UPDATE 2-Iraq says China seeking 70 pct more crude in 2014
* China seeks 850,000 bpd of Iraqi crude for 2014 - Iraq min
* Iraq sees 4th crude export terminal to start by end-Q1, 2014
* Total export capacity to reach 4 mln bpd
* OPEC members should accommodate any return of Iran to mkt
(Recasts, adds comments on China seeking to boost purchases)
DAEGU, South Korea, Oct 16 (Reuters) - Iraq said China is seeking to increase purchases of its crude by more than two-thirds next year, stepping up the rivalry between Baghdad and top exporter Saudi Arabia for a bigger slice of the growing Asian market.
Rapid increases in Iraq's oil output after years of unrest have helped cushion oil markets from wide price swings as shipments from OPEC-member Iran were halved due to tightening Western sanctions amid unstable output from other exporters such as Libya and Sudan.
Iraq has provided crucial supplies, giving consumers another option besides Saudi Arabia as the main alternative exporter.
"Iraq is in a lucky position because we always get more requests than we can actually supply," deputy prime minister for energy Hussain Al-Shahristani said on Wednesday at the World Energy Congress in South Korea.
China is seeking 850,000 barrels per day (bpd) of crude from Iraq next year, Al-Shahristani said, significantly narrowing the gap between Iraqi and Saudi Arabian exports. The energy minister also said he expects more requests for 2014 supply from China.
Saudi Arabia shipped 1.08 million bpd of crude to China in the first eight months of this year, while Baghdad has an annual term deal to sell about 500,000 bpd into China this year.
It was not immediately clear which Chinese oil companies were seeking the additional volumes. But a rapid increase in China's refining capacity over the past few years means it is reasonable to expect it to seek a quantum jump in purchases.
"An increase of 300,00 bpd is quite reasonable. Sinochem could raise its crude purchase from Iraq for its newly-built refinery in Quanzhou," said a senior Chinese crude oil trader. "Other companies such as Sinopec may also raise imports from Iraq. China will absorb the increase of Iraqi crude exports."
RAISING EXPORT CAPACITY
Iraq is set to expand its oil export capacity and is wooing Asian customers by offering easier payment terms as it ramps up output, countering infrastructure and security issues that have this year hampered the Middle Eastern nation's efforts to maintain steady output and exports.
The country is planning to raise its total export capacity to 4 million bpd, Al-Shahristani had said earlier on the sidelines of the conference in South Korea.
"By the end of the first quarter we should have (the additional capacity," he said.
Iraq's current crude output is now back up to 3.3 million bpd, and may touch 3.5 million bpd by year-end.
The Middle Eastern nation is exporting 2.5 million bpd, with 60 percent going to Asia, 20 percent to the American market and the rest to Europe, he said.
But Iraq may not use the country's export capacity to its full potential and may instead work on upgrading some of the older export facilities, the minister said.
"We will be taking some of our old terminal for upgrading because we don't (currently) need them," he said.
Iraq's total storage capacity has been recently raised to more than 7 million barrels, he also said.
Iraq's terminal upgrading activity this year and other work to improve its export capacity have sharply reduced it exports in some months this year.
Exports fell to 2 million bpd in September, the lowest rate in 19 months, as the terminal repair and expansion work reduced shipments of Basra Light crude, which accounts for most of Baghdad's export revenue.
Asked whether OPEC members will discuss a change in production targets in December, Al-Shahristani said: "The world is satisfied with current OPEC production. We don't see any reason to change the production target."
The Organization of the Petroleum Exporting Countries, which pumps more than a third of the world's oil, meets on Dec. 4 in Vienna to decide whether to adjust its output target.
One topic of discussion in Vienna, however, may be on how to make room for any resurgence of Iranian exports.
If the United States and the European Union begin to ease their sanctions on Iran as talks progress over Tehran's disputed nuclear programme, it is the OPEC members, excluding Iraq, that will have to make way for increased output and exports of Iranian crude, Al-Shahristani said.
"It is Iran's right to produce its quota under OPEC agreement. Iraq is exempted from any quota levels. Obviously the countries that have been producing at Iran's expense will have to accommodate the return of Iran to the market," he said.
The U.S. and EU sanctions have cut Iran's exports in half, cost it billions of dollars a month in lost revenue, weakened its currency and crippled its economy. The European Union and the United States believe Iran is developing nuclear weapons, while Tehran says its programme is for power generation.
The election of moderate reformer Hassan Rouhani to Iran's presidency in June raised hopes in the West that Iran is finally ready to strike a deal.
Iran outlined a proposal to world powers on Tuesday on resolving the decade-old standoff over its nuclear programme, but both sides at the talks in Geneva warned it was too early to say if a breakthrough was within reach.
(Additional reporting by Florence Tan in DAEGU and Judy Hua in BEIJING; Editing by Manash Goswami and Tom Hogue)