Shell, Iraq Gas Deal Progressing, Cabinet To OK Study

BAGHDAD (Dow Jones Newswires), Jul. 7, 2009

The multibillion dollar deal between Royal Dutch Shell PLC and the Iraqi government to jointly develop domestic gas infrastructure in Iraq's south is progressing and the oil ministry is submitting a feasibility study to the cabinet before concluding a final deal, Iraq's deputy oil minister said Monday.

"We are planning to submit a comprehensive feasibility study on the project to the cabinet by the end of this month," Ahmad al-Shammaa told Dow Jones Newswires in an interview. Both sides had held several meetings outlining details of the contract such as what to do with produced dry and liquefied gas, he said.

"The company is thinking of exporting extra gas after meeting domestic needs though setting up offshore installations."

Shell and Iraq's South Gas Co. last September reached in Baghdad a preliminary agreement to produce gas from key Iraqi oil fields in the southern Basra province. They agreed that they should sign the final deal in a year.

According to the agreement Iraq's South Gas Co. will control 51% while Shell will hold the remaining 49% of the venture.

The joint venture will exploit flared associated gas for domestic use and export the rest as liquefied natural gas via the Arabian Gulf using Iraq's southern ports or through pipelines. The agreement with Shell has drawn a lot of criticism from various Iraqi politicians and oil industry figures, who argue that Shell didn't compete with other international companies to get the deal.

The oil ministry, however, says Shell was chosen among other international companies invited to compete for the deal. Around 800 million cubic feet of natural gas is burned off each day from Basra oil fields because there is no infrastructure to utilize it. The government wants to use the gas for domestic electricity production and export the remainder.

Iraq, which has proven natural gas reserves of 3.15 trillion cubic meters, has a daily natural gas production of 1.64 billion cubic feet, 70% of which was flared. Two gas fields listed in Baghdad's first bid round concluded June 30 weren't awarded to international companies.  

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