The UK/Dutch Shell Group is poised to sign a heads of agreement with Iraq’s South Gas Company to form a joint venture for the development of associated gas in the southern region.

It is first major gas deal between an international oil company and Baghdad since the US invasion of 2003 and follows Shell’s involvement in the country’s gas master-plan over the past two years.

The two sides met in Damascus in the second week of June to finalise an agreement, following a series of proposals sent by Shell to Iraq’s Oil Ministry earlier this year.

An executive within the ministry tells MEED a deal is likely to be agreed that will last five years. It will involve the gathering of at least 600 million cubic feet a day (cf/d) of flared gas from Iraq’s major southern oil fields and the possible construction of liquefied natural gas (LNG) facilities. “It is moving closer to an official deal and there should be more details in the next few months,” says
the executive.

He expects the South Gas Company to take the controlling 51 per cent shareholding in the venture, with Shell holding the remaining 49 per cent.

The deal will cover the three southern provinces of Basra, Missan and Thi Qar, although other areas could also be involved.

Iraq’s natural gas reserves are estimated to be 110 trillion cubic feet (cf), making them the fifth largest worldwide. However, according to the Oil Ministry production levels are only about 1 billion cf/d.

Iraq’s Oil Minister Hussain Al-Shahristani told MEED in February this year that the gas masterplan developed by Shell has created a comprehensive view of the areas the country expects to target (MEED 8:2:08).

As a result of the study, Shahristani claimed that in southern Iraq alone production could be increased from 600 million cf/d to 4 billion cf/d.

In a separate deal Shell, along with France’s Total, is understood to be considering the development of a southern gas field together with the western Akkas field, which has 7 trillion cf of gas, making it the largest gas field in the country.

The Akkas field has previously been tested by Shell as part of its role in preparing the gas masterplan. The ministry is expected to select an oil major for its development on 30 June as part of a series of technical service agreements (MEED 10:6:08).

The Oil Ministry is also looking to partner with an oil major on a gas processing export facility

Shell declined to comment.