Iraq lawmakers say will challenge Shell gas deal

BAGHDAD Tue Nov 25, 2008 10:28am EST

BAGHDAD Nov 25 (Reuters) - Iraq's parliamentary oil and gas committee accused the Oil Ministry on Tuesday of handing a monopoly on Iraq's southern gas fields to Royal Dutch Shell, and vowed to challenge a contract signed with the firm.

In a statement read out by senior committee member Noor al-Deen al-Hiyali, the legislative body said there was a lack of transparency in a flare gas contract the ministry signed with Shell (RDSa.L), which was not in Iraq's best interests.

The Anglo-Dutch oil giant is finalising details of a multibillion-dollar joint venture with Iraq's state-run Southern Gas Company, before a final agreement is signed.

A spokesman for the Oil Ministry, Asim Jihad, said the committee had no legal basis to challenge the deal, which Shell says gives exclusive rights to the joint venture to all natural gas collected as a by-product of oil production in Basra fields.

"Shell will be the sole company entitled to deal or process gas in southern Iraq," the statement said. "We call this a monopoly on Iraqi gas ... Shell will seize everything."

It added that if Oil Minister Hussain Shahristani does not respond to their complaint, "we will resort to the constitution and adopt procedures ... to safeguard Iraqi resources".

Unless it challenges the legality of the deal in court, there is little the oil and gas committee can do to stop it, the ministry says. The committee said it would summon Shahristani to justify the Shell deal before parliament.

It expressed alarm that such a large deal could be signed without any tendering process.

Gas produced as a by-product of oil extraction is currently flared off in Iraq since no facilities exist to capture it.

Iraq wants to use most of the gas to generate electricity, then export surpluses. The committee said Shell would hold the country hostage to international prices for this gas.

Jihad said such concerns were unfounded.

"The oil ministry is acting by the book. There are laws entitling us to strike deals to develop the oil industry," he said.

He added that Shahristani would be more than happy to appear before parliament to discuss the contract, which he said was in its preliminary stages. Any deal would require Shell to sell the gas to Iraq at subsidised prices, he said.

"We have a whole year to discuss terms," he said. (Writing by Tim Cocks; Editing by Michael Christie)