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Iraq Signs Gas Deal With Shell

A gas refinery in Al-Basrah
BAGHDAD -- Iraq has signed a multibillion-dollar natural gas deal with Royal Dutch Shell, the second major energy deal agreed with a foreign firm since the U.S.-led invasion in 2003.

Oil Minister Hussain al-Shahristani described the deal as an initial agreement that he said was worth "some billions" of dollars. It was unclear when a full deal would be signed.

The agreement is between the energy giant and the state-run Southern Gas Company for a joint venture in Basra province in Iraq's south. Under the terms of the deal, Iraq will hold 51 percent in the venture and Shell 49 percent.

Iraq needs huge amounts of investment to boost oil and gas output and rebuild itself after years of sanctions and war.

"We have signed an initial agreement for a joint venture between the Southern Gas Company and Shell," Shahristani told reporters after the signing ceremony.

Offices In Baghad, Al-Basrah

A senior Shell executive, Linda Cook, said the company will open offices in Baghdad and Al-Basrah, which could make it the first Western oil major to do so in years.

The deal includes the capture of natural gas released as a by-product of crude oil extraction as well as the rehabilitation of gas facilities in Al-Basrah.

Shell is also expected to produce dry gas as well -- gas which is not a by-product of oil.

"This [joint venture] company will stop the burning of gas as quickly as possible and will start to produce dry gas. Iraq will become one of the world's key LNG exporting countries," Shahristani added.

Liquefied natural gas (LNG) is gas cooled to liquid form for export on tankers. Surplus LNG, after Iraq's domestic allocation, will be exported through Al-Basrah, Shahristani said.

Shell will also construct new gas facilities to process the by-product gas, some 700 million cubic feet of which Iraq burns off, or flares, each day, the Oil Ministry has said. Shell will buy some of the gas itself.

The deal may bring hopes of Iraq eventually supplying Europe with gas via pipeline closer to reality. Russia's invasion of Georgia has boosted European and U.S. efforts to reduce the EU's reliance on Russia for energy supplies.

Third-Largest Reserves

Iraq, which has the world's third-largest proven oil reserves, has said it wants to focus on development of its gas fields and plans to become a major supplier to Europe.

However, key diversification projects such as the Nabucco pipeline which aims to bypass Russia and import Central Asian and Middle East gas to Europe, have been hampered by difficulties in securing gas supplies.

Iraq's proven natural gas reserves are 112 trillion cubic feet, while probable reserves are closer to between 275 and 300 trillion cubic feet, a 2007 report from the U.S. government's energy statistics unit said.

Iraq recently agreed a $3 billion oil service contract with China, the country's first major oil deal with a foreign firm since the fall of Saddam Hussein more than five years ago.

Buoyed by sharp drops in violence, Iraq opened its giant oil and gas fields to foreign firms on June 30, announcing long-term development contracts with a view to raising oil output by a combined 1.5 million barrels per day at those fields.

Iraq wants to raise total oil output to 4.5 million bpd by 2013, from around the current 2.5 million bpd.

Baghdad has said it wants to sign the long-term development contracts by mid-2009.

Shahristani will meet energy firms bidding for those oil and gas service contracts in London next month to discuss details of the fields on offer as well as contract terms, the Oil Ministry has said.

RFE/RL Iraq Report

RFE/RL Iraq Report

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