Iraq Says Gas Deal With Shell, Mitsubishi Not Ready

A $12.5 billion agreement between Iraq, Royal Dutch Shell Plc and Mitsubishi Corp. for the capture of flared-off natural gas will not be ready this week, Oil Minister Hussain Shahristani said.

Lawyers representing the companies and the government will meet tomorrow to discuss the final draft of the agreement, he told reporters in Baghdad today. “The signing will not take place this week as the draft agreement was not submitted for approval to the Council of Ministers,” Shahristani said.

Ali Hussain Khudair, director general of Iraqi partner, South Gas Co., said Nov. 25 that the accord would be signed by the end of January. The government gave initial approval in June for the creation of a venture to be called Basra Gas Co. State- owned South Gas would own 51 percent with Shell holding 44 percent and Mitsubishi the remaining 5 percent.

The project involves capturing gas initially from the oilfields of Rumaila, being developed by BP Plc and China National Petroleum Corp., Zubair developed by Eni SpA, Occidental Petroleum Corp. and Korea Gas Corp, and West Qurna 1 by Exxon Mobil Corp. and Shell, Iraqi Deputy Oil Minister Ahmed al-Shamma said Nov. 26.

Majnoon, developed by Shell and Petroliam Nasional Bhd of Malaysia may be included “later,” he said.

Most of Iraq’s associated gas, which is pumped in conjunction with crude oil, is flared. The country burns more than 1 billion cubic feet of gas a day, or 10.3 billion cubic meters a year. Shell plans eventually to capture and sell about 700 million cubic feet of gas a day in southern Iraq.

Power Generation

While Iraq generates most of its revenue from oil sales, the government wants to produce gas as fuel for power plants, which haven’t been able to meet domestic demand. Iraq is seeking to develop its gas reserves to help generate power and for export. The country awarded licenses last month in its first auction of gas concessions since the U.S.-led invasion that ousted Saddam Hussein in 2003.

Iraq wants foreign investors to help it increase production of both oil and gas to stimulate a recovery after years of conflict and economic sanctions. Iraq has the world’s fifth- largest oil reserves, excluding oil in its northern Kurdish territory, and its gas reserves rank fifth in size in the Middle East, according to data from BP Plc.

To contact the reporter on this story: Nayla Razzouk in Amman at nrazzouk2@bloomberg.net

To contact the editor responsible for this story: Bruce Stanley at bstanley5@bloomberg.net

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