Asian Powers Look to Iran and Beyond: Asian Investors-Both Private and Public-Are Increasingly Looking towards Middle Eastern Energy Markets. Their Reasons Are Two-Fold: To Make a Healthy Return on Their Capital and to Ensure a Stable Flow of Oil and Gas Imports
THE VAST BULK OF COMMERCIAL INVESTMENT in the Middle East has come from one of two sources: Domestic, mainly state owned enterprises and private sector companies from North America and Western Europe. Now, however, there appears to be a growing trend of Asian private and state owned companies investing heavily in the region. The deal that will see Sinopec develop the Yadavaran field in Iran has made most of the headlines over the past few weeks, but this is just one example of a trend that looks sure to grow over the next few years, particularly in Iran.
One thing the governments of India, China and Japan have in common is a growing desire to improve their energy security. The energy needs of India and China have increased sharply over the past decade and look like continuing to increase rapidly for a long time to come. While both countries possess their own sizeable hydrocarbon sectors, both need to import a growing proportion of their oil and gas needs. General fears of global insecurity and wide fluctuations in oil prices have prompted Beijing and Delhi to direct state owned oil companies to make upstream investments around the world, while Japanese companies are following suit.
It is felt that state owned companies can help ensure oil supplies, while Middle Eastern governments that offer stakes in upstream developments to Asian companies are keen to secure markets for gas exports. For example, the Indian government is committed to investing $1bn a year in overseas oil and gas fields for the next 15 years. A spokesperson for India's Oil & Natural Gas Commission (ONGC) said: "We are looking at acquiring equity in any country here which will lead to stable long term supplies. The government of India is also encouraging Indian oil companies to invest overseas and to take equity in energy related projects for future supplies."
Such benefits have prompted a series of visits by high level delegations from India and China to Iran, the United Arab Emirates (UAE) and other Gulf states over the past couple of years. Given that the Middle East is located relatively close to many of the main Asian markets, has good sea links with the region and holds a high proportion of the world's oil and gas reserves, the relationship should benefit both sides.
Asian investors are committing themselves to projects that some western firms have shied away from under pressure from their governments. While US companies have been dissuaded by Washington from investing in Iran by the Iran-Libya Sanctions Act (ILSA), the US has also attempted to deter oil companies from other countries from investing in Iran, particularly since fears of an Iranian weapons programme first emerged. Despite such pressure, a Japanese consortium, including Japan Petroleum Exploration Co (Japex) and backed by the Japanese government, signed a $2bn deal to develop the Azadegan oil field in Iran.
Azadegan is estimated to contain 26bn barrels of oil, making it one of the biggest fields in the Middle East and possibly the biggest proven, undeveloped field in the world. Production on the field is expected to begin in 2006 and reach 260,000 barrels a day (b/d) by 2012, helping Iran to meet its target of increasing its oil production capacity to 5m b/d. The Japanese consortium has taken a 75% stake in the project, providing much needed investment in an Iranian oil and gas sector crying out for development but hindered by domestic controls on foreign investment.
While the deal reinforces Japan's dependency on Middle Eastern oil as a whole, it reduces its reliance upon Saudi Arabia and the UAE. Upon agreeing the investment, Bijan Zanganeh, the Iranian Oil Minister, insisted that the tie up reinforced an obvious relationship. …