$4bn agreement between Shell and Iraq

Iraq and Royal Dutch Shell are expected to sign a pivotal agreement today that will clear the way for up to US$4 billion (Dh14.68bn) of joint investment to exploit Iraqi gas production that is presently going to waste. The deal would be the first production sharing agreement between Iraq's federal government and a foreign energy company since the country's oil and gas industry was nationalised in the 1970s. "Iraq is expected to sign the natural gas agreement with Shell on Monday in Baghdad," said an Iraqi oil ministry spokesman, Asim Jihad, according to Reuters. He said the Iraqi oil minister, Hussain al Shahristani, and officials of Iraq's state-owned South Oil Company would represent Baghdad at the signing ceremony. On Sept 7, Iraq's cabinet approved a preliminary deal between the Anglo-Dutch energy major and South Oil for a venture in Iraq's southern oil province of Basra, in which Southern Oil would hold a 51 per cent interest and Shell the remaining 49 per cent stake. The agreement allows for the rapid development of large amounts of gas pumped as a by-product of oil from Iraq's vast oil fields. Much of this "associated gas" is being burnt or "flared" due to lack of facilities to gather, process and transport it to would-be end-users or markets. "The deal holds vast potential for Shell and Iraq alike, turning the current wasteful burning of gas that the country has no infrastructure or know-how to monetise into a lucrative opportunity to supply domestic markets, as well as earn export revenues," said Samuel Ciszuk, the Middle East energy analyst with Global Insight, a business intelligence firm. Under Shell's Iraq Gas master plan, which won provisional clearance from Baghdad earlier this year, South Gas and Shell would invest between $3bn and $4bn to gather the gas, which would be used domestically to generate electricity as a top priority. Iraq, which is desperately short of electricity following years of misrule and war, will soon be in dire need of natural gas to fuel power plants as it rebuilds its electricity infrastructure, analysts said. tcarlisle@thenational.ae