China's need to diversify its energy sources has led it to kick-start Afghanistan's hydrocarbon sector.
China wins first rights to drill for Afghan oil
China National Petroleum Corporation (CNPC) has won the right to develop Afghanistan's first oilfield, as the world's second-biggest consumer of hydrocarbons extends the frontier of its quest for raw materials.
The state-owned CNPC is to sign the agreement today to develop three blocks in Afghanistan's Amu Darya Basin after outbidding international rivals in an auction and proposing to build a refinery.
The deal makes China the largest foreign investor in Afghanistan, after Metallurgical Corporation of China in 2007 won the rights to develop the biggest Afghan copper deposit. CNPC will work in a joint venture with Afghan Oil and Gas Company.
"The deal was supported and approved by President Hamid Karzai's cabinet [on Monday]," Jawad Omar, a spokesman for the mines ministry, told Bloomberg News yesterday.
Afghan officials hope that production will commence within a year, as pledged by CNPC, and that the blocks live up to estimates by the US Geological Survey, which estimated the reserves to be as much as 80 million barrels.
"Eventual investments in the Amu Darya Basin are expected to be in the hundreds of millions of dollars, and will spur improvements in roads and other infrastructure," said Wahidullah Shahrani, Afghanistan's minister of mines.
Northern Afghanistan could hold more than 1.6 billion barrels of crude, 16 trillion cubic feet of natural gas and 500 million barrels of natural gas liquids, he said. The next oilfield auction will be held in February, Abdul Jalil Jumriany, the policy director at the mines ministry, said in September.
Experts believe the timetable for production to be over-optimistic and see China's move into Afghanistan as part of a long-term strategy to find new sources of hydrocarbons in a changing geopolitical landscape.
"Its just a bet on possible resources that could be extracted in a decade from now," said an analyst in the UAE. "This is really a long-term game for the Chinese, and I think it comes primarily out of a concern [about ] what is happening in Iran."
Chinese companies including CNPC have invested heavily in Iran to feed their country's immense hunger for energy. Frustrated by the terms imposed by the Iranian government, they have recently started putting projects on hold, as China is looking to other sources of hydrocarbons.
Relations between China and Iran further deteriorated as Tehran refused to budge on prices for its crude, even as its bargaining position deteriorated, with western countries seeking to impose sanctions on its oil exports. In response to Tehran's stance on prices, China has halved its orders of Iranian crude for next month.
China's reorientation will become even more evident next year, with Africa and countries in China's vicinity, such as Afghanistan, the focus of attention.