An oil tanker filling up at the al-Basra Oil Terminal in February, 2010. (BEN LANDO/Iraq Oil Report)
By Ben Lando of Iraq Oil Report
Published October 18, 2010
BAGHDAD - The pipelines that export most of Iraq’s oil are 15 years past their shelf life and were last inspected in 1991, when pipeline corrosion forced a 75 percent reduction in safe exporting capacity. According to a previously undisclosed study commissioned by the U.S. government, they are at risk of failing any time – an economic and environmental catastrophe that would reverberate from Baghdad to its neighbors and the entire oil market.
More than $100 million a day is pumped through Iraq’s main export arteries, 52 kilometers of now questionable pipeline which begin on the Fao peninsula, dip more than 29 meters below the northern Arabian Gulf, and extend to the al-Basra Oil Terminal (ABOT). Those pipelines were built in 1975 and were supposed to last only 20 years without any major inspections and upgrades.
“We are afraid of anything happening to them,” said Deputy Oil Minister Ahmad Shamma, who started his career on the oil platforms and until recently has been the most senior official pushing for a rapid fix, which is underway.“We are not putting any more pressure on them, touch wood.”
Simply shutting down the southern pipelines – the best option from an environmental standpoint – would cause a financial heart attack in a war torn country that needs oil revenue to fund even the most basic of services, not to mention reconstruction. Iraq depends on oil exports for more than 90 percent of state income, and relies on its southern pipelines to sell three quarters of that oil.
The potential environmental nightmare scenario is more tangibly horrific since BP’s Deepwater Horizon platform exploded in the Gulf of Mexico in April, prompting an oil spill that lasted five months and wrecked the waters and coasts of numerous U.S. states. Officials say the severity of a pipeline rupture in Iraq would depend on the location. In the more likely – and ruinous – scenario, the pipeline would break far from shore, and weather would push the oil throughout the Gulf toward Iraq’s neighbors.
The frailty of the pipelines is a well known secret. But the extent was made clear in the warnings in the two reports, obtained by Iraq Oil Report, neither of which has been made public before today. In October 2007 the U.S. Army Corps of Engineers commissioned Foster Wheeler to assess the integrity of export pipelines for Iraq’s Ministry of Oil. In December 2007, Foster Wheeler produced a feasibility study on building redundancy for the exports.
In October 2008, the Financial Times reported that the U.S. State Department had sent a notification to the U.S. Congress that the pipelines were at risk, in a justification for more funds, but the reports underlying that warning have never before been disclosed.
The feasibility study is nearly identical to the Oil Ministry’s published blueprint for a massive, $4 billion-plus expansion of the south export infrastructure, which would build new export outlets that are slated to come online by the end of 2012. Contracts have been signed and more are expected in mere months – an accelerated timeline that highlights the double urgency of meeting increasing export demands and creating alternate export routes before the current pipelines fail.
“The 48-inch export pipelines have long passed their design life and are due for replacement,” concluded the 2007 reports. “A full integrity evaluation of the existing pipelines is required if these pipelines were to continue in service. Without this assessment it is considered that the condition of the pipelines should be considered critical.”
No such assessment has been made, officials close to the southern export activities confirmed.
The report relies heavily on the 1991 survey, which found “excessive corrosion” and estimated that the pipeline wall had deteriorated by 76 percent.
“If this average corrosion rate has continued linearly, the pipeline should have lost containment by now,” the Foster Wheeler assessment said. The follow-up 2007 feasibility study said the pipelines can’t be fixed or even inspected until alternative export routes are built, due to the risk of rupturing the pipelines – a problem echoed by Iraqi and U.S. officials.
The plan
The Oil Ministry’s plan, according to Shamma, is to shut the current export lines as soon as the first new pipeline and export outlet is ready.
“We will test them and see what we can do with them. We will operate them as long as it’s possible,” he said.
Iraq has signed 11 oilfield development deals with the world’s largest oil companies, including ExxonMobil, Royal Dutch Shell, BP, Lukoil and the Chinese National Petroleum Corp. The ministry has a stated goal of more than 12.5 million bpd of production capacity within seven years, most of which would be exported. However, new export routes have yet to be established, and current pipelines in the north need refurbishing as well.
