Iraq Signs $12 Billion Deal with Shell & Mitsubishi

Source: Reuters 7/12/2011, Location: Middle East

Iraq signed a final draft agreement with Royal Dutch Shell and Mitsubishi for a $12 billion deal to capture flared gas at southern oilfields.The long-awaited deal still needs the approval of Iraq's cabinet, Oil Minister Abdul-Kareem Luaibi said in a statement. Iraq has struggled for years with power blackouts and risks years of electricity shortages until associated gas from oilfields is captured and fed to new power plants.

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 U.S.-led invasion in 2003. Using associated gas is a centerpiece of Iraq's master plan to boost electricity production to keep up with demand that is double the rate of supply. "The execution of the deal will open the competition door for Iraq to export liquefied natural gas to the international market," Ali al-Khudhier, head of state-run South Gas Co. said in a statement.

Iraqi officials previously have said the initial plan for the 25-year development joint venture includes setting up a liquefied natural gas project at a later stage to export any excess gas with a maximum capacity of 600 million cubic feet of gas per day. LNG is gas chilled to liquid form for shipping to export markets on specially designed tankers. The Iraqi government will hold 51 percent of the venture, while Shell will hold 44 percent and Mitsubishi the rest. The initial signing took place behind closed doors without media coverage despite last-minute confusion over whether it was going to happen.

Two sources told Reuters the oil ministry had scheduled the signing for Tuesday, but then on Monday the ministry retracted an invitation it had sent earlier to the press and said the signing would be delayed without giving a reason. But an Iraqi oil source and another source close to the deal told Reuters earlier the contract had been initialed on Tuesday morning.


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