Iraqi crude export mechanisms


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This presentation illustrates the procurement process for Iraqi crude oil. NID Group acts as a Liaison for international oil companies with the Iraqi Ministry of Oil and its various organizations

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Iraqi crude export mechanisms

  1. 1. • Export of Iraqi Crude Oil• Contracting mechanisms, quantities, pricing and constraints By The Marketing Board of Crude Oil and Gas
  2. 2. Mechanisms ofCrude Oil Sales Contracting
  3. 3. The oil marketing company approaches the companieswith contracts in force before a suitable period todemonstrate the need for the quantities that they desire tobuy from the oil of Basra and Kirkuk for the comingcontractual period so that it gets studied in the light of thestandards adopted in this field (to be mentioned later) and tobe classified clearly and in detail, pointing towards theupdated principal information with regards to the continuousmatching of its current state with the standards mentionedabove, as well as to assess the implementation of existingcontracts and the inclusion of all the notes that are related tothem.
  4. 4. 1. The issue of crude oil import and export does not fall under the jurisdiction of the Ministry of Planning and Developing Cooperation, and so the instructions of implementation of government contracts (1) for the year 2009 and before did not include the activity of Iraqi crude oil export since it was not considered one of the projects listed in the investment plan.2. The fact that Iraqi crude oil, just like the rest of the crude oil produced and exported in the region, is not sold on the basis of a fixed price or a discount or a specific premium but within the pricing mechanism common to all buyers and each of the world markets, the auction procedures are practically useless and do not bring any benefits in finding new markets or selling on better terms or higher prices, in addition of course to the exposure of this activity to unexpected risks.
  5. 5. 3. The oil marketing company, whenever necessary, and based on trade policy, approaches a number of equable international companies (and with whom it has no contracts) to purchase the available quantities of Iraqi crude oil with the goal of expanding markets for the sale of this oil and promoting its use in the worlds major refineries, establishing Iraq as a demanded and guaranteed source.4. Based on the foregoing, our company has resorted to producing and exporting countries in the region to adopt the style of direct invitation of the elite international oil companies that have already been dealt with in the marketing of Iraqi crude oil to their refineries
  6. 6. Requests of (New) Non-Contracting Firms:Requests from many companies are received by the oilmarketing company and throughout the year for allocatingquantities of crude oil from Basra and Kirkuk. Their eligibilityare evaluated in the light of the implemented standards andcriteria as follows:
  7. 7. Evaluation of ineligible Firms:1. Studying the activity of each company or institution and the extent of its conformity with the conditions and criteria (which will be mentioned later) to see how qualified those companies are to contract for the purchase of Iraqi crude oil through a number of officially approved websites and solid means specialized in this area, such as Oil & Gas Journal, Bloomberg, and Reuters.2. Ineligible firms are provided an answer indicating the reasons that prevented the allocation of quantities of Iraqi crude oil to them, while nominating the new companies that prove their eligibility for the contractual allocation stage in the light of quantities that are available for export and the principles of allocation listed below.
  8. 8. Principles adopted in the allocation:Is the adoption of a number of important principles that aretaken into consideration when allocating contractualquantities to qualified companies (formerly contracting andnew), as follows:1. Marketing of all the quantities available for export of Iraqi crude oils in global markets and price formulas according to marketing foundations that achieve the goal of maximizing resources as possible.2. Give priority in the allocation of quantities to the companies with large refinement capacities, since they are able to withstand sudden price fluctuations and maintain their demand for Iraqi crude oils in the long term.3. Expansion of the Iraqi oils in three major global markets: American, European and Asian.
  9. 9. A/ Contracting Mechanism:1. The oil marketing company sends a direct call to the international oil companies, classed as having the main criteria for contracting and having contracts in force to fulfill its needs of Iraqi crude oil for the coming period.2. Requests sent directly from the companies willing to buy Iraqi crude oil are considered. The marketing company does not consider any application sent through brokers or agents, and the allocation to qualified companies is done according to the criteria adopted.
  10. 10. 3. After approval of the allocation by the Minister of Oil, the requesting firms are notified of the quantities of crude oil allocated to them. After approval of these companies on all of the contractual conditions adopted by the oil marketing company, the contracts are signed between the parties.
