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Iraq agrees with oil majors to cut output, but short of OPEC+ target

May 14/2020

MOSCOW (MRC) --  Iraq is cutting its oil output by around 700,000 barrels per day (bpd), a third less than required under an OPEC+ supply pact, after it failed to persuade international oil majors operating its giant fields to agree to deeper reductions, reported Reuters.

Iraq has agreed with oil majors operating its five giant southern oilfields to cut 300,000 bpd, Iraqi oil officials told Reuters on Wednesday. It will also lower production from other fields which it operates alone, bringing the total reductions to slightly below 700,000 bpd, they said.

The country’s oil output cut target under the OPEC+ supply reduction pact is 1.06 million bpd for May and June.

OPEC and its allies, a group known as OPEC+, agreed last month to slash output by 9.7 million bpd for May and June, a record production cut.

The agreement with the oil majors came after what Iraqi officials described as “a defensive position” by the international oil companies developing Iraq’s southern fields.

The refusal by the oil majors to cut more oil indicates the difficulties which are facing Iraq to fully comply with the OPEC+ crude supply reduction pact.

Two senior Iraqi officials who are part of the talks with foreign companies said they had to agree this deal to avoid paying the companies for the curtailed production.

Foreign oil companies, such as BP, Exxon Mobil Corp , Italy’s Eni and Russia’s Lukoil, who are developing Iraq’s giant southern oilfields operate under service contracts which pay them a fixed dollar fee for their output and are also compensated in crude cargoes.

This type of contract shields oil companies against sharp falls in oil prices. But it also means that with the OPEC cuts, Iraq ends up with less crude to sell bringing lower revenue to its state budget.

“Companies accepted to cut around 300,000 bpd which is considered nominal,” said a senior official at Iraq’s Basra Oil Company (BOC) who has direct knowledge of the discussions with the oil majors.

“We are in a critical situation where we cannot exert more pressure on the foreign firms and at the same time, we have to respect the OPEC agreement which is very difficult to fully implement” said another senior BOC official, who also asked not to be named.

Iraq has often lagged other OPEC+ producers in their previous deal to cut production and had not complied fully with its agreed output targets.

“We are optimistic that OPEC and other producers will understand Iraq’s situation when we meet next month,” the second BOC official said.

At least one European and two Asian customers will receive reduced oil supplies from Iraq in June, industry sources familiar with the matter said, as OPEC’s No.2 producer cuts some of its output.

European oil major Total’s allocation of Basra crude will be cut by over 25% in June and India’s Bharat Petroleum Corp will get about 25% less oil from Iraq.

South Korea’s GS Caltex was also told that it would receive less in June. 

As MRC reported previously, global oil consumption cut by up to a third. What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021.

Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

We remind that, in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.


mrcplast.com
Author:Margaret Volkova
Tags:Asia, Europe, PP, PE, LLDPE, crude and gaz condensate, PP block copolymer, homopolymer PP, propylene, LDPE, HDPE, ethylene, petrochemistry, Lukoyl, BASF, Borealis, BP Plc, Eni, Exxon Mobil, GS Caltex, LyondellBasell, Sabic, Total Petrochemicals, Iraq, Russia, USA.
Category:General News
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