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You, and others should read this:
China Outbids Oil Majors in Iraq
By Andrea Tse
10/04/11
NEW YORK (TheStreet) -- Chinese national oil companies are now the biggest beneficiary of Iraq's oil resources, beating the oil majors, according to analysts.
"Chinese companies backed up by the Chinese government enjoy serious advantages over the international oil companies (IOC) and also have better bargaining power," according to Gal Luft, the executive editor at the Institute for the Analysis of Global Security. "One should not forget that those companies are less risk-averse and therefore can take on projects that the IOCs wouldn't want to touch."
Adds Cameron Hanover analyst Peter Beutel: "China has the money and is clearly a rising power. It can offer political help, technological help in some cases, military aid -- which none of the majors can."
"So, take Libya for example. China can offer guns and weapons and can offer political protection to the new government. So can France, but the majors can't. That's the biggest difference right there," Beutel continues.
A.T. Kearney's partner in the Energy Practice, Neal Walters, agrees that China's ability to aggressively pursue oil and gas investments in developing nations at a higher rate than Western super major competitors lies in the country's ability to offer incentives beyond cash. This also includes economic cooperation and training agreements in return for secure access to oil in Iraq.
The Chinese and Iraqi governments signed two agreements on economic cooperation and training in July 2011.
China is willing to make significant investments in infrastructure -- in Iraq's case, pipelines -- to procure the oil, says Walters. PetroChina (PTR_), for instance, is in the early stages of studying a plan to build two oil and gas pipelines to move oil from Iraq and eventually gas from Iran to China, he said.
"Exxon (XOM_), on the other hand, has shareholders to answer to and can't simply bid up resources without regard to return on investment," says Morningstar analyst Allen Good.
The other advantage for the Chinese companies: "they have a wolf pack strategy in which three or four of their companies -- all state-owned -- bid at the auction," says Luft of the Institute for the Analysis of Global Security. "When you have a few companies all working under the same umbrella, bidding simultaneously, that gives a huge advantage. I wouldn't be surprised if the bids are coordinated."
"As for Iraq-to now, China is the biggest beneficiary of Iraq's oil treasure," Luft sums up.
Walters of A.T. Kearney says China's ultimate objective is to repatriate the oil to support its growing energy needs. Because of this, Chinese-backed oil companies and their subsidiaries are willing to accept the tight financial terms of operating in Iraq.
Dragan Trajkov, an oil and gas analyst at Renaissance Capital, says the fiscal terms in Iraq are among "the most stringent ones in the world," with the government taking between 90% to 95% of the profits. On the bigger fields, the companies only make $1.50 to $2 a barrel, and the rest of the profit goes to Iraqi government.
The other thing, says Trajkov, is all the oil produced is put in a federally-owned pipeline and sold by an entity that's owned by Iraqi government. Therefore, it's difficult to split the production and say where the "Chinese-produced" barrels are going and where the rest are going.
Since 2009, the Iraqi government has conducted two rounds of open bidding to award oil-field development rights to foreign consortia. The total potential daily output from these fields could approach 11 million barrels a day, or represent about 10% of total global production when they're fully developed, Walters estimates.
Of the development rights awarded, Chinese interests, specifically the China National Petroleum Company, (CNPC) were the leading bidder for the Rumaila and Halfaya fields, which represent almost 3.5 million barrels a day of production; or more than one-third of the total production potential from all the fields being auctioned, according to Walters.
Walters added that while many large, Western integrated super majors such as ExxonMobil, Shell (RDS.A_) and BP (BP_) were successful bidders as well, only Shell has interests in fields with as much production potential as those that CNPC has.
Other major winners in the Iraq bidding included Petronas of Malaysia, Gazprom of Russia and Lukoil of Russia. Renaissance Capital's Trajkov says recently, PetroChina may have also concluded a deal on Halfaya and Rumaila.
Since the initial awards, CNPC has increased its holdings in Iraq with, for instance, the acquisition of an additional 12% interest in the Rumaila field from BP in late 2009. CNPC also has an interest in the Ahdab field, which is the first, new Iraqi oil field to be brought on stream since the fall of the Saddam Hussein regime in March 2003.
Luft says in total, CNPC and China's Cnooc (CEO_) have won at least three major deals in southern and southeastern Iraq and are also bidding for other deals.[url=http://www.thestreet.com/story/11267956/1/china-outbids-oil-majors-in-iraq.html
]Read more. [/url]
China reaps benefits of Iraq war
Five oil project have been awarded to critic of invasion
The Associated Press
By Sinan Salaheddin
6/8/2010
WASIT, Iraq Perspiration staining their orange jumpsuits, the Chinese engineers and laborers form Al-Waha Oil Co. work alongside their Iraqi counterparts under a sweltering sun readying an expanse of arid land southeast of Baghdad for infrastructure to extract and carry the viscous liquid on which Iraq's future lies: oil.
A red banner hangs at the entrance of the office of the company the Iraqi affiliate of China's state-owned China National Petroleum Corp. its Chinese characters promising anyone who can decipher them: "We will try our best to make this project a success."
The scene, an increasingly common one in the new postwar Iraq, is more than a reflection of how the country home to the world's third largest proven reserves of crude is pushing to boost its output. It's also a testament to the lengths to which China will go to secure the oil it sorely needs to fuel its galloping economy as its own crude supplies fall far short of demand.
"For China, oil security is largely about avoiding disruption to supplies and cushioning the effects of dramatic fluctuations in oil prices," said Barclays Capital oil analyst Amrita Sen. "Iraq has become an obvious target to secure the barrels of oil for future consumption."
