WHERE WE STAND ON CRUDE EXPORTS, ELECTRICITY AND

S E C R E T SECTION 01 OF 03 BAGHDAD 002116

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/13/2016
TAGS: ECON ENRG EPET PGOV PREL TU SY IZ
SUBJECT: WHERE WE STAND ON CRUDE EXPORTS, ELECTRICITY AND
FUEL: SOMEWHAT LESS DARK, BUT VERY LITTLE TO COOK WITH

Classified By: Economic Minister Counselor Tom Delare, for reasons 1.4
(b) and (d).


1. (C) Summary: Baghdad's hours of power increased in June to
an average of 8-9 hours per day, up from 4-5 a month ago.
Improvements are attributable to more focused security and
the return to service of several power plants that had been
down for maintenance or other reasons. Crude exports are
also holding steady at an average of just under 1.6 million
bpd in the south, and the old 40" northern export pipeline
has returned to service after more than 10 months of
interruption. Gasoline and, in particular, LPG (cooking gas)
remain in short supply. LPG supplies for Baghdad may drop to
some 500 tons/per day July 7, far below daily consumption of
about 1500 tons, if the southern LPG plant goes off-line for
2 1/2 weeks for upgrades. MoO plans to increase imports to
compensate. End Summary.

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Brighter
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2. (S) Electricity hours of power (HoP) jumped from four or
five hours per day in Baghdad in April and May back up to, on
average, eight to nine in June - despite the interdiction
June 12 of Bayji-Baghdad West #2 line, which took down
several towers at once (repair date remains TBD). A recent
break on Bayji-Baghdad West #1, however, was fixed in one
day. The timeliness of this repair is attributable to a
combination of political will in the person of Minister of
Electricity Karim, and implementation of the Power Line
Security Plan, which is coming into effect in June. The plan
focuses on protecting Bayji-Baghdad West #1, ensuring that
electricity flows from the Bayji thermal plant to Baghdad.
It also augments protection of the plant itself. The plan
utilizes Iraqi Police (out of Tikrit),National Police, the
4th and 9th Iraqi Army Divisions (IADs) and Strategic
Infrastructure Battalions (SIBs). Extra forces are focused
on "hotspots" such as Samarra and mobile troops patrol the
more deserted stretches. Coalition forces provide air
surveillance and MoE ensures that repair teams are readily
available. Berms will go up around the bases of towers and,
in the areas of highest threat, these forces will implement
exclusion zones.


3. (SBU) The ability to reliably transfer power from the
north is critical, particularly in summer. At one point in
May, the Bayji refinery (which produces a large portion of
Iraq's refined products) was partially shut down because of
the build-up of HFO or heavy fuel oil (a by-product of the
refinery process). Because the power lines were down, the
Bayji thermal plant, which burns HFO for fuel, had to slow
down. The unused HFO accumulated until, without any place to
store it and only limited capacity to export it, the refinery
too had to slow down, reducing, in turn, the supply of
refined oil products until the power lines came back up.
Minister Shahristani's cancellation of several HFO contracts
caused refining at Bayji to slow again in early June. New
contracts to export HFO to Syria and Turkey were to go into
effect o/a June 19.

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Not Much Better on Fuel
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4. (SBU) In Baghdad as of June 19, there are almost 19 days
of supply (DoS) of diesel and 88 days supply of kerosene on
hand. Gasoline supplies in the capitol have dropped from
five days to less than one June 14, reflecting in part
limited imports from Turkey, as well as the refinery slowdown
at Bayji. Across the country, gasoline and LPG are in short
supply; Basrah is doing the best with some 13 DoS of LPG on
hand and five DoS of gasoline.


5. (SBU) Black market prices and waiting times reflect the
shortages. In Diwaniyah, Najaf, Karbala and Hilla June 19,
consumers wait eight to nine hours for fuel at state-owned
service stations with subsidized prices, and two at private
stations. In Hillah, gasoline is selling for about
$2.50/gallon and $1.52/gallon in Diwaniyah and Najaf. The
price in Irbil is $2.66/gallon. Diesel was fairly constant
across south central Iraq at $1.77/gallon, with only four DoS
supply on hand. LPG prices range from $2.66/12kg cylinder in
Diwaniyah, to $11.00/12kg cylinder in Irbil, and over
$13.00/12kg cylinder in Najaf. (Note: As of June 19,
gasoline prices were still pegged at most stations at
approximately $0.28/gal for regular and $0.68/gal for
premium, although in fact, stations sell a mid-grade mix set
between those two prices.

