Iraq, struggling with power shortages, is installing compressor facilities to use huge volumes of gas being flared in southern oilfields, the director general of state-run South Gas Co said.

Ali al-Khudhier also said in an interview with Reuters on Sunday that Iraq hoped to seal a $12 billion gas deal with London-listed Royal Dutch Shell as soon as possible.

 
It has been working to finalise a joint venture between South Gas Co, Shell and Japanese group Mitsubishi since an initial agreement was signed in 2008.

 
As natural gas builds up in association with rising oil output from Iraq’s southern fields, pressure has been mounting to find a solution. For now, gas has to be burnt off because there is no infrastructure to capture it.

 
The Shell deal could give access to more than 700 million cubic feet per day for much-needed power.

 
Ali al-Khudhier said new compressor facilities being installed in West Qurna Phase One field could be up and running by mid-2012.

 
New facilities will be installed in Zubair oilfield by the second half of this year, while additional gas facilities will be also brought for Rumaila oilfield, he said.

 
“Whether the agreement (with Shell) goes ahead or not, we will not stand with our hands tied. Maybe the agreement will happen and maybe it will be halted at a certain stage, but this does not mean the SGC will stop working,” he said.

 
The southern oilfields of Basra produce 1.1 billion cubic feet of associated gas each day, but only 40 percent is being utilised, he said.

 
The new facilities will treat some of the flared gas associated with crude output and would be paid toward Iraq’s share in the joint venture with Shell and Mitsubishi, when the deal is finalised.

 
Iraq will own a 51 percent stake in the new joint venture.
Iraq needs to revamp existing compression facilities, many of which are crumbling, and build treatment plants to use associated gas — a centrepiece of its plan to boost electricity production to keep up with demand.

OIL SUPPLIES GROWING
West Qurna Phase One is being developed mainly by U.S. major ExxonMobil, while Italian group ENI is the main operator for Zubair field, and British company BP along with Chinese firm CNPC are developing Rumaila.
Khudhier said new gas facilities for West Qurna will not be able to use all current gas production, “but at least it would provide us with liquefied gas and other products needed for power generation” that are currently being imported.

 
“Our plan at this stage is that all the facilities we have bought and have contracted to buy will cover the amount of flared gas now until Shell deal is finalised,” he said.

 
Iraq has signed a series of deals with foreign oil companies that aim to boost its production capacity to 12 million barrels per day by 2017, from about 2.7 million bpd now, making it a close rival to global oil giant Saudi Arabia. However, most analysts say 6-7 million bpd is a more realistic target.

 
Associated gas production from oil deals Iraq awarded in two auctions in 2009 was expected to reach about 8 billion cubic feet per day. Iraq expects oil production to reach 3 million bpd by the end of this year, 3.3 million in 2012, and 6.5 million bpd in 2014.

 
“Through the contracts signed in the bidding rounds, gas production will increase with huge volumes … We need a lot of money to utilise it. We need compressor stations, gas plants, plants to produce liquefied gas, and more,” said Khudhier.

 
“If the government could not provide us with the money, then we should agree with international companies to develop the gas in the south.”
Companies developing the southern oilfields auctioned in the first bidding round in 2009 — Rumaila, Zubair and West Qurna Phase One — are not required to deal with associated gas.

 
The Shell gas deal, stalled due to legal hurdles and political opposition in the past, will capture flared gas from those three fields only.

 
The final draft of the agreement has yet to be finalised and approved by cabinet before signing. Under the deal, the gas will be used mainly for power generation and domestic consumption, with the option to export the surplus.

 
Iraq has struggled for years with power blackouts and risks years more of electricity shortages.

 
Khudhier said he hoped the deal with Shell will be finalised “as soon as possible”. “All the pending issues were sorted out,” he said.