Friday, Jul 08, 2011

(Adds details, background from fourth paragraph.) 


 
    By Hassan Hafidh 
    Of DOW JONES NEWSWIRES

Royal Dutch Shell PLC (RDSA) and Iraq have settled most pending legal issues that have delayed a $12 billion gas deal for more than two years and an initial pact could be signed mid next week, a senior Iraqi oil official said Friday.

Since the signing of an initial agreement in 2008 to begin negotiations on the project, the Iraqi oil ministry has been working to finalize a joint venture between its South Gas Co., Shell and Japan's Mitsubishi Corp. (8058.TO) to capture and exploit the huge volumes of gas flared from three giant southern oil fields, Rumaila, Zubair and West Qurna Phase 1.

"We are meeting with Shell and Mitsubishi in the middle of next week to finalize some points and we are hoping to sign an initial contract the following day," the official told Dow Jones Newswires.

The main dispute was over pricing of produced gas that the joint venture would sell to the Iraqi government to fuel much-needed power generation in Iraq. Under the current system, the oil ministry sells the gas to the electricity ministry and other government entities at subsidized rates but Shell and Mitsubishi wanted the gas to be sold at prices that match international standard. That issue has been resolved but the official didn't say how.

Once initialed the deal still needs the approval of the Iraq government.

The deal also could face opposition from various Iraqi political factions. Last week the oil and energy committee at the country's parliament called on lawmakers to issue a decision banning the government from signing any new oil or gas deal until a long-awaited oil and gas law is enacted.

According to the draft deal with Shell and its partners, the venture would meet local needs and the extra produced gas would be for exports outside Iraq.

The three southern oil fields, all located in Basra governorate, are producing 1.05 billion cubic feet a day, but only 450 million cubic feet a day are utilized while the rest is flared.

Iraq is home to 112 trillion cubic feet of gas, but produces only around 1.5 billion cubic feet a day--of which 700 million cubic feet a day are burned for lack of infrastructure.

-By Hassan Hafidh, Dow Jones Newswires; +962 799 831 831; hassan.hafidh@dowjones.com

(END) Dow Jones Newswires

08-07-11 1723GMT