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The Indianapolis Star: Countries ready to tap Iraq’s oil

China may lead way as companies weigh potential payoff against dangers  
 
By Jim Krane
Associated Press
April 1, 2007

DUBAI, United Arab Emirates — China has sat out the Iraq war, but it could be the first to take advantage when the Iraqi government finishes a law opening its oil fields to international companies.
 
The Iraqi oil legislation, expected to be approved by July, will open the door for the government to sign contracts for exploration and production of the country’s vast untapped reserves, a top U.S. priority.

But since few Western companies are prepared to send equipment or crews into the war zone, it could take five years or more before they begin extracting big shipments of Iraqi crude.

That leaves China.

China is so desperate for energy that Beijing’s government-owned oil companies may be willing to accept higher security risks, some analysts say.

By contrast, the majors — companies like Royal Dutch Shell and Total SA — are likely to try to sign leasing agreements to stake their claims, believing Iraq is so oil-rich that they can afford to wait a few years.

“Iraq’s potential is so tremendous that they’re all ready to pounce as soon as the situation permits,” said Sharif Ghalib, a senior analyst with Energy Intelligence Research in New York.

Most estimates put Iraq’s proven oil reserves at 115 billion barrels, the world’s third-largest. But Iraq has lagged in exploration for so long that actual reservoirs are probably double that, said Frank Verrastro, an oil analyst with the Center for Strategic and International Studies in Washington.

That potential may outweigh the risk for China, motivated less by profit than by the need for steady supplies of oil.

Oil industry executives have said privately that China could be an early developer of Iraqi fields, perhaps in joint ventures with Western firms.

Feeding that talk: In October, the China National Petroleum Corp. began renegotiating a $1.2 billion contract signed in 1997 with Saddam Hussein’s government to develop the billion-barrel al-Ahdab field, in an area where Shiite militias hold sway.

Iraqi oil workers and oil ministry officials have been gunned down in the past few years. If such violence is repeated, even the Chinese could be kept away, Ghalib said.

“The Chinese oil companies have gone into Sudan and Iran, discounting threats of boycotts. But I don’t think they’ll be willing to risk their people in Iraq. They’d endanger thousands of technicians and face disruptions all the time,” he said.

For now, the new oil law’s first impact would probably be seen in northern Iraq’s Kurdish region. The violence there is low enough for international firms to send crews and equipment, but crude deposits are thought to be smaller than those in the Shiite south or near the northern city of Kirkuk.

Even with a new law in place, Iraq’s investment climate may not be clear. Physical danger aside, the legal environment is a tangle of jurisdictions and gray areas. The oil law is supposed to resolve those issues, but it is unclear if it will.

Furthermore, there’s no easy way to get the crude to market. Sabotage still hamstrings exports. And rickety export infrastructure can’t handle much more than the 2 million barrels a day of Iraqi crude now in production.

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