As Iraq Stabilizes, China Eyes Its Oil Fields  

The NYT has an article on the recent auction of Iraqi oil rights - As Iraq Stabilizes, China Eyes Its Oil Fields.

As the world’s second-largest and fastest-growing consumer of oil, China is showing increasing interest in oil fields in a country that has until very recently seemed to be firmly in the American sphere of influence for natural resources: Iraq.

Chinese oil companies are expected to bid for the rights to develop Iraq’s oil fields in auctions that are set to start Tuesday, although Sinopec, the China National Petroleum Corporation and the China National Offshore Oil Corporation all declined to comment Monday about their bidding strategies.

In another sign of China’s interest in Iraqi oil fields, Sinopec, China’s refining giant, offered $7.22 billion on Wednesday to buy Addax Petroleum, a Swiss-Canadian company with operations in the Kurdistan region of Iraq and in West Africa. If Addax’s shareholders and Canadian regulators approve the deal, which Addax’s board is recommending, it would be China’s largest overseas energy acquisition.

And Sinopec’s archrival, the China National Petroleum Corporation, or C.N.P.C., started drilling in spring in the Ahdab oil field in southeastern Iraq.

After six years of war, few Americans or Iraqis may have expected China to emerge as one of the winners in Iraqi oil. But signs of stability in Iraq this year, and a planned American military pullout from Iraqi cities on Tuesday, just happen to coincide with an aggressive Chinese push to buy or develop overseas oil fields.

The Chinese companies “have been interested in Iraq,” said David Zweig, a specialist in Chinese natural resource policies at the Hong Kong University of Science and Technology. “They were interested in Iraq before the war, and now that things have improved somewhat there, it’s on their agenda.”

China’s leaders were surprised by the steep rise in commodity prices early last year, which exposed the vulnerability of their country’s huge manufacturing sector to high raw material prices. When oil prices plunged in autumn, China began buying, importing and storing oil in huge quantities, helping to drive a partial rebound in world oil prices in spring. And China stepped up its hunt to acquire foreign oil.

Chinese officials, economists and advisers have been almost unanimous in recent weeks in saying that their country needed to invest more in natural resources, while also voicing concerns about the long-term creditworthiness of the United States and the buying power of the dollar. China has $2 trillion in foreign exchange reserves, mostly invested in dollar-denominated bonds, and has been looking for ways to diversify gradually into other assets like commodities, said a Chinese government adviser who spoke on the condition of anonymity because of the secrecy of Chinese reserve policies.

China’s central bank, the People’s Bank of China, called Friday for the development of an international currency other than the dollar that would be a safe repository of value, in the latest sign of China’s search for other ways to invest its international reserves.

Philip Andrews-Speed, a specialist in China’s oil industry at the University of Dundee in Scotland, said Iraq was clearly attractive for China and its oil industry.

“All, or nearly all, oil companies who have the courage want to be in Iraq because of the large size of the proven resource base and the potential for new discoveries,” he wrote in an e-mail message. “So, in this respect, the Chinese are part of the herd.” ...

Iraq has the world’s third-largest proven reserves, after Saudi Arabia and Iran. Many geologists say that the true oil resources of Iraq are even greater than official statistics suggest, because Iraq’s oil industry has suffered from decades of disruption and underinvestment. Many oil fields have not been fully explored as a result.

I have too much time on my hands, so I took a gander at the 2009 BP Statistical Review of World Energy to kill time as well as wait to see if I won the bid for an Iraqi oil field. I didn’t.

BP and China National Petroleum beat me and they now have the right to develop Rumaila - the largest Iraqi oil field. The two organizations beat out a bid from Exxon Mobil Corporation and the Iraqi Oil Minister Hussain al-Shahristani estimates that the selling of oil rights will garner them more than $1.7 trillion over the next 20 years.

This win shouldn’t be surprising considering 2008 was the first year that developing countries, led by China, consumed more energy than developed countries. It was also noted in BP’s report that industrialized countries reduced their energy consumption by 1.3 percent led by a 2.8 percent decline in energy consumption from the U.S. –the steepest single-year decline since 1982. However the potential benefits of energy reduction were offset by countries who increased their energy consumption. China accounted for nearly three-quarters of the 1.4 percent global consumption increase.

So, did we reduce our global oil consumption or what? Yes. By 1.3 percent. For you Peak Oil fanatics - pay special attention - 2008 also marked a REDUCTION in proven oil reserves. Since 1980 oil reserves have fallen only three times, 1990, 1998 and 2008.

BP estimated that we have 42 years of oil left at current consumption rates, 60 years left of natural gas and 122 years of coal. This might be fine and dandy if the people of the world used the same amount of energy each year. They don’t. They use MORE each year.

According to The International Energy Outlook, world marketed energy consumption is projected to increase by 44 percent from 2006 to 2030. Total energy demand in developing countries is estimated to increase by 73 percent, compared with an increase of only 15 percent in developed countries.

The U.S. is hoping to curb its fossil fuel consumption through the Cash for Clunkers program, increased fuel economy standards (CAFE standards) and proposed Climate Bill. It is also hoping to increase biofuels use through the Biofuels Interagency Working Group, and boost the pace of bringing hybrids and electric cars to market in part through the Recovery and Reinvestment Act.

What’s the moral of this story? Oil is running out. Accept it and move on. The world must change how it produces and uses energy. Now.