Identifier
Created
Classification
Origin
08BAGHDAD3382
2008-10-22 07:21:00
CONFIDENTIAL
Embassy Baghdad
Cable title:  

SOUTHERN OIL EXPORT PIPELINES: IRAQ'S ECONOMIC

Tags:  EPET ENRG EINV PGOV PREL SENV EWWT IZ 
pdf how-to read a cable
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ZNY CCCCC ZZH
R 220721Z OCT 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 0048
INFO RUCNRAQ/IRAQ COLLECTIVE
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C O N F I D E N T I A L SECTION 01 OF 03 BAGHDAD 003382 

SIPDIS

E.O. 12958: DECL: 10/22/2018
TAGS: EPET ENRG EINV PGOV PREL SENV EWWT IZ
SUBJECT: SOUTHERN OIL EXPORT PIPELINES: IRAQ'S ECONOMIC
LIFELINE

Classified By: EMIN Ambassador Marc Wall, reasons 1.4(b,d)

C O N F I D E N T I A L SECTION 01 OF 03 BAGHDAD 003382

SIPDIS

E.O. 12958: DECL: 10/22/2018
TAGS: EPET ENRG EINV PGOV PREL SENV EWWT IZ
SUBJECT: SOUTHERN OIL EXPORT PIPELINES: IRAQ'S ECONOMIC
LIFELINE

Classified By: EMIN Ambassador Marc Wall, reasons 1.4(b,d)


1. (SBU) Summary: More than ninety percent of Iraq's
revenues come from its crude oil exports. Iraq's southern
export pipelines account for greater than eighty percent of
that total. The two 48-inch pipelines feeding the Al Basrah
Oil Terminal (ABOT) platform were installed in 1975 with a 20
year design life. Between 2004 and 2008 the USG invested
more than USD100 million into infrastructure and security
upgrades for ABOT. Through the Infrastructure Security
Program (ISP) the USG funded an engineering feasibility study
to examine the most expeditious way to rebuild the pipelines.
Foster Wheeler Energy Limited (FWEL) teamed with the USG and
the Ministry of Oil to complete the study in December 2007.
The Minister of Oil reviewed the results of the study and
declared the resulting export redundancy project as the Oil
Ministry's top priority project in January 2008. The first
phase of the project will include two surveys of the area in
the northern Gulf where new pipelines and Single Point
Moorings will be installed. These surveys are scheduled to
begin at the end of November 2008. FWEL estimates the
offshore component of the project will require two years and
the entire project will take five years to complete. While
the GOI is moving ahead with a long-term fix for the risks
posed by the aging pipelines, it still needs to put in place
better contingency measures to respond to the environmental
and economic damage an undersea leak would create. End
summary.

Pipelines Past their Prime
--------------


2. (U) Eighty percent of Iraqi crude exports flow through two
48-inch undersea pipelines built in 1975 with a design life
of 20 years. The South Oil Company's (SOC) last maintenance
(pigging and inspection) on the pipelines was done in 1990.
After this inspection the SOC de-rated the capacity of both
pipelines, and the pipelines currently run at approximately

twenty five percent of their design capacity. SOC managers
have warned of potential pipeline failure since a 1999 Iraqi
study to determine the pipeline integrity and replacement.
When the pipelines run under greater pressure oil has leaked
out and been observed on the water's surface.

Possible Environmental Impact
--------------


3. (SBU) In addition to the economic impact, if one or both
of the undersea pipelines in the south rupture there is a
real potential for an environmental disaster. A rupture of
one line could release up to 22 million gallons of oil into
the northern Persian Gulf. This could create problems for
Kuwait and Saudi Arabian desalinization plants in addition to
the environmental impact on the ecology of the northern gulf.
Previous studies predicted clean-up costs could reach into
the tens of billions of dollars and impede shipping in the
gulf. Currently the GOI does not have the capability to
address any spill in the gulf and certainly not one of this
magnitude. Iraq belongs to the Gulf regional organizations,
Marine Emergency Mutual Aid Centre (MEMAC) and Regional
Organization for the Protection of the Marine Environment
(ROPME),but is not currently paying their dues.

USG Takes up the Rebuilding Cause
--------------


4. (U) In 2005 USG experts identified several necessary
upgrades to the ABOT platform and spent approximately USD65
million to renovate various systems, including installing
meters, improving fire fighting and safety equipment, and
repairing the loading arms. In 2007 the ISP program within
ITAO identified further security improvements and spent a
further USD39 million. These two programs greatly enhanced
the conditions on the ABOT platform itself, but did nothing
for the undersea pipelines. Using ISP funds, ITAO
commissioned FWEL to initiate a feasibility study in August
2007 to recommend the most expeditious plan for replacing the
undersea pipelines to ABOT. The USD700,000 survey was
completed in December 2007.

