Iraq looks to floating storage for

excess fuel oil

A lack of secondary conversion capacity has left Iraq's refineries
struggling to cope with large amounts of surplus fuel oil output, leading
to frequent shutdowns. It has forced the country to look for new floating
storage options to hold excess fuel oil as it seeks to maintain refinery
operations.

State-owned marketing firm Somo issued a tender this week to hire 13

tankers to transport and store fuel oil and naphtha at the ports of Khor
al-Zubair and Umm Qasr. For the fuel oil, Somo needs two Suezmaxes to
act as floating storage in the ports' anchorage area, along with two
Panamaxes and two Handysize tankers to work as shuttle tankers. Bids
are due by 8 September.

Fuel oil production constitutes around half the output from Iraq's
estimated 550,000 b/d of operational refinery capacity. This amounts to
around 1mn t/month, of which about 400,000 t/month is consumed
domestically, mainly by power stations, as well as cement and brick
factories, leaving around 600,000 t/month for exports. Somo issued a
term tender in June to supply 270,000 t/month of straight-run fuel oil
between August this year and January 2021. Iraqi straight-run fuel oil is
typically shipped to refiners in Asia-Pacific, particularly Singapore and
South Korea. Exports to the region were almost 4mn t in January-May
this year, up by 500,000t from the same period last year, according to
Vortexa.

Any slowdown in exports or bottlenecks in transporting the fuel oil to

Khor al-Zubair leads to refineries shutting down. This has happened
frequently in the last few months, according to a former oil ministry
executive, particularly at smaller refineries in northern Iraq where export
options are limited. Some 400,000 t/month of fuel oil from the 210,000
b/d Basrah refinery in southern Iraq is transported by pipeline to the Khor
al-Zubair terminal. The remainder has to be moved by truck from 11
landlocked refineries — Al Sumud, Kirkuk, Siniya, Hadeetha, Kasak,
Daura, Samawah, Diwaniyah, Najaf, Dhi Qar and Meysan.

Exports had been efficiently handled up until the end of 2019, when
Somo took over the process, the former oil ministry official said. The
company has adopted open tenders and has contracted local state
companies to transport the fuel oil. The current Somo contract runs until
1 November, the former official said. But floating storage for fuel oil will
just be a short-term fix. Without new secondary processing units, Iraq's
refineries will continue to yield excess fuel oil. There have been few signs
that any investment is coming, although in July the government approved
a contract for Japan's JGC to carry out a $4bn, four-year revamp of the
ageing Basrah refinery. The project has been planned since 2012.

Work, which is yet to start, involves a new 55,000 b/d fluid catalytic
cracking (FCC) complex to boost gasoline and diesel yields, as well as a
vacuum distillation unit, a vacuum gasoil hydrotreating unit and a
hydrogen production unit. These are the kind of secondary units that Iraq
needs to meet its rising domestic fuel demand. Gasoline demand has
been growing at around 5pc/yr, reaching an average of 146,000 b/d last
year, according to figures from the Joint Organisations Data Initiative
(Jodi).

By Adal Mirza