Business

China gets approval for Afghanistan oil exploration bid

Beijing ring road
Image caption China's rapid economic expansion has resulted in a surge in demand for fuel in the country

China has gained potential access to millions of barrels of oil after it won approval for oil exploration and extraction in Afghanistan.

The country's cabinet approved a deal to allow China National Petroleum Corporation (CNPC) to develop oil blocks in the Amu Darya Basin.

The basin is estimated to hold around 87 million barrels of oil.

The deal comes as China is looking to expand its oil resources in wake of a growing domestic demand.

"The Afghan cabinet has ordered mines minister Wahidullah Shahrani to sign an oil exploration contract for Amu Darya with China National Petroleum Corporation," Afghanistan president's office said in a statement.

'Taking a punt'

The state-owned CNPC will carry out the oil exploration and extraction with a local partner, the Watan Group.

While there has been a lot of talk about the potential of natural resources in Afghanistan, analysts said that it was too early to predict the profitability of the venture.

"To a certain extent they are taking a punt," Tony Regan of Tri-Zen, a Singapore-based consultancy, told the BBC.

Mr Regan explained that CNPC will have to spend a considerable amount of money to explore the basin before it can actually find out about the amount of oil that may exist there.

"It is about five to ten years before they can get a feel of what is under the ground and start commercially producing it," he added.

Growing investments

The approval is a major win for China as it has been looking to invest in resource-rich Afghanistan.

However, analysts said that resources is not the only sector that China is looking to invest in.

"The deal is a way of getting a foot inside the door," said Charles Chaw of China Knowledge Consulting.

The ongoing war in Afghanistan has seen its infrastructure and economy being damaged.

Analysts said that as peace returns to the country, it will require a lot of rebuilding activity in order to trigger economic growth in coming years, something that China is keen to tap into.

"China is looking towards a much bigger scale of investment," said Mr Chaw.

"This could involve projects in infrastructure, including high-speed rail in times to come," he added.

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