Gas Deal can Boost Iraq’s Energy Sector

Tuesday, July 12, 2011 @ 05:07 PM gHale


Iraq is getting back in the energy ball game as Royal Dutch Shell PLC and Japan’s Mitsubishi Corp. signed a deal to tap natural gas in the country’s south.

The deal, which is worth between $12 billion to $17 billion, sets up a joint venture firm to gather, process and market associated natural gas in the oil rich province of Basra. The deal is a key part of the government’s strategy to boost power generation in a nation where chronic electricity outages have at times led to violent protests. The catch is the energy sector has suffered from years of neglect.

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Unlike other energy deals Iraq signed with international energy companies since the 2003 U.S.-led invasion, officials signed this latest deal behind closed doors.

The joint venture is the Basra Gas Company. Iraq will hold a 51 percent stake to Royal Dutch Shell’s 44 percent and Mitsubishi’s 5 percent share.

The signing marks a vital development in a project bogged down in legal issues since Iraq and Shell signed a memorandum of understanding in September 2008.

Iraq burns off almost half of the 1.5 billion cubic feet per day of gas that it produces and the 25-year-development deal would help the country capture more than 700 million cubic feet per day of gas from three southern oil fields. The country sits on the world’s fourth largest proven reserves of conventional crude and about 126.7 trillion cubic feet of undeveloped gas reserves.

In a brief statement issued after the signing, Iraqi Oil Minister Abdul-Karim Elaibi said that “important amendments” are in the draft deal based on recommendations from Iraqi experts and three international legal consultancy firms.

Since the 1990s, Iraq, which sits atop the world’s fourth largest proven reserves of conventional crude, has spent billions trying to rebuild its dilapidated electrical grid.

The sector, along with the vital oil sector, suffered from years of wars and sanctions and Iraqis, even years after the 2003 U.S.-led invasion to topple Saddam Hussein, only get between five to seven hours of power per day.



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