tea_blossom (tea_blossom) wrote in ontd_political,

China's investment into Iraqi oil

As Iraq Stabilizes, China Bids on Its Oil Fields

HONG KONG — Oil companies from China, the world’s second-largest and fastest-growing consumer of oil, bid aggressively on Tuesday as Iraq began auctioning licenses in six large oil fields.

A partnership of BP and the China National Petroleum Corporation, or C.N.P.C., won the first contract awarded, in the latest indication of Chinese interest in Iraq, a country that has until recently seemed to be firmly in the American sphere of influence for natural resources.

In another sign of China’s interest in Iraqi oil fields, Sinopec, China’s refining giant, offered $7.22 billion last week to buy Addax Petroleum, a Swiss-Canadian company with operations in the Kurdistan region of Iraq and in West Africa. If Addax’s shareholders and Canadian regulators approve the deal, which Addax’s board is recommending, it would be China’s largest overseas energy acquisition.

Sinopec’s rival, the China National Petroleum Corporation, started drilling in the spring in the Ahdab oil field in southeastern Iraq. China’s three main oil companies — Sinopec, C.N.P.C. and the China National Offshore Oil Corporation — all bid in various combinations with Western multinationals on Tuesday in Baghdad, although further negotiations remain to iron out the details of each of their contracts.

It is common in the oil industry for initial auction results to be followed by weeks of dickering over details. But the bidding in Baghdad on Tuesday was particularly contentious, as multinationals demanded that the Iraqi government allow them to keep more of the revenue from each extra barrel of oil they pump beyond levels previously sustained by Iraq’s chronically corrupt and technologically weak national oil industry.

Few Americans or Iraqis may have expected China to emerge as one of the winners in Iraqi oil, particularly after six years of war. But signs of stability in Iraq this year, and a planned American military pullout from Iraqi cities on Tuesday, happened to coincide with an aggressive Chinese push to buy or develop overseas oil fields.

The Chinese companies “have been interested in Iraq,” said David Zweig, a specialist in Chinese natural resource policies at the Hong Kong University of Science and Technology. “They were interested in Iraq before the war, and now that things have improved somewhat there, it’s on their agenda.”

Some experts contend that the West should not be concerned about a substantial Chinese presence in Iraqi oil fields, because it gives China greater stake in improving stability in the region.

“If you want China to be a responsible stakeholder in the world, you need to let China buy stakes in the world,” said Mark P. Thirlwell, the program director for international economics at the Lowy Institute for International Policy in Sydney, during a speech in Hong Kong on Tuesday.

The Iraqi government originally tried last year to award oil fields to Western companies through a no-bid process. That prompted objections from a group of United States senators, who wanted greater transparency, and the plan was replaced with the auction, which had the effect of letting Chinese companies play a much larger role.

China’s leaders were surprised by the steep rise in commodity prices early last year, which exposed the vulnerability of their country’s huge manufacturing sector to high raw material prices. When oil prices plunged in the autumn, China began buying, importing and storing oil in huge quantities, helping to drive a partial rebound in world oil prices in spring. And China stepped up its hunt to acquire foreign oil.

Chinese officials, economists and advisers have been almost unanimous in recent weeks in saying that their country needed to invest more in natural resources, while also voicing concerns about the long-term creditworthiness of the United States and the buying power of the dollar.

China has $2 trillion in foreign exchange reserves, mostly invested in dollar-denominated bonds, and has been looking for ways to diversify gradually into other assets like commodities, said a Chinese government adviser who spoke on the condition of anonymity because of the secrecy of Chinese reserve policies.

China’s central bank, the People’s Bank of China, called Friday for the development of an international currency other than the dollar that would be a safe repository of value, in the latest sign of China’s search for other ways to invest its international reserves.

Philip Andrews-Speed, a specialist in China’s oil industry at the University of Dundee in Scotland, said Iraq was clearly attractive for China and its oil industry.

“All, or nearly all, oil companies who have the courage want to be in Iraq because of the large size of the proven resource base and the potential for new discoveries,” he wrote in an e-mail message. “So, in this respect, the Chinese are part of the herd.”

Chinese oil companies have been particularly interested in buying oil fields ever since crude prices plunged late last summer, because that dragged down the cost of the fields as well, Mr. Andrews-Speed wrote. And with their experience in some of the most turbulent countries in Africa, Chinese oil companies may have the ability to cope with the unpredictability of Iraq.

“They may be no more competent at managing these risks than other companies, but they do seem to be prepared to accept a higher level of risk,” he wrote, citing China’s willingness to do business in Sudan.

Chinese companies have suffered a series of setbacks in their efforts to buy natural resources companies in industrialized countries, from Cnooc’s unsuccessful bid for Unocal in the United States four years ago to Chinalco’s failed attempt this spring to acquire a $19.5 billion stake in Rio Tinto of Australia.

Those setbacks, driven partly by political objections in Washington to the Unocal transaction and in Canberra to the Rio Tinto deal, have forced Chinese companies to show more interest in resources in less stable countries like Iraq.

“It’s really hard for them to do anything in the developed world, including Australia,” Mr. Thirlwell said in an interview on Tuesday.

Driving China’s interest is the country’s voracious thirst for oil. As recently as the early 1990s, China was a net exporter of oil because of production mainly from aging oil fields in the northeastern corner of the country.

But China’s oil consumption has soared since then, thanks to an economic boom and climbing car sales that have produced traffic jams in big cities. China surpassed the United States this year as the world’s largest car market, partly because China has weathered the global economic downturn better than the United States; China’s oil consumption reached 8 million barrels a day last year, up from 4.9 million in 2001, according to a statistical review from BP, the British oil company.

Oil production has grown much more slowly, as older oil fields have run dry. New fields, either offshore or in western China, have barely replaced them. China produced 3.8 million barrels a day of oil last year, up from 3.3 million barrels per day in 2001, which still left the country dependent on imports for more than half its oil.

Iraq has the world’s third-largest proven reserves, after Saudi Arabia and Iran. Many geologists say that the true oil resources of Iraq are even greater than official statistics suggest, because Iraq’s oil industry has suffered from decades of disruption and underinvestment. Many oil fields have not been fully explored as a result.

Addax has oil licenses in two oil fields in northern Iraq, the Taqtaq and Sangaw North fields, both near Kirkuk, and its drilling has already struck large quantities of oil repeatedly in the Taqtaq field.

Tags: china, oil

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