  11. 11. B/ Execution Method:1. The execution of the contract begins when the Board of Crude Oil Shipment and the Commercial Financial Board are informed with the details of the contract to enable them for the execution and following which starts with the purchasing company issuing a demand within a reasonable period to the oil marketing company to specify a fixed date for receipt of a shipment of crude oil under the contract.
  12. 12. 2. The marketing company determines the time of loading the shipment. The purchasing company then nominates a carrier to load on time by formal notice sent to the oil marketing company, indicating as well the method of distribution of the required documents and their number in line with the conditions of the documentary credit, which will be opened by the purchasing company to cover the cost of the shipment. The choice remains to the oil marketing company to send its approval of the carrier nominated by the purchasing company in light of the technical specifications required for the carrier which corresponds to the specifications of the port of loading.
  13. 13. 3. Before the period of not less than seven days from the date of acceptance of the carrier, the purchasing company opens an irrevocable documentary credit in a bank recognized by the Central Bank of Iraq, and in an amount that is not in any way less than the estimated amount of the shipment. The marketing company instructs the oil port to load the agreed carrier accordingly, with emphasis on the prohibition of altering the destination of the shipment once the documentary credit is opened.4. After the loading of the carrier with the requested quantity is complete, the port shall issue the sailing documents that include carrying amount, the degree of density (API Gravity), the date of the bill of lading, in addition to the final destination of the crude oil and other documents related to the shipment.
  14. 14. 5. From the date of the bill of lading referred to above, and after the period contractually specified in the price by destination clause, the marketing company informs the purchasing company the final price of a barrel from that shipment to the purchasing company to pay the value of the shipment within 30 days from the date of bill of lading.
  15. 15. For the purpose of achieving its goals, the company hasadopted a set of clear and transparentcriteria, principles, and mechanisms as shown below:
  16. 16. First Criterion – Equable International OilCompanies:This includes the large, medium, independent, state-owned,international oil companies that are vertically integrated(integrated activities in the petroleum industry fromexploration and production to transportation anddistribution) and internationally-rated among the best andthe biggest international companies operating in thepetroleum industry and having refinement powers anddistribution networks in many countries.
  17. 17. Second Criterion – Refinement Companies:This includes companies specializing in the refinementindustry and the distribution of petroleum products.Third Criterion – Companies Classified as aCommercial Branch for their Countries’ Refineries:This includes national companies that are allowed by theircountries to sign contracts for the purchase of crude oil fortheir national refineries, such as in Japan and China.
  18. 18. Requests to buyIraqi crude oil for the years 2009-2011
  19. 19. America Asia Europest Half nd Half
  20. 20. Europest Half nd Half
  21. 21. Basra’s and Kirkuk’s Crude Oil
  22. 22. Total Export Total Amount bbl $64,216,784 7,345,670,236.82 AVG. QTY AVG. PRICE 000 bbls/day $/bbl 2,141 114.40
  23. 23. Monthly Crude Oil Export RatesFrom 2007 until March 2011
  24. 24. Kirkuk’s Basra’s Year Daily Daily Daily Total Oil Light OilAverage Average Average Amount Exports Exports January February March April May June July August September October November December Total for the Year
  25. 25. Kirkuk’s Basra’s Year Daily Daily Daily Total Oil Light OilAverage Average Average Amount Exports Exports 8 January February March April May June July August September October November December Total for the Year
  26. 26. Kirkuk’s Basra’s Year Daily Daily Daily Total Oil Light OilAverage Average Average Amount Exports Exports 9 0.510 15.811 1.381 42.810 1.891 58.621 January 0.450 12.604 1.282 35.901 1.732 48.505 February 0.422 13.083 1.393 43.172 1.815 56.255 March 0.408 12.251 1.412 42.374 1.821 54.626 April 0.521 16.159 1.385 42.926 1.906 59.085 May 0.528 15.834 1.397 41.915 1.925 57.748 June 0.545 16.895 1.492 46.251 2.037 63.145 July 0.520 16.132 1.489 46.155 2.009 62.287 August 0.497 14.909 1.461 43.825 1.958 58.734 September 0.386 11.951 1.493 46.277 1.878 58.228 October 0.404 12.122 1.497 44.902 1.901 57.024 November 0.443 13.736 1.534 47.549 1.977 61.285 December0.470 171.487 1.436 524.057 1.906 695.544 Total for the Year
