China and the United States vie for influence over Iraqi oil
Like the first sparrow of spring, Iraq’s rescinding of all promises made to the United States to secure another waiver to import electricity and gas from still-sanctioned Iran is a hallmark. regular and long-awaited oil year for seasoned market observers. This year was no different. Some have interpreted the 120-day waiver, which is the longest equal granted to Iraq in years, as a tangential gesture of good faith towards Iran by the United States as it tries to agree on a new iteration of the Joint Comprehensive Plan of Action (JCPOA, “nuclear agreement”). This interpretation is unlikely to be correct, as Washington has not directly correlated the two issues for some considerable time. Rather, it appears that the 120-day waiver was made by the United States knowing full well that Iraq would break all promises it had made to secure it, and rather reflects a practical realization ultimately that it must fight for any influence in Iraq’s huge oil and gas reservoirs against China’s continued encroachment. Indeed, last week – shortly after the 120-day waiver was awarded – another huge hydrocarbons contract was awarded in Iraq to Chinese business interests.
This latest agreement – an engineering, procurement and construction contract worth at least US$412 million for a 130 million standard cubic feet per day natural gas processing facility in Basra – has was awarded to a consortium consisting of China CAMC Engineering Co (CAMCE) and CNOOC Petrochemical Engineering Co. (CNOOC Petrochemical Engineering) by the highly misleading Kuwait Energy Basra Limited (KEBL). This company, in fact, has nothing to do with Kuwait, but is rather an indirect but 100% subsidiary of the Chinese group United Energy Group (UEG). According to documents filed in 2020 by the UEG (but signed and filed on July 27, 2021 in Hong Kong on behalf of the company’s chairman, Zhang Hong Wei), after acquiring the assets of BP Pakistan (and renaming them “United Energy Pakistan Limited”), UEG subsequently acquired Kuwait Energy Plc on March 21, 2019, since then it has engaged in further upstream oil and gas activities in Iraq and Egypt, as well as Pakistan. Therefore, the award for the development of a critical piece of Iraq’s hydrocarbon infrastructure in Iraq was carefully and quietly awarded by a Chinese company to another Chinese company.
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According to documents filed by the UEG in Hong Kong in 2020, its own Kuwait Energy Basra Limited has been the operator of Iraq’s Block 9 since February 3, 2013 for a base term of 30 years, with the anticipated production rate being reached on January 31, 2016. Meanwhile, Kuwait Energy Iraq Ltd (KEIL) – an operating unit of UEG’s Kuwait Energy – remains the operator of the Iraqi Siba gas field, whose contract was concluded on June 5, 2011. The Siba gas field is the first non-associated gas field in Iraq and, as the UEG notes: “Siba’s indigenous gas production is considered by the Iraqi government to be one of the main strategic contributors to energy needs and economic development. of Iraq.” According to the UEG, the development of the Siba gas field has been completed and the operation of the gas processing plant began in August 2018. This latest agreement of 412 million US dollars follows another even larger agreement between the same players in January this year, in which a US$594 million engineering, procurement and construction contract was awarded to the same consortium – CAMCE and CNOOC Petrochemical Engineering – by Kuwait Energy Basra Co for a facility crude oil processing plant of 100,000 barrels per day (bpd) in block 9 in Iraq.
Those agreements, in turn, had quickly followed the announcement in January that the Power Construction Corporation of China (PowerChina) had signed an US$880 million engineering, procurement and construction contract with Iraqi firm Missan. International Refinery Company to build the 150,000 bpd Missan refinery. Project. According to local reports in 2019, the Missan International Refinery Company itself was formed by a little-known Swiss-Chinese consortium consisting of Swiss industrial company Satarem (15% share) and Chinese company Wahan (85% share). ). The refinery project began in 2016, with an estimated cost of US$6 billion, which Iraq’s then Deputy Refining Minister Deiaa Jaafar said would be funded by the Export-Import Bank of China. and the China Development Bank. At the time, Iraq was looking to move forward with three other refineries, in addition to Missan, including the 300,000 bpd Nassiriya Refinery, the 150,000 bpd Kirkuk Refinery and the 140,000 bpd Karbala Refinery. According to comments from the Iraqi Oil Ministry in January, this new iteration of the project will now be completed within the next 54 months.
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All of this Chinese activity has happened alongside the finalization – still early this year – of the 25-year deal for China Petroleum & Chemical Corporation (Sinopec) to take a 49% stake in the huge unassociated field. of Mansuriya, with the remainder held by Iraqi state-owned Midland Oil Company. Extremely close to the Iranian border and just north of Baghdad, the Mansuriya gas field has around 4.5 to 4.6 trillion cubic feet (Tcf) of gas in place, with plans to increase production to at least 320 million standard cubic feet (Mmscf) per day, making it a very valuable gas field in itself. Its broader meaning is that Iraq had previously always sought to offer the three fields of Mansuriya, Akkas and Siba together as a single development package.
These three sites form an asymmetrical triangle in southern Iraq, stretching from Mansuriya near the eastern border with Iran, to Siba in the south (extremely close to the main Iraqi export center of Basra), then all the way west to Akkas (extremely near the border with Syria). When Russia was considering the development of the same three fields, just before China took the figurative wheel of the agreements in view of presumably what Russia was about to do in Ukraine, this triangle had to be linked to a transit route from from Basra to Syria. Much of this route disappears into Iraq’s anarchic Anbar province, a place so violent and unpredictable that it has even been avoided where possible by the Islamic State. This road, which the US military called the Islamic State’s “backbone”, is where the Euphrates flows west into Syria and east into the Persian Gulf, and is extremely close to the border with Iran.
It remains of vital strategic importance to Russian operations in Syria, including the Russian military airbase at Khmeimim near Latakia which operates alongside the civilian Bassel Al-Assad International Airport in Syria, while Latakia itself is also home to a key Russian-operated intelligence-gathering listening station. There are also plans by China, as analyzed in depth in my new book on world oil markets, to build its own intelligence-gathering listening station at Chabahar in Iran, which will function as a central part of the modernization and ongoing deployment of its own C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance) systems in the region. The overall plan, as outlined exclusively by OilPrice.com at the time, before a more circumspect approach was taken (at least for now) in the wake of the Russian invasion of Ukraine, was to connect Chabahar’s installation at Russian network intelligence-gathering stations around its main military bases in Syria. This, in turn, would allow it to be easily linked to the 19th EW (Rassvet) Brigade of the Russian Joint Strategic Southern Command near Rostov-on-Don, which itself is linked to corollary Chinese systems .
Therefore, Iraq’s having it both ways in the gas, oil and refining sectors can be seen as part of a much larger movement by several major oil and gas players in the Middle East – including the United States’ former staunch ally, Saudi Arabia – to position itself in the market. center of what is becoming an economically, politically and militarily bipolar order rather than the US-dominated world of the last hundred years or so and before that dominated by Britain. The series of meetings in Beijing earlier this year between senior Chinese government officials and foreign ministers from Saudi Arabia, Kuwait, Oman, Bahrain and the secretary general of the Gulf Cooperation Council (GCC ) pointed it out. At those meetings, the main topics of conversation were finally sealing a China-GCC free trade deal and “deeper strategic cooperation in a region where US dominance is showing signs of receding”, according to local reports.
By Simon Watkins for Oilprice.com
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