Eric Watkins
OGJ Oil Diplomacy Editor
LOS ANGELES, July 12 -- Iraq has signed an agreement valued at $12 billion with Royal Dutch Shell PLC and Mitsubishi to capture natural gas currently being flared in oil fields in the country’s southern region.
Hans Nijkamp, Shell’s chairman for Iraq, said the agreement means that Iraq will probably within the year become a net exporter of liquid petroleum gas but that exports of LNG will happen “only when the domestic market is satisfied.”
Ali Al-Khudhier, head of Iraq’s state-owned South Gas Co., said, “Execution of the deal will open the competition door for Iraq to export [LNG] to the international market.”
Iraq currently produces 1.5 bcfd of gas, about half of which is flared due to the lack of the systems to produce and market the gas.
Iraq will use the gas produced under the agreement with Shell and Mitsubishi to help meet rapidly rising demand for electricity. That, in turn, will release more oil for export.
Any gas surplus to domestic needs could be exported, according to Iraqi officials who said the initial plan for the 25-year development joint venture includes establishing an LNG project aimed at exporting any excess gas with a maximum capacity of 600 MMcfd of gas.
As it stands, the 25-year agreement will help Iraq capture more than 700 MMcfd of gas that is currently being burnt off at three southern oil fields: Rumaila, Zubair, and West Qurna Phase 1.
In a slightly optimistic remark, Iraq’s Deputy Oil Minister Ahmed al-Shammaa said the agreement would help to increase Iraq's gas production to more than 2.5 bcfd.
An Iraqi oil official said the renegotiation of gas pricing and other legal issues had delayed finalizing the agreement, which has been under negotiation since the issue was first addressed in 2008.
“The Oil Ministry wanted the gas prices to be subsidized, while Shell and Mitsubishi were asking for global market prices,” the official said. “Iraq eventually agreed to increase prices for the gas that would be purchased from Basra Gas Co.”
Samuel Ciszuk of IHS Energy agreed on the impasse between the two sides, saying, “The tough thing was to get Shell to definitely agree to the terms, and as this was done and it was initialed, then the Cabinet will pass it.”
According to Thamir Ghadhban, energy adviser to Iraqi Prime Minister Nuri Al-Maliki, the Cabinet’s approval for the draft agreement is likely to occur within “a week or two.”
The Iraqi government will hold 51% of Basrah Gas, while Shell will hold 44% and Mitsubishi 5%.
Contact Eric Watkins at [email protected].
Photo from Esso SAF.
Map from Petrobras.
