Iraq plans to boost sales of Kirkuk oil by at least 100,000 barrels per day starting in January and is offering incentives to win back and retain customers, an Iraqi official said on Friday.
The plans come in the wake of more reliable flows via Iraq's 600-mile (966 km) pipeline to Turkey, which has been idled by sabotage and technical problems for much of the time since the US-led invasion in March 2003.
"Kirkuk is coming back," the official told Reuters. "The security situation has improved and we're very hopeful we can sustain an average of 450,000 barrels per day for the foreseeable future."
Previously, Iraq's State Oil Marketing Organisation (SOMO) had allocated about 300,000 bpd of Kirkuk crude in term deals starting January 1. It has been selling batches of the crude via competitive tenders since September. Increased sales via Turkey have lifted Iraq's oil exports to the highest in more than three years and enabled it to benefit from record-high oil prices.
It has also given Baghdad the confidence to offer Kirkuk in term contracts for the first time since 2004. "Because of the higher-than-expected volume, we are now considering requests for more than 100,000 bpd of extra term contract volume," the official said. "The aim is to sell 400,000 bpd or maybe more."
Shipments of Kirkuk by pipeline over the past 10 days have been sustained at 400,000 bpd to 500,000 bpd, he said. Immediately before the war in 2003, Iraq was exporting about 700,000 bpd of Kirkuk. The volume in storage at Turkey's port of Ceyhan is close to 6.5 million barrels and will reach about 8 million, close to total capacity, by the end of the year, the official said.
Some in the industry remain sceptical that Iraq will sustain a regular flow of Kirkuk crude. The previous post-war attempt proved short-lived due to renewed bombing of the pipeline. "I think we're all holding our breath a bit," said an oil executive. "People will buy with caution."
Iraq is notifying customers now and aims to finalise the plan for sales of at least 400,000 bpd by the weekend, the oil official said. "SOMO has a new strategy to market Kirkuk. We're working on three fronts. We're being very flexible." The plan includes an encouraging pricing formula for January, a one-off additional discount to boost sales and increasing the volume.
Existing term contracts are for three months and buyers are being given the option to extend those to six months or a year. Iraq also expects to attract new buyers, as well as lift sales to existing ones. "We expect newcomers to include US companies such as Exxon Mobil and others," said the official.
Iraq has set the official selling price for Kirkuk to customers in Europe next month at dated Brent minus $3.75 and the price to the United States at first line WTI minus $6.00. In addition, customers will get an additional one-off financial incentive in January.
Buyers lifting crude between January 1-5 will get an extra discount of 95 cents a barrel, he said. Those lifting between January 6-12 get an extra 45 cent-discount and a further 20-cent reduction applies for the January 13-17 date range. On top of that, US buyers are being offered freight compensation in January due to high shipping rates.
The onset of Kirkuk sales has boosted Iraq's overall exports to 1.8 million bpd, the highest in more than three years. Previously, the country relied on its southern export route in Basra to supply around 1.5 million bpd.