• OVERVIEW
• Crude production and exports
• Security and smuggling
• Distribution
• Refining
• Gasoline
• Liquid Petroleum Gas (LPG)
• Kerosene
• Diesel
• Aviationfuel
• Fuel Supply for UN Light Vehicles

The UNJLC Iraq Fuel Bulletin aims to provide a clear and concise periodic overview – usually weekly – of the situation as it exists in Iraq with regards to the oil industry. It focuses on the availability of fuels, particularly as they affect the welfare of the populace and related humanitarian work. It further seeks to identify major issues for the humanitarian community and other interested parties, to provide relevant background and constructive recommendations on current issues, and to alert responsible parties to emerging issues in the crisis so that they may be addressed in good time. The UNJLC Iraq Fuel Planning Team presently has dedicated representatives in Baghdad, Basra and Erbil. For further information please contacted info@unjlc.org.

Contact details for all UNJLC offices are available here.

OVERVIEW The fuels supply situation Iraq was very complex this past fortnight, with acute gasoline and LPG shortages in Basra and the south being a major factor in the worst civil unrest in the city since the conflict. Gasoline was also in short supply elsewhere, especially in the north, but at levels that the populace has become used to. Major shortages of LPG and diesel continue. LPG is generally less available in the south and upper south and in the three primarily Kurdish northern governorates than elsewhere in the north and Baghdad. Conversely, diesel is generally less available in the north than in the south and Baghdad. Equitable and effective distribution of fuels is an ongoing challenge countrywide. Adequacy of supply, although vital, is but one half of the equation. The Coalition seems to be committed to this and to the importance of adequate fuel supplies to local stability and security as was amply demonstrated with imports of very large amounts of gasoline, and quantities of LPG, into Basrah and the south from Kuwait, and the establishment of military control over the city's petrol stations and supplying system. The Coalition's ability to respond with supplies on a surge basis is evident but may not be sustainable. Whilst the companies within the Ministry of Oil with primary responsibility for distribution, appear to be doing their best, their effectiveness is hampered by patchy communications between regions and the centre, inadequate vehicles, pay and authority for inspectors, labour unrest, and more profitable work available for truck drivers. Southern crude oil production was adversely affected by local power failures and the unrest, falling temporarily to perhaps half of the levels achieved in recent weeks. Nationally, there is an abundance of crude but pipeline disruptions, unstable power and low refinery productivity mean that such crude that does reach the refineries cannot be converted into sufficient usable fuels. Iraq will continue to be heavily dependent on imported gasoline and LPG for the foreseeable future. If the refineries are to meet national needs by the end of the year, they must increase overall output of light liquid fuels at a compound rate of about 10% per month for each of the next four months. There is clearly a more proactive approach to export smuggling of diesel, especially in the south. Several large cargos have been interdicted in the Arabian Gulf and returned to Iraq. It appears that the commencement of diesel imports, initially into the north where export smuggling may be less of a problem, is imminent. Consideration may even to be given to kerosene imports to help winter stockpiling. New LPG imports into the south have also started and should increase dramatically in late August; the start-up of the South Gas Plant will also help the situation, but not before September. Although the Coalition may defer its plans to transfer responsibility for all fuel imports to the Ministry of Oil, a fuel supply and distribution crisis will continue for at least the rest of the year. Nevertheless, largely unseen work over recent months to alleviate the situation should bear fruit in the coming months.

Crude production and exports

The past week has shown how fragile the crude production and export situation can be, and how quickly recent advances can reverse. Whilst production from the north was largely unchanged, power supply problems throughout the south and civil unrest in Basrah cut production from the area by up to half, if not more. Power problems have also affected the rate of crude exports from the Mina Al-Bakr offshore terminal. Prior to this, crude exports probably averaged between 650,000 and 700,000 bpd, all from southern production, limited by damage to export infrastructure and instability of power supplies for pumps.

No crude exports have yet been made through Turkey from northern production although several hundred thousand bpd of crude were pumped through the pipeline before it was sabotaged during the past week. The 965-kilometre pipeline through northern Iraq and Turkey to the Mediterranean port of Ceyhan was reportedly ready to restart exports at a rate of 250,000 bpd, or about 30% of pre-war capacity. It is now unlikely that there will be any significant exports from the north before October. Even after the pipeline is repaired, war damage to the Al-Fattah Bridge, which collapsed on the pipeline near Baiji, will probably limit northern export capacity to half-a-million bpd at least until sometime next year.

