Iraq signs initial deal to tap natural gas

AP News
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Posted: Jul 12, 2011 6:55 AM
Iraq signs initial deal to tap natural gas

Royal Dutch Shell PLC and Japan's Mitsubishi Corp. have signed an initial deal with Iraq to tap natural gas in the country's south, an oil executive said Tuesday, the latest push to develop Iraq's energy sector battered by years of neglect and war.

The deal, which Iraqi officials have said is worth between $12 billion to $17 billion, sets up a joint venture firm to gather, process and market associated natural gas in the oil rich province of Basra. It's seen as a key part of the government's strategy to boost power generation in a nation where chronic electricity outages have at times led to violent protests.

Shell's Vice President for Middle East and North Africa Mounir Bouaziz told The Associated Press the deal was signed in Baghdad and would be sent to the Cabinet for final approval.

He declined to provide details and Iraqi official were not immediately available for comment.

Unlike other energy deals Iraq signed with international energy companies since the 2003 U.S.-led invasion, Tuesday's deal was signed behind closed doors. The Oil Ministry first invited the media on Monday, but later said the signing ceremony was postponed. No explanation was provided for the change in the plan.

The joint venture is called Basra Gas Company. Iraq will hold a 51 percent stake to Royal Dutch Shell's 44 percent and Mitsubishi's 5 percent share.

The signing marks a vital development in a project that has been bogged down in legal issues since Iraq and Shell signed a memorandum of understanding in September 2008.

Iraq burns off almost half of the 1.5 billion cubic feet per day of gas that it produces and the 25-year-development deal would help the country capture more than 700 million cubic feet per day of gas from three southern oil fields. The country sits on the world's fourth largest proven reserves of conventional crude and about 126.7 trillion cubic feet of undeveloped gas reserves.

In a brief statement issued after the signing, Iraqi Oil Minister Abdul-Karim Elaibi said that "important amendments" have been made to the draft deal based on recommendations from Iraqi experts and three international legal consultancy firms. He didn't elaborate.

But the project may still run into trouble.

The parliament's energy committee has said the project must be approved by lawmakers, not the Cabinet.

"It must be covered by a law and approved by parliament not the Cabinet according to the standing law," the Committee's Chairman, Adnan al-Janabi, told AP.

Al-Janabi added that his committee is working on banning the government from signing any new oil or gas contracts until a long-delayed hydrocarbons law is passed.

Since the 1990s, Iraq, which sits atop the world's fourth largest proven reserves of conventional crude, has spent billions trying to rebuild its dilapidated electrical grid. The sector, along with the vital oil sector, was battered by years of wars and sanctions and Iraqis, even years after the 2003 U.S.-led invasion to topple Saddam Hussein, only get between five to seven hours of power per day.

(This version CORRECTS oil executive's first name).)