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Iraq Set Next Week Final Deadline for Shell Gas Deal

Source: Reuters 5/30/2011, Location: Middle East

Iraq has warned Royal Dutch Shell it needs to finalise a $12 billion gas deal by next week or negotiations over the agreement would be cancelled, the country's deputy oil minister said.

"We warned Shell that either we finalise ... the deal next week or we will cancel everything," Deputy Oil Minister Ahmed al-Shamma told reporters. "We will not allow discussions to drag on any longer."

Since the signing of an initial agreement in 2008, Iraq has been working to complete a joint venture between its South Gas Co, Shell and Mitsubishi to capture associated gas at southern oilfields. The deal has suffered a series of setbacks including legal hurdles and political opposition.

Shamma said one of the sticking points was that Shell wanted more guarantees for the amount of associated gas it would be able to utilize from the three southern fields -- Rumaila, Zubair and West Qurna Phase One -- covered by the deal. "Shell is worried that the project might get small quantities of associated gas from the three contracted fields and in future this might affect the economics of the project," he said. "They are worried about the future supplies of gas."

Companies developing the three fields are not required to deal with associated gas.

But they are allowed to use the gas to generate power needed for oil operations and for reinjection to maintain pressure in the reservoirs and to help boost crude production.

Iraq will meet with Shell on Tuesday for another round of talks, after which it hoped to initial the final draft of the agreement and refer it to cabinet to approval, Shamma said.

Iraq has struggled for years with power blackouts and it risks suffering years more of electricity shortages.

Tapping associated gas is a centrepiece of the government's master plan to boost electricity production to keep up with demand, which is double the rate of supply.

If a deal is reached with Shell, more than 700 million cubic feet per day of gas could be captured at southern fields to help tackle the power shortages.

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