Northern production could perhaps be increased by 20% to 30% from today's level of 500,000 bpd once exports start. Presently, about 40% of the production is transferred to the Baiji refinery, with the balance reinjected into the fields, ostensibly to maintain pressure. This is a most unusual practice but extraction of the surplus crude is necessary to produce much needed LPG. It means, however, that crude oil production is overstated by the volume reinjected (it not being available for refining or export, but counted as production). The reinjected crude may be lost forever. When exports to Turkey recommence, production that is now reinjected can be sold abroad.

The crude export pipeline to Syria remains closed, with little prospect of reopening in the near future.

The Administrator of the CPA has stated publicly this past week that the Coalition would forge ahead with plans to boost oil production to more than 2.5 million bpd by next summer. A joint industry rehabilitation plan agreed between the CPA and the Iraqi Ministry of Oil is predicated on production of 2.8 million bpd the prewar level - by next spring. This would allow a return to prewar export levels of 2.2 million bpd, with up to 600,000 bpd for domestic use and stocks.

From the domestic fuels supply perspective, crude production volumes are more than ample to provide the necessary refinery feedstock for suitable light products. However, perhaps no more than 300,000 bpd are being transferred to the refineries where capacity and technology constraints prevent little more than half of this being converted into useful products. The balance of production is heavy fuel oil. Before Iraq is self sufficient in light fuels, it will be necessary to transfer a further 200,000 to 250,000 bpd to the refineries, and for the refineries to be able to process this. The need for fuel imports – either by the Oil Ministry or through the Coalition will continue for at least the remainder of the year.

Presently, most fuel imports exclusively of gasoline and LPG - are managed by the Coalition but there is an intention by the Coalition to hand over full responsibility for these to the State Oil Marketing Organization (SOMO), a part of the Ministry of Oil. However, SOMO appears to have no access to the proceeds from crude oil sales. These are controlled by the CPA. SOMO must therefore resort to bartering heavy fuel oil for the required lighter products. In any event, there are probably insufficient quantities of this relatively low-value product to barter for required quantities of lighter fuels. Unless the Ministry is provided funds to pay for imports to meet current shortages, or unless the Coalition continues to manage fuel imports, a general fuel crisis will continue. This effect of this will be felt particularly during the winter by those in the north.

It does appear, however, that the Coalition may be considering deferring the cutover date by which SOMO must take full responsibility for fuel imports. This will give further breathing space for refinery output to recover and both reduce the volumes that SOMO will have to import and increase the volumes of heavy fuel oil available for barter.

Security and smuggling

The Coalition's much more aggressive approach to illegal export smuggling has paid large dividends with the interception of several million litres of smuggled fuel in relatively large vessels in the Arabian Gulf. Aides to the CPA Administrator report a Coalition crackdown on illegal smuggling or petroleum products, especially in the south, with some 150 arrests and the seizing of 100 tanker trucks and a dozen barges. Temporary military control over distribution networks, particularly in the south, is bearing fruit. The problem will not be eliminated until prices in Iraq rise to a level where the trade is no longer economical – and this is a long term issue, linked to incomes of the populace – but it is clear that the costs imposed by the Coalition are making it less viable.

Personal security of Coalition contractors and Iraqis working to restore the industry continues to be a concern. This has been especially so in the south this past week, with many vital restoration tasks deferred because of the unrest.

Pipelines, power lines and other infrastructure items which cannot be easily guarded continue to fall victim to deliberate sabotage or criminal damage. However, this past week, a contract was awarded by the CPA to Erinys International, a South African security firm active in Iraq under British management, for a 7000-man facilities protection service covering 140 key oil industry sites. It will take time for the force to become operational but this is a most positive development.

Distribution

The challenge of equitable distribution continues nationwide, especially outside the capital. Supply of fuels is uneven. In the north, for example, LPG, whilst not readily available, is easier to obtain that in the south, given that most LPG imports to date have been from Turkey. Conversely, diesel is more available in the south as about half of the Basrah refinery's production is of that fuel.

With disruptions to pipelines and leakages caused by extensive corrosion, low levels of maintenance and sabotage, the distribution network for liquid fuels is increasingly dependent on private tanker truck fleets. These, naturally, gravitate towards the more profitable business opportunities. For LPG, there may be insufficient numbers of "bullets", as the 20-tonne pressurized LPG tanker trucks are known, to distribute the supply. None of Iraq's few ports have suitable facilities for large bulk liquid operations, especially of flammable cargoes. There is a huge logistical problem with getting imports into Iraq, and distributing both these and local production.

To compound matters, buffer stocks are at a very low level. Any disruption can set off panic buying and hoarding, further increasing demand at a time decreased supply.

Refining

The challenge of equitable distribution continues nationwide, especially outside the capital. Supply of fuels is uneven. In the north, for example, LPG, whilst not readily available, is easier to obtain that in the south, given that most LPG imports to date have been from Turkey. Conversely, diesel is more available in the south as about half of the Basrah refinery's production is of that fuel.

