Monday, November 28, 2011

Iraq Approves $17bn Gas-Capture Contract With Shell, Mitsubishi....

Iraq Approves $17bn Gas-Capture Contract With Shell, Mitsubishi....

Iraq’s cabinet approved a $17 billion deal with Royal Dutch Shell and Mitsubishi on Tuesday to capture gas that is now being flared off in the oilfields around the southern oil hub of Basra.

The 25-year venture is expected to help Iraq make use of more than 700 million cubic feet per day of gas that is being burnt off at Rumaila, Zubair and West Qurna, government spokesman Ali al-Dabbagh said. “The value of the contract is $17 billion for 25 years,” he added.

The deal establishes a new company called the Basra Gas Company, a joint venture of the South Gas Company and the consortium of Shell and Mitsubishi, and could open the door to the export of liquefied gas. The contract is one of the largest signed by Iraq.

Capturing flared gas is considered vital to ramping up power production in Iraq, where electricity demand is around double the supply.

Under the terms of the deal, which Iraq and the companies initialled in July, the government will hold 51 percent of the joint venture, with Shell at 44 percent, and Mitsubishi 5 percent.

Iraq loses an estimated 1 billion cubic feet per day of gas, mostly from southern fields. The Shell project may eventually handle up to 2 billion cubic feet of gas per day.

Iraqi officials have said the project could include building an LNG export facility with a maximum capacity of 600 million cubic feet of gas per day, so long as Iraq’s own gas needs are satisfied first.

A summary of the official agreement obtained by Reuters after the initial signing in July lists a $4.4 billion LNG export unit, in addition to the $12.8 billion estimated cost of rehabilitating existing gas facilities and building new ones, but it does not say when the LNG plant might be built.

The Shell-Mitsubishi partnership expects an internal rate of return on the project of 15 percent on an initial investment of $6.98 billion, while SGC plans to put in $3.7 billion of public funds initially and fund the rest through gas sales.....

Iraq has agreed with oil majors to build a multi-billion-dollar oil field water injection plant in the south of the country, after disagreement over costs that suspended the project for months.

The water injection project aims to provide water to maintain reservoir pressure to fields such as Rumaila, West Qurna Phase 1 and 2, and Zubair and Majnoon in southern Iraq.

ExxonMobil was picked on behalf of foreign oil firms to lead the mega water-injection project, needed to boost crude oil production rates from Iraq’s southern oil fields.

Other international oil companies (IOCs) that have expressed willingness to set up the common water injection project include UK’s BP, Russia’s OAO Lukoil Holding, Italy’s ENI and UK-Dutch oil major Shell, which is expected to join in later.

“The two (Iraq and oil firms) have advanced toward reaching agreement and we have passed the heads of agreement (phase) into the FEED (Front End Engineering and Design) phase,” Thamer Ghadhban, the top energy advisor to the Iraqi Prime Minister said on the sideline of the Iraq Mega Projects conference in Istanbul.

Foreign companies had suggested the cost would be a little more than $3 billion to build the first stage of the project, which is designed to process 4 million barrels of water a day, Iraqi oil officials had said.

The Oil Ministry’s figures were much lower than those estimated by the oil companies, Ghadhban said.

To overcome differences over costs, Iraq has suggested starting a FEED study aimed at establishing an accurate costs for the project, Ghadhban said.

“It has been decided that they (Iraq and foreign companies) will work together to build the project,” he said.

Last month, Nihad Mous, head of the ministry’s State Company for Oil Projects, said the main issue delaying the project was that BP wanted costs of the water injection project to be reimbursed when production in these fields reached a 10% increase over their base line before the development process. The ministry wants to start paying back when 20% increase in output was reached.

“Of course an oil company wants to be paid early and of course the oil ministry thinks otherwise. I do not at all see these as stumbling blocks,” Ghadhban said....

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