Friday, October 1, 2010

Shell-Mitsubishi Natural Gas Deal In Basra Delayed Again

For over two years now Shell and Iraq have been in negotiations over extracting natural gas from the oil fields in Basra. The latest news is that the deal is being held up again. The latest problem is that the Oil Ministry is trying to change the contract so that it can create a joint venture with Shell and Mitsubishi, who joined the planned consortium in February 2009. Under the proposed contract the Iraqi government will own 51% of the company with Shell having 44% and Mitsubishi 5%. The deal is worth $12 billion and would give the foreign companies a 25-year contract. 

Iraq has an estimated 112 trillion cubic feet of gas reserves. It produces approximately 1.5 billion cubic feet per day, but only half of that is actually used with the rest being burned off and wasted. The Oil Ministry originally came to an agreement with Shell on September 8, 2008, but it took until June 29, 2010 for the cabinet to approve the deal. Now three months later and there’s another delay. The negotiations have been particularly difficult because of political objections within parliament, and the fact that the gas will be taken from oil fields that are currently in operation, some of which were just auctioned off in 2009. That means not only would the Oil Ministry, Shell and Mitsubishi have to come to terms, but that they would in turn have to make deals with the energy companies running the petroleum wells. Baghdad is now hoping to aggressively develop this industry, with an auction for three natural gas fields this October. Hopefully that will go better as they are for underdeveloped areas, meaning the deals should not be so complicated. They in turn could theoretically come on line before the Shell-Mitsubishi contract, which seems to be perpetually in limbo.

SOURCES

AK News, “Iraq delays multi-billion dollar oil deals,” 9/27/10

Salaheddin, Sinan, “Iraq-Shell gas deal likely to be delayed until after January elections, official says,” Associated Press, 9/5/09
- “Iraqi official: Mitsubishi to join Iraq gas deal,” Associated Press, 2/12/09

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