Questions about contract between Shell, South Gas Company

BASRA / IraqiNews.com: The contract signed between the South Gas Company and Shell for the processing and marketing of natural gas produced in the governorate of Basra in southern Iraq has raised many questions and different view points. There are some analysts who believe that the new contract considered as a plan to give up Iraq’s oil and gas wealth and for foreign companies, while others say it an important step to develop the oil sector which will positively affect the national income and per capita real income. IraqiNews.com brought up these questions and viewpoints to the oil expert Jabar al-Halafi, who answered a question about the reason behind the continuity of signing oil and gas contracts despite the absence of any law that regulates this issue and also the reasons behind the race among the biggest companies in the world, whose operations in Iraq have been nationalized during the period between 1972-1975, to come back to the country. “Iraq has a huge oil reserve as it ranks the third in the world with 115 billion oil barrels, in addition to the higher demand for oil and gas and the decrease in the production from countries out of OPEC,” al-Halafi said. “Iraq is an attractive place for big companies which seek to invest oil and gas in the country. The oil ministry has negotiated with more than 30 companies before signing this contract, according to the oil minister,” he added. He pointed out that Iraq produces less than its production capacity compared to other producing countries; Iran produces 4 million barrels per day, while Iraq produces 2.5 million barrels. Last September 22, the Iraqi ministry of oil and a wholly owned affiliate of Royal Dutch Shell signed a heads of agreement to establish a joint venture between the South Gas Company and Shell for the processing and marketing of natural gas produced in the governorate of Basra in southern Iraq. Some 700 million standard cubic feet per day of natural gas, which is produced by upstream suppliers in association with oil, is currently being flared in southern Iraq. By capturing and processing this natural gas, the joint venture (JV) is expected to create an important and reliable supply of domestic energy, reduce greenhouse gas emissions, and create significant value for Iraq. The JV will purchase associated natural gas from upstream operations; own and operate existing gas gathering, treating and processing facilities; and invest in repairing non-functioning assets and develop new facilities. The South Gas Company will be the 51% majority shareholder in the JV, with Shell holding 49%. The JV will be focused initially on creating reliable sources of domestic energy, including liquefied petroleum gas, natural gas liquids, natural gas supply for power generators, and deliveries to local distribution networks. In the future, the JV could develop a liquefied natural gas facility to export natural gas not needed for local domestic use. Linda Cook, executive director of Royal Dutch Shell, said: “Shell is an industry leader in the global natural gas sector. Iraq has one of the world’s largest natural gas resource bases and I am delighted that the Iraqi government including the ministry of oil has supported Shell as the partner for joint venture with the South Gas Company.” Shell is a global group of energy and petrochemicals companies. With 104,000 employees in more than 110 countries, it plays a key role in helping to meet the world’s growing demand for energy in economically, environmentally and socially responsible ways. “The government could sign the contract with any suitable company to develop the oil sector in the absence of oil and gas law, in addition to the huge Iraqi reserve of gas which reaches 4 trillion cubic meters as well as the increasing demand for gas, so we know that companies look forward to invest in the country to benefit from the absence of that law,” al-Halafi noted. As