Iraq's SOMO discusses 2005 term crude contracts with customers

Dubai (Platts)--2Nov2004

Iraq's State Oil Marketing Organization discussed the renewal of its long-term
crude supply contracts during a meeting with its customers in the Jordanian
capital Amman last week, SOMO's director general Dhia al-Baka told Platts
Tuesday. The country's state marketing arm is expected to renew the contracts
in mid-November. "We have just exchanged ideas on how the contracts will go
for next year," Baka said. "We discussed how to improve relations and the
greater potential for increasing supplies." Baka declined to provide a
specific answer on whether volumes would increase in 2005, saying "God
willing" when asked about contract volumes for 2005. SOMO met with its
customers in Amman from Oct 26-29 to discuss the renewal of term contracts,
crude pricing policies and marketing conditions. SOMO also discussed payments
to its customers for shipping delays caused by disruptions from sabotage to
crude flows to its Persian Gulf terminals and poor weather conditions.

SOMO plans to pay 100% of the costs from delays to loading, mainly from its
Persian Gulf loading terminals, from Oct 1. "We will pay 100% of the costs
from the first of October," Baka said. "The payments will be continuous and
ongoing." SOMO recently said also it intended to pay demurrage costs from
August 2003 to the end of September 2004 based on calculations made by an
internal SOMO committee. SOMO had informed its customers that it would pay for
the delays up until the end of September 2004. Current contracts with term
lifters allow for a 65-hour delay to VLCCs loading at Iraqi terminals. Crude
vessels have experienced loading delays in southern Iraq, leading to
additional costs for loadings. Attacks against the country's two main onshore
pipelines, poor weather and power shortages have delayed loadings at the
terminals. SOMO has so far calculated demurrage costs up until Jun 30, 2004.
SOMO said it would deduct the cost of loading delays from the invoice for
crude liftings.

As SOMO moves to renew its term contracts, the diminishing quality of its
Basrah Light crude could hamper its efforts as contractors lift less crude
than contracted, industry sources said. The API gravity of Basrah Light has
reportedly fallen to below 30 degrees, while the sulfur content has risen to
above 3%, industry sources said. The higher sulfur content could prompt some
customers in Asia, particularly Chinese lifters, to avoid Basrah Light in
favor of sweeter crudes. The oil ministry has struggled to increase its crude
output in southern Iraq but has been unable to conduct maintenance at many of
its southern oil fields, industry sources said. The reconstruction effort,
which is needed to maintain and develop the country's oil fields, has been
slowed by ongoing instability and politically-related violence. The ministry
has announced tenders for oil field technical studies but the ongoing
instability has forced the ministry to postpone the contract awards.

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