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Shell Gas Deal Seen Delayed Past Iraq Elections

Source: Reuters 9/5/2009, Location: Middle East

Political opposition to a gas venture between the Iraqi government, Royal Dutch Shell and Mitsubishi may delay its finalization until after national elections in January, a senior oil official said on Saturday.

Deputy Oil Minister Ahmed al-Shamma, stressing he spoke for himself rather than the Iraqi Oil Ministry, said he expected the project in southern Iraq would be not be signed until after the Jan. 16 elections in which Iraq will select a new parliament.

"In the current climate, signing the deal and making a decision is very difficult essentially because there is strong opposition, used by politicians for other reasons not related to gas and investment in gas for political objectives." "This is my personal expectation, It is not related to the desires of the ministry or the government," Shamma said. The Iraqi government has been working to finalize the joint venture between its South Gas Company and the two foreign firms, which will capture flare gas released as a by-product of crude oil extraction around Iraq's southern oil hub of Basra.

The gas venture, once in place, will be at the forefront of Iraq's plans to modernize dilapidated oil and gas facilities, update technology and boost oil output that over six years after the 2003 ouster of Saddam Hussein hovers around pre-war levels.

Yet the deal, which would harness for export or domestic use huge amounts of gas Iraq currently burns off into the ether, faces opposition from lawmakers who criticize its terms and say it will be unconstitutional unless sent to them for approval.

They have threatened to revoke the deal and push Shell out of Iraq - just one front in the bitter turf war between Iraq's executive and legislative branches over who has the authority to broker major energy deals in the absence of new energy laws long delayed by a feud between majority Arabs and minority Kurds.

The debate extends to deals Iraq hopes to sign in two rounds of bidding for major oil and gas contracts, the anchor of its oil strategy. Iraq has already awarded one deal in the first round, which concluded in June, to a BP-led (BP.L) group.

The second round is expected to culminate in December.

But the first national elections since 2005, which some Iraqis fear may set off resurgence in violence just as U.S. troops prepare to withdraw, weigh heavily on negotiations over the future of Iraq's energy sector.

Compromise on difficult issues, such as oil, in Iraq's parliament may become even more difficult ahead of the polls. Uncertainty about the next government's position on energy deals, and questions about whether Oil Minister Hussain al-Shahristani will be reappointed, may intensify doubts among investors already wary about Iraq's security and legal risks.

Iraq and Shell have already signed an initial agreement for the gas project, but the venture must still be finalized.

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