On September 8, 2008 the Iraqi cabinet originally approved the deal with Shell, the first with a major international energy company. At first, the two sides discussed Shell collecting natural gas from the oil fields in Basra province. Shell would work as part of a joint venture with the state-run South Oil Company, which would own 51% of the business. The plan was immediately criticized by parliament. Members of the Oil and Gas Committee complained that the talks lacked transparency, that there was no competitive bidding, and that Shell would get a monopoly with a 25-year contract, making the deal illegal. That didn’t stop Mitsubishi from joining with Shell as a minor partner in February 2009. By September however, the Oil Ministry announced that these political disputes would hold up the natural gas deal until after Iraq’s 2010 elections. In May 2010 another delay was announced when the government said it had no money to pay the two companies if the joint venture was finalized. Things suddenly moved ahead later that month with the proposal going to the cabinet to once again ratify it. That was finally done at the end of June. The actual papers are still not signed however, meaning more waiting.
Natural gas being burned off at the Rumaila oil field in Basra. Iraq loses and estimated $70 bil a year through this practice
Iraq has an estimated 112 trillion cubic feet of natural gas reserves. Around 1.5 billion cubic feet of gas is produced a day, but half of that is burned off in oil wells, costing Iraq an estimated $70 billion in lost revenue a year. 60% of the gas is produced in Basra, which is where Shell and Mitsubishi will be operating. They will work on four oil fields that were recently auctioned off in 2009 by the Oil Ministry. A new Basra Gas Company is being created, which will be split between the government, 51% ownership, Shell, 44%, and Mitsubishi, 5%. The estimated cost of the venture is $17 billion, with $5 billion for infrastructure. Baghdad is hoping that by 2014 it will be producing 2.75 billion cubic feet of gas a day through this deal and an auction for three gas fields later this year.
The devil is still in the details however. The Oil Ministry has yet to sign the contract with Shell and Mitsubishi. It also needs to work out how the joint venture will work with the foreign companies that are operating the four oil wells in Basra because they too use gas in the extraction process. Hopefully these matters will be worked out soon so that the country can begin harnessing its second greatest resource. Given how slow the talks have gone so far, no one should hold their breath.
Daood, Mayada, “iraq burns 70 billion dollars a year,” Niqash, 5/5/10
Khidhir, Qassim, “Iraq has no budget to develop oil industry,” Kurdish Globe, 6/19/10
Salaheddin, Sinan, “Iraq approves gas deal with Shell,” Associated Press, 6/29/10