  27. 27. Kirkuk’s Basra’s Year Daily Daily Daily Total Oil Light OilAverage Average Average Amount Exports Exports 10 0.475 14.730 1.451 44.977 1.926 59.707 January 0.455 12.727 1.613 45.164 2.068 57.891 February 0.422 13.073 1.419 43.996 1.841 57.069 March 0.342 10.260 1.425 42.753 1.767 53.013 April 0.440 13.637 1.453 45.046 1.893 58.682 May 0.384 11.524 1.441 43.233 1.825 54.757 June 0.384 11.904 1.433 44.421 1.817 56.325 July 0.339 10.512 1.449 44.906 1.788 55.418 August 0.513 15.387 1.508 45.228 2.021 60.615 September 0.402 12.450 1.492 46.245 1.893 58.695 October 0.378 11.340 1.534 46.017 1.912 57.357 November 0.422 13.086 1.529 47.396 1.951 60.482 December0.413 150.629 1.478 539.382 1.890 690.011 Total for the Year
  28. 28. Kirkuks Basra’s Total Daily Daily Daily QuantityAverage Oil Average Oil Average (million Year Exports Exports barrels) 0.470 171.487 1.436 524.057 1.906 695.544 0.413 150.629 1.478 539.382 1.890 690.011 Average for 55.993 1.699 203.840 0.467 end of April 2011
  29. 29. Evaluation of Qualitative Differences inCrude Oils Exportedto the Three Major World Markets
  30. 30. 1. Global Supply and Demand on Crude Oil and Petroleum Products A/ Movement of Crude Oil Prices and Differences Between Light & Medium Oil Pattern and trend of global demand for the light and sweet oil and medium and sour oil are studied and analyzed each month for the three major markets generally, and trends in the demand for Iraqi sour crude oil in particular. The supply and demand are key factors in determining the direction of the differences in the price of crude Iraqi oil, in light of the stability of the other factors.
  31. 31. B/ Crude Oil Supply and DemandThe demand on crude oil is studied and analyzed monthlyfor the three major markets in general, and demand trendsin light or sour oil in particular. Supply and demand are keyfactors in the price-per-barrel change, in the light of thestability of other factors.C/ Demand on Petroleum ProductsThe policy for the export of Iraqi crude oil being for thecompanies that own refinement systems, it is necessary tostudy and analyze the changes in the demand for petroleumproducts with its three categories (light, medium and heavy)to reflect the changing demand for crude oil produced forthem.
  32. 32. D/ Production of the OPEC Countries and Their Policies for Balancing the Oil MarketGiven the influencing role that crude oil produced andexported by the countries of the Organization of PetroleumExporting Countries (OPEC) plays in the world oilmarket, it is important to maintain a follow and analysis oftrends of this organization through rates of production andexport of the member states and their role in maintainingbalance in the oil market to maintain the market value ofcrude oil in the world, especially oil from member states.
  33. 33. 2. Global Economic GrowthThe global economic growth, which has a direct impact onthe direction of the industrial and commercial demand ratesthat include the demand for crude oil (and by thegeographical distribution of the energy markets includingcrude oil) an important indicator for traders in the oil market.3. Global Oil ReservesThe change in the index of global oil inventories, especiallyfor industrial countries of the Organization for EconomicCooperation and Development and the rest of the worldaffects directly and significantly on the demand for crude oiland petroleum products, which in turn is reflected on theprice levels expected.
  34. 34. 4. Relationship of Oil Prices with the EUR/USD Exchange Rate and S&P500’s PerformanceCrude oil prices are affected by the value of the dollaragainst the euro since crude oil is traded internationally inU.S. dollars, a rise in the value of the dollar against the eurowould therefore increase the cost of buying a barrel ofcrude oil in general and reduces the number of barrelspurchased for the same monetary amount. Additionally, theS&P500 index reflects the activity of major U.S. industrialcompanies and therefore is an indicator used to assess theactivity of the global economy and to determine the generaltrend in the demand for crude oil.
  35. 35. 5. Refining MarginsIt is important to study and analyze the rates and marginsof realized refining that reflect the profitability of therefineries from the refinement of one barrel of crude oil.The results are researched based on the type of crude oilused in the light of the level of complexity of therefinement system and for each of the three majormarkets.
  36. 36. 6/ Geopolitical Factors and VariablesFollowing the latest developments affecting the differentregions of the world and their repercussions on the state ofsupply and demand for crude oil and petroleum productsand the resulting changes to the absolute price of crude oiland the amount of price differences between light, medium,and heavy oil.7/ The Transportation MarketFollow the movements in rental prices of crude oil tankers(Dirty Tankers) of their various sizes and their negative andpositive impacts on the price of crude oil and thedemanded quantities from one market to another.
