Iraqi Oil buyers face severe delays
The fall in supplies from Ceyhan was partly compensated by rising exports from Basrah, Iraq's second major export terminal in the south of the country
July 31, 2012 9:28 by Reuters
Sabotage and pipeline maintenances have severely cut and delayed exports of Iraqi oil to Europe’s Mediterranean markets, leaving traders to scramble for alternative grades at a time when refiners have already lost Iranian barrels because of sanctions.
Iraqi exports are generally prone to disruptions but a combination of security and infrastructure incidents have pushed loadings delays of Iraqi Kirkuk crude to around 20 days.
The development shows the difficulties Iraq, one of the world’s largest oil reserves holders, will face in its attempts to triple or even double production from the currently stagnant 3.0 million barrels per day.
“I don’t remember such delays in the past. In my experience there are ‘normal’ delays of maybe a week to 10 days,” said one refiner.
Only one of the two lines of the Kirkuk-Ceyhan pipeline, linking Iraqi fields to the Turkish Mediterranean port, is used and flows stop on a daily basis as the pipeline awaits a much needed post-war overhaul.
On top of this, the monthly loading programme usually exceeds what the pipeline can reasonably be expected to pump, traders say.
Exports were running at 400,000 bpd earlier this year until the Kurdish regional government announced in April that it was halting exports because firms operating there were not getting paid by the central government inBaghdad.
The KRG has initiated crude oil exports via truck tankers to Turkey, further flaring tensions with Baghdad. �
The already poor infrastructure of the pipeline is further weakened by frequent terrorist attacks and a blast this month held up crude oil flows for several days.
A 4-day berth maintenance last week has also added to the delays, market sources said, effectively reducing exports to under 300,000 barrels per day in July, according to shipping data.
The Turkish port of Ceyhan, which is the only export venue for Kirkuk, faces a back log of 13 tankers waiting to load the grade. Some have been at anchorage for 15 days, shipping data showed.
SOUR CRUDE SHORTAGE
Iraq in July ranked above Iran as OPEC’s second-largest producer for a second month, pumping 2.97 million bpd, down 30,000 bpd.
The fall in supplies from Ceyhan was partly compensated by rising exports from Basrah, Iraq’s second major export terminal in the south of the country.
However, the fall in Kirkuk has made life miserable for refiners in Europe, who have lost almost 700,000 bpd of sour, or low sulphur content, Iranian crude since the beginning of the year because of EU and U.S. sanctions.
Kirkuk and Iranian crude are similar in quality and the lack of both is propelling the values of competing grades, mainly Russia’s main export Blend Urals <BFO-URL-E>, which has been trading at a premium to benchmark dated Brent in the past weeks.
“We bought 1.6 million barrels of alternative sour crude because of Kirkuk delays and high Urals prices,” said oneMediterranean refiner.
He did not say which crude grade he bought. Besides the world’s largest oil exporter Saudi Arabia, Libya also produces sour grades. Rare vessels with heavy sour grades can also travel to Europe from South America.
Buyers of Iraqi could potentially rack up big demurrage charges which Iraqi state-marketer Somo will be expected to cover. A demurrage charge is a standard shipping penalty if the tanker remains at anchorage for longer than previously agreed with the shipowner.
Daily demurrage charges are between $25,000 to $35,000, or a total cost of $500,000 to $700,000 for a 20 day delay, several regular lifters said.
“We received payments (from Somo) in the past for previous demurrage charges but it took several months,” said the lifter, “I think they will pay but it will take some time.”