VZCZCXRO0168
RR RUEHBC RUEHDA RUEHDE RUEHDH RUEHIHL RUEHKUK
DE RUEHGB #1469/01 1550800
ZNR UUUUU ZZH
R 040800Z JUN 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 3336
INFO RUCNRAQ/IRAQ COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/USDOE WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 03 BAGHDAD 001469 
 
SENSITIVE 
SIPDIS 
 
DOE FOR GEORGE PERSON; STATE ALSO FOR EEB AND NEA/I 
 
E.O. 12958: N/A 
TAGS: EPET ENRG EINV PGOV SENV KCOR KU IZ
SUBJECT: OIL MINISTRY MOVES ON ADDITIONAL SOUTHERN OIL 
EXPORT PIPELINES 
 
REF: 08 BAGHDAD 3381 
 
¶1. (SBU) Summary: The Ministry of Oil's South Oil Company 
continues to make some progress on a project to replace aging 
underwater pipelines through which three-quarters of Iraq's 
crude oil is exported.  Two surveys, one to identify 
unexploded ordnance and a second to collect bathymetric data, 
are underway.  The South Oil Company, however, has not 
provided the necessary authorizations to the company carrying 
out a Front End Engineering Design study.  Recent changes in 
Oil Ministry and South Oil Company leadership could also lead 
to a slowdown in project execution.  Failure of one of the 
pipelines would be an ecological disaster and potentially 
disrupt Government of Iraq (GOI) revenues for an extended 
period.  We will continue to press the GOI leadership to 
place the proper emphasis on timely project completion.  End 
summary. 
 
A Critical Need for Safe Oil Exports 
------------------------------------ 
 
¶2. (U) In reftel, we detailed the condition of the two 
48-inch pipelines feeding the Al Basrah Oil Terminal (ABOT) 
platform, which were installed in 1975 with a 20-year design 
life.  ABOT is a critical Iraqi facility, since 
three-quarters of Iraq's crude oil exports are shipped 
through it, with the remainder passing through Turkey's 
Ceyhan port.  (Although the Khor Al Amaya Oil Terminal 
(KAAOT) could supplement ABOT, the pipeline feeding KAAOT is 
in worse condition than ABOT's.)  After the South Oil 
Company's last maintenance inspection, the Ministry of Oil 
decided to operate the pipelines at approximately twenty-five 
percent of their design capacity.  The rupture of one line 
could release up to 22 million gallons of oil into the 
northern Persian Gulf, creating problems for Kuwaiti and 
Saudi Arabian desalinization plants and to the northern 
Gulf's ecology. 
 
USG Role in Security Upgrades 
----------------------------- 
 
¶3. (SBU) Between 2004 and 2008, the USG invested more than 
$100 million into infrastructure and security upgrades for 
ABOT.  Through the Infrastructure Security Program, the USG 
funded a $700,000 engineering feasibility study to examine 
the most expeditious way to rebuild the pipelines, which 
Foster Wheeler Energy Limited (FWEL) completed in December 
¶2007.  As a result of the study, the Ministry of Oil (MoO) 
South Oil Company (SOC) elected to install three new 48-inch 
pipelines and four single point moorings (SPM).  The SPMs 
would offer greater ability to continue loading tankers in 
heavy seas, although they would also be difficult to emplace 
due to the restricted space in Iraqi territorial waters.  The 
offshore construction, at a cost of almost $2 billion, would 
provide full redundancy for ABOT and meet the SOC goal of 4.5 
million barrels per day (bbl/d) of export capacity.  To 
increase export capacity to the target level, however, SOC 
also needs to carry out on-shore construction of tanks, 
pipelines, and control equipment.  The total cost of both 
offshore and on-shore work will exceed $5 billion. 
 
Current Status - Surveys 
------------------------ 
 
¶4. (SBU) The U.S. Embassy's Iraq Transition Assistance Office 
(ITAO) funded $1.5 million to keep FWEL engaged on the 
project.  In September 2008, the MoO agreed on contract terms 
for two surveys of the northern Gulf to identify any 
unexploded ordnance (UXO), to perform a detailed mapping of 
the sea-bottom contour, and to take core samples.  In October 
2008, the MoO completed the letters of credit to fund the 
Q2008, the MoO completed the letters of credit to fund the 
first two contracts.  The MoO eventually awarded the UXO 
survey to London-based Maritime and Underwater Security 
Consultants, or MUSC, a specialist maritime security 
consulting company, and the bathymetric/geotechnical survey 
to an Indian company, Coastal Marine Construction and 
Engineering Limited, or COMACOE. 
 