  37. 37. Oil Marketing Company (SOMO) May, 2011
  38. 38. ExportProblems
  39. 39. The increase in production of Kirkuk and Basra’s light oilis considered a first step toward seeking to increase oilexports, allowing the allocation of greater amounts forexport. There are however problems being faced by crudeoil exports from ports in the north and south, the mostprominent of which are:
  40. 40. 1. Exposure of the loading ports to frequent bad weather days, which effects cannot be avoided due to the difficulty in having it under control.2. Frequent interruptions in electricity faced by the port and pipelines. Providing generators that provide electricity solely for crude oil loading ports avoids the occurrence of any halt in the export process.3. Repeated delays in inspections of tankers coming into the oil port of Basra by the international coalition forces. Coordination between the General Company for the Southern Oil and Iraq Ports Authority to provide an alternative duty during the inspection of vessels by the international coalition forces in a timely manner would avoid delay in inspections and contribute to reducing the impact of such delays.
  41. 41. 4. Maintenance operations that take varying periods lead to stopping the pumping until fixing the oil spill and the problems with the crude oil pipelines, especially that the current pipeline system (used to transfer the light oil of Kirkuk and Basra) has been obsolete and subject to many acts of vandalism during the last period.5. The oil storage capacity which, in the south, currently stands at less than 5 million barrels of Basra’s light crude oil (at the site of production), and will move now by the Oil Projects Company for direct execution to set up 16 new tanks and a capacity of 58 000 cubic meters for the tank. Contracting with a number of companies for providing the necessary materials has taken place and it is expected to be achieved during the coming period.
  42. 42. SophisticatedSoftware and Analytical Reports
  43. 43. The Spiral Csi software: A program specialized in thecalculation of the returns for crude oils refinement, allowingthe user many options related to the refinementindustry, including:1 - Enable our company to find the refinement returns (Netback) from Basra and Kirkuk, as well as for similar competing crude oils in each market for the purpose of reaching precision in determining the monthly qualitative differences of our exported oil and according to different markets.
  44. 44. 2 - Building the required model to find the refinement returns for crude oil and according to changes in seasonal global demand in any of the global markets.3 - Find the return on the refinement of crude oil in any refinery in the real world.
  45. 45. Provides a broad base of data and information and news andreports in various fields of economic, political, andparticularly in various areas of the oil industry, including:1 - a real-time feed of stock, energy and commodity marketsand their changes during the trading session.2 – a database on supply and demand for crude oil andpetroleum products, according to different markets.3 – a database on the oil companies and their refinementcapabilities in different markets and their quality.4 - a database on various economic indicators for countries ofthe world.
  46. 46. Provides a broad base of data and information and news andreports in various fields of economic, political, andparticularly in various areas of the oil industry, including:1 – a real-time feed of stock, energy and commodity marketsand their changes during the trading session.2 – a database on supply and demand for crude oil andpetroleum products, according to different markets.3 – a database on the oil companies and their refinementcapabilities in different markets and their quality.4 – a database on various economic indicators for countriesof the world.
  47. 47. Specialized programs in the field of real-time tracking ofthe movement of tankers in the world as well as providingthe possibility to know the path of each carrier.This enabled the oil marketing company to track themovement of tankers loaded with Iraqi crude oil, from thedate of loading to the date of discharge in any of theinternational ports with a capability in a number of casesto determine periods of time it takes carriers to cross thewaterways down to the final destination along with theextent of conformity to what is established in thedocumentary credit for the shipment.
  48. 48. A consulting firm for research and study of the world oilmarket. Of the most important research and jointpublications are:1 - Energy Market Report.2 - Market Watch (Special Oil Market Analysis and Outlook).3 - US Inventory Report.4 - Refining Outlook (Quarterly Report).5 - Global Refinery Margins (Weekly Report).6 - Energy Market Report.7 - Asian Oil Markets.8 - Med Oil Markets.9 - Crude Markets (Monthly Reports).
  49. 49. Clarkson is considered a consultancy program for thefield of transportation and developments in thetransportation market through online news andinformation, as well as daily, weekly and monthly reportscovering various activities of the tankers market, mostimportantly oil tankers.