Pipeline Building Project
--------------


5. (SBU) FWEL recommended replacement of the two existing
48-inch pipelines. FWEL, working closely with the SOC and
understanding their future objectives, presented six possible
options to replace the existing infrastructure offshore in
the northern gulf. The SOC chose to install three new
48-inch pipelines and four single point moorings (SPM). The
SPMs would offer greater ability to continue loading tankers
in heavy seas, although they would also present a potential

BAGHDAD 00003382 002 OF 003


problem due to the restricted space in the Iraqi territorial
waters. The offshore construction would provide full
redundancy for ABOT and meet the SOC goal of 4.5 million
barrels a day of export capacity. The offshore piece of the
project would cost under USD2 billion. To increase export
capacity to 4.5 million barrels a day would require a
significant amount of new construction on shore including
tanks, pipelines and control equipment. Total cost of both
off shore and on shore work to achieve the 4.5 million
barrels of capacity would exceed USD5 billion.

USG Helps the MoO Effort
--------------


6. (SBU) In order to help the Oil Ministry with expediting
the project, ITAO funded USD1.5 million to keep FWEL engaged
on the project. This funding ended in late September 2008.
The bridging funds completed the task at hand. In September
2008 the MoO agreed on contract terms for two surveys of the
northern Gulf to identify any unexploded ordnance (UXO),
perform a detailed mapping of the contour of the sea bottom,
and take core samples. The MoO completed the letters of
credit for the first two contracts in October 2008. The
first two contracts comprise the bathymetric/geotechnical and
UXO surveys. A third Front End Engineering and Design (FEED)
contract remains in final negotiations between the SOC and
FWEL. This contract will retain FWEL as the lead consultant
on the entire project. As part of the FEED contract FWEL will
assist the SOC in identifying a contractor for emergency
repairs while the construction is being completed.

Maritime Border Issues
--------------


7. (C) The first survey ships are expected to arrive in the
northern Gulf by late November 2008. The surveys will
require approximately six months to complete. The MoO, with
assistance from the Energy Fusion Cell (EFC) and Embassy
advisors, recognizes the need for some level of communication
with their neighbors about the survey activity. The surveys
will come close to the Iranian border and may need to cross
over the Kuwait border. With assistance of the Office of the
Transportation Attache the MoO produced a draft Memorandum of
Understanding (MOU) to present to the Ministry of Foreign
Affairs (MFA). Deputy Minister Hamoud told Embassy Officials
that the GOI was engaging the Iranians on the maritime border
issue and downplayed potential problems with Iraq's eastern
neighbor over the survey. While both the MFA and MoO agree
that they need to engage the Kuwaiti government on the survey
ship activity, this does not appear to have happened yet.
MoO Deputy Minister Shamma has also emphasized the need for
close communication between the U.S., Kuwaiti and Iraqi
navies.

Moving Forward
--------------


8. (C) Direct USG involvement in the actual contract ended in
September 2008. The two signed contracts and the third FEED
contract constitute an approximately USD80 million investment
by the MoO. The Government of Japan through the Japan Bank
for International Cooperation (JBIC) has pledged more than
USD400 million in soft loan assistance for the project.
Progress on the JBIC loans proceeded slowly, but they are now
in their selection process for a consultant on the contract.
Mr. Takamoto of the Japanese Embassy informed EconOffs that
FWEL would be eligible to compete to serve as a consultant on
the JBIC portion of the project.

Potential Alternative Export Routes
--------------


9. (SBU) At this time the MoO does not have an alternative to
the southern export pipelines. The Iraq Pipeline through
Saudi Arabia (IPSA) closed in 1990, but is not a viable
alternative since the Saudis currently use the pipeline (to
transport natural gas) and the Iraqi side is in disrepair.
The Iraq Strategic Pipeline used to connect with the northern
pipeline network and go to Syria. This pipeline can no
longer carry crude north of Karbala and requires extensive
repairs. The MoO has extremely limited export capacity
through the Khor Al Amaya Oil Terminal (KAAOT) platform, but
the pipeline feeding KAAOT are estimated to be in worse
condition than those feeding ABOT. Some limited export
capacity remains in the southern ports, but this would not be
a viable alternative logistically or financially for the GOI.
There are no pipeline connections to Kuwait or Iran.

Comment
--------------


BAGHDAD 00003382 003 OF 003



10. (C) The application of USD2.2 million effectively
facilitated the expenditure of USD80 million in Iraqi funds,
with the potential of nearly USD5 billion in total expended
on the project. The new southern pipelines will be the
largest single building project the MoO has taken on since
2003 and, when complete in 2013, will go a long way towards
improving the security of Iraq's economic lifeline.
Short-term risks remain, as they have for years. While the
MoO is attentive to these risks and has taken measures to
reduce them, we will continue to urge the GOI to put in place
contingency measures to confront a possible leak from the
pipelines, as well as to work more closely with its neighbors
to prevent disputes from slowing work on the project.
CROCKER