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Iraq oil-rig count tumbles after IOCs ordered to cut spending on oil plunge

May 28/2020

MOSCOW (MRC) -- Iraq's oil-rig count has tumbled by almost two-thirds this year after international oil companies were ordered to cut spending because of the oil crash and OPEC's second-largest producer agreed to stringent new OPEC+ cuts, said S&P Global.

The total now averages 32 rigs operated by IOCs this month, down from 88 rigs in December 2019, Iraqi sources told S&P Global Platts. Federal Iraq is averaging 31 rigs this month, compared with 76 in December, while the semiautonomous Kurdish region in the northern part of the country is averaging only one rig in May compared with 12 in December.

Iraq's state-run Basrah Oil Co. in March asked IOCs to cut budgets by 30% and postpone payments to subcontractors due to the oil price crash. Oil prices received by federal Iraq were down to about USD14/b in April, from USD60/b in January, slashing oil revenue to USD1.4 billion from USD6.16 billion. Oil revenue accounts for more than 90% of Iraq's federal budget.

Oil drilling is now the biggest investment expenditure of IOCs, the sources said. The drop in the drilling programs will allow Iraq to cut costs by 30%, sources said. Iraq is currently in the midst of cutting its output in line with the new OPEC+ agreement that will trim a record 9.7 million b/d in May and June. At 4.54 million b/d in April -- according to the latest Platts OPEC survey -- Iraq's production will have to fall by almost 1 million b/d for the country to abide by its quota under the OPEC+ deal.

The politically splintered nation has been a consistent laggard in compliance, drawing the ire of other members, and the government faces challenging negotiations with IOCs and the Kurdish region to fulfill its cut commitment.

The country is fully committed to the new OPEC+ cuts, acting oil minister Ali Allawi said earlier this month. The existing rig count should be sufficient to keep Iraq's production at least within the OPEC+ target, the sources said.

Unlike other producers in OPEC, led by top producer Saudi Arabia which pumped at record levels in April, Iraq was not able to open the taps last month despite the expiry of the old OPEC+ cuts agreement in March. The outbreak of the coronavirus and lockdowns also forced Malaysia's Petronas to evacuate staff in March and stop production from the southern oil field of al-Gharraf, which pumped some 90,000 b/d.

The KRG has its own burdens. According to a report by Deloitte, the KRG last year had to pay $2.20/b to transport crude by pipeline to the Turkish border, USD3/b to the Turkish energy ministry and USD14.80/b to IOCs. The KRG also received USD1.573 billion from traders as an advance payment, and at the end of the year owed USD3.4 billion.

More recently, federal Iraq told the KRG in a May 22 letter that it must develop an oil and budget deal within 30 days before it will approve future salary payments. The KRG is now sending a delegation to Baghdad for talks, the sources said.

As MRC informed earlier, 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.

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.
Author:Anna Larionova
Tags:petroleum products, crude oil, PP, PE, petrochemistry.
Category:General News
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