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« China in Africa: Partners in the Year of the Snake | Main | Military Biofuels Survive Republican Congressional Euthanasia Attempt »
Monday
Dec312012

Chinese Oil Companies Apparent Victors in Post-Saddam Iraq

Contributed by John C.K. Daly of Oilprice.com.

It was not supposed to be like this.

After 2003’s U.S.-led Operation Iraqi Freedom, Iraq’s vast oil reserves, a monopoly under the Baathist government of deposed President Saddam Hussein, were opened to foreign investment.

That optimistic assessment proved somewhat naïve however, as the country quickly descended into a prolonged power struggle between Sunni Arabs, who had dominated the Saddam administration, Shia Iraqis, the majority in the country, and northern Iraq’s Kurdish population, which had suffered years of repression.

Nevertheless, a political calm ultimately prevailed to the point where foreign oil companies could tentatively begin to explore and develop Iraq’s vast hydrocarbon riches, the U.S. Energy Information Administration reporting, “Iraq was the world’s 12th largest oil producer in 2009, and has the world’s fourth largest proven petroleum reserves after Saudi Arabia, Canada, and Iran. Just a fraction of Iraq’s known fields are in development, and Iraq may be one of the few places left where vast reserves, proven and unknown, have barely been exploited.”

The problem for foreign oil companies was who to deal with in the chaotic post-Saddam Iraqi political miasma? The alienated Sunnis, the increasingly dominant Shia, or the northern Kurds, who had their own quiet agenda of both carving out increased political autonomy from Baghdad while enticing foreign investment.

Related Article: The Coming Oil War in Iraq

Now, a major U.S. corporation after winning a massive contract in 2009 in southern Iraq from Baghdad, has decided to divest itself of its investment, there, preferring to develop Kurdish oil fields. And the major foreign contender for ExxonMobil’s Qurna-I concessions is – China.

West Qurna is one of Iraq's largest oil fields, located north of Rumaila field, west of Basra, and estimated to contain 43 billion barrels of recoverable reserves, making it potentially the world’s second largest “superfield” after Saudi Arabia's giant Ghawar oil field. In November 2009, an Exxon Mobil - Shell joint venture won a $50 billion contract to develop the estimated 9 billion barrel West Qurna Phase I, with Iraq’s Oil Ministry estimating that developing the site would require an initial $25 billion investment.

It now appears that China National Petroleum Corp. may acquire West Qurna-1 oilfield from Exxon Mobil. Iraqi and Chinese sources said that CNPC unit Petrochina is currently in negotiations for Exxon's 60 percent in the West Qurna-1 project. Speaking on condition of anonymity, a senior Iraqi official knowledgeable of the discussions said, "CNPC has shown interest; they are there. And from our side, there is no problem with them taking on a bigger position. We are not sensitive about this."

Related Article: Iran Asks OPEC to Cut Output so Countries can't Find Alternative Sources of Oil

Unlike the western interests increasingly focused on Iraq’s Kurdish regions, where oil must be sent via pipelines through Turkey, a major advantage for China of Qurna-1 is that the superfield’s crude could be sent out by sea from Iraq’s Persian Gulf Basra port.

Adding to China’s advantage in the bidding war for Qurna is the fact that the country’s search for energy resources worldwide already make China a major buyer of Iraqi crude. Furthermore, as access to global oil reserves is a high strategic priority for Beijing, China is willing to negotiate more severe terms and lower profits than Western oil majors and even Russia’s Lukoil in the interest of long term access. This will play well in Baghdad, as it confirms its sovereignty over the nation’s hydrocarbon reserves, even as ExxonMobil attempts to bypass the central government by cutting deals directly with the Kurdish Regional Government.

China’s offer of both financial largesse and political support is music to the regime of Iraqi Prime Minister Nuri al-Maliki’s government in Baghdad, given that Iraq has the world's fourth-largest oil reserves and wants to at least double its production in the next few years and ultimately challenge Russia and Saudi Arabia as the world's biggest oil nation.
Looking at the view from inside the Beltway, ExxonMobil's departure from Qurna-1 would decimate America’s presence in Iraq's southern Shia oilfields – which will cause interested DC pundits to wonder – is this why America went to war in 2003, to overthrow Saddam to make the country safe for Chinese oil companies?

Perhaps Michael Corleone summed it up best – “its just business” – and ExxonMobil is not the U.S. government. Cross-posted from Oilprice.com.

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Reader Comments (3)

Chinese investment in the United States is paying good dividends. We fight their energy wars for them, pacify regions, and ensure a reliable supply of raw materials. Note the same story is unfolding in Afghanistan where the Chinese also get nice deal. Now if we go one step further, it may well be that the multi-national overlords of planet Earth have decided that China gets the nod for 21st century grandeur in the French sense of the phrase and the United States is simply the mechanism to make this go smoothly.
January 1, 2013 | Unregistered CommenterPublius
Considering that the West has no leaders intelligent enough to think more than a few weeks into the future, or to truly understand their adversaries, it is amazing that they (the West) still exist. The habit of unlimited power and wealth dumbed the West down so much that, now that both are waning, they have no idea how to proceed. Their means and methods are still stuck in the mid 1900s. Their demise is eminent. Asia is the new century.
January 1, 2013 | Unregistered CommenterMakati1
Why not get the Chinese to dump 25 bil into developing Iraqi fields?

Without much military presence in the region, the Chinese could simply have their investment pulled out from under them whenever the Western Bloc decides to start another war.

But what other choices do the Chinese have? Their economic growth demands energy and raw materials. The Chinese can't do much except hope that they can continue to trade and invest in order to obtain what they need. Only time will tell whether the Chinese were too trusting of the current Western hegemony.
January 9, 2013 | Unregistered CommenterRoland

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