¶5. (U) MUSC commissioned the MV Theresa to begin the UXO 
survey at the end of February and will send a second vessel, 
Seagull I, to join MV Theresa for an 80-day period.  The 
survey has detected several anomalies.  Further work is 
required to identify the nature of the anomalies and whether 
items will need to be cleared before construction.  COMACOE 
contracted the Soha Folk, which initiated the bathymetric 
survey, and will dispatch a second vessel, Logo Surveyor, to 
 
BAGHDAD 00001469  002 OF 003 
 
 
speed up completion of the Qhymetric survey.  A third 
vessel will join them in June to start the geotechnical work. 
 Both surveys have been conducted in the vicinity of ABOT. 
Additional vessels will carry out surveys along the planned 
pipeline route from shore to the vicinity of ABOT. 
 
¶6. (SBU) Embassy and MNF-I had earlier engaged the MoO to 
urge communication and coordination with Iran and Kuwait to 
ensure that the surveys would not elicit a hostile reaction 
from the border and security services of Iraq's neighbors. 
In the event, the survey vessels have not sighted patrol 
vessels from either country.  The SOC also modified the 
project to delete a pipeline to KAAOT so that survey work 
close to KAAOT, near Iran, would not be needed.  In addition, 
work on the western edge of the survey area is well within 
the agreed-upon patrolling areas of the Coalition Navy and 
far to the east of the location where the Kuwaiti Navy 
stopped wreck removal activity in December 2007. 
 
Current Status - Front End Engineering Design 
--------------------------------------------- 
 
¶7. (U) The USG-funded engineering feasibility study 
recommended that SOC award a Front End Engineering Design 
(FEED) contract to act as the lead consultant on the entire 
project.  FWEL won the contract in December 2008 and started 
work in March 2009.  In addition to the FEED activity, the 
scope of the contract includes procurement of major 
materials/services and supervision of survey work.  SOC and 
FWEL are also discussing a project management proposal that 
would allow FWEL to continue on the construction phase after 
the FEED is completed. 
 
¶8. (SBU) Work under the FWEL contract progressed well for the 
first two months, but has now encountered difficulties.  SOC 
approvals have not been forthcoming or provided slowly. 
 
The approvals required include: 
-- Authority for FWEL to contact prospective suppliers and 
issue requests; 
-- Dispatch of SOC employees to the UK to work with FWEL 
counterparts and engineering firms; 
-- Use of the modified FWEL procurement process; 
-- Approval of the modified design; and 
-- Funding approval. 
 
We judge that the difficulties arise from personnel changes 
at both the MoO and SOC.  If all goes well, FWEL has 
scheduled phase-one completion, construction of two 48-inch 
pipelines and two SPMs, for the first half of 2011.  Phase 
two comprises construction of a Central Metering and Manifold 
Platform and one more SPM. 
 
Future Uncertainties 
-------------------- 
 
¶9. (SBU) The recent appointment of a new Deputy Oil Minister 
for upstream activities and SOC director general may cause a 
review of previous decisions regarding the project; any 
changes would likely have a negative impact on scheduling and 
costs.  In addition, project execution will continue to 
suffer due to the very slow MoO approval process, which 
results partly from an over-centralization of authority.  The 
GOI's budget woes resulting from the steep drop in crude oil 
prices has also affected the project, leading to a decreased 
capital budget. Qe SOC recently modified the project to a 
phased approach with only $700 million earmarked for phase 
one and nothing presently budgeted for phase two.  Finally, 
the MoO and SOC suffer from human resource constraints. 
While the current SOC project manager is competent, he has no 
"back bench" to take over if he should move on.  There is 
only one other person assigned permanently to the project. 
Qonly one other person assigned permanently to the project. 
In our view, at least five full-time staff should be devoted 
to project management and implementation. 
 
Comment: Pipeline Failure Means Disaster 
---------------------------------------- 
 
¶10. (SBU) Failure of one of the southern oil pipelines would 
not only be a massive ecological disaster, it would 
critically disrupt the GOI's revenues for a prolonged period. 
 The GOI and MoO, however, distracted by more immediate 
crises, have not provided sustained attention to the project, 
nor given it the priority required to have replacement for 
the aging infrastructure put in place in the shortest 
possible time.  We will continue to engage with the MoO and 
 
BAGHDAD 00001469  003 OF 003 
 
 
SOC in an effort to emphasize the project's importance and 
keep it moving forward. 
HILL