* Iraq flares 1 billion cubic feet of gas per day
* Shell deal will help modernise power infrastructure
By Aseel Kami
BAGHDAD, Nov 15 Iraq's cabinet approved a
$17 billion deal with Royal Dutch Shell and Mitsubishi
on Tuesday to capture gas that is now being flared off
into the atmosphere at southern oilfields, a government
The 25-year venture is expected to help Iraq make use of
more than 700 million cubic feet per day of gas that is being
burned off at three major fields around the southern oil hub of
Basra and open the door to the export of liquefied gas.
Capturing flared gas is considered vital to ramping up power
production in Iraq, where electricity demand is around double
"The cabinet approved the deal through establishment of a
company called Basra Gas Company, a joint venture of the South
Gas Company and the consortium of Shell and Mitsubishi, to
capture the flared gas from the fields of Rumaila, Zubair and
West Qurna," spokesman Ali al-Dabbagh said.
The Shell contract is one of the largest signed by Iraq as
the OPEC-member nation rebuilds its oil industry and economy
after years of sanctions and war following the 2003 U.S.-led
invasion that toppled Saddam Hussein.
Under the terms of the deal, which Iraq and the companies
initialled in July, the government will hold 51 percent of the
joint venture with Shell at 44 percent and Mitsubishi 5 percent.
"The value of the contract is $17 billion for 25 years,"
The Shell joint venture is at the forefront of Iraq's plans
to modernise energy facilities as it rebuilds after years of war
and international sanctions.
Iraq loses an estimated 1 billion cubic feet per day of gas,
mostly from southern fields. The Shell project may eventually
handle up to 2 billion cubic feet of gas per day.
Iraqi officials have said the project could include building
an LNG export facility with a maximum capacity of 600 million
cubic feet of gas per day, so long as Iraq's own gas needs are
An unprecedented Iraqi oil production boom is expected to
bring a huge increase in gas output, and analysts say there
should soon be more gas than Iraq can consume, opening up the
option to export.
A summary of the official agreement obtained by Reuters
after the initial signing in July lists a $4.4 billion LNG
export unit, in addition to the $12.8 billion estimated cost of
rehabilitating existing gas facilities and building new ones,
but it does not say when the LNG plant might be built.
The Shell-Mitsubishi partnership expects an internal rate of
return on the project of 15 percent on an initial investment of
$6.98 billion, while SGC plans to put in $3.7 billion of public
funds initially and fund the rest through gas sales.