Gas deal to fuel Iraq's power drive

Iraq's electricity supply meets about half of its needs and efforts to raise production capacity have so far failed to narrow the gap. Ali Abbas / EPA

Iraq is inching towards sealing a huge deal with Royal Dutch Shell to end power cuts that have plagued Iraqis and hurt economic growth since the fall of Saddam Hussein five years ago.

The final draft of the deal, estimated at US$17 billion (Dh62.4bn), gives Shell access to gas from the three massive southern oilfields.

Basrah Gas Company (BGC), a joint venture between the Anglo-Dutch company, the Iraqi state and Japan's Mitsubishi, will process the gas raised in these fields and sell it back to the government to be used as feedstock in power plants.

Iraq's oil minister, Abdul Kareem Luaiby, said yesterday the deal had been sent to cabinet for final approval.

Gas produced as a by-product in the Zubair, Rumaila and West Qurna-1 fields near Basra is currently flared by the international oil companies that are pumping oil under contracts signed in 2009 and last year. With the country suffering from a growing power generation deficit, flaring is a missed opportunity.

"Iraq dramatically needs to increase its power generation capacity to meet demand, and the gas that is currently flared is the most obvious resource to fuel new power plants," said Fabrice Mosneron Dupin, the global gas flaring reduction adviser at the World Bank.

Iraq's current electricity supply meets about half of its needs and the existing efforts to raise production capacity have so far failed to narrow the gap.

The final draft contract will see the state-owned South Gas Company supply BGC with most of its requirements.

If BGC has more gas than it needs for domestic consumption, it will be allowed to divert the remainder to a liquefied natural gas facility for export. The agreement is facing resistance from some parts of the political establishment and bureaucracy because critics fear there might not be enough gas available for the power sector, and they complain the contract was not subject to a competitive tender.

But analysts say the government is unlikely to let it fall through.

"I think the deal has now passed the stage where it is facing the risk of not being approved," says Hakim Darbouche, a research fellow at the Oxford Institute for Energy Studies.

* with agencies