Iraqi government approves gas deal with Royal Dutch Shell PLC

Iraq approves gas deal with Shell

BAGHDAD — Iraq has approved a $17 billion joint venture project with Royal Dutch Shell PLC to tap associated natural gas in four southern oil fields, the government announced Tuesday in its latest push to develop an oil sector battered by years of neglect and war.

The deal is expected to be a key part of the government’s strategy to alleviate its power generation woes as chronic power outages have led to sometimes violent protests over the past few weeks.

Under the deal, Iraq will hold a 51 percent stake in the new Basra Gas Company while Shell will hold a 44 percent share. Japan’s Mitsubishi Corp. will hold the remaining five percent stake in the company, according to a government statement. It did not say when the final signing will be.

Iraq, which is home to the world’s third largest proven reserves of conventional crude oil, sits on an estimated 112 trillion cubic feet of natural gas reserves. Of the 1.5 billion cubic feet per day of gas it produces, almost half is burned off at the wells.

The deal, which is Shell’s third in Iraq since the 2003 U.S.-led invasion, was designed to tap all the associated gas in Iraq’s oil rich southern province of Basra. It was later amended, however, to include the four oil fields that were among the 11 fields awarded to foreign oil companies in two bidding rounds last year.

Thamir al-Ghadhban, the Iraqi prime minister’s chief adviser on energy, said the latest deal is worth about $17 billion, including $5 billion of existing infrastructure assets.

The project also marks a major step in Iraq’s effort to capture and put to use for generating electricity the natural gas that has routinely been burned off — or flared — at the fields because the country lacks the necessary infrastructure to bring the gas to market.

Officials see the capture of the gas as an important step in dealing with chronic power cuts that have recently led to protests, including one that left two dead in Basra and forced the electricity minister to resign.

Since the 2003 U.S.-led invasion, the government has spent billions working to rebuild Iraq’s national electrical grid, which was in poor shape because of various wars over the past decades. Most Iraqis only receive between five to seven hours of power a day.

Last May, with an eye on boosting gas output, Iraq invited international energy companies to bid to develop three untapped gas fields in an auction set for Sept. 1.

Once these fields are brought online, the production will be used to meet Iraq’s growing energy needs as well as possibly exporting to neighboring countries or the European Union.

Iraq’s latest five-year plan, approved in April, forecasts crude oil output growing to 4.5 million barrels per day by 2014, from the current 2.4 million barrels per day. Oil exports are forecast to grow to 3.1 million by the same year, compared to roughly 2 million barrels per day now.

It also plans to produce 2.75 billion cubic feet a day of gas by 2014, with the increase coming mainly from the fields to be auctioned.