Shell in major gas deal with Iraq

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Royal Dutch Shell has received permission from the Iraqi government to work with the Japanese company Mitsubishi on gas extraction. The contract, with a value of 12.5 billion euros, is the result of years of negotiations. The deal will result in a cleaner and more stable Iraq, experts believe.

Shell and Mitsubishi plan to capture gas from three giant oilfields in southern Iraq. It is one of the biggest projects the country has signed with foreign parties. The gas deal is not only important for the Anglo-Dutch oil company and its Japanese partner, says energy expert Lucia Geuns of the Clingendael Institute in The Hague:

"I think it is particularly important for Iraq and Iraqis. Because at the moment the gas in southern Iraq is just flared and blown into the air. But now the gas will be captured and used in power plants. That will mean a huge improvement to the electricity supply in Iraq. "

Energy, jobs, stability
Mark Hoekstra, energy expert at consultancy firm Deloitte, also thinks the gas deal is of great importance for Iraq. On BNR News Radio, he said:

"The electricity supply for the region will be significantly improved because some of this gas, and probably most of it in the future, will be used to produce electricity. And by extension, one could say that it will help the stability of Iraq as a nation in the making. Jobs and energy are two very important conditions for people to further develop themselves."

Iraq currently uses oil to produce electricity. Electricity demand in Iraq is still twice as high as the amount being produced. Meanwhile, in the three major gas fields, nearly 20 million cubic metres of gas are being lost every day. Its combustion is equivalent to a loss of capital of 1.3 billion euros.

The environment also suffers as result, says Ms Geuns. "It is after all a fairly aggressive greenhouse gas." Emissions of greenhouse gasses such as CO2 by the three major oilfields are equivalent to those of 3.5 million cars.

Although the Iraqi government is making efforts to develop gas reserves in the country, it will eventually also export. For Shell, the production and sale of gas is of major importance, says Ms Geuns:

"I think Shell in the long term wants to build an export facility. This is about liquefied natural gas, eventually for export. That will be good for Shell, but also for Iraq, because it brings with it additional revenue. "

New pipelines
Initially, Shell will concentrate on building new gas pipelines, renewing gas installations and building a facility to process oil and gas for the domestic market in Iraq.

A joint venture called Basrah Gas Joint Venture Company has been set up for the deal. The state-owned Southern Gas Company holds a majority stake of 51 percent. Shell has a 44 percent stake, and the remaining five percent is held by Mitsubishi.