Page 13 - AsianOil Week 26 2021

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SOMO is understood to have been consid- Other priorities
ering implementing an oil sales pre-payment Amid such bullish sentiment, Iraq appears to
solution for some time. However, given the lack shelved any ideas of launching prepayment deals
of warning and short deadline, the move bears for now.
the hallmarks of a knee-jerk reaction to fill Bagh- In February, Al-Shatari was quoted as saying
dad’s $3-4bn monthly operating deficit. that the country is unlikely pursue such initia-
The award followed a brief bidding period tives again soon.
which was extended from four days to 11 to He added that even if it was to be revisited,
give potential participants more time to prepare prepayment deals would not become a ‘trend’
paperwork and fulfil banking requirements. because SOMO’s “target is not to allocate more
However, because of the short window and than, for the time being, around 5% of our
large upfront cost, those able to take part were monthly exports for that purpose, so that Iraq
effectively limited to state-backed Chinese com- will be more than 100% sure it can meet its obli-
panies and international oil firms. Meanwhile, gations under such deals.”
Argus Media quoted an informed banking For now, SOMO is focused on other “busi-
source as saying that companies already engaged ness ideas”, he said last week.
in oilfield development in Iraq were best posi- “In general, [we seek] to increase SOMO and
tioned to win the tender, given that they would Iraq’s crude existence in the Chinese market and
have already carried out relevant due diligence. Asia in general. This may include storage capac-
Meanwhile, the Chinese firm also has a ities, trading activities or facilitating trading
profit-sharing deal with SOMO that provides activities in the market itself, not necessarily on
the Iraqi firm with a cut of the earnings from [free on board (FOB)] basis from Iraq. It could
Zhenhua’s onward sale of its crude, around be even from there in China to sell our crude and
18mn barrels per year of which goes to the Hua- to enter other products’ business.”
jin Chemical refinery. Baghdad has a similar Following the trend among Gulf competitors
arrangement in place with state firm Sinochem, Saudi Aramco and Abu Dhabi National Oil Co.
which effectively makes the Chinese company a (ADNOC), Iraq has been discussing plans with
marketing agent for sales to Asian refineries. state-owned Asian firms to store Iraqi crude in
the region.
Strong relations Shatari said: “There is progress in discussions,
Encouragingly for Iraq, its change of heart does not but not in taking the final decision or which one
appear to have negatively affected its relationship is more feasible than another. But the number of
with Zhenhua nor with other key Chinese custom- companies offering this and the expansion of the
ers. Platts quoted a Chinese source as saying that way we are digging deep into the details in these
while the prepayment deal had been ‘terminated’, discussions can be marked as progress.”
other term contracts had not been affected. With oil revenues accounting for more than
“We have a good and even perfect busi- 90% of government funds, the two-pronged
ness relationship with our Chinese customers, impact of the coronavirus (COVID-19) pan-
including Zhenhua. They understand our posi- demic and the oil price slump was catastrophic.
tion,” said Shatari. Baghdad has been running at a multi-bil-
Federal exports during May ran at 2.899mn lion-dollar deficit, and months of surplus come
barrels per day during May, bringing revenues as some respite and will provide welcome fund-
of $5.9bn for Iraq, while Kurdish exports via the ing for the badly needed build-out of the coun-
Turkish port of Ceyhan averaged 392,000 bpd. try’s downstream and power sectors.™

Week 26 01•July•2021 www. NEWSBASE .com P13