The successful joint bid by BP and China National Petroleum Corp (CNPC) to develop an oilfield in Iraq has offered unique opportunities for the Chinese company to tap crude reserves in the oil-rich nation, analysts said yesterday.
But domestic oil producers should prepare themselves well for any uncertainties in the war-torn country, which boasts of the third-largest oil reserves in the world, they added.
Iraq on Tuesday made its first auction of major oil contracts since the 2003 US-led invasion. A consortium by BP and CNPC was finally awarded a contract to develop the Rumaila oilfield, the largest of six oil and two natural gas fields in the bidding.
The BP-CNPC group beat a bid from a consortium by Exxon Mobil and Malaysia's Petronas for the oilfield. It was the only successful bid in Tuesday's auction.
Besides CNPC, China's two other oil majors, Sinopec and CNOOC also took part in Tuesday's auction.
Rumaila is the workhorse of Iraq's oil sector, with a current capacity of 1.1 million barrels per day (bpd) out of Iraq's total national output of 2.4 million bpd.
With a foothold in Iraq, China can diversify its oil supplies to enhance energy security, said Lin Boqiang, professor, Xiamen University, adding that the consortium model can reduce risks both for BP and CNPC.
China, which became a net oil importer 16 years ago and which relies on imported oil for nearly half its requirement currently, has already seen domestic production peaking, said Lin. "The increase in China's oil consumption in future may all come from overseas oil reserves."
China imported 179 million tons of crude oil in 2008, an increase of 9.6 percent from the year earlier. Analysts said there was little doubt that oil imports would see rapid increases, as there existed a big gap between domestic consumption and production.
Statistics showed that China's oil consumption experienced around 5 percent annual growth in recent years. However, the country's crude oil production only saw a 2 percent increase year-on-year.
According to a report by the State Information Center, 55 percent of the country's oil consumption would have to be met by imports in the year 2010, and the figure would further rise to 66 percent in 2020.
On June 24, Sinopec Group, China's second largest oil company, agreed to acquire the Geneva-based oil and gas producer Addax Petroleum Corp for $7.3 billion.
If the deal gets approved, it would be China's largest overseas energy acquisition. Addax has operations in Iraq and in West Africa.
Some experts contend that the West should not be concerned about a substantial Chinese presence in Iraqi oilfields, because it gives China a greater stake in improving stability in the region, the New York Times said on its website on Tuesday.
This was the right time for domestic oil companies to accelerate their overseas acquisitions, as they would "get more reasonable prices in making deals", said Yin Xiaodong, an oil analyst.
"But, compared to their Western counterparts, Chinese companies still lack experience in overseas acquisitions. So, they should be more cautious in making such deals," Lin of Xiamen University said.