News / Middle East

Iraq Embraces China's Growing Oil Dominance

FILE - An aerial view of excess gas burning off at the al-Ahdab oil field in Wasit province, Iraq.
FILE - An aerial view of excess gas burning off at the al-Ahdab oil field in Wasit province, Iraq.
TEXT SIZE - +
Reuters
— From the giant southern oilfields to the lively souks of Basra, China is drilling ever deeper into Iraq.

Driven by an insatiable thirst for oil, Beijing secured a formidable position in Iraq's prized energy sector through auctions held four years ago. It is now seeking to buy 850,000 barrels per day (bpd) of Iraqi oil, 30 percent of estimated 2014 exports.

Its dominant role in Iraqi oilfields sat uneasily with Baghdad at first. That changed when China's quick, cost-effective ramp-up in production helped push Iraq up the OPEC ranks to second spot behind Saudi Arabia from a virtual standing start after the disruptions of the U.S.-led invasion in 2003.

“The Chinese are our commercial partners in managing and developing oilfields that are totally Iraqi. So I don't see any issue of dominance or threats,” said Thamir Ghadhban, chairman of the advisory commission to Iraq's Council of Ministers.

“It's the other way around. I think the Chinese find Iraq to be their favorite partner.”

Further expansion is in the works.

PetroChina's anticipated purchase of a 25 percent share in Exxon Mobil's West Qurna-1 oilfield project will allow China's biggest energy firm to overtake Russia's Lukoil to become the biggest single foreign investor in Iraqi oil.

Cheap and silent

“China's strong position means the oil ministry has fewer qualms if Western companies back out because they are seen as being more readily replaceable,” said an Iraqi analyst.

PetroChina already partners with BP at Rumaila, Iraq's largest producer, and operates the Halfaya and al-Ahdab fields. It was the first foreign firm to sign an oil service deal in Iraq after U.S.-led forces toppled Saddam Hussein.

Deep pockets and corporate flexibility in the face of rising violence here in Iraq allows companies from China to offer the rapid production increases that many in the West cannot.

“The Chinese work cheaply and silently - worrying less about security compared to other foreign firms. They use a larger number of workers, so they always complete the job on time, if not before,” said an official with Iraq's South Oil Co (SOC).

“When we advise other contractors, or even our own workers, on how to get the job done, we tell them, 'Do it like the Chinese'.”

Baghdad has been particularly struck with PetroChina's performance at Halfaya in the southern Maysan province.

Along with partners Total and Petronas, PetroChina has lifted flows from the field, which was nearly untapped, above 100,000 bpd, and output is expected to hit 200,000 bpd by next September.

PetroChina's peers Sinopec and China National Offshore Oil Corp (CNOOC) are also on the ground, giving Beijing access to the whole of Iraq - from the autonomous Kurdish region in the north to the Maysan oilfield in the south.

They, along with all the foreign oil companies who signed service contracts with Baghdad, are repaid for development with a cut of the oil their work produces.

Beijing, which last month overtook the United States as the world's largest oil importer, is seeking 70 percent more Iraqi oil next year.

Saudi Rivalry

The higher oil sales are bound to step up the rivalry between Baghdad and top exporter Saudi Arabia for a bigger slice of the growing Asian market.

“Iraq's natural market is Asia, and with China's strong economy it's natural that it would lift more and more Iraqi crude and invest heavily to get the resources,” said a Western diplomat.

“And their partnerships with Western companies are important: they're being exposed to our business culture and moving in a manner that we want to see.”

Oil executives point to BP's venture with PetroChina, which has raised output by about 400,000 bpd to 1.4 million bpd, as a prime example of a smoothly running partnership.

“PetroChina brings its own capabilities and the opportunity, under competitive bidding, to access the Chinese supply chain,” said Toby Odone, Deputy Head of BP's press office.

Iraq's easy-to-access oilfields are the largest in the Middle East open to foreign investment, making them hard to resist as China's dependency on imports rises.

“The Chinese are reliable. They don't have the experience of running sophisticated projects, but drilling here is very easy,” said a senior Western oil executive.

Iraq has the world's fifth-largest oil reserves and wants to at least double its production of 3 million barrels bpd in the next few years and ultimately challenge Saudi Arabia as the world's biggest oil power.

For China, access to reserves is a strategic imperative. And Beijing is prepared to accept tougher terms and lower profits than Western oil majors and even Russian firms such as Lukoil, which have to answer to shareholders.

“China's expansion in Iraq is still largely driven by economics. There is little political thinking behind it,” said Chen Weidong, head of energy strategy research at CNOOC.

That drive has taken China beyond the oilfields and into the streets of Basra, where the Chinese are setting up shop.

“The Chinese are part of our society. They are not  strangers. Their presence here in Basra makes us feel that our city is secure,” said Ali Sa'adi, the 34-year-old owner of a mobile phone shop.

“I'm happy they are here, despite the competition.”

You May Like

Wikipedia Proves Useful for Tracking Flu

Technique gave better results than Center for Disease Control (CDC) and Google’s Flu Trends More

Turkish Law Gives Spy Agency Controversial Powers

Parliament approves legislation to bolster powers of intelligence service, which government claims is necessary to modernize and deal with new threats Turkey faces More

Video Face of American Farmer Changing

Average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Face of American Farmer is Changingi
X
Mike Osborne
April 18, 2014
The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Face of American Farmer is Changing

The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Donetsk Governor: Ukraine Military Assault 'Delicate But Necessary'

Around a dozen state buildings in eastern Ukraine remain in the hands of pro-Russian protesters who are demanding a referendum on self-rule. The governor of the whole Donetsk region is among those forced out by the protesters. He spoke to VOA's Henry Ridgwell from his temporary new office in Donetsk city.
Video

Video Drones May Soon Send Data From High Seas

Drones are usually associated with unmanned flying vehicles, but autonomous watercraft are also becoming useful tools for jobs ranging from scientific exploration to law enforcement to searching for a missing airliner in the Indian Ocean. VOA’s George Putic reports on sea-faring drones.
Video

Video New Earth-Size Planet Found

Not too big, not too small. Not too hot, not too cold. A newly discovered planet looks just right for life as we know it, according to an international group of astronomers. VOA’s Steve Baragona has more.
Video

Video Copts in Diaspora Worry About Future in Egypt

Around 10 percent of Egypt’s population belong to the Coptic faith, making them the largest Christian minority in the Middle East. But they have become targets of violence since the revolution three years ago. With elections scheduled for May and the struggle between the Egyptian military and Islamists continuing, many Copts abroad are deeply worried about the future of their ancient church. VOA religion correspondent Jerome Socolovsky visited a Coptic church outside Washington DC.
Video

Video Critics Say Venezuelan Protests Test Limits of Military's Support

During the two months of deadly anti-government protests that have rocked the oil-rich nation of Venezuela, President Nicolas Maduro has accused the opposition of trying to initiate a coup. Though a small number of military officers have been arrested for allegedly plotting against the government, VOA’s Brian Padden reports the leadership of the armed forces continues to support the president, at least for now.
Video

Video More Millenials Unplug to Embrace Board Games

A big new trend in the U.S. toy industry has more consumers switching off their high-tech gadgets to play with classic toys, like board games. This is especially true among the so-called millenial generation - those born in the 1980's and 90's. Elizabeth Lee has more from an unusual café in Los Angeles, where the new trend is popular and business is booming.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
AppleAndroid