War-torn Iraq has seen a new type of war on its doorstep this week; a bidding war. BP and China National Petroleum Corporation (CNPC) have successfully bid on the contract for the Rumaila field, which is being auctioned off by the Iraqi government as part of a wider auction of production contracts for the nation’s major oil fields.
Baghdad approved a contract for a consortium of British Energy giant BP and China’s CNPC International on Tuesday, during the first round of bidding on the oil field.
The two contractors will now focus on more than doubling production at the Rumaila field to 2.85 million barrels per day (bpd), up from its current flow rate of 0.95 million bpd.
As part of the deal the Iraqi government is set to pay a fixed service fee of $2 a barrel – a sticking for most companies considering bidding for the contract for the field.
In five separate cases, and with two gas fields, international energy companies have walked because the conflict-hit nation was offering far less per barrel than they considered reasonably acceptable.
The successful joint bid venture represents a unique opportunity for energy-hungry China to tap crude reserves from a nation with the third largest proven oil reserves in the world – Iraq. Now that is has a foothold, China will be able to diversify its oil supplies and in turn enhance its energy security. The consortium model will also reduce risks for both parties involved.
China’s current situation is unsustainable in the long-run. The Asian nation has seen its oil consumption grow by around 5% annual per annum over the last few years, while the growth of the country’s crude oil production is significantly lower, at only 2%.
China became a net oil importer 16-years-ago and with domestic production already peaking, relies heavily on imported oil for nearly half of its required demand. “The increase in China’s oil consumption in future may all come from abroad,” said Professor Lin Boqiang, of Xiamen University.
China’s imports amassed 179 million tonnes of crude in 2008 – up 9.6% on a year earlier. The trend is unlikely to change anytime soon, so long as such a big gap remains between domestic consumption and production.
The BP-CNPC bid beat off competition from ExxonMobil and Malaysia’s Petronas, and was the only successfully signed contract at Iraq’s first contract auction since the U.S.-led invasion back in 2003.
In the run-up to the auction the foreign companies involved in the bidding voiced concerns at having to partner state-owned firms and the requirement to share management of the fields, despite being the ones to put up the hard cash for the Iraqi projects.