Iraq approves $17bn Shell gas capture project

Anglo-Dutch supermajor rewarded for playing by the rules by Baghdad

News follows disclosure of ExxonMobil's deals in Iraqi Kurdistan, whcih prompted a rebuke from the Oil Ministry.
News follows disclosure of ExxonMobil's deals in Iraqi Kurdistan, whcih prompted a rebuke from the Oil Ministry.

 After four years of wrangling and delay, The Shell gas capture deal has been given final approval by the Iraqi cabinet.

The sudden approval of the deal follows the Kurdish Regional Government’s disclosure that it has awarded six production sharing contracts with ExxonMobil, prompting a stinging rebuke from Baghdad, which holds that such contracts are illegal.

Though the approval process has been progressing somewhat in recent months, Shell’s sudden approval may be their reward for obeying the dividing line Baghdad insisted on between the technical services contract environment in the south and the profit-sharing model favored by the KRG.

The joint venture, held 51% by Iraq’s South Gas Company, 44% by Shell and 5% by Mitsubishi Corporation., will be called Basrah Gas Company (BGC) and will gather raw gas that is currently flared because of a lack of infrastructure to collect it.

Shell will provide project management and technical expertise with the intention to facilitate the learning and development of Iraqi staff to progressively assume key positions in the management of the company.

“Capturing this gas will create a reliable supply of energy for Iraq while at the same time reducing greenhouse-gas emissions”, said Shell Chief Executive Officer Peter Voser. “This also sends a positive signal about the investment climate in the country”.

The joint venture will collect and process raw gas from the Rumaila, Zubair and West Qurna 1 and Majnoon fields in the southern part of the country. The primary market for the gas will be Iraq, but any surplus can potentially be exported.

Some 700 million standard cubic feet of gas is currently burned off each day in southern Iraq. At current prices, the gas is worth about $1.8 billion per year.
Burning it creates as much greenhouse gases each year as 3.5 million cars.

In September 2008, Shell signed a preliminary agreement with the Iraqi Ministry of Oil for a gas gathering project. The agreement established the commercial principles to establish a joint venture between Shell and the South Gas Company. An official signing ceremony will be scheduled in the near future.

In Iraq Shell is the operator of a consortium providing technical assistance in the development of the Majnoon field.

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