ISLAMABAD: Over the past week or so, the industrial economy across China as a whole is back working and operating at levels even above the pre-coronavirus rates, although the service sector remains more cautious.
For the oil industry, this means that China is back and busy taking up where it left off in terms of exploring and developing new field opportunities. There has been no clearer sign of this move by China than last week’s awarding of a $203.5 million engineering contract for Iraq’s supergiant oil field, Majnoon, to the little known China Petroleum Engineering & Construction Corp (CPECC), reported Oilprice.com.
Majnoon is a key focus in Iraq because it has so much oil that its very name in Arabic means ‘insane’, to signify the insane amount of oil that has always been present there. Iraqi politicians had offered China a stunningly lucrative deal for the development of the Majnoon field.
Specifically, the terms of the deal were that China would obtain a 25-year contract but one that would officially start two years after the signing date. This would allow China to recoup more profits on average per year and less upfront investment.
Also enormously beneficial for Beijing was that the methodology for working out per barrel payments to it would be the higher – the Chinese would choose – of either the mean average of the 18 month spot price for crude oil produced, or the past six months. Additionally, China would receive a discount of at least 10 per cent for at least five years on the value of the oil it recovered.
And oil there is aplenty. Located around 60 kilometres to the north east of the main southern export terminal of Basra, the Majnoon supergiant oil field is one of the largest oil fields in the world, with an estimated 38 billion barrels of oil in place.
The International Energy Agency projected output of 550,000-950,000 bpd production by 2020, and 700,000-1 million bpd at some point in the 2030s, although due to the flooding and recent political upheavals – plus the effects of the coronavirus – the timing has slipped. Even with these caveats, though, China’s part of the deal – which also remains in place – is to shore up the site from future potential flooding and to increase output to at least 500,000 bpd by the end of May 2021.
The details do not worry the Chinese, though, for two key reasons. One is that China has extensive knowledge of dealing with floods across its own country, so it has the expertise and engineering capabilities to effectively deal with such eventualities.
Not only is CPECC a subsidiary of Chinese oil behemoth, China National Petroleum Corporation (CNPC), but also it was the very same company that was recently awarded exactly the same type of contract ($121 million for ‘engineering work’ that time) for Iraq’s supergiant West Qurna-1 oilfield, also located very close to Iraq’s principal oil hub of Basra. “At some point the US is going to wake up and find out that it has lost the entire Middle East, including Iraq and Saudi,” concluded the Iran source.
