Reuters reports that Iraq's cabinet approved a $17 billion deal with Royal Dutch Shell and Mitsubishi on Tuesday to capture gas that is now being flared off in the oilfields around the southern oil hub of Basra.
The 25-year venture is expected to help Iraq make use of more than 700 million cubic feet per day of gas that is being burnt off at Rumaila, Zubair and West Qurna, government spokesman Ali al-Dabbagh said. "The value of the contract is $17 billion for 25 years," he added.
The deal establishes a new company called the Basra Gas Company, a joint venture of the South Gas Company and the consortium of Shell and Mitsubishi, and could open the door to the export of liquefied gas. The contract is one of the largest signed by Iraq.
Capturing flared gas is considered vital to ramping up power production in Iraq, where electricity demand is around double the supply.
Under the terms of the deal, which Iraq and the companies initialled in July, the government will hold 51 percent of the joint venture, with Shell at 44 percent, and Mitsubishi 5 percent.
Iraq loses an estimated 1 billion cubic feet per day of gas, mostly from southern fields. The Shell project may eventually handle up to 2 billion cubic feet of gas per day.
Iraqi officials have said the project could include building an LNG export facility with a maximum capacity of 600 million cubic feet of gas per day, so long as Iraq's own gas needs are satisfied first.
A summary of the official agreement obtained by Reuters after the initial signing in July lists a $4.4 billion LNG export unit, in addition to the $12.8 billion estimated cost of rehabilitating existing gas facilities and building new ones, but it does not say when the LNG plant might be built.
The Shell-Mitsubishi partnership expects an internal rate of return on the project of 15 percent on an initial investment of $6.98 billion, while SGC plans to put in $3.7 billion of public funds initially and fund the rest through gas sales.
(Sources: Reuters, Bloomberg, Dow Jones)