BAGHDAD (AFP) — Royal Dutch Shell will form a gas venture with energy-rich Iraq worth up to four billion dollars, the oil ministry said Tuesday of the first Western oil major to do a deal with the central government since the 2003 invasion.
The venture to capture unwanted gas burned off during oil production, for domestic consumption and export, is expected to be signed in Baghdad next month, ministry spokesman Assem Jihad told AFP.
The deal with the Anglo-Dutch company is estimated to be worth between three billion and four billion dollars (2.13 billion-2.84 billion euros), the Financial Times newspaper said.
In the past two years, several other energy majors have signed contracts with Iraq's northern Kurdish administration, much to the annoyance of Baghdad.
Oil Minister Hussein al-Shahristani has repeatedly warned the Kurds their contracts would be considered invalid in the absence of a national oil law.
Iraq's cabinet approved the contract, giving state-owned Southern Oil Co 51 percent and Shell 49 percent of the venture, to be based in the southern city of Basra.
The project is intended to make use of the 21 million cubic metres (700 million cubic feet) of gas -- roughly enough to meet the demand for all of Iraq's power generation -- that the oil industry burns off for safety reasons, the FT said.
"Europe is looking for supplies of gas from Iraq," Jihad told the paper. "Security used to be a deterrent, but now companies feel that security has improved and this will encourage others to come in."
Analysts welcomed the tie-up, saying liquefied natural gas for export could be used to meet booming demand in the fast-growing economies of the Middle East, especially the Gulf.
"There are untapped resources in Iraq, and if Shell can help develop them there is loads of potential for gas," said Michael Corke, a vice president in Dubai of energy consultancy Purvin and Gertz.
The share price of Royal Dutch Shell's 'A' shares slipped 0.96 percent to 1,749 pence two hours before the close of Tuesday trade on the London Stock Exchange following a slide in global oil prices.
Iraq has the world's third-largest oil reserves, while its natural gas reserves are also huge and almost completely untapped.
According to US-based industry report the Oil and Gas Journal, Iraq holds 112 trillion cubic feet (3.36 trillion cubic metres) of proven gas reserves, the world's 10th largest.
"Gas in Iraq is much less developed than oil," said Walid Khadduri, a consultant and energy analyst for Middle East Economic Survey.
Iraq's energy industry is in dire need of modern equipment and technology after production facilities went into decline during the decade of crippling UN sanctions that followed the 1990 invasion of Kuwait.
Iraq has called on international firms to help it develop its energy resources. In June, it agreed to invite 35 companies to bid on service projects but failed to sign expected technical support deals with six other energy majors.
The oil ministry threw open six oilfields and two gas fields for international bidding for the 35 companies for which contracts are expected to be signed next June.
The separate preliminary agreements with the six energy majors were meant to open the way for longer-term contracts but are now likely to be scrapped, Jihad said.
"After delays and differences with the companies over the length of contracts, the ministry is now inclined to bypass that stage and focus on longer-term development contracts," he added.
Last month, China became the first foreign group to reach an agreement with Iraq in a three billion dollar deal to exploit oil.
It revived a 1997 contract granting China the rights to develop the Al-Ahdab oil field in central Iraq, although again the new arrangement is only a service agreement and includes no revenue sharing.
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