Struggling under US-led economic sanctions, Iran is increasingly turning to China for cash to invest in oil and gas development. For Beijing, the unprecedented opportunity to strengthen ties with one of its biggest oil suppliers coincides with a broader Chinese thrust to secure access to energy assets in the Middle East and Africa. Recently, it has pursued deals mainly in Iran and Iraq, snapping up opportunities left by many western oil companies.
In Iran, the run of Chinese deal-making continues to gain momentum. A consortium of Chinese companies signed an oil refining deal worth between US$2 billion (Dh7.34bn) and $3bn, according to the Press TV satellite channel on Saturday. The consortium reportedly agreed to build a 360,000 barrel per day (bpd) refinery in Iran's Khuzestan province and to overhaul an existing Iranian refinery in the city of Abadan, raising its capacity to 360,000 bpd from 210,000 bpd.
The agreement follows an announcement last month by Iran's oil ministry that China would invest about $40bn in Iranian oil-refining projects. In another development on Saturday, SHANA, the Iranian oil ministry's news agency, said the National Iranian Oil Company (NIOC) and China National Petroleum Corporation (CNPC) had signed a memorandum of understanding on developing Iran's big South Azadegan oilfield, which is expected to produce 260,000 bpd of crude from 6 billion barrels of reserves.
The agreement called for CNPC to purchase a 63 per cent stake in the $2.5bn project from NIOC, leaving the Iranian state oil company with a 27 per cent interest and Japan's Inpex with 10 per cent. In June, Tehran announced that it had replaced Total, the French energy company, with CNPC as the main foreign participant in the $4.7bn development of Phase 11 of the giant South Pars gasfield, which contains about 8 per cent of the world's proved gas reserves. The deal was signed in Beijing during an official visit to the Chinese capital by an Iranian trade delegation.
In January, CNPC signed a $2bn agreement with Iran to develop the North Azadegan field to produce 75,000 bpd of oil within four years. That followed a $2bn deal in December 2007 for China's Sinopec to develop Iran's Yadavaran oilfield, which contains about 17 billion barrels of reserves. The Chinese state-controlled oil firms have been moving in on Iranian turf vacated by major western oil companies and, in one case, a Japanese enterprise.
Inpex agreed in 2006 to reduce its South Azadegan concession from 75 per cent to 10 per cent, after Japan's government sided with the US and Europe in the long-running nuclear row with Tehran. Bowing to political pressure, European oil companies including Total, Royal Dutch Shell and the Italian company Eni have put their existing Iranian projects on hold and have avoided signing new deals in the country with the world's second-biggest proved reserves of both conventional crude oil and gas.
That has left Tehran with little option but to turn for help to countries that are not US allies, including China and Russia. One of its priorities is to increase domestic refining capacity so Iran no longer needs to import fuels such as petrol. US senators last year proposed extending sanctions against Iran to include petrol supplies. Tehran also hopes to boost export revenues by selling more oil to China. Iran is China's second-biggest crude supplier after Saudi Arabia, exporting about 500,000 bpd to Asia's most populous country.
NIOC opened a Beijing office earlier this year, staffed by three oil marketing officials. But it is facing stiff competition there from Saudi Arabia and Kuwait, which have launched refining ventures in China aimed at increasing the country's capacity to process sulphur-rich Middle-Eastern crudes. Most Chinese refineries are configured to process the country's domestic crude, which is low in sulphur, or similar crudes from Central Asia and Africa.
But with its demand for transportation fuel growing, China is seeking to broaden its oil supply sources. It also needs more gas to fuel power stations and industrial plants as its economy continues to expand. "China is set to be one of the world's largest importers of oil and gas. It is therefore no surprise that diplomatic, economic and energy relations between China and the countries of the Middle East have been systematically deepened over the last 10 years," said Philip Andrews-Speed, the director of the Centre for Energy and Mineral Law and Policy at the University of Dundee in Scotland.
@Email:tcarlisle@thenational.ae
