Shell's proposed gas flare venture in Iraq could become a game-changer in MENA

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5 April 2011, Oil, Gas

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Shell, Mitsubishi, and the state-owned South Gas Company of Iraq have gained government approval for the creation of a joint venture (JV) called Basra Gas Company to capture associated natural gas produced at fields near the oil hub of Basra, including Rumaila. The firms have respective shares in the venture of 44%, 5%, and 51%. It is hoped that this development will allow the stakeholders to close the deal in the near future.

Datamonitor's Global Oil and Gas Analyzer (GOGA) estimates Iraq's proven gas reserves at 3,150 billion cubic meters (bcm), the 10th largest in the world. According to GOGA, only one third of the total gas produced in the country is reinjected into the oilfields to boost production, and the remainder is burnt off. Iraq, the fourth-largest gas-flaring nation worldwide, flares off an estimated 8bcm of gas annually at its oilfields.

The nation has suffered a severe lack of electricity, resulting in blackouts, since the US imposed sanctions in 2003. The proposed deal is significant for the government, since the volume of flared gas available, if captured, would be able to generate enough electricity to end the country's power crisis. The revenue generated through this may also be used to help to revive Iraq's poor infrastructure for the processing and transportation of gas. Capturing this gas is likely to allow the JV partners to receive tradable carbon credits under the relevant UN program.

In 2009, around 145bcm of gas was flared worldwide, not only wasting a valuable clean energy resource but also exacerbating climate change by emitting carbon dioxide. This volume is equivalent to a third of the EU's gas consumption, or a quarter of the US's. The Middle East and North Africa (MENA), the world's second-largest gas-flaring region, accounts for around 39bcm of flared gas annually. This is more than a quarter of the global total.

The perceived benefits for the parties involved in the proposed agreement are likely to increase the confidence of MENA countries in utilizing their oilfields' flared gas to boost power generation capacities, for industrial use, and to improve domestic gas transportation infrastructure. Utilizing flared gas will also help the region and the deal's stakeholders to achieve the objectives of mitigating climate change and generating other environmental benefits.

The involvement of many of the countries in the MENA region creates an excellent opportunity for oil majors like Shell, Exxon, and TOTAL to capture the gas from existing oil fields as a quicker way to supply the fuel than developing gas fields from scratch. However, the onus will be on the governments of the MENA nations to create a favorable environment and formulate lucrative policies to attract stakeholders and ensure the productive outcome of such proposals.

Source: Datamonitor

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