AMMAN -(Dow Jones)- A top Iraqi government energy committee has approved a deal with Royal Dutch Shell PLC (RDSA) to capture and exploit associated gas from its giant southern oil fields, the country's oil minister said Sunday.
The Iraqi oil ministry struck a deal in July with Shell and Japan's Mitsubishi Corp. (8058.TO) to develop gas production in southern Iraq. But to become valid the deal still needs approval from the Baghdad government.
"It was agreed upon by the energy committee and was sent to the cabinet for approval," Abdul Kareem Luaiby told Dow Jones Newswires on the sidelines of an Iraqi energy meeting in Amman, Jordan.
The committee is chaired by the deputy prime minister for energy affairs, Hussein al-Shahristani, and its members include the ministers of oil, electricity, and finance.
Luaiby declined to say when exactly the cabinet would approve the deal. The agreement must first be examined by the cabinet's legal and specialized offices, he said.
The 25-year venture calls for an investment of $17.2 billion to create the Basra Gas Company. Baghdad would have a 51% stake, Shell 44% and Mitsubishi 5%.
Some $12.8 billion would be spent on infrastructure and $4.4 billion on construction of a liquefied natural gas facility.
Under the agreement, the company must first meet local demand but can export any gas not used by Iraq's fuel-staved power plants. The planned LNG terminal would handle the export of 600 million cubic feet a day.
Baghdad would contribute $5.236 billion to the venture, including some $1.524 billion in existing infrastructure. Shell and Mitsubishi need to contribute nearly $7 billion, and the remaining money will be financed through the venture's returns, according to the summary submitted by Iraq's oil ministry to the country's parliament.
The joint venture would sell produced gas to Iraq's state-owned South Gas Company, at international standard pricing.
Iraq estimates it should make around $31.1 billion over the 25 years of the project from taxes, fees and raw gas sales to the joint venture, the document said.
An Iraqi oil expert, who asked not to be named, however, said Iraq would make nearly $100 billion from the venture because the gas would substitute for the oil currently used to fuel Iraq's power stations.
Iraq would tax Shell and Mitsubishi profits at 35%, he said. The expert said Shell and Mitsubishi will make a 7% profit on the whole venture.
Iraq has natural gas reserves totaling 112.6 trillion cubic feet, the 10th largest in the world. But it produces only around 1.5 billion cubic feet a day, because of a lack of infrastructure.
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