With disruptions to pipelines and leakages caused by extensive corrosion, low levels of maintenance and sabotage, the distribution network for liquid fuels is increasingly dependent on private tanker truck fleets. These, naturally, gravitate towards the more profitable business opportunities. For LPG, there may be insufficient numbers of "bullets", as the 20-tonne pressurized LPG tanker trucks are known, to distribute the supply. None of Iraq's few ports have suitable facilities for large bulk liquid operations, especially of flammable cargoes. There is a huge logistical problem with getting imports into Iraq, and distributing both these and local production.

To compound matters, buffer stocks are at a very low level. Any disruption can set off panic buying and hoarding, further increasing demand at a time decreased supply.

Gasoline

This past fortnight, with the combination of slightly improved production from Baiji and Daura but mostly because of massive imports of gasoline into the south on August 11th and 12th, and again on the 14th and 15th, there is probably adequate gasoline in the country for current consumption. It appears that these new imports will continue - although not at the surge levels established during the recent unrest - for at least the next six weeks. UNJLC does not expect a gasoline shortage to recur in the south in the near future. The long lines at petrol stations that were evident before, during and immediately after the unrest have all but disappeared.
However, distribution is uneven nationwide as evidenced by major regional difference in black market prices. Long lines persist at petrol stations even in Baghdad where supply is relatively good. This may be due to panic buying and hoarding, with people unsure of whether fuel will continue to be as readily available, or people buying it to sell in areas where there are shortages.

Curiously, in a country with a relatively low income level, a great many vehicles are being imported, adding to the demand on gasoline. One estimate holds that at least 13,000 vehicles have been imported from Kuwait alone since the cessation of hostilities with Iraqis taking advantage of the temporary tax-free regime. Still others have come in from the UAE and Turkey. In pre-war Iraq, with petrol always subsidized by the government, the public transportation system was almost non-existent. Those without cars depended on the abundance of taxis. UNJLC suggests that limitations on the import of vehicles may ease the gasoline shortage simply by having fewer cars on the road.

The key to stability in the gasoline market will be the establishment of buffer stocks so that the public is assured of relatively uninterrupted supply, and continued imports to give the local refineries time to recover their production levels. In recent weeks, it seemed clear that the Coalition was keen to stop imports from October and hand over complete responsibility for this to SOMO. This may now be under review, but would mean a deferral of the cut-off date for Coalition imports, not a reversal of the fundamental decision. The Coalition continues to try to place as much responsibility as possible in the hands of the Iraqi Ministry of Oil.

Liquid Petroleum Gas (LPG)

Overall LPG supply seems to have improved marginally this past week with steady – even slightly increased – Baiji and Daura production, but mostly because of significantly higher levels of imports into the south. However, total supply would probably not yet meet more than two-thirds of demand. As for gasoline, distribution is uneven.
Nevertheless, the prognosis for LPG supply is generally favourable for the next two months. UNJLC's estimates (see table below) suggests that supply from all sources is likely to match current estimated demand of 4200 tonnes per day within a month, and perhaps even allow some winter stockpiling.

 

LPG supply,Tonnes/day	Second half August	First half September	Second half September
Northern Gas production	900	950	1000
Refineries production	300	325	350
Current est. imports (1)	900	900	900
Current supply	2100	2175	2150
New trucked supplies, south	100	400	800
New barged supplies, south	-	850	1700
Southern Gas production		600	1200
Total Supply	2200	4025	5850
Comprising:
Production	1200	1875	2550
Imports	1000	2150	3400

(1) Uncertain whether imports from current sources (mainly the north) will continue at this estimated level of 900 tonnes per day after new imports into the south are established, and for how long the Coalition will maintain these new imports.

The new trucked imports from Kuwait appear to have started at a rate of perhaps 4 trucks (80 tonnes) per day. These have been planned for some time and the first deliveries, coincidentally, arrived during the week of the Basrah civil unrest. Quantities should increase to 800 tonnes per day, but it is unclear how long this will last for.

The barged imports are presently ready offshore in a large vessel carrying about 43,000 tonnes of LPG. Offloading must be done by smaller lightering barges which are not yet in place. Once offloaded, the initial deliveries, averaging 1700 tonnes per day, will have to be used to fill storage vessels and pipelines. Significant quantities are therefore unlikely to reach the public before mid-September. Furthermore, as these imports will be managed and paid for by the Coalition, it is uncertain whether they will be continued once the large vessel is fully discharged.
LPG (cont'd): The main source of supply going forward will be Iraq's own Southern Gas Plant. Much-delayed first production is likely in September from the first of two trains. This is expected to deliver 1200 tonnes per day. A second train may be brought online, perhaps with another 800 tonnes per day, later in the year. It is unlikely that the third train can be made operational in the near future. There may be some marginal increases in production from the North Gas Plant and major refineries, no more than several hundred tones per day.
Clearly, Iraq will remain partially dependent on imports of LPG for at least the remainder of the year.

