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Shell and Mitsubishi Gas Venture with Iraq

Written By Brianna Panzica

Posted July 11, 2011

Since 2008, a deal has been brewing among Iraq’s Oil Ministry, Royal Dutch Shell (NYSE: RDS.A), and Mitsubishi (TYO: 8058).

The deal is worth an estimated $12 billion, and it is regarding the gas produced from Iraq’s southern oil fields.

These three oil fields, called Rumaila, Zubair, and West Qurna Phase 1, produce an estimated 1.05 billion cubic feet of gas a day.

Of this, however, only 450 million cubic feet are actually used.

The rest, approximately 700 million cubic feet, is flared, or burned as unusable due to lack of sufficient infrastructure.

The joint venture of Iraq, Shell, and Mitsubishi, called Basra Gas Company, would work to capture and exploit the flared gas.

Basra Gas is 51% owned by Iraq’s South Gas Company, 44% by Royal Dutch Shell, and 5% by Japan’s Mitsubishi.

An initial agreement to work on negotiations was signed by these three companies back in 2008, establishing the 25-year-long project.

Due to disagreements, however, the project was pushed back for a number of years.

And until Monday morning, the contract was scheduled to be signed on Tuesday, July 12.

Now, however, Iraq’s Oil Ministry has announced that the contract will be postponed yet again.

No reason was given with this announcement, nor was a future date.

However, there is speculation that it is due to one of their ongoing disagreements regarding cost of the gas.

The gas that is captured would be sold back to the Iraqi government to be used in power generation for the nation.

And while the Iraqi government currently sells gas to power companies at subsidized rates, Royal Dutch Shell and Mitsubishi want them to change this.

The two companies have requested that Iraq sell the gas at a market price, compatible with international prices.

There has been no final agreement upon how to price the captured gas.

And so the contract will be postponed even further.

Yet negotiations are still in the works, and disagreements will continue to delay rather than altogether cancel the venture.

That’s all for now,


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