Summary
Content
The UNJLC Iraq Fuel Bulletin aims to provide a clear and concise periodic overview – usually weekly – of the situation as it exists in Iraq with regards to the oil industry. It focuses on the availability of fuels, particularly as they affect the welfare of the populace and related humanitarian work. It further seeks to identify major issues for the humanitarian community and other interested parties, to provide relevant background and constructive recommendations on current issues, and to alert responsible parties to emerging issues in the crisis so that they may be addressed in good time. The UNJLC Iraq Fuel Planning Team presently has dedicated representatives in Baghdad, Basra and Erbil. For further information please contacted info@unjlc.org.
Contact details for all UNJLC offices are available here.
- Overview
- Production, exports and imports
- Security, smuggling and corruption in distribution
- Oil-for-Food Programme
- Infrastructure
- Refining
- Gasoline
- Liquid Petroleum Gas (LPG)
- Diesel
- Kerosene
- Aviation fuel
Production, exports and imports
Total national crude oil production has fallen back from a postwar peak of over 850,000 barrels per day (bpd) to just over 700,000 bpd with declines in both the north and south. Northern production seems to have been constrained by the combined effects of sabotage to pipelines and installations and the disruption of power supplies. Production in the south has been held back by the capacity of the Basrah and Daura refineries to absorb crude for refining, storage limitations in the south (which should be alleviated by exports), and the capacity of regional gas-oil separation plants. With the commencement of 2.2 million barrels of crude exports on June 28th, storage will be now less of an issue. The increased production will generate more gas and should assist the LPG supply.
Security, smuggling and corruption in distribution
Security concerns and a lack of law-and-order are an increasing challenge to Coalition forces and to humanitarian efforts. Greater attempts are being made at interdiction of the more obvious smugglers – including confiscation of trucks - but the trade is unlikely to be eliminated until the differential between prices in Iraq and those in neighbouring countries, with the exception of Kuwait and Saudi Arabia, narrows. This will not happen in the short term. Anecdotal evidence suggests that sophisticated networks are in place and that interdiction successes have little overall effect. Recent reports from well-placed sources indicate that the Coalition may even be unknowingly buying back fuel that is being smuggled out of the distribution system, without that fuel leaving Iraq.
Compounding this problem is corruption at almost every level of the distribution chain and a lack of effective control by the authorities, include Iraqi ministries. For example, meters are not functioning at most depots and petrol stations. Given the economic situation in Iraq, those with control over fuel are taking advantage of the situation. Fuel is easily diverted to the black market. This is cannot be easily resolved until law-and-order is restored.
Oil-for-Food Programme
UNJLC, in its augmentation role to UNOPS, in association with other elements of the UN, and in co-operation with OCPA, continues to focus significant effort on facilitating the delivery of much-needed spares, materials, equipment and chemicals acquired by Iraq under the Oil-For-Food Programme. These contracts will be vital to restore the capacity of the industry to service the needs of the country and to assist in restoring stability and security implemented.
Infrastructure
Production, refining and distribution capacity continues to be limited by the dilapidated state of the industry’s infrastructure and shortage of spares and supplies. Some refinery plant is over fifty years old and in urgent need of rehabilitation. UNJLC is facilitating the entry of numbers of required foreign specialist engineers for at least one refinery, in a project paid for under the oil-for-food programme.
Infrastructure repairs are proceeding but often at great risk to the contractors and even Iraqi personnel. This is slowing recovery in insecure areas. Damage to pipelines is particularly worrisome. One of the most vulnerable areas is the 100 km stretch between Kirkuk oilfields and the Baiji refinery, north of Baghdad, and then from Baiji to Baghdad. It is thought that disgruntled Baathists purged from the industry and demobilized military personnel are active in these areas. The combination of their knowledge of the vulnerable points in the industry and military skills is evident in the damage caused.
Refining
Stability of electrical power supply is a major concern at all three refineries, particularly in recent days. The power and oil sectors are heavily interdependent – power on oil to provide fuel for electricity generation and oil on power to provide electricity for upstream production, pipeline pumps and refining. Risk of serious damage to refineries is possible – and may have occurred – with unstable supplies. Coalition contractors and the Ministry of Oil are installing independent power generators at all three major refineries where possible. UNJLC is facilitating the expedited entry of at least one major generator into Iraq under the oil-for-food programme and investigating the availability of others.
