Iraq May Delay Shell Gas Deal Until '10

VIENNA (Dow Jones Newswires), Sept. 8, 2009

A multibillion dollar deal between Royal Dutch Shell PLC (RDSA) and the Iraqi government to jointly develop domestic gas infrastructure in Iraq's south could be delayed until after the country's elections in January, a senior Iraqi oil official said Tuesday.

"We haven't yet finished work to finalize the deal," the official, who is involved in negotiations with Shell, told Dow Jones Newswires by telephone from Baghdad. "Teams from both sides could need until December to finish their work."

The official said the outcome of the talks must be submitted to the Iraqi government for approval before the $3 billion-$4 billion contract can be signed, and that would also take a few weeks.

A year ago in Baghdad, Shell and Iraq's South Gas Co. reached a preliminary agreement to produce gas from key Iraqi oil fields in the southern province of Basra. At the time, they agreed to finalize the deal in a year. The deal could give Shell a crucial foot in the door of Iraq's huge, but creaking, oil and gas industry in the southern Basra governorate.

Shell said it was still optimistic the deal would be signed on time.

"We are working with our Iraq partners to reach final agreements at the earliest time," Shell spokesman Christos Mylonas told Dow Jones Newswires in an e-mail.

However, the Iraqi official said although the heads of agreement signed with Shell in September last year states the deal should be finalized in a year, it also states the deadline can be extended for six months.

Iraqi Prime Minister Nouri al-Maliki and Oil Minister Hussein al-Shahristani are both backing the deal, but it faces a great deal of opposition from Iraqi lawmakers, politicians and trade unions, who say the agreement should have first been ratified by the country's parliament.

Analysts say the government might choose to delay finalizing the deal until after the January elections because signing the contract could harm Maliki's chances of winning.

Iraqi Oil Ministry officials say the agreement is meant to utilize the 800 million cubic feet of gas flared every day in southern Iraq as a byproduct of oil production. However, according to the Heads of Agreement seen by Dow Jones Newswires, the deal is much bigger than previously announced and may lead to earlier exports of liquefied natural gas from Iraq.

"We believe that the South Gas Utilization Project is important and would open many options to Iraq to make the best use of its natural gas," the Shell spokesman said. The project aims to fast track the capture of a vast quantity of natural gas, which is currently being flared and therefore reduce negative environmental impacts, he said.  

Copyright (c) 2009 Dow Jones & Company, Inc.