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Iraqi Cabinet Approves Royal Dutch Shell’s Natural Gas Contract


Published: November 15, 2011

BAGHDAD — Iraq’s cabinet approved a multibillion-dollar contract on Tuesday for Royal Dutch Shell, the Anglo-Dutch energy giant, to collect the vast amount of natural gas emitted, and currently burned off, as oil is pumped to the surface at three major oil fields in the south.

The project, which will eventually greatly reduce Iraq’s greenhouse gas emissions, is intended to bring modern methods of managing oil fields to an industry frozen in time by sanctions and the war. In addition, it strengthens Shell’s foothold at a time when international petroleum companies are vying for advantage in one of the few regions of the world where easily accessible, on-land fields are opening to new investment.

But it also strikes a political nerve. Some members of the Iraqi Parliament protested the deal as overly generous to Shell and its Japanese partner, Mitsubishi, though the investment — $17 billion over 25 years to build pipes and filters to collect the gas — will be funneled through a newly created joint venture owned 51 percent by an Iraqi state company, the South Gas Company.

Ali al-Dabbagh, a government’s spokesman, said that Shell and Mitsubishi’s project involved the fields at Rumaila, West Qurna, and Zubair, which are operated by consortiums led by BP, Exxon, Lukoil of Russia and Eni of Italy. Some 700 million cubic feet of “associate gas” is burned off, or flared, annually at the three fields.

The Shell project is one of several creating shared infrastructure in the south for companies that won technical service contracts in 2009, among the first awarded for Iraq’s oil fields since the fall of the government of Saddam Hussein in 2003. For instance, ExxonMobil is building a plant to process water for injecting into the fields, something all the companies will need to pump more oil.

Shell said it would sell the gas to electrical utilities in Iraq, but that it may also eventually export some.

“Capturing this gas will create a reliable supply of energy for Iraq while at the same time reducing greenhouse gas emissions,” Shell’s chief executive, Peter Voser, said in a statement. “This also sends a positive signal about the investment climate in the country.”

Iraq’s energy politics mostly swirl around oil. But as its riches of natural gas have come into focus, so too have disputes over dividing them. Some analysts noted that the new project focused on the associate gas that is abundant in the southern oil fields, in areas that are mostly Shiite, while untapped gas fields in the predominantly Sunni western desert remain unexplored.

In another recent agreement, over the weekend, officials in the semi-autonomous Kurdish region in the north confirmed Exxon had signed a contract to explore for oil there.

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