Bloomberg News

Shell Ready to Start $12.5 Billion Iraq Natural-Gas Project

June 19, 2011

(Updates with Majnoon oilfield new wells, pipelines and dock starting in fifth paragraph.)

June 19 (Bloomberg) -- Royal Dutch Shell Plc and partner Mitsubishi Corp. are preparing to begin a delayed $12.5 billion natural-gas project in Iraq, said Hans Nijkamp, vice president and country chairman.

“Shell and Mitsubishi are now ready for execution of the project,” he said in an interview published on the website of Energy Exchange, organizer of an Iraqi energy conference to be held in Istanbul in September. “We are working with our Iraq partners to reach final agreements as soon as possible.”

Regarding delays since the contract was signed last year, Nijkamp said: “A number of external reviews have been carried out by international firms on behalf of the Ministry of Oil and it has also taken Shell 250,000 engineering man-hours on site to assess the scope of work.”

The Iraqi government is eager to develop gas resources to supply fuel to generate electricity. The nation’s power plants have failed to meet domestic demand and ending blackouts has become a political priority. The government, which hopes eventually to produce enough gas to export, awarded three licenses last November in the nation’s first auction of gas concessions since the U.S.-led invasion in 2003.

The project with Shell and Mitsubishi involves developing and capturing gas that is being flared, or burned off, in southern Iraq. Some 700 million cubic feet are flared daily in the south of Iraq and the quantity is sufficient to generate an estimated 4,500 megawatts, Nijkamp said.

Wells, Pipelines

In July, Shell will start installing 15 production wells and pipelines in the Majnoon oilfield in southern Iraq, Nijkamp said. It will also upgrade two degassing stations and build “a new central processing facility to include two new 50,000 bbl/d capacity early production systems,” he said.

Shell has concluded a geographical survey that produced “positive results” about the southern Shatt al-Arab waterway’s ability to handle equipment needed to develop the Majnoon oilfield. “We are now able to use it as a route to transport equipment to Majnoon and minimize road transport,” Nijkamp said. “We are also in the process of constructing a jetty.”

Together with Petroliam Nasional Bhd of Malaysia, Shell won a 20-year service contract in 2009 to raise output from Majnoon to 1.8 million barrels a day. Shell Chief Executive Officer Peter Voser said on Oct. 12 that production from Majnoon had risen to 70,000 barrels a day. Majnoon, which straddles the Basra and Maysan provinces, has estimated crude reserves of 12 billion barrels and 9.5 trillion cubic feet of gas.

--Editors: Jennifer M. Freedman, Gavin Serkin

To contact the reporter on this story: Nayla Razzouk in Amman at nrazzouk2@bloomberg.net

To contact the editor responsible for this story: Steve Voss at sev@bloomberg.net.


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