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Gas deal no monopoly, Shell and Iraq say

By BEN LANDO and ALAA MAJEED   |   Nov. 6, 2008 at 11:16 AM   |   Comments

Officials at Royal Dutch Shell and the Iraqi Oil Ministry refute claims that a proposed gas joint venture would have exclusive access to Basra province's gas industry, though a key member of Parliament criticizes the project.

"It is only a partnership," said Oil Ministry spokesman Assem Jihad. "There will not be a monopoly of the gas."

United Press International first reported this week, with previously undisclosed documents, a deal signed in Baghdad Sept. 22. It was the preliminary step to forming a joint venture company.

The "Heads of Agreement," basically a rough draft of the contract, a legal framework establishing the management team and the scope, purpose and other details of the company, says the company would operate for 25 years.

"We are at a very early stage," said Shell spokeswoman Kirsten Smart. "This is a joint heads of agreement, a preliminary agreement which is then followed by discussions to formalize the joint venture."

A member of the Iraqi Parliament's Oil and Gas Committee, however, called it a "long-term monopoly."

If the joint venture company is finalized as outlined in the HOA, it would give Shell the largest role in Iraq's oil and gas sector since the 1960s, when the world's Big Oil firms were kicked out after 40 years of virtual control of exploration, production, exports and payments to the government.

The joint venture will be the "sole gas company engaged in business," as outlined in the HOA, "and providing gas for domestic and export markets and generating revenues from gas marketing activities."

Iraq currently burns, releases or reinjects most of the gas it produces -- nearly all produced as part of oil production. It needs to invest in its infrastructure so it can sell the gas or burn it in local power plants.

The HOA language puts all of the gas burned and any reserves found in Basra, a section of the Persian Gulf "and any other areas as may be agreed on by (Shell and the Oil Ministry)" in the hands of the joint venture, which would likely be established in a year. And though the domestic need for the gas is large and growing, it doesn't prioritize that need over export.

"It is only the gas that is being wasted that will be used, the gas that is currently wasted that will be exploited," Jihad said. "After Iraq takes its needs from gas, Shell will buy the surplus at the international price."

"This agreement will open many options to Iraq to make the best use of its gas," said Smart. "In addition to it increasing the potential for reliable domestic energy infrastructure, it has further potential in terms of income from exports."

While there have been complaints from parliamentarians toward oil unions, the ministry and Shell defend the deal as the best way to quickly utilize gas currently being wasted.

"This is the decision of the Iraqi government, and Shell made its proposal following a direct request from the Ministry of Oil," Smart said. "They are asking for this joint venture as a way of transferring knowledge and capacity.

"Some 700 million standard cubic feet per day are currently being flared in the south of Iraq," she added. "The JV (joint venture) will initially focus on gathering this gas, hence reducing the flaring and turning this resource, currently being wasted, into value for Iraq."

Jabir Khalifa Jabir, a member of the Shiite Fadhila Party, the ruling party in Basra, and a member of the Parliament Oil and Gas Committee, said local governments need to be included in such decision-making.

"The joint venture is a constitutional and legal violation, because the governorate of Basra didn't take part in the negotiation. It is a long-term monopoly that allows Shell to export gas when Iraq is in need of that gas. This joint venture will include all of Basra and more likely to the entire region of the south."

He also said that, especially because the joint venture could have rights to yet undiscovered gas fields, Parliament deserves a say.

"The Ministry of Oil thinks that they have the right to decide to take positions and that the Parliament shouldn't interfere," he said. "From our side we are against it. And we think the Parliament has a major role to play."

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(Ben Lando is UPI's Energy Editor. Alaa Majeed is UPI's Iraqi Affairs Correspondent.)

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(e-mail: blando@upi.com)

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