Iraq expects to finalize Shell gas deal soon

By Rania El Gamal

BAGHDAD (BestGrowthStock) – Iraq expects to finish within days the final draft of a multibillion-dollar contract with Royal Dutch Shell (RDSa.L: ) and Japan’s Mitsubishi (8058.T: ) to capture gas being flared in southern oilfields, Iraq’s oil minister told Reuters.

Oil Minister Hussain al-Shahristani said in an interview on Sunday the contract would not include the super giant 12.6-billion-barrel Majnoon oilfield, which is being developed by Shell and Malaysian partner Petronas.

“We expect to finish the contract within a few days now,” Shahristani said, adding that the final draft of the deal was being discussed in the Oil Ministry in consultation with its external advisers.

“If it is approved as it is, we will present it to the cabinet. We have almost finalized the final draft of the contract.”

He said he hoped to sign the deal before year’s end.

The $12 billion deal, first agreed with Shell in 2008, involves capturing associated natural gas produced at Iraq’s southern oilfields near the city of Basra.

It will cover Iraq’s workhorse oilfield Rumaila, being developed by BP (BP.L: ) and CNPC; Zubair, being worked on by Eni (ENI.MI: ), Occidental (OXY.N: ) and Kogas (036460.KS: ); and West Qurna, whose two projects are in the hands of Exxon (XOM.N: ) and Shell, and Lukoil (LKOH.MM: ) and Statoil (STL.OL: ). But it will not include Majnoon, Shahristani said.

Iraq flares 1 billion cubic feet of gas every day at its oilfields — energy it needs to harness to generate electricity in a country suffering from chronic power blackouts more than seven years after the U.S.-led invasion.

On October 20, Iraq successfully auctioned off three gas fields, generating questions about whether there would be enough demand in the domestic market or even abroad for so much gas.

Shahristani said on Sunday that Iraq’s power generation needs were large, and the supply was necessary.

In addition to its plans for gas, Iraq has signed deals with international oil companies to develop its largest oilfields. It hopes to quadruple crude production capacity to Saudi levels of 12 million barrels per day within six to seven years.

Shahristani countered skeptics who argue that Iraq will be hard pressed to achieve those ambitious plans by reiterating that these were “contractual” obligations signed by the companies.

“But how much Iraq will actually produce depends on how much the oil market can absorb,” he said.

Shahristani said he did not expect OPEC to start discussing a quota for Iraq until production reached 4 million to 5 million barrels per day, and said the 4 million barrel mark would be reached in three years. He had previously said talks on an OPEC quota might start at 4 million bpd.

The oil minister said the question of OPEC quotas was not related to Baghdad’s recent increase in the country’s proven oil reserves by 25 percent to 143 billion barrels.

“The number 143 billion is very conservative,” Shahristani said. “The real numbers will be significantly larger.”

(Writing by Michael Christie; Editing by Michael Shields)

Iraq expects to finalize Shell gas deal soon