Friday, December 5, 2008

Parliament Criticizes Shell Natural Gas Deal

The Iraqi Parliament recently criticized the Oil Ministry’s decision to sign a natural gas deal with Royal Dutch Shell. The Oil and Gas Committee said that the Oil Ministry had mishandled its business with Shell to develop natural gas that is produced from Basra’s oil fields. The committee said that the negotiations lacked transparency, would give Shell a 25-year monopoly, and was therefore against the national interests of the country. They suggested that the government renegotiate the agreement. The Oil Ministry responded by saying that there was nothing wrong with their talks with Shell, and that everything was legal.

In early September 2008, the Oil Ministry signed a deal with Shell to exploit and export natural gas from Basra’s oil fields. Shell would enter into a joint venture with the government owned Southern Oil Company who would control 51%. The contract was to develop between 500-600 million cubic feet of gas per day. Shell could invest up to $3-$4 billion, which also involves building infrastructure. Currently Iraq does nothing with this resource, which is a natural by product of oil production in the south. Iraq claims it looses $40 million a day as a result. The U.S. Energy Information Administration says that Iraq has the 10th largest natural gas reserves in the world. The gas would be used for Iraqi factories and power stations, but many believe most of it will be sold to foreign buyers. Because Iraq’s parliament has not passed a new hydrocarbon law, this deal was negotiated using old Saddam era legislation. Iraq’s cabinet quickly ratified the agreement.

Currently, Iraq’s parliament has little power or oversight authority over the country’s ministries. The legislature can call officials to testify and either support or complain about Baghdad’s actions, but other than that, there is nothing the Oil Committee can do about the Shell deal. Their only recourse to stop it would be to go to court, but that is highly unlikely. As reported before, the Oil Ministry has followed a haphazard course in its effort to develop the country’s energy resources. The Shell agreement was only the second made with a major foreign company since the invasion. The fact that there was no bidding process, the negotiations were held privately, and Shell was given a 25-year contract all give weight to the Committee’s concerns that this will lead to a monopoly of Basra’s natural gas. Iraq does need the know how of foreign companies to develop its resources, but rushing into deals as the Oil Ministry has done with its two major contracts so far, puts short term goals ahead of the long term interests of the country.

For more on the Shell deal see:

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

SOURCES

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

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

Khadduri, Walid, “Oil in a Week (International Oil Companies Return to Iraq),” Al-Hayat, 10/20/08

Lando, Ben, “Shell-Iraq gas company is a monopoly, secret agreement shows,” UPI, 11/4/08

Lando, Ben and Majeed, Alaa, “Gas deal no monopoly, Shell and Iraq say,” UPI, 11/6/08

Rasheed, Ahmed, “Iraq Lawmakers Say Will Challenge Shell Gas Deal,” Reuters, 11/26/08

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

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