BAGHDAD (Dow Jones Newswires), Feb. 14, 2011
Legal hurdles could delay for weeks, if not months, a long-awaited $12 billion joint venture deal with Shell to capture and market natural gas from Iraq's southern oil fields, said Iraq's Deputy Oil Minister.
The deal, also involving Mitsubishi, is a joint venture in which Shell would hold 44% of the project, Mitsubishi 5%, and Iraqi state South Gas Co. would own the remaining 51%. It aims at capturing associated natural gas produced at fields near the oil hub of Basra, including Rumaila. Shell in early 2010 finalized contracts with Iraq to produce oil from several large Southern oil fields.
"There are some legal and economic aspects in the draft deal and also old Iraqi laws are needed to be changed or amended to allow the implementation of the project," Ahmed al-Shammaa told Dow Jones Newswires in an exclusive interview.
Iraqi officials had originally intended to finalize the gas exports deal by the end of 2010. Iraqi officials expect to meet later this week to try to hash out a plan to allow exports to begin. Production of the 25-year venture is expected to reach 2.5 billion cubic feet a day, officials said.
Shamma said that according to oil and gas law established under the Saddam Hussein era, only the state oil marketing company, or SOMO, is eligible to export gas or crude oil. That poses a challenge to the Shell venture, even though another Iraq state entity holds a majority interest in the project. "There are officials in the ministry who think that the deal cannot be finalized under the past laws," Shamma said.
Iraq has yet to enact a new oil and gas law which has been stalled for more than two years. The government is hoping that the new law will be enacted this year.
The oil ministry has also hired two consulting firms, one from the U.S. and another from the U.K., to look at the legal and economic aspects of the draft gas deal with the Shell-led venture. "These firms have also found that some of the provisions of the deal aren't favorable for Iraq and proposed changes," Shamma said. He didn't name the two firms.
The deputy oil minister said that he, the deputy prime minister for energy affairs, Hussein al-Shahristani, and newly appointed oil minister Abdul Kareem Luaiby would attend a meeting in the ministry later this week to discuss how to resolve legal and economic hurdles. He expects that resolving these issues would take some time.
Shahristani, who is a former oil minister, had previously said that the deal could be signed by the end of last year.
The Iraqi cabinet already had approved the planned investment last June, but it is now waiting to sign the final draft once it is resubmitted by the oil ministry.
The joint venture initially would deliver gas to Iraq's domestic market, mainly for electricity generation, but would export extra gas after meeting local needs in the form of liquefied natural gas, or LNG.
The joint venture had seen opposition from Iraqi lawmakers and politicians who argued that the deal was not transparent and that the oil ministry didn't allow other international companies to compete for the project. The oil ministry, however, then said that three companies were invited and Shell won the deal.
Iraq, which has natural gas reserves totaling 112.6 trillion cubic feet, produces only around 1.6 billion cubic feet a day, half of which is being flared. However, the country has ambitions to become one of the world's biggest LNG exporters.
Last October, the country awarded three of its largest discovered gas fields to international companies.
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