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Shell in billion dollar gas deal with Iraq

Latest update : 2008-09-09

Royal Dutch Shell has settled on a joint gas venture with Iraq worth up to four billion dollars. The agreement will make the Anglo-Dutch energy giant the first Western oil group to access the troubled country's energy reserves.

Anglo-Dutch energy giant Royal Dutch Shell has agreed to a gas joint venture with Iraq worth up to four billion dollars, the Iraqi oil ministry said Tuesday, becoming the first Western oil major to gain access to the violence-wracked country's vast energy reserves.

The deal to capture unwanted gas burned off during oil production for sale both inside Iraq and abroad is expected to be signed in Baghdad next month, ministry spokesman Assem Jihad told AFP.

It would make Shell the first Western oil group to return to Baghdad since the US-led invasion of 2003 and the Financial Times said it is estimated to be worth about between three billion and four billion dollars.

Iraq's cabinet approved the contract, giving the state-owned Southern Oil Company 51 percent and Shell 49 percent in the venture based in the main southern city of Basra.

The project is intended to make use of the 21 million cubic metres (700 million cubic feet) of gas -- roughly enough to meet the demand for all of Iraq's power generation -- that the oil industry burns off for safety reasons, the FT said.

"Our joint venture partnership is for the long term, because the investment to capture gas is a long process," Jihad told AFP.

"Europe is looking for supplies of gas from Iraq," Jihad told the paper. "Security used to be a deterrent but now companies feel that security has improved and this will encourage others to come in."

Analysts welcomed the news saying that some of the liquefied natural gas for export could be used to meet booming demand for energy in the fast growing economies of the Middle East, especially the Gulf.

"There are untapped resources in Iraq and if Shell can help develop them there is loads of potential for gas," said Michael Corke, a vice president in Dubai for energy consultancy Purvin and Gertz.

Iraq has the world's third largest oil reserves and its natural gas reserves are also huge and almost completely untapped.

According to US-based industry report the Oil and Gas Journal, Iraq holds 112 trillion cubic feet (3.36 trillion cubic metres) of proven gas reserves, the world's 10th largest.

"Gas in Iraq is much less developed than oil," said Walid Khadduri, a consultant and energy analyst for Middle East Economic Survey.

Iraq's energy industry is in dire need of modern equipment and technology after production facilities went into decline during the decade of crippling UN sanctions that followed the 1990 invasion of Kuwait.

Iraq has now called on international firms to help it develop its energy resources and in June agreed to invite 35 companies to bid on service projects but failed to sign expected technical support deals with six other energy majors.

The oil ministry threw open six oilfields and two gas fields for international bidding for the 35 companies for which contracts are expected to be signed in June next year.

The separate preliminary agreements with the six other energy majors were meant to open the way for longer-term contracts but are now likely to be scrapped, Jihad said.

"After delays and differences with the companies over the length of contracts, the (oil) ministry is now inclined to bypass that stage and focus on longer-term development contracts," he added.

However, last month China became the first foreign group to reach an agreement with Iraq in a three billion dollar deal to exploit oil.

It revived a 1997 contract granting China the rights to develop the Al-Ahdab oil field in central Iraq, although again the new arrangement is only a service agreement and includes no revenue sharing.

Date created : 2008-09-09