UPDATE 2-Iraq asks Kurds to link new oil pipeline to its network
* Latest plan is to connect pipeline on Iraq side of border -KRG
* No talks ongoing over oil payments to companies - Shahristani
* Basra terminal work will not reduce exports - Shahristani
By Daniel Fineren and Isabel Coles
DUBAI/ARBIL, Iraq, Sept 24 (Reuters) - Iraq's central government has asked the autonomous Kurdish region to connect its new oil pipeline with one from Kirkuk to Ceyhan in Turkey in a way that allows Baghdad to measure flows, Iraq's deputy prime minister for energy affairs said on Tuesday.
Kurdistan is expected to complete a 300,000-barrels-per-day (bpd) oil pipeline in the next few weeks, increasing the Kurdish Regional Government's (KRG) control over oil exports in a long-running resource row with Baghdad.
"We have asked the KRG to connect it to the Kirkuk-Ceyhan pipeline before the pumping station so that we can meter exactly how much crude has been pumped," Hussain al-Shahristani said, adding that Baghdad had not received any response.
A source at Kurdistan's Ministry of Natural Resources said the KRG could not accept the proposal, arguing that frequent stoppages on the pipeline from Arab-controlled fields and a lack of control over the metering station would make it difficult for the KRG to monitor its own oil flows.
"The KRG has taken the decision to connect its new pipeline to a new international-standard metering station installed after the existing metering station," he said.
"The KRG is happy for federal officials to come and observe the metering of oil from the Kurdistan Region and to share with them any information they need."
Although the controversial crude export line is almost finished, the KRG has been keeping its final connection options open as long as possible.
The source at the Ministry of Natural Resources said the KRG now planned to link up to the Kirkuk-Ceyhan pipeline between the Iraqi pumping station and the Turkish border.
Oil is at the heart of a dispute between the Arab-led central government and the ethnic Kurdish-run northern enclave over control of oilfields, territory and crude revenues.
Sales of Kurdish oil via the federal pipeline system have been blocked in the dispute between the two governments, and the two sides are not currently in talks to resolve the row over payments to oil companies working in the region.
"No, there has been no discussion with the companies or with the KRG (on oil payments)," Shahristani said on the sidelines of the Gulf Intelligence Energy Markets Forum in Dubai.
Last week, the provincial council of Nineveh voted to empower its governor to sign deals with foreign oil firms, following the example of the KRG, which has signed lucrative contracts with the likes of ExxonMobil in recent years.
Shahristani said the predominantly Sunni Muslim governorate in Iraq's northwest lacked the political weight that had allowed the KRG to push its own oil plans despite disapproval from Baghdad.
"They can't... its even more difficult because at least the KRG has the status, Nineveh cannot do that," he said.
Exxon, the world's largest publicly traded energy company, angered Iraq by signing production-sharing contracts with Kurdistan for the exploration and development of six blocks in 2011. Two of those blocks are in areas where Nineveh and Kurdistan both claim jurisdiction.
The company is now looking to sell its stake in the West Qurna-1 oilfield in southern Iraq. Shahristani declined to identify the buyers.
He said Exxon had made a "serious error" when it negotiated with the KRG, and that Baghdad has asked Exxon to reduce its presence in southern Iraq as a result.
"Exxon has decided to scale down, based on our request. We have asked Exxon to scale down on the West Qurna and they have decided to sell," he said, adding that Exxon would stay on as operator of the field "for the time being".
Upgrades to the Basra Oil Terminal in the Gulf, which Iraq relies on to export most of its oil, are thought to have reduced exports in September.
Work at the terminal is expected to continue until the middle of next year, but Iraqi officials say the longer-term work will not affect exports.
"The work is going on there but we have the capacity to export more than the quantities available, so we have no problem ... There are no bottlenecks as far as exports go," he said.
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