Iraq Signs $17 Billion Joint-Deal With Shell, Mitsubishi

November 27, 2011Investingby EW News Desk Team


The Iraqi government has finalised a $17 billion deal with Royal Dutch Shell and Mitsubishi, as part of a joint venture to capture flared natural gas from the nation’s southern oilfields, reported Reuters on Sunday.

"This day represents a historic change in the Iraqi oil industry,” said Iraqi Oil Minister Abdelkarim al-Luaybi at a signing ceremony attended by Shell CEO Peter Voser and Mitsubishi Vice President Tetsuro Kuwabara. “The best utilization of (associated) gas to meet the increasing needs for gas in Iraq.”

Presently, more than 700 million cubic feet of natural gas gets burned off at Iraq’s southern oilfields every day, with analysts estimating that the country is losing up to $5 million daily in potential revenues. According to Fabrice Mosneron Dupin, an adviser at the Sustainable Energy, Oil, Gas and Mining Division of the World Bank-led Global Gas Flaring Reduction program, Iraq burns off more gas as a percentage of production than any other country in the world, with the nation coming in fourth for the highest amount of gas flares in the world, behind Russia, Nigeria and Iran.

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Iraq’s flaring of associated gas has increased to 10 billion cubic meters a year from 3 billion in 1994, in tandem with the country’s rising production of crude, said Dupin in an interview with Bloomberg Businessweek.

The 25-year project, which is one of the largest deals that Iraq has ever signed with a foreign energy firm, will help to harness the natural gas that is being burnt off, and will ultimately be able to handle up to 2 billion cubic feet of gas per day.

"We expect within a year to complete all the preparation to process 1 billion cubic feet. The other 1 billion cubic feet will depend on the increasing production from the three oil fields," said Iraq’s Deputy Oil Minister Ahmed al-Shamma.

Iraq holds the fifth largest natural gas reserves in the Middle East and wants to produce more as fuel for power stations, which have thus far been unable to meet domestic demand since the 2003 US-led invasion that toppled President Saddam Hussein. The country hopes eventually to export gas, added al-Luaybi.

As part of the project, a Liquefied Natural Gas (LNG) export facility may be constructed in southern Iraq that will hold a maximum capacity of 600 million cubic feet per day.

al-Shamma estimates that more than $31 billion of revenues will be generated over the 25-year period, with peak production capacity expected to be reached by 2017. 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 the state-owned South Gas Company plans to put in $3.7 billion of public funds initially and fund the rest through gas sales.

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Shell CEO Peter Voser declared on Sunday that Iraq was now an “important partner for us in the Middle East,” with his company set to hold up to 44 percent of the stakes in the joint venture.

"We at Shell, together with our partners, will now start, after this signing, the work so that we can actually bring further electricity to the country, but also over time further revenues by bringing Iraq into the export business of gas," he said.

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