The southern export pipelines have problems beyond the observed corrosion, according to the Foster Wheeler reports. As the pipelines plunge downward toward ABOT, their steep trajectory allows water to collect in the pipe, creating a corrosion risk from the inside.
Such accumulated water would typically be removed by a routine maintenance and inspection technique called “pigging.” But pigging hasn’t occurred in 19 years, for fear of rupturing a line.
The Foster Wheeler reports said there is an utter lack of information, since the pipelines have not been inspected since 1991 and a review of the data has not taken place. The future life of the lines therefore remains as murky as it is risky.
Shamma said first priority is “intelligent pigging” that determines “the remaining thickness” of the pipeline wall. After that, a decision will be made: repair, downgrade, or shut down.
Iraq exports no more than 1.6 million barrels per day (bpd) from the Gulf due to the fragile state of the pipelines. Iraq has another 600,000 bpd of export capacity through its northern pipeline to the Turkish port of Ceyhan. If ABOT and the Khor al-Amaya Terminal – the latter of which handles only 5 percent of the south exports due to war damage – can be refurbished to their original capacity, they could support 3.2 million bpd of flow.
The potential for disaster
“We don’t want to have a problem of leakage from the line,” Shamma said.
He’s not alone.
On an international level, shutting in 1.6 million bpd of Iraq’s oil exports would create an immediate spike in world oil prices, though Saudi Arabia could use its excess capacity to buffer the loss.
Domestically, Iraq needs to export all the oil it can. The country earned $39.2 billion from oil revenues last year, and has made $37.5 billion this year so far. Losing southern exports would cripple Iraq’s economy, which is already billions of dollars over budget every year and relies on outside loans from the International Monetary Fund.
From a regional and environmental perspective, Iraq and its neighbors would be hard hit by the effects of a spill in the Gulf.
“The environmental issue is just not a top priority (in the Iraqi government),” said Deputy Environmental Minister Kamal Latif. “We don’t have the capacity to deal with that amount of potential pollutant (in the event of a spill) if Iraq is producing that much oil.”
Iraq’s weak environmental record is a piece of Saddam Hussein’s legacy. Years of isolation during wars and sanctions also prevented Iraq from maintaining its infrastructure, and kept it from key regional initiatives designed to promote environmental protection. Compared to the many priorities that post-2003 Iraq has had to juggle, preventing and responding to an environmental disaster has received less attention.
But Iraq has just begun participating again in the Marine Emergency Mutual Aid Center and the Regional Organization for the Protection of the Marine Environment, two of the leading Middle East marine protection groups, whose members include Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia and UAE.
A massive oil spill could harm relations with neighbors that are nearly as temperamental as the corroded pipelines. In the event of a pipeline rupture, Iranian, Kuwaiti and Saudi Arabian waters and shores could see Iraqi crude, depending on the direction of the current and the amount of oil spilled, according to a senior Western official familiar with the southern export expansion projects.
“Previous spills in the northern Gulf resulted in oil spreading to the shores of Kuwait and Saudi Arabia and expectations are that any future (south oil export) spills would behave similarly,” the official said. Saudi Arabia, specifically, could see crude clogging the desalination plants it relies on to provide the desert nation – and others in the region – with potable water.
But, like a patient in need of life-saving surgery but not quite healthy enough to go under the knife, Iraq will have to cross its fingers and wait. Either its pipelines break and catastrophe will ensue, or the massive export infrastructure program will be finished in time, and oil revenues will be not only secured, but quintupled.
The senior Western official, when asked in the days after the Gulf of Mexico spill about the consequences of an Iraqi pipeline rupture, said he was “very concerned,” though he noted that if the pipeline were to break on the Fao peninsula, shutting the pipelines off would be quick and clean-up would be captured on land.
At sea, however, where the presence of water heightens the risk of corrosion, a burst line would be far more disastrous – perhaps not quite as bad as the Deepwater Horizon spill, but not far off.
“That is not an unsubstantial amount as the two pipelines jointly contain approximately 28 million gallons of crude oil, or approaching three times what was spilled in the Exxon Valdez incident (approximately 10.8 million gallons),” the official said, referring to the oil tanker that ran aground off the coast of Alaska in 1989.
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