KRG puts public interest at the mercy of profit-driven oil companies

By Harem Karem:

Kurd oil field

Kurd oil field

In a report published in July, I attempted to shed light on some serious environmental issues caused by the oil companies operating in the Kurdistan Region (KR), while pointing to the failure of the Natural Resources Ministry (NRM) to protect KR’s environment and its population. In this piece, I discuss another problem that has arisen as a direct result of the NRM’s incompetence and irresponsibility.

With the world’s thirst for oil and oil’s soaring price, KR sits on more than 47 billion barrels of oil reserves, which make up nearly 4.5 % of current global oil reserves. Since 2007, over 52 concessions have been granted to 34 international companies in 19 countries – including to three of the world’s largest companies (Exxon Mobil, Chevron and Gazprom) which are questing for oil in the KR using cutting-edge technology. Being the main source of revenue to KR and providing energy security to its end-users, oil plays a pivotal rule in the KR’s politics at national and international levels. Hence it should be the NRM’s primary job to consider all the angles and calculate the implications before granting these concessions.

The NRM, whose job it is to safeguard the public interest has failed, yet again, to properly apply a set of necessary measures to ensure the reservoirs are managed to an adequate standard. Instead it is risking incalculable harm to KR’s interests and paving the way for conflict in the near future between KR governments and foreign oil companies.

As it stands, most if not all of the lucrative concessions granted by the KRG are in the form of ‘Product Sharing Agreements’. These agreements do not give oil companies the right to contaminate the environment as they please – they are expected to act responsibly – and the reservoirs remain the property of the owner (the host country).

However, the companies operating in KR are freely and irresponsibly releasing pernicious Hydrogen Sulfide (H2S) into the air. Early signs of this pollution include a rising rate of disease among people living near the oil fields and the destruction of their livelihoods. Local residents’ anger is building like a pressure cooker and could explode any time against the oil companies and government:


The issue of the reservoirs is less obvious but an even more serious matter. Reservoir expert Z. M. Zimnako briefly described to me the technical aspects:

“During the discovery of oil in an area, the first well is usually utilised as starting point to evaluate the amount of oil that reservoir contains – according to the technology available to us at that time. This usually betokens extractable oil which is often referred to as ‘oil reserves’ (the amount that is profitable to extract at the current market price). Additionally, through this preliminary evaluation, orchestrating and preparation of the reservoir and the boundaries of the field take place. Therefore, the amount of oil that a reservoir contains isn’t necessarily equivalent to the amount of oil ‘reserved’ or extractable and profitable at the current market price.

“Although, at the time of the initial discovery and evaluation, oil that is not extractable is not accounted for as reserves, this can change in the future as technology advances or the price changes, and so it is added to the previously established reserved quantity. A reservoir might contain one million barrels of oil, but the amount that is extractable at the present moment, profitable within the market price and using available technologies might be 250,000 barrels. The more technology advances and prices change, the more of the remaining 750K barrels that becomes available to extract and hence becomes reserves.

“Without getting too technical, the amount of oil that sits in a reservoir is liable to change based on the ‘material balance’. Furthermore, reserves are liable to change based on: advancing technology, market price, the amount of oil in the reservoir and its material balance, as well as methods of production.”

Zimnako concluded: “From their time of revelation, reservoirs have a certain lifetime but, as a result of mismanagement and infelicitous or unscientific production, this lifetime could either shrink and/or there could be drastic change in the hydrocarbon status from liquid to gas or even premature death of the reservoir. Hence it is imperative to perpetually monitor and evaluate reservoirs’ behaviour by measuring the production with the reservoir lifetime – by increasing or decreasing parameters as and when deemed necessary.”

A responsible government in this situation would take precautionary measures, first of all by establishing a National Oil Company (NOC) to effectively manage the technical side of the industry and ensure that public interests are protected. Instead, the Kurdistan Regional Regime (KRG) and its NRM were too quick to auction off the nation’s resources without first establishing a NOC. Six years on, they have still not set up an effective NOC that can manage the technical side of the industry on their behalf.

Worse still, aside from several members of the oligarchs’ inner circle, no one knows anything about what happens to billions of dollars in oil revenues while the rightful owners of these resources – the public – suffers from an horrendous housing crisis, disastrous healthcare system, unemployment figures that are constantly rising and a shambolic traffic system that has killed more Kurds than the oligarchs’ years of civil war.

What we are seeing is a fast-growing insalubrious monster feeding on a savage capitalist-system-on-steroids: an unbalanced society with more millionaires and billionaires emerging every year, while increasing numbers of citizens fall below the poverty line and struggle to eat and stay warm.

Furthermore, since reservoir volumes and conditions are known to fluctuate it should be the NOC’s job to be the government’s eyes and ears on the ground, particularly to ensuring the following:

  1. Appropriate production: The NOC must determine the boundaries of each well – ascertaining production is in line with the well’s expectation and capacity, no more or less. In most cases, the visiting companies are only concerned about profit and it is NOC’s obligation to maintain the reservoirs in good condition.
  2. Ensuring the best extracting methods: utilising mechanisms that do not affect other reservoirs in the surrounding area, especially where the visiting company has signed a concession just for that particular reservoir. These reservoirs affect one another and it’s the job of the NOC to maintain all of them.
  3. Ensuring the best machines and methods are utilised – aimed at minimising environmental harm.
  4. Managing and keeping the records of the oil reserves as well as the material balance (as referred to earlier).

As discussed above, the party responsible to oversee all this and protect the environment is the owner of the reservoirs: this is usually the NOC under direct instruction of the government, rather than the foreign oil companies whose main objective is profit.

Hence it is the job of the NOC to determine the level of production and to review all of the following: can more than the stated level be produced; have any of the reserved quantities become ‘dead reserves’ (due to price falls or natural causes); what are the applicable measures to increase the reserved quantity; what is the best way to deliver the product to consumers at minimum cost; what is the best way to maintain and increase the reservoir’s lifetime?

Only when an effective NOC is fully operational can the above measures be implemented and the public interest protected. For a start this will mean that the natural resources minister and other KRG officials will have accurate data at their disposal. Currently the KRG and NRM neither manage the reservoirs nor possess the right data: the KR population is left at the mercy of the oil companies.

For these reasons, to avoid future conflicts and worsening problems, the KRG should avoid signing further concessions until an effective NOC is fully operational.


Earth Portrait of a Planet 3rd edition

The Chemistry and Technology of Petroleum. Marcel Dekker

International Energy Annual 2004″ (XLS). Energy Information Administration.

Copyright © 2013

One Response to KRG puts public interest at the mercy of profit-driven oil companies
  1. Lorenzo Garcia
    November 26, 2013 | 10:28

    I agree that Environment has not been the top priority of the KRG but it will come…
    I Believe that comparing private international companies environmental engagement versus national oil companies will help.
    If you look to the devastation caused by the state own oil raffineries in Kirkuk among other plaes, poluting the ground with oil sludge which leaks to the great rivers which soon will create a major catastrophic situation for people down South, you could see that when national companies or state owned companies creates the pollution, the cure is even more remote or more or less impossible.
    The governemental agencies will Always have authority to put some remedy to the problems created by international companies but how to deal with the long, very long pollution created by the state owned oil companies? Nobody wants to take responsibility and everybody is looking somebody to blame.
    Well in Basra things are even worse, so what to do in order to improve the northern part of Iraq both Ninewa and Kirkuk?

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