China Beats Big Oil to Iraqi Oil Fields

China Beats Big Oil to Iraqi Oil Fields
Photo: skinr, Creative Commons, Flickr
While the U.S. is busy trying to govern Iraq and keep the peace, China has settled a deal with Iraq allowing it to be the first international oil company to develop a rather large discovered oil field in one of the areas of Iraq considered "new" in terms of oil production. CNPC, the state-run oil company in China, made a deal for a $3 billion contract for Adhab. The Guardian reports on China’s continued competition against U.S. Big Oil companies for resources:

Energy-hungry China has already provided tough competition for Western oil majors in Africa. Chinese state oil companies can take on more risk than big oil firms as securing future energy supplies is a matter of strategy rather than profit.

Part of the reason that China is so successful is that it does not need to worry as much about profitability. CNPC is more interested in securing supply and in gaining preferential positioning for futures contracts in new areas.

The most recent deal with Iraq also lowers the bar in terms of profitability for Big Oil. The contract is expected to set new expectations for terms in future deals with other companies, and CNPC gave up a lot, accepting some rather tough terms. With fewer new oil fields discovered and/or made ready for production every year, strategy may become more important than profitability, and that could mean bad news for Western oil companies used to making decisions that result in profit.

Disclosure: I do not invest in oil companies.

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