Everybody knows about Afghanistan's vast depos its of minerals with the latest estimates putting the country's wealth of minerals at $3 billion. Ainak copper deposits in the province of Logar located south-east of Kabul has already been auctioned with China Metallurgical Group, a government-owned company from China having won the international tender in 2007.
The work on developing the needed infrastructure and preparing the Ainak copper deposit for excavation and extraction operations has stopped for now by the Chinese company due to discovery of archaeological monuments and artifacts in the area. The Chinese company recently announced the good news that it will be able to start its extraction operations by 2014. The famous Hajigak iron ore deposit in the central province of Bamyan also is set to be auctioned at the international level later this year with many foreign companies expected to compete with one another to win the tender.
However, lesser known and more obscure has been Afghanistan's considerable oil, gas and hydrocarbon reserves, which are largely distributed in the northern regions of the country. The Ministry of Mines of the government of Afghanistan had for the first time released an international tender in March 2009, soliciting suitable companies to take up the work of exploration and extraction of crude oil of three blocks of oil fields in Northern Afghanistan. Now reports are coming in that yet another Chinese company is about to win this international tender. Welcome to an Afghanistan that soon will roll out its first barrels of oil into the international markets!
The Chinese company is said to be China National Petroleum Corporation (CNPC), China's largest oil and gas company with operations in over 70 countries according to a prospectus issued by the company. The fact that it is the Chinese companies which are winning Afghan tenders one after another is certainly a curious case. It is evident that the U.S., far from having any problem with Chinese companies entering Afghanistan, is actually encouraging and perhaps facilitating their increased presence in Afghanistan.
The reason for this is interesting. We will deal with the why of it later in this article.
The near total of the proven crude oil and gas reserves of the country lie in two northern basins both close to Turkmenistan, Uzbekistan and Tajikistan borders. The Amu Darya Oil basin is the main area where the recent auctioned oil blocks are located.
The three oil blocks, each possessing the potential to feed multiple oil fields, are Anghot, Bazaarkhaami and Zamarrudsuy. These three relatively large blocks, according to preliminary estimates of Afghanistan's Ministry of Mines carried out in partnership with the U.S. Geological Survey, contain an estimated 80 million barrels of oil.
This figure, however, is a preliminary estimate with much more quantities of oil set to be discovered and added to the overall reserves of these oil blocks. The planned development of three oil blocks, in all likelihood and under normal conditions, are to be only the very first steps in a long journey that will see more of Afghanistan's oil and gas reserves opened up for international participation. The Amu Darya Oil Basin, to which these auctioned oil blocks belong, contains well above 1 billion barrels of crude oil.
This oil basin, however, extends to neighboring Turkmenistan and Uzbekistan and is, in fact, a shared basin with the three countries having their share of the resources in the basin. Later and if the exploration and extraction projects of the Amu Darya Basin is expanded on the Afghan side of the basin, then a legal regime of sharing the oil and gas reserves should be developed and concluded by Afghanistan with Turkmenistan and Uzbekistan in an amicable manner. If these two countries decide to explore further their shares of the basin, again the need for such a legal regime arises.
The politics of oil and gas exploration in Afghanistan
The fact that China has won two major mineral resources extraction contracts in Afghanistan plays into the larger plans diligently pursued by the Chinese to substantially increase their presence in central and south Asian energy markets. As widely-known, China's growing economy and its insatiable thirst for ever more energy, especially from the Middle East, has compelled the country's planners to aggressively push for integrating a broad array of countries in central Asia as well as Pakistan and increasingly Afghanistan into either supplier or transit partners of its energy requirements.
With winning the oil blocks in the Afghan Amu Darya Oil Basin, China has secured a valuable foothold in the heart of Afghan-Uzbek-Turkmen energy basins. Currently, plans by China are in full swing to build a sprawling network of energy pipelines throughout central Asia transporting Middle Eastern and central Asian energy to its energy hubs in Eastern China.
80 million barrels of proven oil in these three oil blocks is certainly too small a quantity to compensate for the massive costs of developing the $300 million refinery in Northern Afghanistan and other costs associated with extracting this quantity of oil. However, what is attractive for China over longer term is the prospect of reaching out to larger reserves in the Afghan-Uzbek-Turkmen region and slowly expanding its presence in a larger swath of this part of central Asian energy market.
Americans are only too delighted to see an increasing engagement by China in Afghanistan's nascent mineral-extraction industries. This is, by and large, in keeping with the broader American strategy of "containment" of China on a global scale by making American and Chinese political and economic interests overlap and thus becoming more inter-locked. This is not confined to Afghanistan but in other countries where Chinese companies actively look out for resource extraction, the U.S. pursues greater engagement of China by locking into its expanding economic interests.
This more or less makes Afghanistan a chessboard of a silent American-Chinese economic strategizing, whereby the U.S. increasingly locks into China's economic interests. As we move closer to 2014, a number of important resource extraction projects in Afghanistan such as the Ainak copper and other coal and mineral extraction projects start to take off. The security issue is a challenge and a concern but at least for the larger ones such as the Ainak copper project, even insurgent groups such as the Taliban would not want to stop them altogether.
As it has been the way of doing business in Afghanistan for long, once the taps open up and a stream of dollars start to flow from these projects, even the Taliban would be glad to let the projects move ahead as long as their palms are well greased. let us hope for the best!