Thursday, December 8, 2011

Baghdad And Basra Arguing Over New Shell-Mitsubishi Natural Gas Deal


The southern province of Basra should be in an enviable situation. It holds the largest oilfields in the country that produce large quantities of natural gas. It also has Iraq’s major ports. However, the province has always felt neglected by Baghdad for decades. Recently the central government finalized a deal with Shell and Mitsubishi that had been floundering for three years to exploit natural gas there. Basra’s local politicians have objected to it and gone to court, because they were not included in the negotiations. This is just the latest example of brewing conflicts between the center and periphery in Iraq.
Gas being flared at Basra's Rumaila field, one of three fields that Shell and Mitsubishi will now be operating at (PA)
At the end of November 2011, the Oil Ministry signed a natural gas deal with Shell and Mitsubishi. On November 27, the three parties finalized a $17 billion, 25-year contact to collect natural gas from three oil fields in Basra. A new company will be formed, Basra Gas Company, with the government owning 51%, Shell 44%, and Mitsubishi 5%. Shell and the Oil Ministry originally entered negotiations in September 2008, but a never ending series of political, legal, and contractual issues held up talks until last month. The gas produced is supposed to go to domestic electricity plants first, and the surplus exported. Iraq has 126.7 trillion cubic feet of gas reserves, and produces 1.6 billion cubic feet per day. Because the gas industry is hardly developed in the country, almost half of that is burned off during the process of extracting oil. That costs Iraq around $5 million a day. Only Russia, Iran, and Nigeria flare more gas than Iraq currently does. This deal will go a long way to reversing those negative trends, by finally developing this resource. Iraq also hopes to eventually become a major player in international gas markets. First, it needs to take care of its own power plants, many of which run off of oil that damages the equipment even though they’re supposed to be fueled by natural gas. 

Basra’s politicians immediately objected to the deal before it was signed. On November 24, Jabbar Amin, the head of Basra’s provincial council said that it would be filing a lawsuit against the Oil Ministry, because it was not included in the negotiations. Amin said that it wanted major corporations operating in the governorate to build service projects, so that it would directly benefit from them. The next day, the suit was filed. On December 5, it was reported that local officials were calling for the cancellation of the Shell-Mitsubishi contract on the same grounds. Despite all of Basra’s great natural wealth, it does not feel that it is reaping the rewards. The province for example, recently complained that the 2010 budget set aside $1 for each barrel of oil produced by the provinces. Basra is therefore owed hundreds of millions of dollars, but none of that has been delivered because the government doesn’t have instructions on how to distribute the money. This is just the latest of a long list of complaints that the governorate has against the central government. Basra believes that since it contributes more to the country’s wealth than any other area, it should be compensated for it, but that Baghdad is keeping all the money for itself. This is a common grievance of many provinces in Iraq.

Basra is objecting to the Shell-Mitsubishi deal, because it thinks that it will be just another contract, which it will get little in return from. Despite being rich in oil, the industry is not labor intensive, and only provides 1% of jobs nationally. All the revenues Basra produces from its petroleum also goes to Baghdad, with only a fraction being sent back in the form of the provincial budget. Basra’s officials fear that this will be repeated with the new gas deal. All of these issues and others have led to increasing demands by the province for greater power and autonomy. Those same kinds of complaints are coming to the fore across the country, as many other governorates feel just as neglected by the center. The problem is that Baghdad holds most of the cards. Not only that, but it has been centralizing more and more power in its hands now that the civil war has ended. Basra can push its lawsuit, and its call for a greater say, but unless it forcefully pushes the point by threatening to not provide security to foreign companies for instance, it will get nowhere in this struggle. The periphery has only occasionally pushed back against the center, and to little affect so far. That may be repeated in this latest tiff.

SOURCES

Aswat al-Iraq, “Southern Iraq’s Basra Energy Commission to raise case against Oil Ministry for Shell Contract,” 11/24/11

Bowers, Simon, “Shell signs £11bn deal to fuel Iraq’s power stations with gas,” Guardian, 11/27/11

Al-Fahad, Raysan, “Iraq’s Basra says government blocking share of oil sales,” Azzaman, 11/2/11

El Gamal, Rania, “Iraq oil hub Basra wants bigger say, more autonomy,” Reuters, 12/5/11

Miller, T. Christian, “U.S. Missteps Leave Iraqis in the Dark,” Los Angeles Times, 12/25/05

Salaheddin, Sinan, “Iraq signs gas deal with Shell, Mitsubishi,” Associated Press, 11/27/11

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