Iraq Approves $17.2 Billion Shell Gas Deal

The Iraqi cabinet Tuesday approved a deal valued as much to $17.2 billon for Royal Dutch Shell PLC to capture and process gas from three giant southern oil fields—Rumaila, West Qurna phase 1, and Zubair in the southern governorate of Basra, a government spokesman said.

"The cabinet today ratified the Basra Gas Company…in which the [state-run] South Gas Company, Shell and Mitsubishi Corp. participated," Ali Al Dabbagh said in an email statement.

Al Dabbadh said the production capacity will be two billion cubic feet a day.

Shell said in a statement that an official signing ceremony will be scheduled in the near future. It gave no exact date.

Some 700 million standard cubic feet of gas is burned off each day in southern Iraq. At current prices, the gas is valued about $1.8 billion per year, the Shell statement said.

"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 Iraqi Oil Ministry initialed the Iraq South Gas agreements last July with Shell and Japan’s Mitsubishi Corp. The deal has been in the council of ministers since for approval.

The 25-year venture calls for an investment of $17.2 billion to create the Basra Gas Company. Baghdad would have a 51% stake, Shell 44% and Mitsubishi 5%.

Some $12.8 billion would be spent on infrastructure and $4.4 billion on construction of a liquefied natural gas facility, according to a document distributed by the Iraqi parliament.

Under the agreement, the company must first meet local demand but can export any gas not used by Iraq’s fuel-starved power plants. The planned LNG terminal would handle the export of 600 million cubic feet a day.

The joint venture would sell processed gas to Iraq’s state-owned South Gas Company.

According to oil ministry conclusions, Iraq would earn nearly $100 billion from the venture because the gas would substitute for the oil currently used to fuel Iraq’s power stations.

Iraq would tax Shell and Mitsubishi profits at 35%, Dabbagh said. Iraq would also impose 5% import and 1% export taxes, he added.

Iraq has natural gas reserves totaling 112.6 trillion cubic feet, the 10th largest in the world. However, it produces only around 1 billion cubic feet a day, and of that some 700 million cubic feet are being flared because of a lack of infrastructure.