Iraq cabinet approves $17 billion Shell gas deal
Iraq's cabinet approved a $17 billion deal with Royal Dutch Shell and Mitsubishi on Tuesday to capture gas that is now being flared off into the atmosphere at southern oilfields, a government spokesman said.business Updated: Nov 15, 2011 20:20 IST
Iraq's cabinet approved a $17 billion deal with Royal Dutch Shell and Mitsubishi on Tuesday to capture gas that is now being flared off into the atmosphere at southern oilfields, a government spokesman said.
The 25-year venture is expected to help Iraq make use of more than 700 million cubic feet per day of gas that is being burned off at three major fields around the southern oil hub of Basra and open the door to the export of liquefied gas.
Capturing flared gas is considered vital to ramping up power production in Iraq, where electricity demand is around double the supply.
"The cabinet approved the deal through establishment of a company called Basra Gas Company, a joint venture of the South Gas Company and the consortium of Shell and Mitsubishi, to capture the flared gas from the fields of Rumaila, Zubair and West Qurna," spokesman Ali al-Dabbagh said.
The Shell contract is one of the largest signed by Iraq as the OPEC-member nation rebuilds its oil industry and economy after years of sanctions and war following the 2003 US-led invasion that toppled Saddam Hussein.
Under the terms of the deal, which Iraq and the companies initialled in July, the government will hold 51% of the joint venture with Shell at 44% and Mitsubishi 5%.
"The value of the contract is $17 billion for 25 years," Dabbagh said.
The Shell joint venture is at the forefront of Iraq's plans to modernise energy facilities as it rebuilds after years of war and international sanctions.
Iraq loses an estimated 1 billion cubic feet per day of gas, mostly from southern fields. The Shell project may eventually handle up to 2 billion cubic feet of gas per day.
Iraqi officials have said the project could include building an LNG export facility with a maximum capacity of 600 million cubic feet of gas per day, so long as Iraq's own gas needs are satisfied first.
An unprecedented Iraqi oil production boom is expected to bring a huge increase in gas output, and analysts say there should soon be more gas than Iraq can consume, opening up the option to export.
A summary of the official agreement obtained by Reuters after the initial signing in July lists a $4.4 billion LNG export unit, in addition to the $12.8 billion estimated cost of rehabilitating existing gas facilities and building new ones, but it does not say when the LNG plant might be built.
The Shell-Mitsubishi partnership expects an internal rate of return on the project of 15% on an initial investment of $6.98 billion, while SGC plans to put in $3.7 billion of public funds initially and fund the rest through gas sales.