Iraq Signs Natural Gas Deal, As Half Of Oil Plan Is Dropped

In September 2008 Iraq’s government approved its first deal with a major energy company, while scrapping half of its oil plan. On September 8, 2008 Iraq’s cabinet approved a natural gas contract with Royal Dutch Shell. The deal is for the company to collect natural gas that is a by-product of the oil industry in the southern city of Basra. Shell will operate as part of a joint venture with the government owned South Oil Company with Iraq owning 51%. Some of the gas will be used for domestic needs, but most of it will be exported. The agreement could be worth up to $4 billion. At the same time, the Iraqi Oil Ministry announced that it was canceling its plan to award Technical Support Agreements (TSA) to major oil companies. The government was negotiating with Exxon, Mobil, Chevron, Total, BP, Shell, and a few others, for six no-bid contracts. Instead, the government awarded a TSA to the China National Petroleum Corporation at the end of August worth $3 billion. Iraq re-worked an oil deal dating back to 1997 that was for production sharing rights, to be for consulting. The Chinese company will be giving advice at a field in Ahdab, which is going to fuel a nearby power station.

As reported earlier, Oil Minister Hussain al-Shahristani announced a two-part plan to open up the country’s oil resources at the end of 2007. The TSAs were the beginning of that program. The foreign companies, however, were never happy with the idea because they weren’t going to be involved in actual oil production, would be paid a flat fee no matter what they did, and Baghdad’s changing of the terms. That led to the scrapping of the idea in September. Signing a deal with the Chinese company was simply a face saving move since none of the majors were willing to do so. The Shell signing is much more important because it is the first large foreign corporation to move into Iraq’s energy market. Of course, it is for natural gas, rather than oil. The ability of the Oil Ministry to move forward with its plans has to be questioned after these turn of events.

At the same time, the Kurds continue to work out contracts with foreign companies. They just completed their fifteenth with the South Korean National Oil Corporation on September 24. The Oil Ministry has called these deals illegal.

This points to the fractured nature of Iraq’s developing government. Baghdad claims sole authority over oil contracts, yet has only been able to sign one with a company that wasn’t even on its original list of candidates. On the other hand, the Kurdish Regional Government continually shows its independence by signing contracts with 20 different oil companies. Parliament has also been unable to agree upon a new petroleum law, and the Oil Ministry has failed to implement its oil plan. Currently, Maliki is attempting to assert the authority of the central government through military means. When it comes to energy policy however, Baghdad still appears weak, while the Kurds forge ahead with their autonomous aspirations.

For more on Iraq’s oil industry see:

Iraq’s Oil Ministry’s Plans Seem To Be Falling Apart

SOURCES

Azzaman, “Iraq said not to favor U.S. firms to develop oil fields,” 9/4/08

Crooks, Ed and Khalaf, Roula, “Shell in Iraqi gas deal worth up to $4bn,” Financial Times, 9/8/08

Graeber, Dan, “Iraq approves gas deal with Royal Dutch Shell,” Iraq Oil Report Blog, 9/7/08
- “New details emerge in Iraqi oil deal with China,” Iraq Oil Report Blog, 9/4/08

Iraq Oil Report Blog, “Iraq opts for long term oil deals, ditches no-bids,” 9/9/08

Kramer, Andrew and Robertson, Campbell, “Iraq Cancels Six No-Bid Oil Contracts,” New York Times, 9/11/08

Olsen, Kelly, “South Korea, Iraq’s Kurdish region sign oil pact,” Associated Press, 9/25/08

Robertson, Campbell, “Iraq Poised to Revive Oil Contract With China,” New York Times, 8/20/08

Voices of Iraq, “Ministry stresses rejection of Kurdistan’s oil contracts,” 9/27/08

Yacoub, Sameer, “Iraq, Shell sign deal,” Associated Press, 9/22/08