China and Iraqi Oil

[Dayuhan]

Pricing is given as the reason for the disinterest shown by major oil companies toward the Iraqi auctions, but there is more to it than that. The investments required to develop these fields are very large and the recovery horizon is long. There is a quite understandable reluctance to make long term deals with a government that may or may not be around in a year, let alone ten years. If another government decides to unilaterally change the deal, there is nothing an oil company - US, Chinese, or other - can do about it.

We all know that China uses a lot of oil, that Chinese oil companies are large, and that they are aggressively pursuing investment, even in areas posing higher risks than most other companies are willing to take. But really, so what? How does this negatively impact anyone else's interests?

It could be argued that China's willingness to pay bribes and to cut deals with corrupt and repressive governments is not a good thing for Africa (in particular), but it does no harm to oil markets. If the Chinese weren't pumping oil out of places like Angola, Sudan, and Iraq, where local companies lack the money and/or expertise to develop resources and other foreign companies are unwilling to invest, they'd be competing to buy oil from other producers, pushing prices even higher. The more oil the Chinese pump, the cheaper oil gets - for everyone. Of course the Chinese are taking risks - a future government in any of these countries could easily nationalize their investments and there is very little they could do about it - but how does that hurt us?

[Surferbeetle]

Again, there are many interesting data points to consider on this topic, here are a few more:

From the Chinese Economic and Commercial Counselors Office in Pakistan:

ISLAMABAD (April 18 2009): Pakistan and China are set to sign memorandum of understanding (MoU) to enter into joint venture for oil and gas exploration. The MoU will be signed by Advisor to Prime Minister on Petroleum and Natural Resources Dr Asim Hussain, who left here for China on Friday.

Sources revealed to the Business Recorder that the MoU would enable Pakistan Petroleum Limited (PPL) to enter into joint venture with China state run oil and gas exploration companies for exploration activities in Pakistan as well as in foreign countries.

The government had increased the well-head gas price cap to 100 dollars per barrel crude oil price from 45 dollars per barrel crude oil in 2009 Petroleum and Exploration Policy that would also attract the Chinese companies to explore oil and gas reserves in Pakistan, sources said.

A 2007 posting on Gulf Oil & Gas: China's CNPC Close to MoU on $3.6B Iran LNG Project

China National Petroleum Corp. is close to signing a memorandum of understanding to invest around $3.6 billion for developing Iran's South Pars natural gas field, a Chinese official familiar with the deal said Friday.

The MoU with Iran's oil ministry will involve a pledge by CNPC to spend around $1.8 billion on exploration and production in the SP14 gas block in the field and a further $1.8 billion on building a liquefied natural gas plant, the official said.

State-owned CNPC is in talks with Norway's Statoil ASA (STL.OS) about joining the SP14 project, the official added.

[Dayuhan]

Again this tells us what we already know: the Chinese are pursuing exploration and production opportunities, even in places posing risks that most other oil companies find unacceptable. I suppose we could complain that they are not following our sanctions on Iran, but neither are the Norwegians, or practically anyone else. So again, is this a threat, a problem, a concern? If so, how?

Would we rather see China spending money to develop new production in places too risky to attract other investment, or using that big pile of dollars to bid against us for the output of existing producers?

[Surferbeetle]

Again this tells us what we already know: the Chinese are pursuing exploration and production opportunities, even in places posing risks that most other oil companies find unacceptable. I suppose we could complain that they are not following our sanctions on Iran, but neither are the Norwegians, or practically anyone else. So again, is this a threat, a problem, a concern? If so, how?

Would we rather see China spending money to develop new production in places too risky to attract other investment, or using that big pile of dollars to bid against us for the output of existing producers?

My purpose in posting the above datapoints is not to assign a value judgment, but instead to note that Iraq's future landscape, IMHO, includes a Chinese presence. See this post for additional clarification.