China's oil interests in Afghanstan

In Historic First China Begins Oil Extraction In Afghanistan

Zero Hedge,

21 October, 2012

In a surprising (if not quite shocking) move, late on Friday Canada blocked Petroliam Nasional Bhd.’s C$5.2 billion takeover of Progress Energy Resources Corp. saying the bid by the Malaysian state-owned company "wasn’t in Canada’s national interests." As BusinessWeek explains, "in what investors say is a test case for the $15.1 billion bid by CNOOC Ltd. of China for Calgary-based Nexen Inc., the Canadian government said it “was not satisfied that the proposed investment is likely to be of net benefit to Canada,” according to an Oct. 19 statement from Industry Minister Christian Paradis." While it is unclear precisely what would be of "net benefit to Canada" what is certain is that the Progress Energy move will crush investor spirits who in recent months have expected a flurry of foreign bids coming for local energy names, only to be left at the altar courtesy of government intervention.

And while the outlook for foreign driven M&A in Canada has just been Ice-9'ed to a degree not seen since the BHP Billiton government-denied acquisition of Potash Corp (watch the arbs scurry out of Nexen at first trading opportunity), China is wasting no time, and is rapidly reorineting itself away from increasingly energy-protectionist governments and to "greenfield" national interest expansion opportunities. Such as Afghanistan. 

As Reuters reports, in a historic development, and in a key staking of regional energy claims, a Chinese oil firm, China National Petroleum Corp, has just started oil production in the country which still has thousands of US troops on the ground. Expect this issue also to suddenly be of paramount importance in next week's final presidential debate.

From Reuters:

Afghanistan signed a 25-year contract with National Petroleum Corp (CNPC) last December covering drilling and a planned refinery in the northern provinces of Faryab and Sar-e-Pul. It is the first major oil production in the country.

 

"The company will extract 1,950 barrels per day, which will crucially help Afghanistan towards self-sustainability and economic independence," mining minister Wahidullah Shahrani told Reuters on Sunday as huge machines started drilling next to mud houses in remote Sar-e-Pul.

 

The venture with CNPC, which has invested hundreds of millions of dollars, was expected to produce billions of dollars over the next two decades - CNPC will pay a 15 percent royalty on oil, 20 percent corporate tax and give 50-70 percent of its profit from the project to the government.

 

From January 1, CNPC will extract 1.5 million barrels of oil annually, Shahrani said. Up to 87 million barrels of crude are estimated to be in Amu Darya.

 

Its inauguration on Sunday should lend confidence to nervous Chinese investors who have halted work on the $3 billion Aynak copper mine project in eastern Logar province, where insurgents trying to wreck the project have stepped up attacks. Afghan officials have been trying to convince the investors to restart.

Luckily, US troops are still in Afghanistan to make sure China can extract Afghanistan resources at terms beneficial to China and Afghanistan... If not the US.

As the end-2014 deadline looms for most foreign troops to leave, billions of dollars in aid is expected to dry up, leading Afghanistan to look for ways to become financially independent.

 

The Amu Darya basin should be able to supply Afghanistan with all its domestic oil needs eventually, said Weis Sherdel, director of the three Amu Darya oil blocks for the mining ministry.

Up next for the country which is soon set to surpass the US as the largest importer of crude: more regional expansion and capture of the global markets:

CNPC's Amu Darya crude will be sent to Turkmenistan where it will be refined and then sold to Afghan clients or abroad, Sherdel said. CNPC should complete work on an Afghan refinery in 2-3 years, officials said.

And since China will indirectly be seen as a provider of jobs, guess where the local population's allegiances will increasingly lie:

Shahrani said the development of the Amu Darya basin had provided Afghans with 2,100 jobs in the Sar-e-Pul province of 500,000 where unemployment is more than twice the national average, at 18 percent.

They need some BLS seasonal adjustments, and an election or two: unemployment would plunge to 0.0% overnight.

Chinese and Indian bidders have been frontrunners for deals to develop Afghan mineral deposits valued at up to $3 trillion, worrying Western firms that have hesitated to invest because of security concerns.

 

The country is now bracing for the end-October bid closure for oil deposits in the Afghan Tajik basin, also in the north and which, at an estimated 1.9 billion barrels, is the biggest ever oil project in Afghanistan.

 

Interest shown by Exxon Mobil in July lent credence to hopes the government may be making progress in efforts to lessen its reliance on aid, though Shahrani told Reuters last month the U.S. group had not come to look at it.

Correct: in fact Exxon is increasingly looking to divest various regional interests, with just two short days ago news hitting that Exxon was "in talks to sell its stake in a contract to develop a multibillion-dollar oil project in southern Iraq." The winner, as the insolvent west increasingly seeks to abdicate regional resource control, will once again be China.