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UPDATE 3-Iraq initials 'breakthrough' $12-bln Shell gas deal
* Agreement still needs cabinet approval
* Talks had been stalled since 2008
* Gas needed to help with Iraq's chronic power cuts
* Deal paves way for LNG exports later
By Rania El Gamal
BAGHDAD, July 12 (Reuters) - Iraq signed a final draft agreement on Tuesday with Royal Dutch Shell (RDSa.L) and Mitsubishi for a $12 billion deal to capture flared gas at southern oilfields.
The long-awaited deal still needs the approval of Iraq's cabinet, Oil Minister Abdul-Kareem Luaibi said in a statement.
Iraq has struggled for years with power blackouts and risks years of electricity shortages until associated gas from oilfields is captured and fed to new power plants.
The joint venture, named Basra Gas Co, would be at the forefront of Iraq's plans to modernise its energy facilities and boost oil exports that hover around levels seen before the U.S.-led invasion in 2003.
Using associated gas is a centrepiece of Iraq's master plan to boost electricity production to keep up with demand that is double the rate of supply.
"The execution of the deal will open the competition door for Iraq to export liquefied gas to the international market," Ali al-Khudhier, head of state-run South Gas Co., said in a statement.
Iraqi officials previously have said the initial plan for the 25-year development joint venture includes setting up a liquefied natural gas project at a later stage to export any excess gas with a maximum capacity of 600 million cubic feet of gas per day.
LNG is gas chilled to liquid form for shipping to export markets on specially designed tankers.
Hans Nijkamp, Shell's chairman for Iraq, called the deal "an important milestone".
"Iraq will probably within the year become a net LPG (liquefied petroleum gas) exporter. There is indeed a possibility to have LNG export contracts but this will only happen once the domestic market is satisfied," he told reporters at an industry conference in London.
The Iraqi government will hold 51 percent of the venture, while Shell will hold 44 percent and Mitsubishi the rest.
The initial signing took place behind closed doors without media coverage despite last-minute confusion over whether it was going to happen.
Two sources told Reuters on Sunday the oil ministry had scheduled the signing for Tuesday, but then on Monday the ministry retracted an invitation it had sent earlier to the press and said the signing would be delayed, without giving a reason.
But an Iraqi oil source and another source close to the deal told Reuters earlier the contract had been initialled on Tuesday morning.
Thamir Ghadhban, the top energy advisor to Iraqi Prime Minister Nuri al-Maliki, said he expected the cabinet's approval for the draft agreement within "a week or two".
A BREAKTHROUGH DESPITE DELAYS
The project faced legal snags and some political opposition since an initial pact was struck in 2008.
A renegotiation of gas pricing and other legal issues delayed finalising the deal, an Iraqi oil official close to the talks said on condition of anonymity.
"The Oil Ministry wanted the gas prices to be subsidised, while Shell and Mitsubishi were asking for global market prices," said the official. "Iraq eventually agreed to increase prices for the gas that would be purchased from Basra Gas Co."
Despite the snags the initial signing of the deal was seen as a breakthrough, analysts said.
"The tough thing was to get Shell to definitely agree to the terms, and as this was done and it was initialled, then the cabinet will pass it," said Samuel Ciszuk of IHS Energy.
Iraq is losing 1 billion cubic feet per day of gas through flaring, mostly from the south. It will use gas produced by the Shell project in the domestic market to help meet the rising demand for electricity and export the surplus.
The venture would help Iraq capture more than 700 million cubic feet per day of gas being burnt off at three southern oilfields -- Rumaila, Zubair and West Qurna Phase One.
(Additional reporting by Ahmed Rasheed in Baghdad and Emma Farge in London)
(Editing by Jason Neely)
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