Shell Natural Gas Deal In Basra Delayed Again

In 2009 Iraq successfully carried out two rounds of bidding for its petroleum fields, which will re-introduce international oil companies to the country. Development of the nation’s natural gas reserves however, remains largely unfulfilled. In February 2008 Iraq’s Oil Ministry signed a preliminary deal with Royal Dutch Shell to collect and exploit natural gas in Basra. Later Japan’s Mitsubishi was also added to the negotiations. Both companies were interested in Iraq because it has the tenth largest natural gas reserves in the world. It currently produces around 1.7 billion cubic feet per day, but most its gas is actually burned off, wasting an estimated $40 million a day.

While the Iraqi cabinet immediately approved the deal in 2008, parliament and others criticized the proposal. One concern was the fact that it was a no contest bid. Others questioned whether Shell and Mitsubishi would be given a monopoly over natural gas in southern Iraq.

With talks going nowhere the deputy Oil Minister announced in September 2009 that the Basra deal would have to be finalized after the 2010 parliamentary elections. The initial agreement between Iraq and the two corporations expires on March 22, 2010 however. Iraq will not have a government at that time as parliamentary voting is being held March 7, and a forming a new ruling coalition will likely take months. Mitsubishi and Shell therefore have asked for an extension. That would leave the new government to try to finalize the talks that have dragged on for over two years now. In the meantime, Iraq will be losing hundreds of millions of dollars in lost gas production that it could desperately use to develop the rest of the country and pay for essential services.

SOURCES

El-Gamal, Rania, “UPDATE 2-Iraq says talks with Shell prolonged, continue,” Reuters, 2/26/10

Salahedin, Sinan, “Iraq-Shell gas deal likely to be delayed until after January elections, official says,” Washington Examiner, 9/5/09