Prior to the events of August 19th, the UNJLC Iraq Fuel Planning Team had dedicated representatives in Baghdad, Basra and Erbil. Several of these personnel have been temporarily evacuated from Iraq until the security situation improves but continue to operate from within the region. UNJLC Head of Fuel Planning may be contacted at info@unjlc.org.

• Overview
• Crude production and heavy fuel oil:
• Security and smuggling:
• Distribution:
• Refining:
• Gasoline:
• Liquid Petroleum Gas (LPG):
• Kerosene:
• Diesel:
• Natural Gas:
• Aviation fuel:
• ABOUT UNJLC

Overview

The fuels situation in Iraq is generally steady with the supply-demand equilibrium sustained only through a high level of imports by both the Coalition and the Iraqi Ministry of Oil's State Oil Marketing Organization (SOMO). Iraq's refineries have consistently failed to boost production of gasoline, diesel and kerosene above the levels established in August. Overall, imports are thought to provide between one quarter and one third of national supply for these fuels. Further delays in the startup of the Southern Gas Plant mean that imports provide almost two-thirds of the demand for LPG. Iraq will be dependent on imports of these four major fuel types into at least early spring.

The main concern continues to be adequacy of heating kerosene for winter. Iraq generally builds up large stocks of kerosene in summer and autumn, and draws upon them during the cold weather. Ministry of Oil sources indicate that historically, by late November, national kerosene stocks should be about half a billion litres. Present inventories are thought to be substantially less than half of this. However, both the Coalition and SOMO started importing kerosene during October. Although quantities are far from sufficient to build the necessary reserves, a continued commitment to import throughout the winter and to further ramp up imports suggests that such shortages as are likely to occur will not be chronic.

LPG supply will continue to be poor until the Southern Gas Plant comes onstream, perhaps sometime in November. Even after that, imports will be necessary to meet demand.

Pipeline security, and that of oil industry infrastructure in general, continues to be a major issue. Frequent and sometimes quite effective sabotage of exposed pipelines of all types is a constant drag of local production and distribution effectiveness, but the matter is being addressed vigorously by the Coalition.

Refineries continue to operate with inadequate stocks of spares and are will be unable to maintain current production levels without proper major maintenance. Despite the generally positive situation, the fuels situation remains most fragile. A major refinery failure could very quickly lead to depletion relatively thin reserves within days and a much greater reliance on imports that cannot be increased quickly from already high levels.

Crude production and heavy fuel oil:

With continued growth in national production to consistently more than 2 million barrels per day, mainly from the south, supplies of crude oil for refining into usable fuels are more than adequate. However, pipeline sabotage has limited quantities transferred to refineries. This applies particularly to the more vulnerable north, which provides about 75% of crude processed in the refineries. Sabotage in this area has a disproportionate effect on overall crude transfers and refinery output.

Humanitarian imports of gasoline, diesel and - since early October - kerosene, continue at a combined daily rate of about 12 million litres. This largely makes up the shortfall between national requirements and local production. The vast majority of these purchases are by the Coalition but Iraq's State Oil Marketing Organization (SOMO) is slowly increasing their contribution to overall imports through bartering heavy fuel oil (HFO). However, ongoing difficulties in exporting this product through the north, to pay for the imports, presents a considerable challenge to SOMO in its ability to assume more of the import burden. Volumes of HFO available for export are probably insufficient to pay for all imports required at present.

Despite the Coalition's demonstrated commitment to continue imports through the winter and into the spring, it will be necessary for SOMO to assume full responsibility for all imports as early as possible. UNJLC has provided the authorities with a proposal involving a neighbouring country that may have the potential to substantially improve the economic effectiveness of the swap between HFO and light products over the coming months, and thus provide SOMO with more value for its barter exports.

Syria and Turkey are continuing to provide electricity to Iraqi in quantities of several hundred megawatts per day in exchange for HFO, and several major power stations in Iraq are being converted to burn HFO instead of diesel.

