Iraq Likely to Sign Shell Gas Deal by End-2010 - Official

ISTANBUL (Dow Jones Newswires), Oct. 26, 2010

Iraq is meeting with Shell to finalize a draft of a $12 billion deal to develop a gas-structure project in southern Iraq, and may sign a deal by the end of this year, a senior Iraqi oil official said Tuesday.

"There is a meeting being held in Basra [Tuesday] to agree on a final draft contract," Asri Mousa, an Iraqi Oil Ministry technical advisor told Dow Jones Newswires on the sidelines of an Iraqi petroleum meeting in Istanbul. It could be the last meeting before sending the draft to the cabinet for approval, he said.

"We are expecting to sign the project with Shell by the end of this year," he said.

Asked why the project was delayed, Mousa said the two parties needed to agree on some legal wording of the draft contract and they had done so.

The Iraqi cabinet last month delayed the finalization of the project with Shell and Japan's Mitsubishi Corp. to capture gas from Basra's oilfields because of legal issues related to the joint venture. The cabinet already had approved the planned investment in June, but it is now waiting to sign the final draft once it is resubmitted by the oil ministry.

Production of the 25-year venture--in which Baghdad has 51%, Shell 44% and Mitsubishi 5%--is expected to reach 2.5 billion cubic feet a day, officials said.

The project calls for the construction of a liquefied natural gas terminal, to be built by Shell and Mitsubishi, to handle the export of 600 million cubic feet a day of gas.

Shell had said one option would be to create a floating LNG facility off the coast of Basra in southern Iraq, which would be particularly attractive from a security standpoint.

The joint venture initially would deliver gas to Iraq's domestic market, mainly for electricity generation, but would export the extra gas after meeting local need in the form of LNG.

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, Mousa said.

Shell in January signed two Iraqi super-giant southern oil fields--a lead role in Majnoon and a minority stake in West Qurna Phase 1. The project will also invest in gas produced from the Rumaila and Zubair oil fields.

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