It is looking like the dawn of a new beginning in the global oil market as China and Russia sew up as many as possible oil and gas fields and accompanying infrastructure in Iran and Iraq, with Iraq trying to markedly up the pace of development on the fields it shares with Iran. Reports indicate that Iraq wants the United States for the Common Seawater Supply Project (CSSP) as ExxonMobil is the only firm that can do it properly and within a reasonable timeframe.
According to senior sources in the oil and gas industry, China will do all of the work and finance all of the drilling, with the headline ‘Iraq Drilling Company’ just to assuage the followers of Moqtada al-Sadr, the de facto leader of Iraq.
The supergiant Majnoon oilfield is one of the world’s largest with an estimated 38 billion barrels of oil in place. A major ongoing problem for development remains the substantial quantity of unexploded ordinance in and around the site that dates back to the 1980-1988 Iran Iraq War.
As it has transpired, the floods in March handed China ‘a deal of a lifetime’, according to sources in the Iraq oil industry. The popular perception is that a majority of the structural damage to the Majnoon area was caused by the erosion of subsoil across over one million hectares of forest and brush land in both sides of the region – Azadegan and Majnoon – by Iran’s Islamic Revolutionary Guard Corps (IRGC). More importantly, China has become the lead operator of the North Azadegan field, and is also in prime position in South Azadegan, as it looks to properly address the potential flooding problem across the entire region – Iran and Iraq sides.
China is already in talks with Iraq for one of its oil and gas entities (China National Offshore Oil Corporation is the one on the table currently), involving a 25-year contract. The per barrel payments to China will be the higher of either the mean average of the 18 month spot price for crude oil produced, or the past six months’ mean average price.
It will also involve at least a 10% discount to China for at least five years on the value of the oil it recovers. China, on the other hand, will make good on the structural damage to the site, increasing output to at least 500,000 bpd by the end of May 2021. “With the terms of the deal on the table, China would make between eight and nine billion dollars profit every year from Majnoon alone,” concluded the Iraq source.
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