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Mon 28 Nov 2011 08:36 AM

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Iraq clinches $17bn flared gas deal with Shell

Deal is one of Iraq largest energy signings, to bolster much-needed electricity production

Iraq clinches $17bn flared gas deal with Shell
The 25-year project is Iraqs largest energy deal to date

Iraq
signed a final $17bn deal with Royal Dutch Shell and Mitsubishi on Sunday to
capture flared gas at southern oilfields, a project that should boost production
of badly needed electricity.

The
25-year project, one of the largest Iraq has signed with foreign energy firms,
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, officials said.

"This
day represents a historic change in the Iraqi oil industry ... the best utilisation
of (associated) gas to meet the increasing needs for gas in Iraq," Luaibi
said at a signing ceremony attended by Shell Chief Executive Peter Voser.

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.

The
Shell deal will involve the creation of the Basra Gas Co joint venture, in which
the government will hold 51 percent, Shell 44 percent and Mitsubishi 5 percent.

The
project aims to capture gas at Iraq's workhorse field, Rumaila, as well as
Zubair and West Qurna.

Intermittent
electricity is one of Iraqis' major complaints against their government. Power
supply is about half of demand.

The
goal of 2 billion cubic feet per day capacity is linked to peak production at
the southern fields, which is expected by 2017, said Deputy Oil Minister Ahmed
al-Shamma.

Existing
facilities are currently handling 370 million cubic feet of gas per day from
seven southern fields.

"We
expect within a year to complete all the preparation to process 1 billion cubic
feet. The other 1 billion cubic feet will depend on the increasing production
from the three oil fields," Shamma said.

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 $17.2bn, officials said, including $12.8bn to
rehabilitate existing facilities and build new ones, and $4.4bn for the LNG
export unit.

The
Shell-Mitsubishi partnership expects an internal rate of return on the project of
15 percent on an initial investment of $6.98bn, while SGC plans to put in $3.7bn
of public funds initially and fund the rest through gas sales.

Voser
said Iraq is now a substantial part of Royal Dutch Shell's Middle East
portfolio.

"We
at Shell, together with our partners, will now start, after this signing, the
work so that we can actually bring further electricity to the country, but also
over time further revenues by bringing Iraq into the export business of
gas," he said.

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