Speaking exclusively to Oil and Gas Middle East back in December 2008, Mounir Bouaziz, Shell’s senior vice president for gas and power MENA, spoke excitedly about the recently signed joint venture (JV) deal to develop gas being flared in the southern region of Iraq.
However, since the early days of the contract being signed it appears that political unrest over the deal has been growing in the country, raising doubts over whether the JV will see the light of day.
Increasingly in recent months, the project has been the focus of mounting criticism from members of Iraq’s parliamentary Oil and Gas Committee, who are launching a process to revoke the contract, as well as claiming the same may happen to forthcoming licensing round contracts if the deal is not halted.
The proposed JV with Iraq’s South Oil Company (SOC) would see Shell developing, processing and distributing gas currently being flared in the southern region of the country.
Awarded to Shell by the Oil Ministry, the JV has been criticized by parliamentary members due to its non-competitive nature and what is perceived as a gas monopoly towards Shell. Indeed, Iraqi MP Jabir Khalifa Jabir, secretary of the Oil and Gas Committee, told Reuters he believed the deal to be illegal.
“We are doing everything we can to revoke this deal and to push Shell out. Both these deals are illegal because they didn’t go through parliament. The companies and their lawyers knew the old Iraqi oil law very well,” he said.
Jabir continued to pour scorn on the project by saying the deal would not help meet local demand, and may end up with local Iraqis paying international prices for its own gas supply, forcing the government to heavily subsidise the gas for the domestic market.
The dispute also raises concerns for Iraq’s upcoming licensing rounds and proposed deals with IOCs, and the question of establishing national oil law before these take place.
“It seems the Oil Ministry’s ability to implement the Shell deal over the coming one or two months could become a crucial litmus test for its ability to guarantee and bring other contracts to fruition in the eyes of potential IOC investors, as a failure will strengthen the argument that a national oil law is needed before investment can take place,” said Samuel Ciszuk, Middle East energy analyst, IHS Global Insight.
“With parliamentary elections coming up in November, many IOCs might be tempted to try to play for time where possible, in order to assess where the political currents in Iraq will take the country in the coming years,” he added.
