1. Introduction ................................................................................................................................................................................... 1 2. Political and Petroleum History of the Kurdistan Region of Iraq...................................................................... 3 2.1. Political history ................................................................................................................................................................... 3 2.2. Politics in the KRI ........................................................................................................................................................... 10 2.3. Petroleum history.......................................................................................................................................................... 13 2.4. The onslaught of ISIS: 2014 and beyond ......................................................................................................... 17 3. The KRI’s Hydrocarbon Sector ........................................................................................................................................... 25 3.1. Geography ........................................................................................................................................................................ 25 3.2. Petroleum geology ...................................................................................................................................................... 25 3.3. Reserves and resources ............................................................................................................................................. 28 3.4. Production-sharing contracts ................................................................................................................................ 31 3.5. Infrastructure ................................................................................................................................................................... 34 3.6. Oil production, demand, and exports ............................................................................................................... 36 3.7. Gas production, demand, and exports ............................................................................................................. 43 3.8. Exports and finances ................................................................................................................................................... 45 4. Politics and Petroleum in the KRI since 2005 ........................................................................................................... 53 4.1. The KRI’s political economy .................................................................................................................................... 53 4.2. Constitutional and legal position of KRI oil .................................................................................................... 54 4.3. The IOCs .............................................................................................................................................................................. 57 4.4. Oil, gas, and external relations ............................................................................................................................... 59 5. Conclusions: The Future of the KRI’s Hydrocarbon Industry ........................................................................... 63 6. References .................................................................................................................................................................................... 65 | ii Table of Figures Figure 1 Political and military boundaries of the Kurdish region of Iraq (as of April 2015) ............................ 12 Figure 2 Early exploration in the KRI .............................................................................................................................................. 15 Figure 3 Division of KRI into exploration blocks ...................................................................................................................... 16 Figure 4 PSCs awarded in KRI by 2006 .......................................................................................................................................... 16 Figure 5 PSCs awarded in the KRI, end-2008 ............................................................................................................................ 17 Figure 6 PSCs awarded in the KRI, December 2012 .............................................................................................................. 17 Figure 7 Location of sectors of Kirkuk-area fields ................................................................................................................... 19 Figure 8 KRI oil and gas infrastructure (note that many of the block boundaries and names have changed subsequently) ........................................................................................................................................................................ 34 Figure 9 Oil infrastructure and political control in the KRI and northern Iraq ........................................................ 35 Figure 10 KRG oil exports by destination, October-December 2017 .......................................................................... 37 Figure 11 Oil production in the KRG from MNR reported figures (Jan-15 to Sept-16) ..................................... 39 Figure 12 KRG production forecast ................................................................................................................................................ 41 | iii Acknowledgements I would like to thank Luay Al Khatteeb and the team at Iraq Energy Institute for inviting me to contribute this paper on the evolving Kurdish oil situation. I also express my appreciation to Bassam Fattouh and Laura El-Katiri for their support of my earlier (2015) paper on the topic. I express my thanks to those with whom I have worked on Kurdish and Iraqi oil and gas issues, who provided comments for this paper, or whose reporting and analysis has helped make sense of a fast-moving and complex picture. In particular, I acknowledge analysis provided by Ahmed Tabaqchali; the great efforts of the team at Iraq Oil Report, especially Patrick Osgood, Ben Van Heuvelen, and Ben Lando; Shwan Zulal; Norman Ricklefs; Luay Al Khatteeb; Isabel Coles; and Akiko Yoshioka. I also thank Emile Hokayem, Mike Stephens, Michael Knights, and Martin Chulov, in helping to inform my understanding of the wider regional picture, and Kirk Sowell, Reidar Visser, Fanar Haddad, Cale Salih, Joel Wing, and many others for their writings. Roa Ibrahim’s extensive research assistance has been invaluable. I apologize to anyone I may have inadvertently omitted to acknowledge. Robin Mills, Qamar Energy, Dubai, February 2018 | iv 1. Introduction The referendum on independence for the hitherto autonomous Kurdistan Region of Iraq (KRI)1, held on 25th September 2017, has brought global attention. It is well-understood that the region’s oil and gas resources are a critical factor for its future and for its neighbourhood. Along with the referendum, there have been important recent political, military, economic and industry developments concerning the KRI. This report is therefore intended to build on my earlier study for the Oxford Institute for Energy Studies2, and to bring the story up to date from the start of 2016. It should be read in conjunction with the earlier study, as I do not here cover all of the historical and background material. Despite knowledge of the presence of oil dating back to ancient times, the history of the KRI’s petroleum industry essentially goes back no further than 2005. The presence of larger oil-fields elsewhere in Iraq, and political problems, insurgency and repression in Kurdistan, particularly under the Saddam Hussein regime, prevented most hydrocarbon exploration and development. However, Kirkuk, where oil was discovered in huge quantities in 1927, though not part of the official KRI, also voted in the referendum. Various other outlying areas with petroleum resources also came under KRG control, particularly since the onslaught of ISIS3 in 2014 and the subsequent counter-offensive, and with Kirkuk, were then returned to federal government control in October 2017. These areas are also covered here. Since 2014, the difficulties caused by lower oil prices, the KRI’s economic crisis, ISIS and industry disappointments have quietened media discussion of the region’s oil industry. Much good political analysis has been produced, but understanding the KRI’s