From among the most outspoken of critics of the 2003 U.S.-led invasion to topple Saddam Hussein, China has emerged as one of the biggest economic beneficiaries of the war, snagging five lucrative deals. While Western firms were largely subdued in their interest in Iraq's recent oil auctions, China snapped up three contracts, shrugging off the security risks and the country's political instability for the promise of oil. Read more
China, Not U.S., Likely to Benefit from Afghanistan's Mineral Riches
By Charles Wallace
06/14/10
Although the U.S. government has spent more than $940 billion on the conflict in Afghanistan since 2001, a treasure trove of mineral deposits, including vast quantities of industrial metals such as lithium, gold, cobalt, copper and iron, are likely to wind up going to Russia and China instead of American firms.
The New York Times reported Monday that U.S. officials and American geologists have found an estimated $1 trillion worth of mineral deposits that have yet to be exploited in the country. The paper said a Pentagon report called Afghanistan potentially "the Saudi Arabia of lithium," a key component in batteries for cellphones, laptop computers and eventually, a plug-in fleet of electric cars.
But while the United States and other North Atlantic Treaty Organization countries are providing the bulk of the security for Afghanistan -- U.S. troop levels are set to rise to 100,000 by year's end -- the firms that are profiting from the resource boom are primarily Chinese, and to a lesser extent, Russian.
"China has an absolute advantage in Afghanistan as far as resource development goes," says James R. Yeager, a Tucson, Ariz., consultant who worked as an adviser to the Afghan Ministry of Mines.
Murky Deals, Bribes and State Support
In December, 2007, China's state-owned China Metallurgical Group Corp. (MCC) signed a $2.9 billion agreement with the Kabul government to extract copper from the Aynak deposit, one of the world's largest unexploited copper deposits with an estimated 240 million tons of ore.
The Washington Post, quoting a U.S. intelligence official, reported that the Afghan minister of mines was accused of taking approximately $30 million in bribes from the Chinese company in exchange for the contract. The minister denied the charge and said the Chinese firm had offered the best deal.
Yeager produced a 78-page investigation into the Aynak deal, which he described as a "murky and insufficient tender process." He said a number of sources have come forward since the report was written to confirm that bribes were paid to Afghan officials at clandestine meetings in Dubai in the Aynak tender process.
Yeager says that transparency may no longer be such a big problem because a new minister of mines has taken office and has vowed to clean up the systematic corruption. Now the problem is the way the Kabul government interprets the mining laws.
The law says that if you buy land and acquire exploration rights, then you can go right into a mining license," Yeager says. " But the government of Afghanistan says if you go out and explore and find something, you can give it back to us and we'll tender it. No one will put up their risk capital just to turn the deposit over to the Chinese."
Chinese, Russian Firms Don't Explore
Yeager also said the cozy relationship between the Russian and Chinese governments and Russian and Chinese mining firms gave them a major advantage over Western firms in winning mining licenses.
MCC, for example, is 44% owned by the Chinese government. When MCC entered into negotiations with the government of Afghan President Hamid Karzai, it offered substantial aid for resource development as part of the package, Yeager says. The United States, on the other hand, has no program to support U.S. mining companies with development assistance or other aid.
The irony is that it is U.S. government geologists and Western companies that are locating the vast mineral deposits that the Chinese and Russians are exploiting in Afghanistan.
"The problem with the Chinese is that they are developers of resources and not explorers of resources," Yeager says. "They will look at projects where they already have a reserve in place and then go out and buy it. They don't spend the risk capital and the exploration dollars."
According to Yeager, the countries that are doing the most exploration are Australia and Canada. But they also don't pay bribes to local officials or provide vast amounts of state aid to the government in return for valuable mining licenses.
China Willing to Spend Big on Afghan Commerce
By MICHAEL WINES
December 29, 2009
KABUL, Afghanistan Behind an electrified fence, blast-resistant sandbags and 53 National Police outposts, the Afghan surge is well under way.
But the foot soldiers in a bowl-shaped valley about 20 miles southeast of Kabul are not fighting the Taliban, or even carrying guns. They are preparing to extract copper from one of the richest untapped deposits on earth. And they are Chinese, undertaking by far the largest foreign investment project in war-torn Afghanistan.
Two years ago, the China Metallurgical Group Corporation, a Chinese state-owned conglomerate, bid $3.4 billion $1 billion more than any of its competitors from Canada, Europe, Russia, the United States and Kazakhstan for the rights to mine deposits near the village of Aynak. Over the next 25 years, it plans to extract about 11 million tons of copper an amount equal to one-third of all the known copper reserves in China.
While the United States spends hundreds of billions of dollars fighting the Taliban and Al Qaeda here, China is securing raw material for its voracious economy. The worlds superpower is focused on security. Its fastest rising competitor concentrates on commerce.
S. Frederick Starr, the chairman of the Central Asia-Caucasus Institute, an independent research organization in Washington, said that skeptics might wonder whether Washington and NATO had conducted an unacknowledged preparatory phase for the Chinese economic penetration of Afghanistan.
We do the heavy lifting, he said. And they pick the fruit.
"But the conclusion is inescapable: American troops have helped make Afghanistan safe for Chinese investment. And there is no sense that either government objects to that reality. As diplomats and soldiers alike stress, the war in Afghanistan was never motivated by commercial prospects. Had an American company won Aynak, some Afghans noted wryly, critics inevitably would have accused the United States of waging war to seize the countrys mineral wealth. Moreover, if China succeeds in developing Aynak and generating revenue for the Kabul government, that helps achieve an American goal." Read more
