The past fortnight has seen a remarkable reversal of trends in the supply of various fuels. On the one hand, the most serious humanitarian fuel shortage in the past four months has undoubtedly been in LPG for cooking. Now, thanks to new and large barged imports from Kuwait averaging in excess of 1000 tonnes per day, overall national supply is probably about 80% of requirements. On the other hand, the steadily improving supply of domestically-refined liquid fuels – gasoline, diesel and kerosene – suffered its first major reversal since early July following major sabotage on August 29th to pipelines between Kirkuk and Baiji. This significantly reduced crude oil supply to the Baiji and Daura refineries. Overall refinery production probably dropped from in excess of an average of 30 million litres per day to not much more than 22 million litres per day in the week following the sabotage.

The calculated manner and impact of the sabotage is evident. Although northern crude production is probably less than a third of all crude extracted nationally, it accounts for at least two-thirds of all refinery feedstock. At present, Iraqi oil companies and Coalition contractors seem to be implementing effective workarounds to the sabotage but it will take at least the remainder of September to repair the damage completely. Although refinery production has probably now recovered to just short of the pre-sabotage levels, the crude pipeline infrastructure is severely strained. It is therefore unlikely that there will be any further improvement in the levels of refined products before October.

Returning to LPG, given the greatly improved supply situation, the main challenge is now distribution. Insufficient quantities of LPG bottles are available outside Baghdad. It will take time to move supplies of these to the governorates. There are probably adequate quantities in the country, both from pre-war stocks and from deliveries facilitated in recent months by UNJLC under the oil-for-food programme. Further large deliveries of bottles are expected shortly and throughout the remainder of the year. Despite the poor state of most bottles in circulation, there seems to have been a reluctance on the part of Iraqi authorities to release new bottles for fear that they would be smuggled out of the country, with the gas.

Significantly, prospects for the start-up of the Southern Gas Plant, which may provide up to 1200 tonnes of LPG per day, now look better than they have for several weeks. This production will be necessary to replace the new Kuwaiti barged imports should they be discontinued. It also appears that the LPG pipeline network from the south to Baghdad is close to being functional. Barring further major sabotage, this will greatly aid national distribution to Baghdad and in the populous areas of Nasseriyah, Najaf, Kerbala and Hilla, once Southern Gas is operational.
Despite the drop in local supplies of liquid fuels to a level not seen since early July, overall supply of gasoline has been maintained by an unusually high level of imports. A short-term crisis was probably averted because consumers hoarded for most of August. With supply probably slightly exceeding demand for most of that month, small buffer stocks may have been built up in Ministry depots. However, the situation is very fragile. These reserves can be rapidly depleted and delays in imports or further disruptions to refinery operations can tip the balance, causing severe shortages to reappear virtually overnight.

Significantly, as expected, both the Coalition and the Ministry of Oil seem to have started importing diesel. The quantities are not large at present but are expected to grow. Supply will probably not match demand for some time, but it will ease the pressure. Most importantly, it will allow greater local refining capacity to be devoted to kerosene and the vital stockpiling necessary for winter. It is still unclear whether sufficient kerosene supplies will be in place before the onset of the colder weather brings greatly increased demand, but it is probable that little or no new stockpiling has occurred in the past ten days to two weeks.

An often unnoticed but potentially significant development is the start-up, or increases in production, among at least several of the country’s dozen or so regional “topping” refineries, from Kasik Kupri and Ayn Zalah in the far north to Nasseriyah and Amarah in the south. Although each may produce no more than several hundred thousand litres of fuel daily, mainly diesel and kerosene, the combined quantities can be significant. They also cater for local needs, eliminating the need for inter or intra-regional distribution. Information on these facilities is scarce given their small size, but that they are an increasingly relevant part of the supply equation.

It is unclear whether the Baiji refinery complex – the country’s largest - will go into a much-needed major maintenance phase in early November, or whether this will be further deferred until early 2004. With about half of national refining capacity in this complex of three plants, locally-produced supplies will be seriously affected whenever the turnaround occurs.

Equitable and effective fuel distribution is being addressed increasing effectively by the Coalition with new initiatives and greater co-ordination at the operational level. It will take time for the effects to be seen but much work has already been done and significant infrastructure investments made or in prospect. Smuggling and security is also being addressed with greater focus and more resources.

UNJLC’s continued judgment is that a fuel supply and distribution crisis will continue into 2004. In particular, adequate winter kerosene supplies are a major concern; imports of both LPG and perhaps gasoline will most likely be necessary well into that year. The current sharper focus by the Coalition on distribution and on security and smuggling, mean that such supplies as are available should more effectively utilised. In the medium to longer term, substantial investment will be required in Iraq’s refining and distribution infrastructure before the country will be self-sufficient in fuels.