Contractors from China have dramatically ramped up their activities in Iraq’s energy sector, winning 87 per cent of all oil, gas and power project contracts awarded in the country during 2022.

From the start of the year until 3 November, the total value of contracts awarded across the three sectors came to $3,872m, according to data recorded by the regional project-tracking service MEED Projects.

Of these, project contracts worth $3,350m were won by Chinese contractors.

Chinese contractors won eight of the 13 contracts awarded during the period.

Oil blocks

Major projects awarded to Chinese contractors this year include a $594m contract to develop a central processing facility (CPF) in Iraq’s Block 9 oil zone.

This was awarded to a joint venture of China National Offshore Oil Corporation and China CAMC Engineering Company in January.

Also this year, China Petroleum Engineering & Construction Corporation (CPECC) signed a contract for the design, procurement, construction and testing of new crude oil processing facilities at Iraq’s Rumaila oil field.

The planned plant in Mishrif Qurainat (MQ) is the first new crude oil processing facility project at the oil field in the past 10 years.

The project scope includes developing two new oil trains, each with a capacity of 120,000 barrels a day (b/d).

The contract is valued at about $386m, and construction is expected to take three years.

CPECC has also been awarded two water injection packages, each worth $250m, as part of Iraq’s West Qurna-1 oil field development project. The client on the project is US-based ExxonMobil and both packages were awarded in October this year.

Just two major energy project contracts have been confirmed as awarded this year to non-Chinese contractors. The home country of three contract winners is yet to be confirmed, according to data collected by MEED Projects.

One of the two energy contracts awarded to a non-Chinese contractor this year was a $69m contract to Croatia’s Koncar Group to overhaul the Haditha hydroelectric power station. This was awarded in June.

Also in June, Iraq’s State Company for Oil Projects (Scop) and Czech company UNIS were awarded a $245m project to develop a naphtha hydro treating (NHT) unit and a continuous catalyst regenerative (CCR) unit at the existing Basra refinery.

Chinese contractors have been increasingly active in Iraq over recent years.

For all energy contracts awarded in Iraq between the start of 2018 and 3 November 2022, Chinese contractors have won contracts worth a total of $21,189m, 59 per cent of the total value of all contract awards, which comes to $35,677m.

Over the same period, contractors from Japan won energy project contracts worth $3,775m, more than any other nation apart from China.

Contractors from the US won contracts worth a total of $2,987m, putting them in third place when ranked by total value of contracts won.

The share of the energy contract value won by Chinese companies has risen every year for the past three years.

In 2021, Chinese contractors won $9.8bn in Iraqi energy contracts, 79 per cent of the value of all energy contracts awarded in the country that year.

In 2020, Chinese contractors only won contracts worth $1bn, just 16 per cent of the $6.8bn in contracts awarded that year.

The global energy transition has played a significant role in the success of Chinese contractors in the Iraqi energy sector over recent years.

Iraq’s oil and gas fields are some of the most carbon-intensive in the world. Western international oil companies (IOCs), which have come under increasing pressure to reduce their emissions, have started to try to sell some of their Iraqi assets.

This has given Chinese oil companies, which are under less pressure to reduce emissions, the opportunity to acquire assets at a lower price and created an increasingly close relationship between Chinese contractors and Iraq’s state-owned energy companies.

Over recent years, China has been a useful partner to Iraq, providing investment as well reliable and effective contracting services.

China has also benefited from the relationship with Iraq as it gives Beijing access to cheap oil and provides a market for its companies to operate in.

Renewable player

Although China has mainly been involved in conventional power projects in Iraq over recent years, more recently there have been signs that it is poised to become a significant player in Iraq’s renewable energy plans.

China has been the world’s largest manufacturer of solar panels since 2008 and has more installed solar power capacity than any other country.

Despite the benefits for both countries, some officials in Iraq have become increasingly anxious about its reliance on Chinese contractors to develop its energy sector.

Over recent years, there have been significant efforts by Iraq to increase engagement with western companies to widen Iraq’s portfolio of investors and reduce reliance on a single country.

It is not yet clear how the election of Abdul Latif Rashid as Iraq’s new president will change the country’s relationship with China.

He formed his government in October after months of political stalemate and may be willing to increase cooperation with China in return for economic benefits, as the country struggles with problems such as poor provision of public services and mass youth unemployment.

Even if Iraq’s new government wants to try to limit China’s integration with the Iraqi economy, it is likely to struggle to find contractors from other nations that can deliver the same services at the same price.

The wide range of economic synergies between the two countries means that contractors from China are still likely to win a large volume of energy contract awards in Iraq for some time to come.