Why doesn't Iraq export petroleum derivatives?

Why doesn't Iraq export petroleum derivatives?
2023-10-13T05:12:08+00:00

Shafaq News / In the intricate landscape of global energy markets, Iraq emerges as a pivotal player boasting substantial oil production capacity. Yet, the nation faces a unique set of challenges, encompassing the efficient management of production surpluses and the pressing need to tackle shortages in vital petroleum derivatives.

Iraq's oil production capacity surpasses an impressive 5.4 million barrels per day, yet the nation's daily output currently hovers at approximately 4.2 million barrels. This shortfall results from adherence to the OPEC+ alliance's decision, obligating Iraq to export only 3.4 million barrels per day, highlighting the imperative need to harness surplus capacity. 

Furthermore, Iraq grapples with a significant scarcity of petroleum derivatives, including essential commodities such as gasoline, kerosene, and natural gas. This scarcity necessitates annual imports that incur a substantial cost of approximately $3 billion, according to experts' evaluations.

Experts affirm that Iraq could attain self-sufficiency in these derivatives, including gasoline (both regular and premium) and kerosene, excluding natural gas, if the country possessed adequate storage facilities and operated them efficiently. Furthermore, the export of petroleum derivatives can be accomplished without any imposed restrictions, with experts emphasizing that the profits from exporting these derivatives outweigh those from crude oil exports.

Nonetheless, Iraq's complex storage conditions, insufficient refineries, and delays in completing refinery projects have led to the surplus production remaining in the fields, with only a small portion reaching the refining sector, experts have observed.

Production reduction

In October 2022, the OPEC+ alliance decided to reduce export quotas for member countries by a total of 3.6 million barrels per day. These reductions were distributed among the member nations, with Iraq's share amounting to a reduction of 200,000 barrels per day. Iraq is legally obligated to adhere to this quota, even if its production exceeds five million barrels per day.

Any surplus that cannot be exported could be strategically employed to bolster refinery capabilities. However, Iraq faces a shortage of operational refineries to store the excess production.

Moreover, currently functional refineries have limited capacity, with some having suffered damage during past conflicts. For instance, the Baiji refinery, previously capable of processing 300,000 barrels per day, is expected to return to service with a capacity of 100,000 barrels per day by mid-next year.

Challenges in the Petroleum Derivatives Sector

Iraq's struggle with a shortage and scarcity of petroleum derivatives, including gasoline (both regular and premium), kerosene, and natural gas, necessitates substantial imports. If Iraq had efficient refineries with sufficient capacity, it could attain self-sufficiency and reduce the reliance on imports, except for natural gas, which serves a different purpose.

It's noteworthy that the export of petroleum derivatives can be conducted without restrictions or allocated quotas, and the profits derived from exporting these products surpass those from crude oil exports.

Experts estimate that domestic consumption requires between 700,000 to 800,000 barrels per day. If production exceeds this, the surplus would surpass the export quota and refinery capacity, necessitating storage or conversion into petrochemical industries. However, Iraq presently lacks a well-established petrochemical industry, with ongoing projects facing significant delays that could have otherwise accommodated the surplus oil production.

International Strategies and Iraq's Potential

Global countries facing similar challenges resort to strategic storage during periods of high oil production and unfavorable market prices. They may also convert excess crude oil into valuable petroleum derivatives or petrochemical industries. For instance, countries like China and India, equipped with numerous refineries, purchase cost-effective oil from Russia. They refine this oil and convert it into gasoline and kerosene for export to various global markets, including Europe and the United States.

Iraq's Aspirations for Increased Production

Dr. Sadiq Al-Rikabi, the director of the Global Center for Development Studies in the United Kingdom, concurs with the challenges posed by Iraq's limited storage capacity for unexported production quantities. He highlights ongoing efforts to enhance outlets for Iraqi oil exports.

Al-Rikabi explains that Iraq is striving to boost its production to nearly six million barrels per day in the coming years, driven by projections of a global increase in oil demand by approximately two million barrels per day in the next year. These trends underscore Iraq's imperative to augment its production capacity.

He further underscores that Iraq's present inability to utilize its production surplus does not imply a complete revenue loss. Higher oil prices compensate for unexported quantities, contributing to enhanced oil revenue. However, if the surge in demand outpaces Iraq's production capacity, this could lead to potential revenue losses.

Expanding Export Platforms

Kadhim Juro, a member of the Parliamentary Oil and Gas Committee, outlines the existing challenges in Iraq's oil production and export infrastructure. With the current daily production at five million barrels, the inability to export the full output is largely attributed to the limited capacity of loading platforms in Basra's ports, which can handle only 3.5 million barrels per day. This limitation necessitates the construction of new platforms to facilitate efficient exports.

Juro underscores the significance of completing al-Faw Port, which, upon its finalization, could substantially increase daily production capacity to up to 10 million barrels. The 2023 budget outlines plans to expand export platforms, and the Prime Minister has initiated a committee responsible for maintaining and rehabilitating existing platforms while enhancing their export capabilities. These initiatives represent essential steps to address Iraq's challenges in the oil sector and to meet its goals of increased production and more efficient export infrastructure.

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