Iraq's ambition to become refinery powerhouse moves closer to fruition

Iraq's ambitions to expand its refining capacity to capture more exports of higher-valued refined products is closer to being achieved with two more refineries in the works even with existing plants operating below capacity.

Refining capacity at OPEC's second biggest crude producer, excluding all but one refinery in the Kurdish region, has reached 1.215 million b/d, according to oil ministry data provided exclusively to S&P Global Commodity Insights. The two refineries in the works consist of the Fao Investment refinery with China to add 300,000 b/d of capacity while another one in Kirkuk to add 150,000 b/d was approved by the council of ministers on May 7. The Kurdish refinery included in the total is the 40,000 b/d Bazian site. Inside the Kurdish region, local authorities have ordered dozens of unlicensed topping plants to close and the licensed refineries to adopt environmental protection requirements or face shutdown.

A major step ahead was set in motion in July when Iraq completed the upgrade of a gasoil pipeline from the Shuaiba projects depot next to the Basrah refinery to the southern port of Khor Al-Zubair to resume exports of gasoil, signaling the first exports of the product since 2003. That was on top of the new 70,000 b/d crude distillation unit at the Basrah refinery started in December 2023 and the 150,000 b/d Baiji North refinery completed in February.

"It is expected that the ramp-up of these new capacities will be a gradual process," said Rahul Chatterjee, a principal research analyst at Commodity Insights.

After the Kirkuk refinery was approved, BP announced on Aug. 1 that it had signed a memorandum of understanding with Iraq's government on its potential return to the Kirkuk oil project in the north of the country. The MOU includes the Baba and Avanah domes and three adjacent fields operated by Iraq's North Oil Co. NOC currently produces about 380,000 b/d of crude, which is just sufficient to supply refineries in northern Iraq, particularly since the reopening of the 150,000 b/d North refinery in Baiji in February.

Light sour Kirkuk crude has an API gravity of 34.2 and average sulfur content of 2.24%, according to the Platts Periodic Table of Crude by Commodity Insights. The Platts-assessed Kirkuk FOB Ceyhan was $80.01/b on Aug. 14, according to Commodity Insights data.

In May, Iraq's oil minister Hayan Abdul Ghani said the goal of the refinery expansions is to become self-sufficient in domestic products demand and possibly export products. Iraq has declared self-sufficiency in gasoil since the start of this year and reduced gasoline imports by 50% by March from the end of the 2023, ministry data showed.

Exports of refined exports rose to a record 701,000 b/d in May, with shipments so far this year more than doubling from last year to destinations including South Korea, Malaysia, Saudi Arabia, Oman, Spain, Bahrain, Thailand, Vietnam and Sri Lanka, according to Kpler data.

Any more expansion of Iraq's refining is considered unlikely with existing plants producing below capacity, averaging 980,000 b/d, or about 80% of capacity, the oil ministry data showed.

Fuel oils have been Iraq's largest export product, with other shipments including naphtha, bitumen/asphalt, gasoil and gasoline, Kpler data showed.

Iraq mostly relies on natural gas to generate electricity from the country's power plants and has received US waivers to import Iranian gas and electricity without violating sanctions on Iran's energy industry reimposed by the US administration of former President Donald Trump.