Iraq’s Oil Ministry is finalising details for the approval of the South Gas Project, a controversial scheme for the collection of associated gas across a number of oilfields in the south of the country.

Having received approval from the Iraqi cabinet, the deal now rests with the Oil Ministry, says Thamir Ghadban, chairman of an advisory committee to Prime Minister Nouri al-Maliki, speaking to attendees at the Iraq Future Energy Conference in Istanbul.

“The Oil Ministry went to the council of representatives about one and a half months ago. They approved it and the Ministry is finalising the details”.

Further delays are expected however, as Iraq awaits the formation of a new government.

“The delay in finalising the South Gas project is unfortunate. If it is done before a new government is in place, then it will get through. If a new government is appointed tomorrow, than Shell will have some more delays”, says Ghadban.

MEED reported in July that Iraq’s cabinet has signed an initial agreement with the Shell-led consortium to develop associated gas resources in the country’s southern oil fields (MEED 9:7:10).

Negotiations between Iraq’s Oil Ministry, state-run South Oil Company (SOC) and a consortium of Shell and Japan’s Mitsubishi came to a standstill in March after more than a year and a half of talks failed to resolve a number of discrepancies over the main terms and points of the complex deal.

The oil major signed a heads-of-agreement deal with the Oil Ministry in September 2008, and was since joined by Japan’s Mitsubishi. The companies will form a joint venture with state-owned South Gas Company.

The initial agreement became somewhat of an embarrassment for the Oil Ministry over the way it was awarded and extent of the concession available to Shell on gas produced across the south of the country. Shell’s plans for exporting surplus gas, while Iraq suffers shortages of electricity have also been a source of criticism.

“For any new Iraqi government, expect to see severe pressure on companies to deliver gas for power plants”, says Ghadban.

The deal covers collecting associated gas from four fields, Rumaila, Majnoon, Zubair and West Qurna-1. The Oil Ministry says it expects the fields to produce 2.5 billion cubic feet a day (cf/d).

The deal is a crucial step towards meeting Iraq’s increasing power generation needs and bringing a halt to the practice of flaring. The Oil Ministry estimates that 60 per cent of Iraq’s associated natural gas production, around 700 million cf/d, is flared due to a lack of sufficient infrastructure to use it.

With forecasts of available gas for export varying in their optimism, Mounir Bouaziz, Shell’s Middle East and North Africa vice president for new liquefied natural gas (LNG) business, is eager to lay the issue to rest.

“There is a clear procedure for exports. It would be easier for us to sell all of the gas we collect domestically. It is the easiest route, requiring less infrastructure etc, but the procedure for export is there,” Bouaziz said in Istanbul.

Shell has been eagerly awaiting approval so it can begin laying the ground work for the major project. “We have a logo ready, but I cannot show it yet”, said Bouaziz.