US discourages Sinopec from bidding in Iranian oil-field

A senior official at China Petroleum & Chemical Corporation (Sinopec) lately stated, "Sinopec pays no attention to the US request" and "will do its utmost to carry on its bidding for the exploitation project in Iranian oilfield".
Why did the American government decide to put direct pressures on Chinese oil companies? Experts believe that the "uncompromising stand of the Sinopec is the manifestation of "being somewhat prepared".

Related officials at the US embassy to China had beforehand got in touch with the Sinopec expressing their request that Sinopec withdraw from the bidding. The underlying reason seems to be the US government's intention to force Iran to give up its possible nuclear weapon plan by economic sanction, believing that the oilfield development agreement would prevent it from carrying that plan smoothly out.
However, the reality is by no means a thing so simple as that.

The event could be attributed to the worldwide tender invitation issued recently by the Iranian government for the exploitation rights on the 16 oilfields.
According to a report Seyed Mehdi Mirmoezi, Vice Minister of the Iranian Oil Ministry, called on foreign oil giants on 28 January to continue to invest in Iran and invited them to bid on the exploitation rights for the 16 oilfields. These oilfields in question are located in the 51 new prospecting areas as defined by National Iranian Oil Company (NIOC).

Iran is now massively expanding its oil production capacity with a plan to increase its daily oil production from 4 to 7 mm barrels in 20 years time. The 51 new prospecting areas are the guarantee for the implementation of the plan. To make sure that the plan can be carried out as expected the Iranian government opened up 1/3 of its oilfields to foreign oil companies at one go and for the first time offered many a favourable policy.
In contrast to its previous practice at which foreign investors could bid for the development programs only after finishing the prospecting, yet instead it has combined oilfield prospecting with exploitation this time. Moreover contract terms of investment also changed from 7 or 8 years to over 25 years. The tender invitation distinguishes itself from those done previously that overseas companies needn't to bid for the exploitation projects again once the oilfield-prospecting work is started, Mirmoezi added.

The Middle East countries, Iran in especial, imposed very harsh restrictive clauses on foreign oil investors in the past. With regard to this, Fereidun Fesharaki, former Assistant to Iranian Premier Minister on Oil and currently a senior fellow at East-West Centre (USA), said foreign investors in Iran could only get sold-back project contracts, also known as repurchase agreements.
"You can only get the right to develop one oilfield if only one contract is granted to you and the exploitation can last only for 5 or 10 years. After that all you have contracted must be sold back to NIOC. Of course you will get compensation. A compensation rate of 12 or 15 % is more likely there guaranteed. You do not share nor do you own the oilfield", he said.
"The project of 16 oilfields was opened up all at once. This is something never seen since 1970s. It means that there is a major change in the way of thinking and the policies of the Iranian government", remarked Dr Pan Jiping at Oil and Gas Strategic Research Centre with the Ministry of Land and Resources of the PRC.

Before 1960s and 70s the Middle East oil market was totally in the hands of the western oil companies who took over 90 % of the prospecting, exploitation and production market. It was because of this that the region was known as the "oil colony".
However, 1970s witnessed the two oil crises worldwide. After that the Middle East countries started nationalization movement on oil resources and successfully realized the nationalization of the oil industry. Especially in the field of oil prospecting and production foreign-investment oil companies were prohibited from engaging in upstream oil business.

It was not until the 21st century that the Middle East began to release their policies on oil prospecting and exploitation. By and by foreign companies were allowed to take a part in but only on a small scale yet the restrictions were numerous.
Among the three main energy consumption regions -- Asia-Pacific region (excluding the Middle East and Russia), the United States and Europe, the US is the largest oil consuming and import country. Its consumption equals that of China, Japan and India putting together according to Wu Kang, who is in charge of the energy and resources department at East-West Centre founded by the US Congress. In 2002 American oil consumption constitutes 25 % of the world production and its oil import made up 35 % of the world oil import. Like the Asia-Pacific region 60 % of its oil consumption was imported.

The Middle East is one of the major oil suppliers in the world, who is endowed with rich resources of oil and natural gas. The Middle East countries have joined hands in the1970s to lay an embargo on the oil, thereby resulting in an economic crisis in the United States.
To ensure oil security the United States put forward global oil strategy aiming at establishing an oil empire and realizing the monopoly and control of the world oil resources.
"From an economic point of view the war in Iraq opened a cleft in oil resources prospecting and exploitation market in the Middle East. The western oil companies now can enter the region on an extensive scale as they did in the 1960s and 70s", remarked Pan Jiping.

