September 19, 2011 13:23
The failure of the Korea National Oil Corporation's drilling project in the Kurdish autonomous region of northern Iraq is about to cost the state-run company US$400 million. After drilling at four out of five potential sites, KNOC discovered that they have either no oil or extremely small deposits. The remaining site is also believed to hold only a small amount of oil, making it too costly to develop.
Since the Lee Myung-bak administration was inaugurated in 2008, it has touted the Kurdish oil field development project as a shining symbol of its so-called "resource diplomacy." One of the first foreign leaders Lee met in February of 2008, when he was still president-elect, was the prime minister of the Kurdish autonomous region. Lee said at the time that by drilling for oil there, Korea would be able to secure 1.9 billion barrels of the precious commodity, twice its annual consumption, as well as participate in infrastructure projects in the region.
But experts immediately raised questions over the feasibility of the project. They said international oil companies are not interested in the area due to the small amount of reserves, and there were also concerns over the continuity of the project, which was not authorized by the central Iraqi government. Another cause for concern was that a person who had been jailed during the Kim Dae-jung administration for taking kickbacks was one of the key figures involved in the deal.
But the government and KNOC pushed ahead with a formal contract, which was signed in June 2008, making it appear as if oil would gush out of the deposits as soon as drilling started. But the project has failed and KNOC is left with the tab. The government claims it should be able to get at least the drilling fee back in crude oil, but KNOC is highly likely to incur more losses, because it has fallen out of favor with Baghdad and was excluded from oil and gas development projects in the rest of the country.
Oil drilling projects are potential goldmines, but the success rate is less than 30 percent even for major international oil companies. The government has revealed that it lacks knowhow, connections and information needed to pursue an oil development project. Due to its inability to verify the questions raised by skeptics, it was duped by an individual with a track record of dodgy dealings.
Naturally this has caused concerns that many of the other overseas resource development projects signed by the Lee administration are not economically feasible. The government must make sure those responsible for the Kurdish fiasco are held responsible and use this opportunity to take another look at the projects currently underway.
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