China, Afghanistan Sign Oil, Gas deal

Afghanistan signed a deal on Wednesday that would allow China to become the first foreign company to exploit the country’s oil and natural gas reserves.

The contract covers the provinces of Sari Pul and Faryab in northeastern Afghanistan, and is the first of several oil blocks to be put on the market in coming months. Information on bidding for blocks in neighboring Balkh province and western Herat province will be released next year.

The oil ministry listed the initial value of the project with China’s state-owned National Petroleum Corporation as $700 million, but the total could be ten times greater if more reserves are found and developed.

The contract allows China to research oil and natural gas blocks in Sari Pul and Faryab, an area first explored by Soviet engineers in the 1960s, who estimated the reserves at about 87 million barrels, though Afghan and Chinese partners believe they will prove to be much larger. After the real size of the reserves is established with greater accuracy, CNPC will then build Afghanistan’s first refinery.

The Afghan government will receive 70 percent of the profits form the sale of the oil and natural gas. CNPC will also pay 15 percent in royalties, as well as corporate taxes and rent for the land used for its operations.

The U.S. Department of Defense has estimated Afghanistan’s mineral reserves to be worth roughly $1 trillion, while other estimates have pegged them at $3 trillion or more.

However, for Afghanistan to capitalize on its resources, it will require international investment, a better transportation network, and much improved security.