Shell blamed for oil production delay
Legal action against UK/Dutch Shell Group could have repercussions for the rest of Iraq’s oil sector
Despite being one of the biggest investors in Iraq’s oil and gas sector, the UK/Dutch Shell Group is not having an easy time. The oil major is facing censure from the government over the slow pace of development at the Majnoon oil field, which should have begun oil production in January.
The Oil Ministry blames Shell for the loss of about $4.6bn in crude oil export revenues. Production at the Majnoon field has been pushed back several times and is now not expected until at least October. Tapping the Majnoon field had been due to take only three to four months, but has taken more than a year.
Shell complained in late 2012 that Iraq’s oil pipeline construction plans were running behind schedule and were likely to have a knock-on effect on production. The firm also says extra work has been required in the rehabilitation of the Majnoon field’s existing facilities. Either way, Shell appears to have underestimated the scale of the challenge in Iraq.
The Oil Ministry has sent its warning to Shell and it is unclear if Baghdad is prepared to take further action. Both parties have much to lose. The pair are still in talks over a reduction to the Majnoon field’s development targets from 1.8 million barrels a day (b/d) to 1 million b/d, slashing its overall development costs.
Punitive action against Shell, also a partner at the West Qurna-1 oil field and lead developer of the $17bn South Gas Project, could have huge implications for Iraq’s energy expansion plans.