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Iraq gives deadline to Shell to finalize gas deal


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

"We warned Shell that either we finalize the deal next week or we will cancel everything," Deputy Oil Minister Ahmed Al-Shamma said. "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 oil fields. 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 re-injection to maintain pressure in the reservoirs and to help boost crude production.

Iraq will meet with Shell this week for another round of talks, after which it hoped to initiate the final draft of the agreement and refer it to cabinet for 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 centerpiece 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 700mn cubic feet per day of gas could be captured at southern fields to help tackle the power shortages.