The formal handover of the role of lead operator of the West Khulna 1 field, one of the world’s largest oil fields, from America’s ExxonMobil to China’s PetroChina was completed last week. However, from the moment in late June 2018, when ExxonMobil broke off negotiations with the Iraqi government to become a key partner in Iraq’s Common Seawater Supply Program (CSSP) and began a strategic withdrawal, China has been unofficially He took control of a huge oil field. Like other Western energy companies, from all energy projects in Iraq. Chinese and Russian companies were happy to step into the void created by the project. A senior Kremlin official recently said in a meeting with Iranian officials: “By keeping the West out of Iraq’s energy deals, [â¦] “The end of Western hegemony in the Middle East will be the decisive chapter in the final demise of the West,” a senior source closely aligned with the European Union’s Energy Security Organization told us exclusively. oil price.com.
West Qurna 1 is located approximately 65 kilometers from Basra, a major oil and export hub in southern Iraq, and contains a significant portion of the estimated 43 billion barrels of recoverable reserves held throughout the supermassive West Qurna field. is held. Initially, West Qurna 1 was believed to contain approximately 9 billion barrels of these reserves, but in early 2021 the Iraqi Ministry of Oil revised its estimate of the field’s recoverable reserves to a total of more than 20 billion barrels. Based on this, the ministry has raised its current development goal from 500,000 barrels per day (bpd) to 700,000 barrels per day (bpd), and the field is currently producing about 550,000 barrels per day. The ministry also announced that the original production plateau target (by the early 2030s) was 2.825 million barrels per day, but that contract negotiations with participating oil companies at the time had resulted in negotiations that lowered the production to 1.6 million barrels per day. However, he also said there was a good chance that the plateau target could be raised. Also within the next five years.
The main companies participating in these discussions are PetroChina, the listed arm of China National Petroleum Corporation (CNPC), which has completed the acquisition of a 32.7 percent stake in West Khulna 1, and ExxonMobil, which has also acquired a 32.7 percent stake. Acquired shares. Almost immediately, PetroChina sought to establish itself as the dominant force on the site. As analyzed in detail in my new book on the new world oil market order, the strategy adopted to effectively sideline ExxonMobil has been used repeatedly by China in similar situations across the Middle East. strategy, a key element of which is the acquisition of crude oil in stages, often in secret. Various huge “contract only” awards given to Chinese companies. The most notable of these early was the November 2019 agreement with China National Petroleum Engineering Construction Corporation for 121 million yen to upgrade facilities used to extract gas during crude oil production. It was an engineering contract worth USD 10,000. Similar “contract-only” transactions are being conducted by the following companies: China has invested in another previously unprecedented Chinese company, Hailong Oil Service and Engineering Company, across Iraq, including in the giant Majnoun oil field.
This gradual loss of leverage throughout the West Qurna 1 project was one of ExxonMobil’s problems. Another potentially even bigger deal emerged as the US supermajors discussed another major target deal in Iraq, the US$53 billion CSSP. At the time, both projects created a new core U.S. presence in Iraq, centered on energy cooperation with Iraqi authorities, in response to years of rising military and sectarian tensions across the country. It was intended to. CSSP is the key to allowing Iraq to jump from its long-standing oil production of 4 million to 4.5 million barrels per day to 7 million barrels per day, then 9 million barrels per day, and even 12 million barrels per day. Become. This is also analyzed in detail in my new paper. A book on the new world oil market order. This will enable it to become the world’s second-largest crude oil producer after the United States and ahead of Russia and Saudi Arabia. CSSP involves extracting seawater from the Persian Gulf, processing it, transporting it via pipelines to oil production facilities, and maintaining pressure within the oil field to optimize production and longevity. The master plan for the project is that it will initially be used to supply approximately 6 million barrels of water per day to at least five rice fields in southern Basra and one rice field in Meysan province, and then constructed for use in additional rice fields. It is to be done. However, the long-established oil fields of Kirkuk and Rumaila (the former began production in the 1920s, the latter in the 1950s, and both produced about 80 percent of Iraq’s cumulative oil production) Therefore, continuous large-scale water injection is necessary. Water requirements in most oil fields in Iraq fall between these two cases, but the need for field injection is highest in southern Iraq, where water resources are also least available.
ExxonMobil was hired to take the lead in 2010 when the CSSP plan was first announced, at a time when Baghdad was considering raising oil production capacity to 12 million barrels per day by 2018, overtaking CSSP. participated in this project. A product of Saudi Arabia. Then, in 2012, when negotiations broke down, the US company was kicked out and the state-owned South Oil Company took over. By that time, it had become increasingly clear to the Americans that the plan was imbued with enormous risks that far outweighed the clearly substantial benefits. I explain this in detail in my new book, but suffice it to say here that the risk-reward matrix that formed the basis of the negotiations between ExxonMobil and the Ministry of Oil had three key elements: . These were unity, safety and streamlining, a senior source working closely with the ministry told OilPrice.com exclusively at the time. “Cohesion related to ensuring the orderly and complete completion of facilities connected to the CSSP, the safety of personnel on the ground and the fundamental integrity of the business and legal practices involved in the agreement. “Related security, and rationalization, means that any agreement will continue as agreed, regardless of regime change in Iraq.” “The basic problem is [Oil] The ministry and other officials associated with the CSSP expect to receive fees for everything they do, and if it comes to light it could border on bribery, but the payments are not. Without it, the project simply would not proceed,” he said. “The standard fee here is 15%, but it can rise to 30% or more, so development costs have risen to US$53 billion, and Exxon[Mobil] is looking at nearly $8 billion in over-the-counter payments, and it’s hard to hide it in your account even if you wanted to,” he told OilPrice.com.
According to this source (and corroborated to OilPrice.com by two other senior sources affiliated with Iraq’s oil ministry at the time), ExxonMobil decided in 2015 to close negotiations with the oil ministry as normal. It attempted again to return to business level, claiming that all related contracts were void. Although regulation of CSSPs was designed by independent Western risk experts and lawyers and administered by independent Western accountants, such demands were to no avail. “Ultimately, Exxon[Mobil] Unwilling to risk its own reputation or that of the US government, the company could not proceed with the CSSP and from that point began to seriously consider withdrawing from West Khulna 1 as well. ” the source said.
The CNPC then tried to take up ExxonMobil’s canceled CSSP as part of a broader deal with Iraq that gave China steep discounts on oil and gas produced, also in my new book. It has been analyzed in detail, and the results were very high. small progress. Thereafter, no real progress was made until the Ministry of Oil finally agreed to allow France’s Total Energy to proceed with this plan as part of his USD 27 billion four-project project. Ta. The government again tried to get the French giant into a deal similar to the one it tried with ExxonMobil, but Total Energy took a similarly resolute stand, according to people close to the ministry. As a result, the agreement was repeatedly postponed until it was recently approved. It is unclear how this will affect France, as Iraq as a whole continues to move into the sphere of influence of China and Russia.
Written by Simon Watkins, Oilprice.com
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