Now, I’ll Tell You about Today’s Oil "Wild Card"…
There are some pretty obvious truths in the energy world today.
The first is that G7 countries have topped out in their oil needs and are switching to alternative energy sources.
The second truth is that most oil demand growth will come from emerging markets such as India, Brazil, and China. They are building roads and car companies, along with their GDP.
The wild card in this scenario is supply.
All over the world, easy-to-acquire oil located in sand domes such as the famous Ghawar field in Saudi Arabia has been running out.
I know this because Saudi Aramco recently hired Halliburton to develop wells in the South Ghawar field.
Ghawar is the world’s largest oil field and all production information about it is a tightly sealed state secret. This oil is so crucial to the Saudis that pivotal junctures are rigged with explosives that would make Ghawar unproductive for years, should anyone try to invade.
The fact that the Saudis would give a foreign company a contract shows that they are running out of ideas.
According to the World Tribune: "The contract marked the first turnkey drilling project awarded by Aramco. Executives said the turnkey project marked a new strategy by Aramco to increase the efficiency of energy facilities."
That’s the bad news for production.
But the good news is that Iraq is set to bring on more oil, growing to 12 million barrels of oil a day by 2017. This expansion is happening as we speak… but Iraq has a long way to go. According to the country’s Oil Ministry, oil exports rose 7.4% in February from January levels — to 2.068 million barrels a day.
Iraq Oil Production Projection
Source: BP Review of World Energy 2009
You would expect that these charts — which explain Asian demand and Iraqi production — would find each other.
And you’d be right.
China National Offshore Oil Corporation (CNOOC) and its partner Sinochem have signed an initial agreement to develop the Missan (Maysan) complex of fields in Southeastern Iraq. (You may remember them from the news broadcasts in December, when Iranian troops occupied an Iraqi oil well.)
Not only did the Chinese buy the rights to develop these fields; they did so with significant risk. Though they are thought to hold 2.5 billion barrels of oil, the Missan fields are along the country’s southern border with Iran and are hotly disputed. And not only are the Chinese willing to snub the Iranians, but they are also paying above market prices for the right to pump the oil.
The Missan fields were included in the country’s first and second bidding rounds in 2009, but were not awarded owing to the high service fee of $21.40 a barrel offered by the two bidding companies. The Iraqis wanted $2.30 a barrel. CNNOC and Sinochem then proposed an $18.90 a barrel rate.
Now, the Iraqi oil minister is saying the Chinese companies agreed to the $2.30 a barrel wanted by Iraq. This would suggest that the Chinese would rather take a loss in order to ensure supply. In other words, reserves mean more than shareholder value.
It also makes the Chinese the dominate force in the Iraqi oil sector.
It is clear that Chinese leaders have an energy plan and are making it happen. They are currently buying up oil reserves in African and South American as well as exploring regions in the Gulf of Mexico off Cuba. They are also building thousands of miles of pipelines across central Asia.
I’ve found one company that lies square in the middle of this trend. It is a small oil company ($0.63 share) that no one has heard of. And yet it sits right on the border of China and has probable reserves of 614 million barrels of oil. But word is getting out. It is already up 132% since I recommended it two months ago. Read this free report and start to profit today.
Editor, Energy & Capital
Editor and Founder, Crisis and Opportunity