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Sluggish—Shell, Iraq venture sets off to a sticky start

Sluggish—Shell, Iraq venture sets off to a sticky start

Lack of oil and gas laws and the presence of deal opposition could complicate Iraq’s venture with Royal Dutch Shell, which is essential for its multibillion-dollar infrastructure plans.

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August 23, 2011 1:29 by



…quickly capture the gas and tackle chronic power shortages, which earlier this year helped spark public protests over blackouts and poor services.

Analyst Samuel Ciszuk of IHS Energy said majors developing the three oilfields are already under tight deadlines to boost crude production and are likely to see the gathering of gas for Shell and BGC as an additional infringement of their contracts.

“The agreement … remains complicated and politically controversial,” said Ciszuk.

One oil executive said the oil development deals signed with Iraq do not include any specifics on how much associated gas the companies can utilise and how much to hand over to SGC.

One sticking point in the initial talks with Shell was whether it would get any guarantees for the amount of associated gas it could utilise from the oilfields, Iraqhas said.

DIVVYING UP THE PROFITS

“If you don’t know how much gas you will get, how will you know how much gas you will produce?,” said the oil executive.

The Shell project aims to handle up to 2 billion cubic feet of gas per day. The project could include building a LNG export facility with a maximum capacity of 600 million cfpd, after Iraq’s own gas needs are satisfied.

Analysts say that with rapid development of oilfields there should soon be more gas than Iraq can consume, opening up the export option.

Another cause for delay, however, will be the wrangling between the two sides over the volumes of gas that Shell will be able to export in the long run, analysts say.

“They’re probably not going to make a high rate of return on supplying domestic power plants,” said Greg Priddy at Eurasia Group in Washington. “I think the issue of giving Shell flexibility on exports is what the real sticking point is.” (By Rania El Gamal; Additional reporting by Emma Farge in London, Editing by Patrick Markey and Jane Baird)



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