The deal marks the 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 masterplan over the past two years (MEED 13:6:08).

The deal will involve the gathering of 700 million cubic feet a day (cf/d) of flared gas from Iraq's major southern oil fields.

The joint venture will purchase associated natural gas from upstream operations, own and operate existing gas gathering, treating and processing facilities and invest in repairing non-functioning assets and develop new facilities.

Shell says the initial focus will be on supplying domestic users with liquefied petroleum gas and natural gas liquids, as well as natural gas supply for power generators and deliveries to local distribution networks.

The companies could develop a liquefied natural gas facility to export natural gas not needed for domestic use in the future.

As expected, South Gas Company will be the 51 per cent majority shareholder with Shell holding 49 per cent (MEED 14:9:08).

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