Iraq stalls Shell's southern gas project

02 March 2010

Confusion over controversial project talks

Talks between Baghdad and a Shell-led consortium over a project to develop gas resources in southern Iraq have come to a standstill.

Negotiations between Iraq’s Oil Ministry, state-run South Oil Company and a consortium of UK/Dutch Shell and Japan’s Mitsubishi over the deal are not expected to be completed until after parliamentary elections on 7 March, say Iraqi officials, with confusion emerging over the status of the scheme.

“The deal is off the table; there are no more negotiations,” says Iraq’s Electricity Minister Karim Hasan on 26 February.

However, Assem Jihad, Iraq’s Oil Ministry spokesman says, “The ministry went a long way in the talks with Shell and it is still continuing negotiations.”

More than a year and a half of talks have failed to resolve a number of discrepancies over the main terms and points of the complex deal.

Shell signed a heads-of-agreement deal with the Iraqi Oil Ministry in September 2008, and was expected to form a joint venture with South Gas Company (MEED 22:9:08).

The gas deal was the first to be signed between an international oil company (IOC) and Baghdad since the US-led invasion in 2003. Under the proposed contract, Shell was to gather gas produced at from Iraq’s southern oil fields, which is currently being flared, or burned off. Gas lost to flaring in southern Iraq amounts to 700 million cubic feet a day (cf/d) based on current crude oil production levels, according to Shell.

The deal has been controversial since it was first announced. A number of politicians have criticised the plan for being too comprehensive and for awarding a single IOC a monopoly over the southern region’s gas resources, something Shell denies.

“According to the heads of agreement, the vision for the project covers gas from Basrah and the surrounding areas,” says Luay Jawad, director of the Iraq Energy Institute. “This is 70 per cent of Iraq’s gas, so where is the transparency? This really annoyed the other IOCs.”

In 2009, Japan’s Mitsubishi Corporation joined the joint venture with a 5 per cent stake. South Gas Company remains the majority stakeholder with a 51 per cent stake.

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