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Iraq finally inks $12 billion Shell south gas deal

Agreement for associated gas development now passes to Iraqi cabinet

The 25-year, $12 billion deal now passes to the Iraq cabinet for approval. GETTY IMAGES
The 25-year, $12 billion deal now passes to the Iraq cabinet for approval. GETTY IMAGES

Shell and Mitsubishi have finally initialled a deal with the Iraqi oil ministry for the capture and processing of 700 million cubic feet of associated natural gas per day from the Basra oil fields.

The news follows conflicting reports of whether the deal was on or off this week. Progress to this stage has been tortuous, with political problems and disagreement between the parties over how to utilise the captured gas holding the draft agreement in aspic since 2008.

The 25-year, $12 billion deal now passes to the Iraq cabinet for approval, and is expected to pass. The news was initially leaked by two officials connected to the negotiations, and was subsequently confirmed by the Oil Ministry.

A joint venture called Basra Gas Company has been set up with the Iraqi government holding a 51% stake, according to Reuters.

The oil ministry had scheduled the signing for Tuesday, but then on Monday announced it would be delayed without giving a reason. But an Iraqi oil source and another source close to the deal told Reuters the contract had been initalled this morning.

"The Oil Ministry wanted the gas prices to be subsidised, while Shell and Mitsubishi were asking for global market prices," an Iraqi official told Reuters. "Iraq eventually agreed to increase prices for the gas that would be purchased from Basra Gas Co."

Despite the snags the initial signing of the deal was seen as a breakthrough, analysts said. "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," Samuel Ciszuk of IHS Energy told Reuters.

Iraq is losing 1 billion cubic feet per day of gas through flaring, 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.

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