Even given adequate overall supplies, distribution will remain a major challenge. The LPG pipeline from Basra to Baghdad has been recently repaired and may be subject to sabotage. There are only 100 LPG filling plants in Iraq, one for every 50,000 families. The LPG truck fleet may be insufficient to service the country. More importantly, there seems to be a shortage of LPG bottles with many of those in circulation in a damaged state (and thus leaky, even unsafe) and very old. UNJLC understands that the Ministry of Oil has substantial pre-war stocks of LPG bottles. Hundreds of thousands of bottles have also been or will soon be imported under the oil-for-food programme. It is unclear why these bottles have not been released to the public by the Iraqi authorities, but it is essential for effective distribution that this be done.

Kerosene

Overall supplies of kerosene appear to be adequate, although regional shortages are evident, especially in the north. There does not yet appear to be a nationwide problem. The all-important winter stockpiling is underway but behind schedule. In recent weeks, the relative amount of crude allocated to kerosene production by the refineries has not increased, perhaps because of the current demand for diesel, with these two fuels being produced from the same fraction of distilled crude.
Interestingly, consideration now seems to have been given to importing kerosene in addition to diesel. It was thought that importing diesel would be easier, and then the refineries could devote more of their capacity to kerosene. Although not a matter of immediate concern, this does require monitoring, especially as we move towards winter.

Diesel

: A diesel shortage continues throughout Iraq, with supplies more scarce in the north than in Baghdad, the upper south or south. Regular interruptions to the national grid continue to place heavy demand on domestic generators. The larger types of these, often serving up to two dozen homes, are almost exclusively diesel-powered. Agricultural needs for the harvest and irrigation, the requirements of diesel-fired power stations and water treatment plants, and the needs of the transport industry are also placing heavy demands on diesel supplies.
Diesel continues to be the fuel of choice for export smuggling across land borders in the north and west, and by sea from the south. Significantly, the Coalition has enjoyed several notable successes in interdicting export smuggling, with at least two large vessels carrying a combined total of several million litres intercepted in the Khor Abdullah or Arabian Gulf and returned to Iraq.
Domestically-produced supplies are, however, increasing. An estimated 2 million litres per day has been added to refinery output during each of the past two weeks, principally because of newly-maintained plant and systems being put back into operation at Baiji, steady Daura production, and most of Basrah's production being diesel. It had been expected that diesel production would be further reduced in favour of kerosene but has not yet occurred. An initial shift in the relative volume of crude allocated to kerosene production away from diesel during July seems to have ceased. Nevertheless, diesel supplies nationally probably meet no more than two-thirds of demand.
UNJLC is unaware of any significant diesel imports by either the Coalition or the Ministry of Oil but it is believed that these may start soon, with SOMO taking the lead. Even with imports, a diesel crisis will persist beyond the summer.

Aviationfuel

Demand for aviation fuel for non-military use in Iraq continues to be limited to the requirements of humanitarian air services, cargo and courier flights, and those servicing the reconstruction and rehabilitation effort. Most flights are from Amman and the aircraft flying in do carry enough fuel for the round trip. However, some of the smaller aircraft servicing the north and south do require refueling. Small quantities can be imported from Turkey from the north and there are supplies in the south.
There is no production of aviation fuel in Iraq at present but there are adequate supplies of aviation fuel, particularly in Baghdad. UNJLC has arranged for pre-war supplies of about 8 million litres in Daura to be tested in Iraqi laboratories and for the results to be verified internationally.
It is likely that Basrah International Airport may commence commercial operations before Baghdad, but it seems unlikely that aircraft will refuel there. Flights may be conducted in conjunction with routes to the Gulf States, or be regional airlines carrying enough fuel for the round trip.

Fuel Supply for UN Light Vehicles

UNJLC has facilitated arrangements through the distribution arm of the Ministry of Oil for UN light vehicles to refuel with relative ease and safety at two designated outlets, particularly in Baghdad. It has also arranged for secure fuel supplies in Basra and elsewhere in the south in the wake of the recent unrest. This will ease security concerns arising from lack of certainty of fuel supplies and assist in their ability to continue humanitarian work. Supplies for a strategic emergency fuel reserve for UN operations in Baghdad have been sourced and will be made available once the necessary tankage and facilities are installed.

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