The Iraqi government has agreed to set up a joint venture with oil and gas giant Royal Dutch Shell to invest $4bn in developing the country's natural gas supply.
The resulting agreement makes Shell the first western oil company since the 1970s to win significant access to the county's energy sector.
The pact, which will see Shell supply the local market as well as bringing liquefied natural gas (LNG) to Britain, is the second deal of its kind between the government and a foreign firm since the U.S.-led invasion of Iraq back in 2003.
Under the terms of the agreement, signed on Monday by Iraqi Oil Minister Hussein al-Shahristani, Iraq will hold the majority 51% in the venture, with Shell holding the remaining 49% stake.
The joint venture between the Iraqi owned South Gas Company and Shell will allow for the drilling and production of all associated natural gas supplies in the Governorate of Basra in southern Iraq, an area covering some 19,000 square kilometres.
It is a region with enormous potential as an oil and gas supplier but thus far, one that has lacked the investment for it to be realised.
The project will process the gas and supply into local markets to industrial companies like fertiliser and petrochemical plants as well as export it, said Minister Shahristani.
Some 700 million standard cubic feet per day of natural gas, which is produced by upstream suppliers in association with oil, is currently being flared-off in southern Iraq - a practice condemned by environmentalists as contributing to global warming.
By capturing and processing this natural gas, the venture should create an important and reliable supply of domestic energy; while simultaneously create significant value for Iraq.
Linda Cook, Executive Director of Shell, said: “Iraq has one of the world's largest natural gas resource bases and I am delighted that the Iraqi government, including the ministry of oil, have supported Shell as the partner for a joint venture with the South Gas Company.”
Further condemnation of the project has come from two very differing angles: anti-war campaigners, and senior Iraqi figures. The two groups complained yesterday - in unison, but not side-by-side - that there was no competitive tendering for the contract.
Meanwhile, an Iraqi parliamentarian said the country's recently signed contract with China National Petroleum Corporation (CNPC) to develop the Ahdab oil field cannot be ratified until the former agreement, signed during the rule of the late Saddam Hussein, is canceled. Ali Hussein Ballo, head of the oil and gas committee at the Iraqi parliament, said Saddam approved the deal with CNPC in 1997.
