Royal Dutch Shell's joint venture with Iraq to capture flared gas in the south of the country could involve an investment of up to $4bn. The agreement, expected to be formalised in October, will be the first major contract reached by a major western oil firm with Iraq since the US led invasion of 2003.
It is unclear whether the Shell deal is a production-sharing agreement, under which both parties would share profits, or more of a technical services agreement similar to that signed by China in August.
In any event Shell is expected to buy some of the gas due to be processed as Liquid Natural Gas.
China National Petroleum Corporation became the first foreign partner to reach a service agreement with the Oil Ministry involving a $3bn development of the country's Al-Ahdab oilfield but with no revenue sharing involved.
A formal agreement is due to be signed in October between state-owned Southern Oil Company in Basra, which will hold a 51% stake in the latest venture with Shell taking the remaining 49%.
The move is significant both in ecological and economic terms. Gas burnt off during production for safety reasons in Iraq's southern oil fields would be sufficient to meet virtually all of Iraq's current power plant requirements.
Investing in Iraq's energy potential
Others are also investing in the country's energy potential. Iraq holds 3.36 billion cubic metres of proven gas reserves, the world's tenth largest reserves and which are still largely unexploited.
The UAE's Dana Gas is due to start gas production in September from the Khoomor field in northern Iraq, where the company is building a liquefied petroleum gas plant in joint venture with Sharjah-based Crescent Petroleum.
The gas produced is due to flow through a 180-kilometre pipeline to two new power plants in Irbil and Sulaimaniyah together due to produce 1,250 MW of electricity for Kurdistan. Dana has also said that it will spend up to $50m next year on seismic surveys and appraisal wells in northern Iraq's Chamchamal field.
Supplying European markets
In a separate negotiation, Shell is also discussing conducting output tests for the Akkas gas field in central Iraq with the potential to supply European markets via Syria and Turkey.
The company has been conducting negotiations with Iraqi officials for several months in Damascus about gas developments as well as a service contract to develop Iraq's Kirkuk and Missan oil fields.
When the Southern Oil Company contract is signed it will take at least a year to establish the joint venture. However, some field work is expected to start as soon as the agreement is signed.
The Shell venture is considered a turning point by Iraqi officials. Security used to be a deterrent but now companies feel that it has improved and this will encourage others to come in according to Iraq's Oil Ministry.
The venture also follows a major shake-up of Southern Oil's management structure with Baghdad taking over decision making. The ramifications of this and whether the environment will be safe enough for large-scale engineering work to begin remains to be seen.
(AME Info FZ LLC)