China may lead way as oil firms weigh Iraq’s danger and payoff

China has sat out the Iraq war, but it could be the first to take advantage when the Iraqi government finishes a law opening up its oil fields to international companies.

The Iraqi oil legislation, expected to be approved by July, will open the door for the government to sign contracts for exploration and production of the country’s vast untapped reserves, a top U.S. priority. But since few Western companies are prepared to send equipment or crews into the war zone, it could take five years or more before they begin extracting big shipments of Iraqi crude.

China is so desperate for energy that Beijing’s government-owned oil companies may be willing to accept higher security risks than others, some analysts say.
By contrast, international oil majors — companies like Royal Dutch Shell and Total SA — are likely to try to sign leasing agreements to stake their claims, believing Iraq is so oil-rich that they can afford to wait a few years for the fighting to die down.

“Iraq’s potential is so tremendous that they’re all ready to pounce as soon as the situation permits,” said Sharif Ghalib, a senior analyst with Energy Intelligence Research in New York. “It’s a bonanza waiting to happen.”

Most estimates put Iraq’s proven oil reserves at 115 billion barrels, the world’s third-largest. But Iraq has lagged in exploration technologically for so long that actual reservoirs are probably double that, said Frank Verrastro, an oil analyst with the Center for Strategic and International Studies in Washington.

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