China is now the biggest single investor in Iraq’s post-war oil and gas sector, giving it control of about one fifth of the reserves that have been auctioned over the past year.
According to MEED research, China is spending a total of $577m in signing on fees to give it access to an estimated 24 billion barrels, or about 18 per cent of the reserves on offer.
Chinese investment doubles the US’ signing on fees, which has committed $296m to control about 12 billion barrels.
Iraq’s two oil and gas licensing rounds have attracted considerable interest from the key players in China’s energy sector.
Most recently, a Chinese consortium of China National Offshore Oil Corporation (CNOOC) and Sinochem Corporation signed an initial agreement with Baghdad on 8 March to develop the Missan oilfield complex (MEED 9:3:10).
In early March, the consortium accepted a fee of $2.30 for every additional barrel of oil produced at the 2.5-billion-barrel field in southern Iraq. The complex was included in Baghdad’s first bid round but received only one bid, from the Chinese consortium, which was rejected. The complex currently produces 100,000 barrels of oil a day (b/d). The government has set a plateau production target of 450,000 b/d.
In terms of investment, China National Petroleum Corporation (CNPC) has been the most active. In June last year, it secured the 17-billion-barrel Rumaila field, as an almost equal partner with the UK’s BP. And six months later in December last year, it took a 50 per cent share as the operator of the 4.1-billion-barrel Halfaya field with Malaysia’s Petronas and France’s Total.
CNPC and its partners will have to invest heavily in the three fields as required to more than triple production to 3.8 million b/d, from about 1 million b/d currently. The partners for the Rumaila field have already said they will invest $15bn over the 20-year life of the contract.
CNPC also has a stake in the $700m deal for the Al-Ahdab field, which was revived in March 2009 by China’s Al-Waha Petroleum, a joint venture with another Chinese company, Zhenhua Oil Company. CNPC originally signed the deal in 1997 under the Saddam regime but suspended the project due to UN sanctions. The company estimates the field will produce 110,000 b/d over the next 20 years (MEED 25:3:09).
Another Chinese firm Sinopec has also signed a series of deal with the semi-autonomous Kurdistan Regional Government. As a result Sinopec was blacklisted from Iraq’s licensing rounds.
China is not the only Far Eastern investor in Iraq’s oil, and together with Malaysia, South Korea and Japan, the region has contributed 44 per cent, almost half the total signing on fees paid to Baghdad.
According to analysts, government-controlled companies from China and other Far Eastern countries have generally shown a greater willingness to accept greater risks and lower profits than their Western counterparts. “They have no shareholders to placate, and a political mandate to hunt down and secure as many barrels of oil as possible,” says Samuel Ciszuk, Middle East analyst at IHS Global Insight.