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Iraq Makes Shell Deal - Corolla Financial Report
Iraq has agreed a final $17bn (£11bn) deal over 25 years with Royal Dutch Shell and Mitsubishi to capture flared gas at southern oilfields.
The new venture will be called Basra Gas Company, with Iraq holding a 51% stake, Royal Dutch Shell's 44% and Mitsubishi 5%. As well as providing for domestic energy, there may also be options for gas exports. Iraq sits on top of 143.1 billion barrels of crude oil and 126.7 trillion cubic feet in gas reserves. The 25-year project is meant to help harness more than 700 million cubic feet per day of gas being burned off at southern fields and will ultimately handle 2 billion cubic feet per day. OPEC member Iraq has signed a series of deals with foreign oil companies to modernise its energy industry after years of war and economic sanctions. Its official goal to raise production capacity to 12 million bpd by 2017 would vault it into the top echelon of global producers, although officials say 8 million bpd capacity is more realistic. Increased crude production is expected to bring huge increases in associated gas output and Iraq may soon produce more gas than it can use, opening up the possibility of gas exports.
For Iraq, the deal is a key part of its strategy to alleviate power generation woes. Despite billions of dollars spent since the 1990s to rebuild Iraq’s dilapidated electrical grid, Iraqis still suffer through chronic power outages that have led to sometimes violent protests. The project may include the construction of an LNG export facility with a maximum capacity of 600 million cubic feet per day. Exports are possible once Iraq's domestic needs are met. The project needs investment of $17.2 billion, officials said, including $12.8 billion to rehabilitate existing facilities and build new ones, and $4.4 billion for the LNG export unit. The Shell-Mitsubishi partnership expects an internal rate of return on the project of 15 per cent 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.
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