Shell in discussions with Iraq to navigate 'exceptional circumstances'

Oil major evacuated staff from an accommodation site and is currently reviewing plans following the impact of Covid-19 on Iraq's economy

A workerss wears a protective mask, following an outbreak of coronavirus, at Nahr Bin Umar oil field, north of Basra. Iraq's oil revenue could fall as much as 70% in 2020, according to the IEA. REUTERS.Show less

Anglo-Dutch oil major Shell, which operates a major gas project in southern Iraq, is in talks with the country's new government to navigate “exceptional circumstances” following the outbreak of Covid-19, as the company relocates staff following a security breach.

"The onset of Covid-19 and global slump in oil prices are exceptional circumstances that affect Shell as well as the government of Iraq," a Shell spokesman told The National.

"We have been in discussion with our partners in the government of Iraq to find ways to navigate through these exceptional circumstances and agree plans for [Basrah Gas Company's] ongoing operations and growth projects,” he added.

The Basrah Gas Company is a joint venture between the Iraqi-state owned South Gas Company, which holds a majority stake and Shell, which has a 44 per cent interest. Mitsubishi Corporation has a 5 per cent stake.

The venture accounted for 945 million cubic feet per day of month of monthly gas production in 2018. Iraq, Opec’s second-biggest oil producer, has a gas output of around 1 billion cf/d, of which nearly three quarters is flared because there is not enough infrastructure to process it.

Projects such as the Shell venture in the south are critical for meeting Iraq’s growing need for electricity by capturing more of the gas produced in the country's southern oil fields.

Gas flaring from the southern fields has meant Iraq has lost billions of dollars in revenue over the past decade. A study by Siemens in 2018 said that Iraq could save about $5.2 billion (Dh19.1bn) over the next four years by reducing gas flared from its fields.

Despite having abundant hydrocarbon resources, Iraq is still dependent on the import of gas and electricity from neighbouring Iran. Rehabilitating the country’s power infrastructure, ravaged by decades of war, is another top priority for the government.

Shell confirmed that a “security breach” at an accommodation camp resulted in the relocation of all Shell secondees.

"All staff and contractors are safe and BGC production is not impacted. Shell staff will continue to work remotely in their BGC roles,” the spokesman said.

There is no “short-term impact” on the JV’s ability to operate or on its production levels, he said.

The spokesman declined to comment on reports that 60 foreign workers had been evacuated from the country.

Multinational companies and oil majors working in Iraq have faced multiple challenges arising from unrest within the country or geopolitical tensions that have flared up over the past year.

The US pulled oil workers from Iraq earlier this year following Washington’s assassination of Qassem Soleimani, Iran’s top military commander on a visit to Baghdad, which led to retaliatory strikes on US facilities in Iraq.

A number of American workers are deployed across oil sites in Iraq, where US majors Exxon Mobil and Chevron operate large fields.

In May last year, Exxon withdrew around 60 workers, mostly US nationals, after Washington ordered non-emergency personnel to leave Iraq, citing unspecified threats.

Ahmed Tabaqchali, chief investment officer at the AFC Iraq Fund and a fellow at the Kurdistan-based Institute of Regional and International Studies, said the latest incident impacting foreign workers was different.

"American companies tend to react extremely quickly to any questions of risk while European companies are different, so the two cases are not comparable,” he said.

"Exxon was in response to rocket attacks and so forth … and this has been different because if we read the story so far, it’s about delayed payments. Until we get to the bottom of it, what exactly happened, it’s difficult to answer,” he added.

Iraq’s new government has been formed under the leadership of Mustafa Al Kadhimi, a former intelligence officer supported by the US, after nearly six months of political deadlock.

Iraq's appointments for interior and defence ministers both come from the country's armed forces, Mr Tabaqchali said.

"That tells you what they’re focused on and that’s not only for the protection of foreign workers, but to be sure, protection of everybody else, because when you have militias interfering, you have disruptions,” he said.