Shell, Mitsubishi and the Iraqi government have finally signed the $17.2 billion deal on Sunday to capture flared gas at Iraq's southern oilfields.
The 25-year project is intended to boost production of badly needed electricity and reduce the environmental damage caused by flaring, as well as opening up the possibility of gas exports.
It will harness more than 700 million cubic feet per day of gas from the oilfields of Rumaila, Zubair and West Qurna, increasing eventually to 2 billion cubic feet per day.
The goal of 2 billion cubic feet per day capacity is linked to peak production at the southern fields, which is expected by 2017, Deputy Oil Minister Ahmed al-Shamma told Reuters.
"This day represents a historic change in the Iraqi oil industry ... the best utilisation of (associated) gas to meet the increasing needs for gas in Iraq," Luaibi said at a signing ceremony attended by Shell Chief Executive Peter Voser.
The Shell deal will involve the creation of the Basra Gas Company joint venture, in which the government will hold 51 percent, Shell 44 percent and Mitsubishi 5 percent.
Existing facilities are currently handling 370 million cubic feet of gas per day from seven southern fields.
The project may include the construction of an LNG export facility with a maximum capacity of 600 million cubic feet per day. Exports are possible once Iraq's domestic needs are met.
Officials say the project requires investment of $17.2 billion -- $12.8 billion to rehabilitate existing facilities and build new ones, and $4.4 billion for the LNG export unit.
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, Wall Street Journal)