A joint venture between Royal Dutch Shell and Iraq’s state-owned South Gas Co. could give Shell a 25-year monopoly on production and exports of natural gas in much of southern Iraq - the biggest foreign role in Iraq’s oil and gas sector in four decades.
The planned venture, spelled out in a 16-page document obtained by United Press International, goes well beyond descriptions provided by Iraqi and Shell officials on Sept. 22, when they held a public signing ceremony in Baghdad.
The officials at the time described the agreement as:
• Limited to Basra province.
• Restricted to capturing gas that is burned off and therefore wasted in extracting and processing oil.
• Primarily intended to supply Iraq’s domestic market.
In fact, the two signed what is known as a “heads of agreement” (HOA) - basically a rough draft of a contract - that establishes the management team, scope, purpose and other details of the joint venture’s business plan.
Though nonbinding, the confidential document is telling.
The joint-venture company would give Shell the largest foreign role in Iraq’s oil and gas sector since the 1960s, when Iraq expelled the world’s big oil firms after 40 years of foreign control of exploration, production and exports.
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.”
“The ministry shall not pursue any discussions with the intention of entering into a project with a similar scope to that set out in this HOA with any third parties,” the document states.
The joint venture would be “of a long term (25 years extendable),” according to the HOA. Iraq would own 51 percent and Shell 49 percent of the venture.
Iraq has the world’s 10th-largest proven gas reserves, according to the U.S. Energy Information Administration, most of it located in southern Iraq.
Two to three times more reserves could be found when the region is fully explored, industry analysts say.