Many Middle East countries like Saudi Arabia and Iran are very worried and worked out counter-measures in a bid to stop America from monopolizing the oil in the Middle East and facilitate the formation of multi-polarized oil structure. Opening up domestic oil market and inviting world major oil companies including Russia, China and India to invest in domestic oil development, these are their main strategies.
On 22 July 2003, Naimi, Minister of Petroleum and MineralResources Ministry of Saudi Arabia, announced in London that Saudi would open up its upper oil market to foreign investment. The three districts rich in oil and gas reserve -- an area covering a total of 120,000 sq km would be open to investors.

China National Petroleum Corporation (CNPC) and the Sinopec are both leading players in China's oil strategy. Why did the lot fall upon the Sinopec this time?
As learned from Pan Jiping CNPC has three strategic zones for choice: the North African zone with projects in Sudan as basis, the Mid-Asian & Russian zone with projects in Kazakhstan and South American zone based on projects in Venezuela. At the moment it seems that the Middle East has not become a key investment zone in overseas prospecting and exploitation plan for the CNPC whilst the Sinopec has more stakes in the Middle East.
According to Wu Kang Middle East countries are the main suppliers of China's oil -- about 50 %. Saudi Arabia and Iran are respectively No.1 and No.2 oil suppliers of China. As a major import company the Sinopec takes up about 80 % of the import. It is due to this reason that the Sinopec put up a lot of high-sulphur oil refineries in south and east China since the crude oil from the Middle East is of high-sulphur content.

Sinopec made a big breakthrough in Iran in 2003. On December 31 Sinopec succeeded in drilling a high-yield oil-gas well during venture prospecting in Kashan oil area of Iran. Meanwhile International Oil Prospecting and Exploitation Corporation of Sinopec has not only taken a part in the bidding for the exploitation right of 16 Iranian new oilfields but was also invited by the end of last year to bid for Azadegan project -- the second largest oilfield in Iran.
On Jan. 27, Sinopec won the bid for a natural gas project in Saudi Arabia. This natural gas field is located in the south of Saudi Arabia with an area of about 40,000 sq km. It is one of the three natural gas contracts that Saudi Arabia opened up to the world for the first time in 25 years.

The Americans hope that the Sinopec would withdraw because it grudges sharing the admission coupon to the grand banquet obtained by means of war and "blood" with any one "especially China", remarked Pan Jiping.
A research report by the Pentagon once held the opinion that once China and Saudi Arabia got close by "it would affect the national security of the United States". Behind the dissuasion effort is the intention to prevent China from expanding its influence into the Middle East.

The United States has always been taking precautions against possible rivals in the key fields especially in energy resources. Why did the American government decide to put direct pressures on Chinese oil companies?
While the several big Chinese oil companies were unravelled and got listed on American stock market, as insiders revealed, the American government had a deal with them, requesting that CNPC and Sinopec mustn't poke their noses into the oil prospecting and exploitation in certain countries and regions the UnitedStates defined, especially in a few major oil producing countries as in the Middle East. For this reason overseas prospecting and exploitation endeavours of the CNPC and Sinopec have all been carried out in the name of a parent company.

As regards this Wang Anjian, Director of Global Energy and Resources Research Centre of Chinese Academy of Geological Sciences, said: "The deep-rooted reason behind the event is that China and the United States face competitions in many areas. The Americans want to check China and it's quite normal. Not only in the area of energy and resources the same holds true in other areas as well, including politics, military, economy and diplomacy. I believe that Chinese leaders at the top are surely got prepared for this.”
Experts believe that the "uncompromising stand of the Sinopec is the manifestation of "being somewhat prepared".
From the 1970s when Chinese oil companies began to carry out the "Going Global" strategy the regions of first choice were Africa and South America, unable to be favourably viewed by western oil companies. Just as CNPC established itself in the regions and began to achieve something western countries like the United States started their "Oil Africa Strategy" in 2000, which was viewed of strategic importance. Therefore, oil prospecting and exploitation competition in Africa grew fiercer in recent years.
"Don't be too optimistic but it's a chance." Said Pan Jiping. The Middle East countries opened their oil markets first to western countries. When they opened their markets to the countries like China and India we are not innocent of their initial motives, namely to take advantages in which the fisherman "benefits from the tussle between a snipe and a clam" as a third party.

China is fully aware of this. The aforementioned official at the Sinopec stated that Sinopec is far from being short-sighted to Iran only. After a recent study trip to Libya the official said he had met some Libyan senior officials and both parties had a discussion on thepossibilities for Sinopec to invest in the Libyan oilfields for upstream and downstream oil products.
"Even if China stepped in it's very hard to secure a advantageous position and good oil areas", said Pan Jiping. "But once we get in profits are guaranteed. I suggest that oil diplomacy with the Middle East be enforced to lay down a sound foundation for the Chinese oil companies to invest in the prospecting and exploitation of oils in the Middle East.”