Wednesday, Jun 20, 2012

(This story was originally published Tuesday)

By Hassan Hafidh

LONDON --Royal Dutch Shell PLC's (RDSA.LN) venture with Japan's Mitsubishi Corp. (8058.TO) and Iraq's state South Gas Co. has made significant strides in increasing its gas capacity by rehabilitating facilities and capturing and processing large volumes of gas flared from Iraq's giant southern oil fields, Shell executives said Tuesday.

"Since we signed the contract in November 2011, we have been able to add some 150 million cubic feet a day capacity," Hans Nijkamp, vice president of Shell in Iraq told Dow Jones Newswires in an interview on the sidelines of an oil conference.

The $17.2 billion joint venture--Basrah Gas Co., or BGC--was signed in Baghdad following almost three years of negotiations between the Iraqi government and Shell. South Gas Co. holds 51%, Shell has 44% and Mitsubishi 5% in the venture which is to span 25 years.

Mr. Nijkamp said the project which processes gas produced from three Iraqi oil fields--Rumaila, West Qurna 1 and Zubair--is currently producing some 450 million cubic feet a day.

Gas output is expected to increase gradually to process all currently flared gas from three oil fields in Basra, estimated at 1.1 billion cubic feet a day.

Shell and its partners have started establishing the structure of a modern gas company where some 5,000 employees are engaged, he added. It is using its technologies and personnel to rehabilitate the existing facilities located in Khor Zubair and in North Rumaila in the southern Basra governorate.

"Shell specialists have been involved right from the signature of the contract to increase the produced gas," Mr. Nijkamp said.

Mounir Bouaziz, Shell vice president commercial for the Middle East and North Africa region, said that the venture will rehabilitate some 30 facilities and two major processing plants in North Rumaila and Khor Zubair.

"The first phase of the project is to rehabilitate existing facilities to restore processing capacity of existing facilities which is around 1 billion cubic feet a day of gas," Mr. Bouaziz said.

The venture also includes the construction of a floating liquefied natural gas plant and terminal off Basra coast in the Arabian Gulf to be built by Shell and Mitsubishi to be used for exports after meeting local needs.

The LNG facility is expected to cost around $3 billion, and "we are expecting the LNG to be operational either in 2017 or 2018," head of the South Gas Co. Ali Hussein Khudhier told Dow Jones Newswires in January. The project would handle the export of 600 million cubic feet a day of LNG, Mr. Khudhier said.

The venture is currently working on a development plan for the LNG, Mr. Nijkamp said.

Shell, Mitsubishi and SOC signed a contract earlier this year with Zurich-based power and technology company ABB Ltd. (ABBN.VX) to build a 50-megawatt power plant tied to the project, he added. Work on the power plant is expected to start in the middle of next year, he said.

According to the joint-venture agreement, Iraq has to supply the Basra Gas Co. with at least 2 billion cubic feet a day of raw gas even if it has to bring it from other fields other than the three mentioned.

The terms of the venture call for BGC to buy raw gas from the oil ministry and sell the dry gas, LPG and liquids it processes back to the ministry at international prices.

Iraq has signed some 11 deals with international oil companies with the aim of reaching an output of at least 8 million barrels a day by the end of this decade.

The gas project with Shell is crucial to Baghdad's ambitious oil expansion program that will also boost much-needed power generation in the country.

Iraq, holder of the world's 10th gas reserves, is producing 1.4 billion cubic feet a day of gas from southern oil fields, but some 1 billion cubic feet a day are being flared because of lack of infrastructure.

Write to Hassan Hafidh at Hassan.Hafidh@dowjones.com

(END) Dow Jones Newswires

20-06-12 0339GMT