Many of the world's biggest energy companies may have to
surrender most of the gas from Iraq's vast southern oilfields to a processing
and export project led by Shell, a final draft contract between Baghdad and
Europe's biggest company shows.
Oil giants including Royal Dutch Shell , BP, US-based Exxon
, China's CNPC, and Italy's Eni signed technical service contracts to develop
three oilfields in southern Iraq in 2009-2010.
But the oil deals to develop the Zubair, Rumaila and West
Qurna 1 fields near Basra oblige the big oil contractors to surrender the gas
they do not use for reinjection or power generation to Iraq's state-run South
Gas Co (SGC).
Under the $17bn gas deal to be ratified by the Iraqi
cabinet, Baghdad has pledged to do what it takes to ensure these fields supply
the Shell-led Basra Gas Company (BGC) joint venture with all the raw gas and natural
gas liquids (LNG) it needs, including for an LNG export plant.
"SGC shall procure that all raw gas produced from the
dedicated fields (other than utilised gas but including all NGLs) ... shall, on
and from commencement of operations, be dedicated solely to the venture,"
the contract reads.
"The Ministry shall ensure that SGC fulfils its
obligation to supply and make available to BGC all committed volumes and
planned volumes of raw gas, including by making available deficit volumes as
needed," said a letter of confirmation from the energy ministry attached
to the contract.
Under the terms of the oil contracts, SGC owns all the gas
not used for oil recovery or power generation at the oil fields. With
production from some of the world's largest underdeveloped oilfields expected
to surge over the next decade as Iraq boosts capacity towards 12 million
barrels per day, there is likely to be much more gas than the country needs
The other big oil companies could propose alternatives for
using some of it and some are understood to be considering their own gas
But the oil ministry's confirmation letter attached to the
deal said the government will make sure SGC meets its side of the supply deal
and ensure that other parties do not prevent it from doing so, including
"not permitting any other entity to do a specified thing."
The quantities of raw unprocessed gas SGC will deliver to
the Shell-led joint venture, backed by minority partner Japan's Mitsubishi, are
not in the draft and will be revised in line with output from the oilfields.
But the signatories expect dedicated volumes at plateau of
at least 2,000 million standard cubic feet per day (mmcfd) of raw gas to be
available to the BGC project -- a vital part of Iraq's master plan to boost
electricity and domestic industry output.
SGC will be legally obliged to supply at least 85 percent of
the agreed volumes, while BGC will be obliged to take and pay for, or pay for
even if not taken, 90 percent of that volume, the contract says.
Providing Iraq's own modest gas needs are met first, the
contract gives BGC the right to build and operate a 4 million-tonne per year
(mtpa) LNG terminal and, subject to government approval, another LNG export
If BGC decides to go ahead with the LNG part, SGC has
pledged to supply it with enough raw gas to produce a minimum of 600 million
cubic feet per day of LNG feedstock gas within four to seven years of the start
up of the gas processing unit.
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