Iraq had to halt operations at the Basra refinery this weekend because of an overflow in fuel oil tanks, Reuters reported today, citing unnamed sources.
The excess inventory built because of the lack of buyers, the sources said. No fuel oil tanker has docked at the Khor Zuhair port since the middle of last week, according to the sources. This prompted the suspension of operations at the refinery and it remains unclear when these will resume. The facility churns out some 260,000 barrels of fuel oil daily.
“Resuming operations depends on the arrival of ships to load the fuel oil, which is causing the storage tanks to overload. This process is under the control of the state oil marketer SOMO,” one Iraqi official told Reuters.
The news comes out on the heels of another Reuters report that implicates the Iraqi government and local businesses in participating in a fuel oil smuggling scheme that is making billions for sanctioned Iran.
Iraq is OPEC’s second-largest oil producer but it has been having problems with expanding its production in line with government ambitions. Recently, the government made a big step towards solving these problems by motivating more foreign investment in the country’s oil and gas sector.
Previously, companies operating in Iraq’s oil industry got remunerated through technical service contracts. These offer a flat rate for every barrel of oil produced after reimbursing costs. They generally pay foreign investors less than what they would have received under production-sharing contracts. Naturally, foreign operators have not been happy about it.
Now, Baghdad changed the contract framework and will compensate oil field operators on a revenue-sharing basis, which would allow operators to benefit from international oil price rallies. The revenue-sharing scheme will see 25% of the revenue from each barrel going to Iraq as a royalty, and 75% back to stakeholders.
By Charles Kennedy for Oilprice.com
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