Iraq plays catch up on South Gas

06 July 2010

Closing the Shell deal is welcome news as Baghdad is not capable of developing the scheme alone 

After almost two years of negotiations, Iraq’s government has finally ratified a deal with a consortium led by the UK/Dutch oil major Shell to capture associated gas in the south of the country.

The poor state of Iraq’s gas gathering and processing infrastructure has led to the widespread practice of flaring. The oil ministry estimates almost 70 per cent of associated gas, more than 700 million cubic feet, not to mention a significant potential source of revenue is burnt away each day.

The figure will only rise as Baghdad seeks to meet its ambitious target of raising crude oil production to 4.7 million barrels a day (b/d) by 2016 and as much as 12 million b/d by 2020.

Although important for Iraq, it is hardly surprising the Shell deal has taken so long to come about. Bilaterally negotiated rather than competitively auctioned like Iraq’s oil field contracts, the deal has been controversial since it was first announced in September 2008. Political resistance has risen steadily on fears that the company would prioritise gas exports over the domestic market.

The scale of the project is huge and Iraq does not have the funds or the manpower to go it alone. The schedule is also tight.

By the end of this year, Iraq’s southern oil fields should produce an extra 250,000 b/d. The deployment of a joint venture company to capture the increased associated gas will need to be quick.

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