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* China now holds 21 percent of Iraq oilfield projects
* Baghdad praises Beijing's oil sector performance
* China expands beyond oilfields into Basra business
By Peg Mackey and Ahmed Rasheed
BAGHDAD, Oct 30 (Reuters) - From the giant southernoilfields to the lively souks of Basra, China is drilling everdeeper into Iraq.
Driven by an insatiable thirst for oil, Beijing secured aformidable position in Iraq's prized energy sector throughauctions held four years ago. It is now seeking to buy 850,000barrels per day (bpd) of Iraqi oil, 30 percent of estimated 2014exports.
Its dominant role in Iraqi oilfields sat uneasily withBaghdad at first. That changed when China's quick,cost-effective ramp-up in production helped push Iraq up theOPEC ranks to second spot behind Saudi Arabia from a virtualstanding start after the disruptions of the U.S.-led invasion in2003.
"The Chinese are our commercial partners in managing anddeveloping oilfields that are totally Iraqi. So I don't see anyissue of dominance or threats," said Thamir Ghadhban, chairmanof the advisory commission to Iraq's Council of Ministers.
"It's the other way around. I think the Chinese find Iraq tobe their favourite partner."
Further expansion is in the works.
PetroChina's anticipated purchase of a 25percent share in Exxon Mobil's West Qurna-1 oilfield projectwill allow China's biggest energy firm to overtake Russia'sLukoil to become the biggest single foreign investorin Iraqi oil.
CHEAP AND SILENT
"China's strong position means the oil ministry has fewerqualms if Western companies back out because they are seen asbeing more readily replaceable," said an Iraqi analyst.
PetroChina already partners with BP atRumaila, Iraq's largest producer, and operates the Halfaya andal-Ahdab fields. It was the first foreign firm to sign an oilservice deal in Iraq after U.S.-led forces toppled SaddamHussein.
Deep pockets and corporate flexibility in the face of risingviolence here in Iraq allows companies from China to offer therapid production increases that many in the West cannot.
"The Chinese work cheaply and silently - worrying less aboutsecurity compared to other foreign firms. They use a largernumber of workers, so they always complete the job on time, ifnot before," said an official with Iraq's South Oil Co (SOC).
"When we advise other contractors, or even our own workers,on how to get the job done, we tell them, 'Do it like theChinese'."
Baghdad has been particularly struck with PetroChina'sperformance at Halfaya in the southern Maysan province.
Along with partners Total and Petronas, PetroChinahas lifted flows from the field, which was nearly untapped,above 100,000 bpd, and output is expected to hit 200,000 bpd bynext September.
PetroChina's peers Sinopec and China NationalOffshore Oil Corp (CNOOC) are also on the ground,giving Beijing access to the whole of Iraq - from the autonomousKurdish region in the north to the Maysan oilfield in the south.
They, along with all the foreign oil companies who signedservice contracts with Baghdad, are repaid for development witha cut of the oil their work produces.
Beijing, which last month overtook the United States as theworld's largest oil importer, is seeking 70 percent more Iraqioil next year.
SAUDI RIVALRY
The higher oil sales are bound to step up the rivalrybetween Baghdad and top exporter Saudi Arabia for a bigger sliceof the growing Asian market.
"Iraq's natural market is Asia, and with China's strongeconomy it's natural that it would lift more and more Iraqicrude and invest heavily to get the resources," said a Westerndiplomat.
"And their partnerships with Western companies areimportant: they're being exposed to our business culture andmoving in a manner that we want to see."
Oil executives point to BP's venture with PetroChina, whichhas raised output by about 400,000 bpd to 1.4 million bpd, as aprime example of a smoothly running partnership.
"PetroChina brings its own capabilities and the opportunity,under competitive bidding, to access the Chinese supply chain,"said Toby Odone, Deputy Head of BP's press office.
Iraq's easy-to-access oilfields are the largest in theMiddle East open to foreign investment, making them hard toresist as China's dependency on imports rises.
"The Chinese are reliable. They don't have the experience ofrunning sophisticated projects, but drilling here is very easy,"said a senior Western oil executive.
Iraq has the world's fifth-largest oil reserves and wants toat least double its production of 3 million barrels bpd in thenext few years and ultimately challenge Saudi Arabia as theworld's biggest oil power.
For China, access to reserves is a strategic imperative. AndBeijing is prepared to accept tougher terms and lower profitsthan Western oil majors and even Russian firms such as Lukoil,which have to answer to shareholders.
"China's expansion in Iraq is still largely driven byeconomics. There is little political thinking behind it," saidChen Weidong, head of energy strategy research at CNOOC.
That drive has taken China beyond the oilfields and into thestreets of Basra, where the Chinese are setting up shop.
"The Chinese are part of our society. They are not strangers. Their presence here in Basra makes us feel that ourcity is secure," said Ali Sa'adi, the 34-year-old owner of amobile phone shop.
"I'm happy they are here, despite the competition."
