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Total keen on Kurdistan oil and gas industry – but not yet

Total said in mid-February that it would like to invest in Kurdistan’s oil and gas industry, indicating that the Iraqi government’s fourth-round licensing terms were not very attractive

But the company is not ready to invest and is wary of gaining approval from the Kurdistan Regional Government (KRG), as well as central government permission before striking any deal. “In Kurdistan, you can’t do anything without KRG approval and then probably Baghdad,” Total chief executive officer Christophe de Margerie said. “The way you buy a company or assets doesn’t change the way you must secure approval. It’s not the way to bypass the system.”

He added that Total would continue with its long-held plan to not buy companies, but to look for value in reserves. “You can buy assets without buying the company. The idea is to buy assets. We are not the first company to look at opportunities in Kurdistan,” he said. But the central government in Baghdad has already warned Total against signing a deal with the KRG, claiming such a move would be illegal.

Late last year, ExxonMobil signed a controversial deal with the KRG, a move that prompted the Iraqi authorities to bar the supermajor from this year’s fourth licensing round. Officials, who said ExxonMobil’s deal was illegal, also threatened to strip the supermajor of its stake in the West Qurna-1 oilfield project.

The semi-autonomous Kurdistan region, in the north, and the central government Baghdad have been locked in a bitter battle over control of Iraq’s oil wealth, with the dispute delaying enactment of a long-awaited hin ydrocarbons law. Iraq has ambitious plans to produce 12 million barrels a day (b/d) over the next few years.

International oil companies (IOCs) are eager to gain entry to the country, but oil ministry contracts offer low returns compared with the KRG’s production-sharing agreements. Total has a minority stake in the PetroChina-led Halfaya project, in Missan province, but has complained that the contract pays just $1-2 a barrel, at a time when Brent crude is trading at $120/b.

Iran ban

De Margerie also confirmed that Total stopped buying Iranian crude. But he claimed the EU ban should not lead to increased oil prices, because of the tiny volumes involved. He said only 700,000 b/d was imported by Europe, while 1.5 million b/d was sold to Asia. “The 700,000 b/d has to be compared with 88 million b/d of global production. I don’t see why this should trigger any additional price for crude.”

The EU agreed to bar Iranian oil purchases from July because of the country’s refusal to co-operate over nuclear inspections, but Iran pre-emptively halted oil exports to Europe, specifically targeting the UK and France.

Two phase Shtokman

De Margerie also indicated that the huge Russian Shtokman gas-export project could be developed in two phases. “There is still this option to reach two [final investment] decisions instead of one, but nothing has been decided yet. First, the project would be only gas by pipeline, then it would go to half pipe, half liquefied natural gas (LNG), but that’s under negotiation,” de Margerie said.

In Russia’s Barent Sea, the Shtokman LNG project has been delayed several times after its target export market, the US, became self-sufficient as a result of shale-gas development. State-controlled Gazprom, the main partner in Shtokman, had said previously that the project would go ahead as an LNG only development. The consortium developing Shtokman – Gazprom, Total and Statoil – earlier said FID is expected in April this year.

Meanwhile, over the Atlantic …

Looking at the US, de Margerie told reporters in a press briefing this week that he did not expect high volumes of LNG exports from the country, with the government restricting shipments to keep US natural gas prices low. “There will not be much exports from the US. The policy of the US Department of Energy, is giving priority to the US market and not to export,” he said.

Rising shale-gas output has seen the US turned from a potential importer of LNG to potential exporter. Cheniere Energy has signed four long-term LNG supply contracts to underlie the development of four production trains on the US Gulf coast, which could amount to 18 million tonnes a year of LNG-export capacity.

But US industrials – including metal factories and chemical companies – want to restrict exports to maintain low domestic gas prices. They argue that cheap natural gas gives them a cost advantage over countries that have lower labour costs.

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