Gas is currently flared at the Rumaila oilfield in southern Iraq because of a lack of infrastructure. (PA)
Royal Dutch Shell and Mitsubishi’s $17 billion gas-gathering deal has received final approval from the Iraqi cabinet.
After an official signing ceremony a joint venture (JV) called the Basra Gas Company (BGC) will be set up between Iraq’s South Gas Co. (SGC) (51%), Shell (44%) and Mitsubishi (5%). Over a 25-year period, the JV will aim to capture 700 million cubic feet per day (19.8 million cubic metres per day) of associated gas from four major southern oilfields: Rumaila, Zubair and West Qurna 1 and Majnoon. The gas is currently being flared because of a lack of infrastructure.
Shell Chief Executive Peter Voser welcomed the approval, saying in a statement that it “sends a positive signal about the investment climate in the country”. The Iraqi cabinet office could not be contacted for comment.
“Although the signing of the deal had been expected, it is still a real breakthrough,” Charles Gurdon, managing director of MENAS Associates, told Interfax on Tuesday. “This has been one of the longest and most complicated deals to have been thrashed out in the post-Saddam era primarily because of objections within political circles,” he added.
These objections have focused around the price that Shell is going to charge for the gas as well as the use of excess volumes for exports as LNG. Iraq is still suffering from severe power blackouts, so there is intense local pressure to ensure gas is dedicated solely for domestic power production. This local political pressure was also felt by Korea Gas Corp. (Kogas) over the proposed development of the Akkas gas field to export gas to Syria.
According to a five-page summary document of Shell’s agreement released earlier this year, the SGC will buy the produced gas from BGC at international standard pricing. The crude- and gas-linked pricing formula in the agreement summary implies that, at a Brent price of $75 a barrel, the joint venture would get $3.22 per million British thermal units (MMBtu) of dry gas sold to SGC. However, SGC would sell the gas at a hugely discounted rate to Iraqi power plants at just $1.04/MMBtu.
However, Shell’s deal was approved by the energy committee (an affiliate of the Iraqi council of ministers) in September before being sent to the Iraqi cabinet for final approval – a remarkably quick turnaround. The preliminary agreement with the Iraqi Ministry of Oil for a gas gathering project was signed in September 2008. The agreement established the commercial principles to establish a joint venture between Shell and SGC.
“Under growing pressure to bring new fuel sources on board, not least because of the need to ramp up electricity generation, the cabinet has clearly decided it had no choice but to sign off on the deal. As such this is good news for Iraq,” Gurdon said. There are still a number of unanswered questions about the contract. In particular, there is uncertainty over the extent to which the operators of the southern oil fields need to co-operate in making the gas available to BGC.
Political wrangling in Iraq, particularly in the energy sector, has stalled the development of an oil and gas law and stifled the development of the power industry.
The country produced 7,559 megawatts of electricity over the summer, with 950 MW imported from neighbouring countries, while demand hit 12,500 MW. This has caused frequent power blackouts for both industrial and residential consumers.
Iraqi gas-gathering deal receives final approval
Gas is currently flared at the Rumaila oilfield in southern Iraq because of a lack of infrastructure. (PA)
Royal Dutch Shell and Mitsubishi’s $17 billion gas-gathering deal has received final approval from the Iraqi cabinet.
After an official signing ceremony a joint venture (JV) called the Basra Gas Company (BGC) will be set up between Iraq’s South Gas Co. (SGC) (51%), Shell (44%) and Mitsubishi (5%). Over a 25-year period, the JV will aim to capture 700 million cubic feet per day (19.8 million cubic metres per day) of associated gas from four major southern oilfields: Rumaila, Zubair and West Qurna 1 and Majnoon. The gas is currently being flared because of a lack of infrastructure.
Shell Chief Executive Peter Voser welcomed the approval, saying in a statement that it “sends a positive signal about the investment climate in the country”. The Iraqi cabinet office could not be contacted for comment.
“Although the signing of the deal had been expected, it is still a real breakthrough,” Charles Gurdon, managing director of MENAS Associates, told Interfax on Tuesday. “This has been one of the longest and most complicated deals to have been thrashed out in the post-Saddam era primarily because of objections within political circles,” he added.
These objections have focused around the price that Shell is going to charge for the gas as well as the use of excess volumes for exports as LNG. Iraq is still suffering from severe power blackouts, so there is intense local pressure to ensure gas is dedicated solely for domestic power production. This local political pressure was also felt by Korea Gas Corp. (Kogas) over the proposed development of the Akkas gas field to export gas to Syria.
According to a five-page summary document of Shell’s agreement released earlier this year, the SGC will buy the produced gas from BGC at international standard pricing. The crude- and gas-linked pricing formula in the agreement summary implies that, at a Brent price of $75 a barrel, the joint venture would get $3.22 per million British thermal units (MMBtu) of dry gas sold to SGC. However, SGC would sell the gas at a hugely discounted rate to Iraqi power plants at just $1.04/MMBtu.
However, Shell’s deal was approved by the energy committee (an affiliate of the Iraqi council of ministers) in September before being sent to the Iraqi cabinet for final approval – a remarkably quick turnaround. The preliminary agreement with the Iraqi Ministry of Oil for a gas gathering project was signed in September 2008. The agreement established the commercial principles to establish a joint venture between Shell and SGC.
“Under growing pressure to bring new fuel sources on board, not least because of the need to ramp up electricity generation, the cabinet has clearly decided it had no choice but to sign off on the deal. As such this is good news for Iraq,” Gurdon said. There are still a number of unanswered questions about the contract. In particular, there is uncertainty over the extent to which the operators of the southern oil fields need to co-operate in making the gas available to BGC.
Political wrangling in Iraq, particularly in the energy sector, has stalled the development of an oil and gas law and stifled the development of the power industry.
The country produced 7,559 megawatts of electricity over the summer, with 950 MW imported from neighbouring countries, while demand hit 12,500 MW. This has caused frequent power blackouts for both industrial and residential consumers.