Muslim Wire

The “war” for Iraqi oil has just begun

Posted in Business, Politics by muslimwire on October 20, 2009

Six years after the Iraq war, foreign oil companies are beginning to do business with Baghdad. But the journey still seems uphill. For Italy, it bodes well, with Eni being assigned the license to drill in the Zubair oilfield, the fourth largest on a national level.  On the other hand, the troubled path of the long-awaited hydrocarbons law and growing tensions between the government of the semiautonomous region of Kurdistan and the central authority is not encouraging investors.

At the head of a consortium, which also counts the U.S. Occidental Petroleum Corporation, and South Korea’s Korea Gas Corporation, the Italian company has closed what in jargon is called a “service contract” meaning that foreign companies are paid to enhance production of an oil deposit, but do not participate in profits. For Zubair, the goal is to extract the next seven years 1.125 million barrels of crude, compared to the 195 thousand to date.

With estimated reserves of 4 billion barrels, this is one of six oil fields that Iraq had offered in the first round of tenders, on June 30, that ended almost in a stalemate for the meagre compensation offered by Iraqi Ministry of Oil. Analysts observe that the Eni “victory” could be a compensation for the non-allocation (it is now almost official) of the deposits of Nasiriyah, which went to the Japanese Nippon Oil.

Tensions with the Kurdish …

Compared with the competitions in June the disappearance from the Eni & Partners group of Chinese Sinopec is worth noting. Baghdad does not want to know about it: the Chinese company works in the Kurdish region, and therefore on the Ministry of Petroleum’s black list. Along with the constantly postponed hydrocarbon law – intended to regulate foreign investment in Iraqi oil and the distribution of proceeds of production between communities – the Kurd file is indeed another thorn in Baghdad’s side.

Starting this week, Erbil halted all oil exports from its own zone until the central government pays international companies that are extracting oil. After having passed a regional law on its oil and gas, Kurdistan has signed contracts with a score of foreign companies, declared illegal by the Oil Ministry in Baghdad. Within the Kurd borders Sinopec, the Korea National Oil Corporation (Knoc), owned by the South Korean government, the Talisman Energy Inc., an independent Canadian company and the Indian Reliance Exploration and Production DMCC are all operative.

… And the people

The work of foreign oil companies on Iraqi soil, also generates discontent among the local population. They know something about it in the Wasit province (south-east of Baghdad), where the rich deposit of Ahdab is in the hands of China National Petroleum Corporation (CNPC), which in 2008 signed the first contract of the post-Saddam Iraq.

After finding oil, the CNCP continuing with its drilling, but one year on the local community has not received any benefits: either in terms of jobs or infrastructure. The workers employed by Cncpc are mostly Chinese, and residents are now demanding of the government that at least $ 1 for each barrel of oil produced from the reserve is used to improve access to drinking water, health services, schools and roads in what is one of the poorest provinces of Iraq.

CNPC in joint venture with British Petroleum and also controls the vast deposits of Rumalia in the south, with estimated reserve of 17.7 billion barrels.

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