1 week Ago By Simon Watkins
The recent reiteration by Iraq Oil Ministry of a 7 million barrels per day (bpd) oil production target within the next five years has spurred activity among Chinese firms that continue to dominate the country’s oil and gas sector. As it stands, more than a third of all Iraq’s proven oil and gas reserves and over two-thirds of its current production are managed by Beijing’s companies, according to industry figures. This translates into Chinese companies having a combined direct share in around 24 billion barrels of reserves and responsibility for production of around 3.
0 million bpd. The latest in the very long line of Beijing’s firms to benefit from its ongoing stealthy takeover of Iraq’s huge oil and gas assets is China Huanqiu Contracting & Engineering Company (HQC), which has signed a huge project management consultancy contract for the supergiant West Qurna 1 oilfield. HQC is also a subsidiary of the China National Petroleum Corporation (CNPC) that took over as the main operator of the massive oil field from ExxonMobil.
All in all, this latest contract award is a prime example of China’s thus-far enormously successful strategy for taking over key oil and gas assets in the Middle East, together with key associated infrastructure. West Qurna 1 is located around 65 kilometres from southern Iraq’s principal oil and export hub of Basra and has a considerable portion of the estimated 43 billion barrels of recoverable reserves held in the entire supergiant West Qurna field. Originally West Qurna 1 was thought to have around 9 billion barrels of these reserves, but in 2021 Iraq’s Oil Ministry upgraded this to recoverable reserves of more than 20 billion barrels.
At that time the field was producing around 380,000 bpd, although the Oil Ministry also announced plans to increase this to 700,000 bpd by 2026. Enticing for many prospective international oil companies is that West Qurna 1 benefits from the lowest lifting costs in the world -- at around US$1-2 per barrel (pb) operating cost (excluding capital expenditure) -- on a par with the best fields in Saudi Arabia and Iran. That said, according to the Chinese firms involved, although it is one of the world’s largest oilfields it suffers from low water content and a consequently reduced recovery rate.
Despite this, September last year saw another Chinese contractor -- China Petroleum Engineering & Construction Company (CPECC) – start engineering work on West Qurna aimed at increasing production from the then-550,000 bpd to 800,000 bpd. Some of this was related to the two water injection packages it was awarded in 2022, each worth US$250 million, to improve the pressure at the field. In January, Chen Mingzhuo, general manager of PetroChina West Qurna Company, said that the firm plans to increase production to 1.
2 million bpd by 2035. It remains to be seen whether any of these big targets will be hit, as several major oil field development contracts awarded by Iraq (and neighbouring Iran, which shares several of its oil reservoirs) have been withdrawn from Chinese firms over the years due to lack of progress. if(window.
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push({ placementName: "oilprice_medrec_atf", slotId: "oilprice_medrec_atf" });';document.write(write_html);} Related: Mubadala Makes Its American Gas Debut – Finally That said, securing oil and gas flows is only one positive aspect for China of building out its presence across Iraq. Oil and gas development contracts carry with them the legal right to fully secure the development sites through whatever means the developer firms think necessary.
These include the stationing of unlimited numbers of security personnel in and around the immediate sites, expansive road and rail networks connected to bigger infrastructure hubs with links across the Middle East, and the right for the Chinese military to use selected Iraqi military and civilian seaports and airports. The more of these operations that are laid out across the Iraqi and Iranian heart of the Middle East the better it is for China’s plans to lengthen and widen its ‘Belt & Road Initiative’ (BRI) global power-grab project. The groundwork for all future developments by China in Iraq was laid out in the wide-ranging ‘ Oil for Reconstruction and Investment’ agreement signed between China and Iraq in 2019.
The basic template for this agreement – which includes priority on new field contracts for Chinese firms and substantial discounts for them on oil and gas recovered, among others – was the ‘Iran-China 25-Year Comprehensive Cooperation Agreement’ first revealed anywhere in the world in my 3 September 2019 article on the subject, and analysed in full in my latest book on the new global oil market order . The 2019 China-Iraq deal was then substantially broadened and deepened into the ‘Iraq-China Framework Agreement’ of 2021. Part of this featured even bigger discounts given to Chinese firms on oil and gas discovered in Iraq (up to 30%, depending on the field).
The U.S. and its allies are perfectly cognisant of what Beijing wants to achieve through this network, which is why significant pressure has been brought to bear at various times against China and Iraq to curtail these efforts.
In 2018, then-U.S. President Donald Trump signalled that he was taking the Trade War with China very seriously, and its corollary efforts to exploit the power vacuum in the Middle East left after the U.
S.’s unilateral withdrawal from the ‘nuclear deal’ with Iran, as also detailed in my latest book . At that point, China shifted its land- and asset-grab strategy in Iraq to avoid being seen to make the sort of high-profile exploration and development contracts that were widely reported in the oil industry media and often beyond that.
Instead, it utilised a myriad of little-known companies that were granted ‘contract-only’ work for some anodyne-sounding work programme. Soon after this, two peculiar types of low-key announcements started to appear regarding new developments in Iraq (and Iran). The first of these involved extremely high-cost projects announced in Iraq and Iran -- bewildering given that both were in dire financial straits -- and the second cited new ‘contract-only’ involvement by various firms, all of which were Chinese.
These included the US$121 million engineering contract to CPECC to upgrade the facilities that were used to extract gas during crude oil production at West Qurna 1. Exactly the same ‘contract-only’ model was used in Iraq’s massive Majnoon oil field too. Here, two major new ‘drilling-only’ contracts were signed: one with China’s Hilong Oil Service & Engineering Company to drill 80 wells at a cost of US$54 million, and the other with the Iraq Drilling Company to drill 43 wells at a cost of US$255 million.
Having said this, Iraq does not look completely lost to the West, whose firms have seen a recent resurgence there. France’s TotalEnergies has a US$27 billion four-pronged programme at play, centred around the Common Seawater Supply Project, which is vital for Iraq in achieving any meaningful oil production increase in the next few years. BP also recently signed a US$25 billion deal to develop the Kirkuk oil fields of Baba and Avana, and the neighbouring sites of Bai Hassan, Jumboor and Khabaz.
The UK’s Shell also already has substantial business in Iraq through its Basra Gas Company (BGC) joint venture, which captures and utilises flared gas from fields like Rumaila and Zubair. Crucial from this point for both the West and the East will be how Iraq reacts to the U.S.
’s removal of its waiver to keep importing gas and electricity from Iran, together with a campaign of maximum pressure against Tehran. if(window.innerWidth ADVERTISEMENTfreestar.
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write(write_html);} By Simon Watkins for Oilprice.com More Top Reads From Oilprice.com.