Security and smuggling:

Sabotage to pipelines continues to affect production and distribution of refined products and LPG. The damage can be serious but is seldom critical to the overall system. Improvements in the response time to pipeline breaks by Iraqi oil companies, better repair facilities and built-in redundancy are mitigating the effects, but it is expected that such attacks will continue for the foreseeable future. Existing security resources are thinly stretched and it will be at least a month before the CPA's facilities protection contract will be fully operational.

Most pipeline sabotage is of a criminal nature, to steal fuel, but it is clear that major attacks are carefully targeted to disrupt to the greatest possible extent the ability of the industry to get crude to refineries or to export it. To date, export capacity in the south has been largely unaffected, but is all but closed in the north.

A much more aggressive approach to smuggling by sea, including the imposition of heavy fines and jail sentences, is paying dividends. This includes seizing trucks used to transport smuggled fuel to small ports for export. Most confiscated product was fuel oil, with little effect on the humanitarian situation, but diesel has also been interdicted, generally improving supply of this in the south.

Distribution:

The most important development in the distribution situation over the past month has been the gradual build-up of buffer stocks to cushion the effects of supply disruptions caused by day-to-day operational problems, or sabotage. According to industry sources, several weeks of gasoline consumption may now be in stock (thanks mainly to imports), and at least a week's consumption of diesel. More than several weeks' consumption of kerosene is in stock but that will be drawn on for winter. These stock levels are below the levels that the Ministry has maintained historically, but are probably the best they have been since the cessation of hostilities. LPG reserves are fairly low.

It is clear that the Coalition has made a special effort to ensure that adequate stocks of fuel were in place for the Holy month of Ramadan, which commenced late October.

Improvement in overall power supply and an ongoing programme of installing independent power capacity at key distribution sites is also greatly assisting in distribution. The Coalition, for example, has installed small generator at all the petrol stations in Basra so that they may continue to function even when the national grid fails.

Improvements are also evident in the distribution system, particularly with new communications facilities and more integrated co-operation between the Coalition and Ministry of Oil distribution entities. The overall system is still very centralized but it is working reasonably well.

Refining:

As expected, Iraq's three major refineries are suffering from the effects of long-deferred major maintenance and a lack of spare parts. Leaving aside the effect of pipeline sabotage which has, at times, left crude stocks for processing in at least one refinery perilously low, mechanical and electrical problems continue to holds back production. This will take some time to resolve.

Recent weeks have continued to see generally uninterrupted supply of stable electrical power to refineries. This has been a result of both improvements in the performance of the national grid and the use of independent power generating capacity on site. There have been problems, but not to the same extent as earlier in the year. There is a clear trend for improvement.

The country's small 'topping' refineries continue to make a small but important contribution to regional fuel supplies with several more planned to be brought online in the coming months. These units suffer from the same problems of crude supply and lack of spare mechanical and electrical parts as the major refineries but are generally easier to operate and repair and reduce the need for fuel distribution from the major refineries. On an overall basis, even if all were working, they could probably not add more than 15% to overall output of refined products, but this could nevertheless be significant in the circumstances.

At present, it is unclear what effect major maintenance work in December at Iraq's largest refinery, Baiji, will have on supplies but steps will be taken to minimize disruption.

Gasoline:

Overall gasoline supplies appear to have consistently exceeded estimated demand for much of the past two months, allowing the establishment of reasonable – although still low – reserve stocks. These are now estimated from industry sources at about two weeks' consumption, perhaps more. This has been made possible only because of a high level of imports from both the Coalition and SOMO, estimated at between 7 and 8 million litres per day, or about half of Iraq's daily requirements.

Domestic refinery production is providing probably little more than two-thirds of local needs; it is unlikely that this can be increased this year. As most imports are managed by the Coalition, any significant reduction in these will have a significant effect on overall supply, with humanitarian consequences. However, the Coalition does appear to be committed to maintaining these imports for the foreseeable future and has funding in place to do so. Barring major refinery failures or disruptions to imports, renewed gasoline shortages are not expect in the new few months.