BAGHDAD 00002116 002 OF 003




6. (C) The Director General of the State Oil Marketing
Organization (SOMO) Dr. Falah al-Amri, blamed (then) Deputy
Prime Minister Chalabi for much of the shortage, as Chalabi
refused to fund SOMO's letters of credit for May, pending
Chalabi's personal examination of each contract (NOTE: The
GOI contracts committee, of which Chalabi was the head, must
approve all contracts over $3 million. End Note). Falah
asserted, however, that Chalabi had held the contracts for
over two months, in an effort to retain control for his
personal benefit, slowing the entire system. The L/Cs were
funded only after Minister of Oil Shahristani went to the
Prime Minister, who broke the deadlock at the end of May.
Turkish imports, already disrupted by roadwork at the Habur
Gate, suffered: the number of trucks only started to climb
over 100 per day in the middle of June. Iraq remains under
budget for imports.

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Crude, However, Looks Good
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7. (SBU) After the weather- and equipment-related problems of
the winter months, Iraq is keeping pace in June with the 1.57
million bpd average of May. The old 40" crude line came back
into service June 10, and is now transferring some 300,000
bpd of crude north to Turkey. As of June 16, some 3.5
million barrels was in storage at Ceyhan. Due to the fragile
state of the line and continued risk of pressure breaks, the
flow rate is limited. These are the first substantial
exports through the north in the last ten months. MoO has
circulated a request for tenders, with replies due June 23rd,
for 6.0 million barrels at Ceyhan.

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But What To Do About Syria?
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8. (C) Iraq has quietly renewed crude oil exports totaling
some 15,000 bpd to Syria via a small pipeline, reportedly
somewhat to the north of the defunct 26" export line. SOMO
DG al-Amri told us that a committee set up by (then) Deputy
Prime Minister Ahmed Chalabi in the Ministry of Finance
(NOTE: Chalabi was also acting Minister of Finance for
several months this spring. END NOTE) arranged to barter the
crude for unspecified imports, including imports of refined
products. A number of committee members were brought in from
outside MoF at Chalabi's behest, according to Dr. Falah. As
the deal is barter of Iraqi crude for an unspecified amount
of (reportedly) refined products, none of the approximately
$800,000 (value is the 15,000 bpd were sold) is apparently
going in to the Development Fund for Iraq (DFI).

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But Still Little to Cook With
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9. (SBU) Iraq has been operating virtually hand-to-mouth for
LPG since early in the year: one damaged and a second poorly
operating compressor in Daura have limited LPG production
there to 10 tons per day; the northern LPG plant produces
approximately 500 tons/day, but Bayji refinery is currently
producing zero. This leaves Basrah to carry the lion's share
of the burden of supplying Iraqis with cooking gas - the LPG
plant there sends 1000 tons/day (out of the 1100 it produces)
to Baghdad to meet the capital's demand of 1500 tons/day.
Iraq is already importing LPG. Syria and Kuwait (where a
major refinery is down for maintenance) reportedly have none
to sell, and Iranian supplies are unreliable (a combination
of high sulfur LPG and faulty bottling have caused a number
of explosions in households across Iraq). Basrah port is
reportedly operating at capacity and cannot physically
accommodate more LPG imports by ship.


10. (C) MoO Deputy Minister Ahmed al-Shamaa told us June 15
that an Iraqi delegation currently in Turkey attempting to
purchase an extra 1000 tons of LPG per day (NOTE: To be
trucked in through Habur Gate. END NOTE) was able to secure
only 750 tons of daily shipments. In addition to the
physical limits of the crossing, however, is the bigger
problem of the northern areas that are also short of LPG.
Although there reports that Kurdistan is importing LPG from
Iran, black market prices remain high and the shortage, like
in Baghdad, is acute. It is likely that little of any LPG
imported from Turkey will make it to the south, regardless of
any orders to the contrary from MoO, SOMO or anybody else. A
train with nine LPG tankers destined for Baghdad over a month
ago is stuck just outside Bayji, as the locals threaten to
blow it up if the train tries to leave with "their" LPG.

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11. (C) The already grave LPG situation could worsen when the
southern LPG plant goes down in July for long-overdue
maintenance and upgrades. MoO has delayed the closure from
July 1 to July 7 to allow SOMO more time to procure imports
and for stocks in Baghdad to accumulate. Once completely
refurbished, the plant will produce some 3000 tons/days of
LPG, allowing Iraq to fully supply domestic consumption. The
Ministry of Oil is limiting the shutdown to 17 days for a
partial refurbishing, although at a cost of bringing the
improved system back on line more slowly to its new capacity
of 3000.
SPECKHARD