Afghan oil, and gold, and iron

I noted today that the Afghan government is beginning to pin some hopes on oilfield development as a way of helping generate some desperately needed cash. It was just last August that a field containing up to 1.8 billion barrels of oil was reported. There has been exploration and hopes of significant production in Afghanistan since 1937 but there has been little significant production as yet. Prior to the Soviet invasion in 1979 it had been estimated that the country had 100 million barrels of oil and a refinery was planned, but cancelled by the resulting conflict. The Angot field had been identified, and some 14 wells drilled into it, without much production. In those years much of the Afghan energy production was in natural gas, that was shipped to the Soviet gas grid, via Uzbekistan. The conflict and guerrilla activity in the region lowered production, and when the Soviets left many of the wells were capped.

An attempt to start the oil production process over at the beginning of this year was not successful, with only a single, rejected, bid being received. A Norwegian evaluation of the situation in June suggested that it was too early for a decision.

Balancing the notable achievements that have come in place through Norwegian facilitation and support for the Government of Afghanistan with the range of risks identified in this report, and not least the two central conflict issues identified in the literature review, Norad is advised to consider the following: Await further engagement on policy matters relating to implementation of the Hydrocarbons Law and a new (if materializing) Hydrocarbons bidding round until there is further clarity as to how the Government of Afghanistan aims to develop and utilize these resources and to what extent major external donors support such policies”.

But by August, when the new discovery was made, a rig had been fielded in the Angot field in the Sar-i-Pol (Sar-e-Pul) region in the North to begin a production stream. It is that field that is now being brought on line, looking to production from both new wells and some of the existing older ones that will be refurbished. Production will only be on the order of 800 bbl/day but for a country where the United States spends $250 million a year providing diesel for the Afghan forces, any start is welcome. The oil will be extracted by the Afghan government and then sold at $80 a barrel, and is being marketed to an Afghan group, Ghazanfar Group. The company is one of the largest private companies in the country, and made $475 million in gross earnings from its petroleum business in 2008 (up from $2 million when it got into that business in 1998).

And just as the “black gold” of the country is starting to be developed, so also is the real yellow stuff. Plans were also announced for a gold mine to be opened.

About 10 investors - most of them from the United States and Britain - are investing an estimated $50 million in the gold project in Dushi district of Baghlan province, about 84 miles (135 kilometers) northwest of Kabul, Wahidullah Shahrani, Afghanistan's minister of mines, told the Associated Press. The only other gold mine in Afghanistan is in neighboring Takhar province.

There has been considerable talk of the mineral wealth that is part of the Afghan geology. These developments, and preliminary discussions on the mining of the largest iron ore deposit in Asia, that at Hajigak, reputed to have 1.8 billion tons of a 62% purity, are an indication that there can be progress in moving the country into a more prosperous future.

It is interesting to note, however, that in the case of the iron, as is the case with some of the oil in Iraq, it is China and India that are looking to develop the industries, and thereafter likely to consume the product. It Iraq they are already hard at work. The Chinese are willing to go into countries such as Iraq, and Afghanistan, as well as Sudan, which now sends more than 60% of its oil output to China. They face the difficulties of operating in countries under wartime conditions, and yet the benefits that can accrue will assure them of needed supplies in the years ahead.

The new fields that are being developed in Afghanistan lie in the north of country and the oil transitions to gas as the reservoirs approach the Turkmenistan border and the much richer gas deposits that lies north of the Amu Darya River. The new developments are also to the East of the planned route for the gas and oil pipelines that have been discussed, for many years, as a way of bringing needed energy to India and Pakistan.

Planned Afghan pipeline ( derived from one in The Canadian )

And while the pipeline may remain more a paper exercise, the production of the fuels has begun. But it should not be forgotten that the Chinese have already initiated one pipeline with Turkmenistan and that pipeline is a whole lot closer to these fields, over less disputed ground, than it would be sending the production South.