Shell and Mitsubishi signed a final draft agreement with Iraq on Tuesday for a deal worth between $12 billion and $17 billion to capture flared gas at the southern oilfields.
The long-awaited deal still needs the approval of Iraq’s cabinet, Oil Minister Abdul-Kareem Luaibi [Elaibi] said in a statement.
The Iraqi government will hold 51 percent of the venture, while Shell will hold 44 percent and Mitsubishi the rest.
The joint venture, to be called Basra Gas Company, will be vital to Iraq’s plans to boost electricity production to keep up with demand that is double the rate of supply.
“The execution of the deal will open the 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.
Iraq is losing 1 billion cubic feet per day of gas throughflaring, mostly from the south. It would use the gas produced under the Shell project in the domestic market to help meet the rising demand for electricity and export the surplus.
Iraqi officials have previously said the initial plan for the 25-year project 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 venture would help Iraq capture more than 700 million cubic feet per day of gas being burnt off at three southern oilfields — Rumaila, Zubair and West Qurna I.
Reuters reports that 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 on Sunday 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 initialled on Tuesday morning.
The project faced legal snags and some political opposition in the past since an initial pact was struck in 2008.
A renegotiation of gas pricing and other legal issues were the latest reasons to delay finalising the deal, an Iraqi oil official close to the talks told Reuters on condition of anonymity.
“The Oil Ministry wanted the gas prices to be subsidised, while Shell and Mitsubishi were asking for global market prices,” said the official. “Iraq eventually agreed to increase prices for the gas that would be purchased from Basra Gas Co.”
“The tough thing was to get Shell to definitely agree to the terms, and as this was done and it was initialled, then the cabinet will pass it,” said Samuel Ciszuk of IHS Energy.
Shell said in a statement that it was “very pleased the Basrah Gas Company Joint Venture agreements have been initialized” and that the oil company will now “look forward” to Cabinet approval.
(Sources: Reuters, Wall Street Journal, Associated Press)