Gasoline
Production of gasoline has dropped from marginally above half of total estimated daily demand of about 15 million litres to about 35% of this, mainly because of power disruptions placing Baiji refinery – the country’s largest – offline for several days, and disruptions to others, notably Daura. This is compounded by problems with the distribution system, a very low ratio of petrol stations to consumers, and increased demand for gasoline for small electricity generators during the frequent and often extended power outages.
Looking forward, increased crude production in July may improve supply in the medium term and to eventually eliminate the black market. The arrival in Iraq in recent days, facilitated by UNJLC/UNOPS, of large supplies of Tetra Ethylene Lead (TEL), a key additive in Iraqi gasoline production, under the Oil-For-Food-Programme, should also help to increase supply.
Liquid Petroleum Gas (LPG)
Domestic supply of this primary domestic cooking fuel has deteriorated significantly with the disruption to operations at the North Gas Plant in Kirkuk from power outages. Production from this plant is perhaps little more half of what it was in recent weeks, placing greater reliance on average daily imports of 1,000 tonnes and the use of alternative fuels such as kerosene. Distribution is uneven with the situation in Baghdad less dire than elsewhere. The south has an especially acute shortage. Continued LPG imports will be necessary at least throughout the summer and beyond to meet estimated daily demand of 4,000 to 4,500 tonnes.
On the positive side, planned imports of an average of 1700 tons per day through the country’s main LPG export port at Khor al-Zubayr in the south and commencement of limited production from the near South Gas Plant, planned for mid July, should ease the situation. However, as with other fuels, effective distribution may be a greater challenge than the production; the main LPG pipeline to Baghdad is non-operational as far as Diwaniah and there be insufficient specialized trucks and railcars available to move the supplies to market.
An average of about 50,000 12kg LPG gas bottles should enter Iraq each week under the Oil-for-Food Programme through to the end of the year, replacing many old bottles from the estimated national inventory of 6 million and easing supply.
Diesel
A critical shortage of diesel has emerged in the past week throughout the country, often to the extent that secondary distribution networks for food have been adversely affected. There are myriad causes of this, on both the supply and demand sides. High pre-war stocks have probably now been exhausted and new supplies have been greatly limited by refinery shutdowns as a result of power outages and increased smuggling. Diesel is much easier to smuggle, and as marketable, as gasoline. On the demand side, the needs of power generators to provide offline electricity and ice for refrigeration have added to the usual transport requirements and the seasonal requirements of the harvest. A further reduction in supply is likely to occur as refineries increase their production of kerosene at the expense of diesel in preparation for winter. Demand is unlikely to reduce until stability is restored to the power grid. A diesel crisis is possible into August.
Average historical daily demand of about 16 million litres has probably increased, yet domestic production is meeting perhaps only half of this.
Kerosene
The Ministry of Oil intends to follow its seasonal plan is to build up the kerosene inventory for the winter season but this will be more difficult as the population is already using kerosene extensively as an cooking fuel alternative to LPG. Shortages are not yet evident but are possible.
Aviation fuel
At present, there is little demand for aviation fuel for non-military use. Coalition forces import all their own fuel requirements. The greatest problem for supplying aviation fuel may be the lack of laboratories to verify specifications. Limited commercial services may commence in July, mainly from nearby or neighbouring countries from where aircraft can carry enough fuel for the return trip. Aviation fuel will become an increasingly important matter as long haul flights are resumed into Iraq.
ABOUT UNJLC
UNJLC is an inter-agency facility reporting to the Humanitarian Coordinator for Iraq and generally to the Inter Agency Standing Committee. Its mandate is to coordinate and optimise logistics capabilities of humanitarian organisations in large scale emergencies. UNJLC operates under the custodianship of WFP that is responsible for the administrative and financial management of the unit. UNJLC is funded from voluntary contributions that are channeled through WFP. The UNJLC project document for Iraq can be viewed at the UNJLC website (www.unjlc.org).