Baghdad says KRG commits to cutting crude output

Iraq's semi-autonomous Kurdish region has agreed on a mechanism to reduce oil output to help the country meet its quota under the new Opec+ agreement, Iraq's oil minister Thamir Ghadhban said.

A delegation from the Kurdistan Regional Government (KRG) visited Baghdad for a meeting yesterday, during which the two governments agreed on ways to reduce crude production. A statement from the federal oil ministry released after the meeting did not reveal how much the Kurdish region will contribute to Iraq's output cuts.

Under the Opec+ deal reached on 12 April, Iraq agreed to reduce crude production by 1.06mn b/d in May-June from an October 2018 baseline of 4.65mn b/d. Iraq's quota will rise to 3.8mn b/d in July-December and 4mn b/d in January 2021–April 2022. Iraq says it produced 4.5mn b/d last month, slightly below Argus' estimate of 4.59mn b/d.

Historically, Baghdad has had little control over the Kurdish region's production, and it has long hidden behind this lack of control to explain part of its non-compliance with previous Opec+ restraint deals.

Ghadhban signalled newfound stability in December when he claimed that the KRG had pledged to cap output at 450,000 b/d, but the KRG denies this. The Kurdish region produced around 470,000 b/d of crude in the first quarter, Argus data show.

Baghdad needs the KRG's co-operation to limit the scale of output reductions it requests from international oil firms operating in federal Iraq, which would require the cash-strapped government to pay a remuneration fee under the terms of their upstream contracts.

The KRG is also under financial strain. It has proposed deferring overdue payments to foreign oil companies operating in the Kurdish region for at least nine months.

A deal with Baghdad may offer financial incentives. During the meeting, the two sides discussed "the issue of gas investment in the [Kurdish] region because of the presence of large and promising reserves in a number of fields that are discovered and developed without investment", according to the oil ministry statement.

Technical teams from Baghdad and Erbil will study a proposal to use the gas to generate electricity throughout Iraq.

A breakthrough could ease Iraq's dependence on Iran for electricity and natural gas imports, which are threatened by US-Iran tensions. Last month, Washington extended a sanctions waiver allowing Iraq to import electricity and gas from Iran. But the 30-day extension to 25 April was the shortest yet — previous extensions were for 45, 90 or 120 days.

By Rowena Edwards

source: Argus Media