Monday, June 21, 2010

IRAQ – CHINA Great opportunities for Chinese oil firms in Iraq

Baghdad – China’s oil demand is expected to grow nearly 45 per cent in the next five years, the International Energy Agency (IEA) said in its latest oil market report. Now the mainland also plans to raise its profile in Iraq to meet its ever-increasing energy needs, filling the gap left by Western oil companies who are holding up because of concerns over terrorism.

Energy consumption worldwide fell by 1.1 per cent last year, but China bucked the trend with a 6.7 per cent rise to 8.6 million barrels per day (bpd), the latest British Petroleum data show.

Total oil demand in China, the world’s fastest-growing major economy, could reach 9.2 million bpd this year, an 8.5 per cent increase from last year’s level, the IEA predicts.

China is expected to increase its equity in energy-rich regions, because of a robust rise in its oil consumption, but also because of the European debt crisis and the BP oil spill in the Gulf of Mexico.

In Iraq, home to the world's third-largest proven reserves of crude, China was not player when the country was under Saddam Hussein. Even so, Beijing was an outspoken critic of the US invasion. Ironically, now it is becoming its greatest beneficiary.

Recently, Chinese companies snapped up three contracts, shrugging off security risks that led Western firms to stay away.

Out of 12 deals signed since 2003, China snapped up four, plus a fifth one with the Autonomous Government of Iraqi Kurdistan, perhaps the Iraqi region with the greatest potential for oil.

Experts note that Chinese oil companies, both state- and privately-owned, care first and foremost about oil, dismissing security risks and host countries’ political instability.

The result of such efforts is that about half of China's oil comes from the region, especially from Saudi Arabia and Iran (its third-largest supplier).

Tehran is especially important not only because China occupies much of the field following Western sanctions against Iran, but also because from there, it can easily get into Iraq and modernise its much-degraded refining capacity. Indeed, after years of neglect, war, sabotage and under-investment, Iraq’s oil sector produces only about 2.4 million bpd.

Iraqi authorities now want that to reach 12 million bpd over the next seven years. Whether such a target is realistic or not, the Chinese are working hard at it.

A Chinese oil firm is already drilling at Al-Waha and in relatively peaceful Wasit province, a sign of the new Sino-Iraqi co-operation.

So important are relations with China that when a mainland firm started exploring southeast of Baghdad near the Iranian border last year, and ran into trouble with farmers after destroying some crops, Iraqi officials stepped in quickly, meeting tribal leaders to calm tensions. They also hired hundreds of security guards to protect the Chinese-built oil infrastructure and Chinese workers.

The incident shows Iraq's determination to help Chinese oil companies operating in the country. It equally shows, according to experts, that the world’s oil markets are undergoing major changes and that a new balance of power is emerging.

Thus, aided by its capacity to forego short-term profits in favour of long-term gains, China is becoming a major player in the energy business.

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