Iraq, Shell to Sign $12bn Gas Deal

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Iraq and Royal Dutch Shell PLC (RDSA) and its partners will sign Tuesday the long-stalled $12 billion gas deal to capture and exploit huge volumes of gas flared from southern oil fields, the deputy spokesman of Iraq’s oil ministry said Sunday.

The project is crucial to Iraq’s plans to expand its oil production, because as oil output rises, the associated gas that is produced with the oil will need to be handled.

Once signed, the deal still needs the approval of the Iraqi government.

Since the signing of an initial agreement in 2008 to begin negotiations on the project, the oil ministry has been working to finalize a joint venture between its South Gas Co., Shell and Japan’s Mitsubishi Corp. (8058.TO) to capture and exploit the huge volumes of gas flared from three giant southern oil fields: Rumaila, Zubair and West Qurna Phase 1.

According to a heads of agreement for the 25-year-project, which was signed in 2008, Iraq’s state-run South Gas Co. holds 51%, Shell 44% and Mitsubishi 5%.

The delay in the deal was caused mainly over the pricing of produced gas that the joint venture would sell to the Iraqi government for much-needed power generation in Iraq.

The joint venture, named Basra Gas Co, would be at the forefront of Iraq’s plans to modernize its energy facilities and boost oil exports that hover around levels seen before the US-led invasion in 2003. The Iraqi government will hold 51% of the venture.

Iraq has struggled for years with power blackouts and risks years of electricity shortages until associated gas from vast oil fields in the south is captured and fed to new power plants.

Iraqis losing 1 billion cubic feet per day of gas through flaring, mostly from the south.Iraqwould use the gas produced under the agreement with Shell in the domestic market to help meet rapidly rising demand for electricity and could export the surplus.

Shell is already poised to become a major player in the development of Iraq’s oil, having secured the lead role at the supergiant southern Majnoon oil field and a minority stake in West Qurna- Phase 1.

Sources: WSJ, moneycontrol

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