Although the black market has not entirely disappeared, much of it exists as a matter of convenience. With a high ratio of motor vehicles to petrol stations in Iraq, queues are a normal fact of life; some consumers prefer to pay a small black market premium rather than wait. The situation is being aggravated by the continued import of large numbers of second hand cars into Iraq from neighbouring countries (thus increasing petrol consumption) and the absence of widespread and efficient public transport.

The generally positive gasoline situation is expected to continue into 2004, as long as Coalition imports continue. The situation beyond that will depend on the ability of the refineries to increase production and on SOMO being able to import any shortfall.

Liquid Petroleum Gas (LPG):

Despite these purchases, it has not yet been possible to establish reasonable reserves of LPG. Distribution problems are still evident in many areas with shortages of new LPG bottles and long queues. The fall in black market prices seen with the first sustained improvement in supplies in September (when imports were doubled) has not continued, suggesting that the situation has not further improved from then, although it has not deteriorated.

The LPG supply situation will continue to be very tight throughout the month of November and no significant improvement can be expected without a major increase in imports until early 2004.

Kerosene:

The most significant recent development in the kerosene situation has been the commencement of imports by both the Coalition and SOMO. Although quantities are relatively modest, there is an intention to ramp these up to meet heavy winter demand for home heating.

Local kerosene production is probably sufficient to meet current demand. As such, the imports are effectively contributing to reserves. However, from late November, production will be unable to match demand; the shortfall will have to be met from imports or reserves. The Iraqi Ministry of Oil's normal practice of building a kerosene stockpile for winter consumption is unlikely to be achievable this year. Imports will therefore have to take the place of the stockpile but will have to continue throughout winter, perhaps peaking at a rate of 8 to 10 million litres per day.

The significant rise in black market prices for kerosene seen in September has not continued. Prices have levelled out, remaining higher in the north and centre and lower in the south, as expected. This suggests that the situation has neither improved nor deteriorated, and there is confidence among the populace that winter supplies will be available.

Unusually, during October, it appears that relatively more gasoline and diesel has been produced than kerosene. It would have been possible to reduce diesel production in favour of kerosene. This does not appear to have happened, perhaps because high current demand for diesel was given priority over future kerosene demand. This practice may aggravate any kerosene shortage that appears in winter.

Diesel:

On the positive side, the cooler weather has reduced the demand for diesel for generators used for airconditioning, refrigeration and ice-making, and major projects are in progress to convert several large power stations to burn crude oil or heavy fuel oil, instead of diesel. Better performance from the power sector in general, where power generated has now been restored to pre-war levels and supply is more stable, has also reduced the need for household and neighbourhood generators.

Black market prices have continued to ease back slightly although they are still six to eight times the official price. Confidence in security of supply seems to be returning but it will require several weeks without any shortages, and the building up of perhaps several more weeks of reserve stocks before the situation can be described as normal.

Natural Gas:

Aviation fuel:

With much reduced air services into Iraq owing to the security situation, aviation fuel is not generally a humanitarian concern at present. Fuel is available, at a price, in Basra and Erbil, but not at Baghdad. However, most civil and humanitarian aircraft servicing Baghdad carry enough fuel for the round trip. Should further aviation fuel supplies be required, the refineries, particularly Daura Refinery in Baghdad, can produce it.

For further information, contact info@unjlc.org

ABOUT UNJLC

UNJLC is an inter-agency facility reporting to the Humanitarian Coordinator for Iraq and generally to the Inter Agency Standing Committee. Its mandate is to coordinate and optimise logistics capabilities of humanitarian organisations in large scale emergencies. UNJLC operates under the custodianship of WFP that is responsible for the administrative and financial management of the unit.

UNJLC is funded from voluntary contributions that are channeled through WFP. The UNJLC project document for Iraq can be viewed at the UNJLC website (www.unjlc.org).