The deal is expected to be a key part of the government's
strategy to alleviate its power generation woes as chronic power outages have
led to sometimes violent protests over the past few weeks.
Under the deal, Iraq will hold a 51 percent stake in the new
Basra Gas Company while Shell will hold a 44 percent share. Japan's Mitsubishi
Corp. will hold the remaining five percent stake in the company, according to a
government statement. It did not say when the final signing will be.
Iraq, which is home to the world's third largest proven
reserves of conventional crude oil, sits on an estimated 112 trillion cubic
feet of natural gas reserves. Of the 1.5 billion cubic feet per day of gas it
produces, almost half is burned off at the wells.
The deal, which is Shell's third in Iraq since the 2003
US-led invasion, was designed to tap all the associated gas in Iraq's oil rich
southern province of Basra. It was later amended, however, to include the four
oil fields that were among the 11 fields awarded to foreign oil companies in
two bidding rounds last year.
Thamir Al-Ghadhban, the Iraqi prime minister's chief adviser
on energy, said the latest deal is worth about $17 billion, including $5
billion of existing infrastructure assets.
The project also marks a major step in Iraq's effort to
capture and put to use for generating electricity the natural gas that has
routinely been burned off — or flared — at the fields because the country lacks
the necessary infrastructure to bring the gas to market.
Officials see the capture of the gas as an important step in
dealing with chronic power cuts that have recently led to protests, including
one that left two dead in Basra and forced the electricity minister to resign.
Since the 2003 US-led invasion, the government has spent
billions working to rebuild Iraq's national electrical grid, which was in poor
shape because of various wars over the past decades. Most Iraqis only receive between
five to seven hours of power a day.
Last May, with an eye on boosting gas output, Iraq invited
international energy companies to bid to develop three untapped gas fields in
an auction set for Sept. 1.
Once these fields are brought online, the production will be
used to meet Iraq's growing energy needs as well as possibly exporting to
neighboring countries or the European Union.
Iraq's latest five-year plan, approved in April, forecasts
crude oil output growing to 4.5 million barrels per day by 2014, from the
current 2.4 million barrels per day. Oil exports are forecast to grow to 3.1
million by the same year, compared to roughly 2 million barrels per day now.
It also plans to produce 2.75 billion cubic feet a day of
gas by 2014, with the increase coming mainly from the fields to be auctioned.
