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UPDATE 2-Iraqi Kurdistan plans 2nd oil export pipeline to Turkey

Thursday, 31 Oct 2013 | 9:36 AM ET

* Kurdistan developing increasingly independent oil sector

Set to begin metering its own exports next year

* Rising output means second export pipeline needed

* Baghdad cautions Turkey to respect agreements

By Humeyra Pamuk

ISTANBUL, Oct 31 (Reuters) - Iraq's northern Kurdistan region plans to build a second new oil export pipeline to Turkey within the next two years as it ramps up output independently of Baghdad, the region's natural resources minister said on Thursday.

Speaking at an energy conference in Istanbul, Ashti Hawrami, a member of the Kurdistan Regional Government (KRG), outlined an ambitious oil export growth strategy for the autonomous region, whose growing independence has angered Baghdad.

Construction of the first pipeline to Turkey is complete, and it is being tested in preparation for the start of commercial shipments in the first quarter of 2014, officials said.

Kurdistan will track the volumes of its sharply rising crude oil exports on the pipeline, independently of the central government, Hawrami told the conference, adding that the region ultimately aimed to produce 3 million barrels per day of oil for export.

"Oil and gas exports are not the monopoly of anyone in Baghdad," Hawrami said. "It is our duty to pursue oil and gas routes independently ... Turkey has been the quickest to recognise the new realities of the region."

Energy-dependent Turkey has quietly built up a large commercial presence in northern Iraq and has courted Iraqi Kurds to form a closer partnership, a move that has infuriated Baghdad, which claims the sole authority to manage Iraqi oil.

The Arab-led central government, at odds with the Kurdish-run enclave over control of oilfields and revenue sharing, has warned that independent Kurdish efforts to export its oil could ultimately lead to the break-up of Iraq.

"Turkey is aware of Iraq's concern ... We have reminded Turkey that this is in breach of the agreement between the two countries that regulates exports from Iraq through the Turkish pipeline," Iraq's deputy prime minister for energy, Hussain al-Shahristani, told Reuters in Baghdad.

"Turkey assured us they respect that agreement and they will not allow any export of Iraqi crude without the permission of the federal government in Baghdad," he said.

But neither calls from Baghdad nor Washington have been enough to deter the Turks, the Kurds or the oil companies from forging ahead. Exxon Mobil, Chevron and Total have already signed exploration deals with Kurdistan.

A state-backed Turkish firm also was set up earlier this year to explore for oil and gas in Kurdistan as part of a strategy driven by Turkish Prime Minister Tayyip Erdogan.

Erdogan was meeting Iraqi Kurdistan Prime Minister Nacirvan Barzani in Istanbul as Hawrami spoke, a meeting at which energy cooperation was high on the agenda, according to Turkish government officials.

REVENUE SHARING

Kurdistan's first new pipeline will connect to an existing Iraq-Turkey line, which carries Kirkuk crude to the Mediterranean export outlet of Ceyhan. That pipeline has a capacity of around 1.5-1.6 million bpd but is poorly utilised.

Hawrami said Kurdistan's oil would first use the spare capacity in the Kirkuk-Ceyhan line but that once the region's production was ramped up, a second pipeline would be needed.

"We hope to complete this (second) pipeline in the next 18 months to two years," he said, adding its capacity would be at least 1 million bpd.

The first pipeline will connect to Kirkuk-Ceyhan on Iraqi territory, a decision whose implementation is being closely watched by the industry, but that does not mean Baghdad will have control over the exports, Hawrami said.

"We will independently monitor it ... When we linked it to Baghdad's pipeline before, we lost thousands of barrels of oil," he said. "The pipeline is in our territory, and the ownership of the pipeline is where it lies."

Details of revenue sharing, the issue at the heart of the dispute with Baghdad, have yet to be clarified.

Turkey has repeatedly said it stands ready to support an arrangement under which 83 percent of oil export revenue goes to Baghdad and the remaining 17 percent to Kurdistan, based on the Iraqi constitution. There was even talk of opening an escrow account in Turkey.

Hawrami declined to give details.

"The net revenue belongs to all of us in Iraq; that's what we say should be subject to revenue-sharing," he said.