Shell, Europe's biggest oil and gas company, is likely to face long delays in bringing a $17 billion gas deal with Iraq into operation as it tackles infrastructure, export constraints and sufficient access to gas from oilfields run by industry rivals.
Iraq's state-run South Gas Co (SGC) in July, in what was hailed as a breakthrough, initialled a final draft agreement with Royal Dutch Shell and Japan's Mitsubishi for a deal to capture associated gas flared at three major southern oilfields.
Iraq is unlikely to shelve the deal now after talks have advanced, but Shell must navigate opposition from other oil companies and Iraqi officials, who wanted the joint venture to go through a public tender like other oil contracts. The deal still requires the approval of the Iraqi cabinet.
The lack of modern oil and gas laws in Iraq and discussions over how much of the gas can be exported are also likely to complicate a final agreement.
"The deal is still facing opposition from selected Iraqi stakeholders, who are hoping to derail the final decision," said Leila Benali at IHS Cambridge Energy Research Associates. "I think it is still too early to judge on the actual work and what will be achieved."
The venture is a vital part of Iraq's master plan to boost electricity production to meet an expected surge in demand and cope with a rapid rise in associated gas output as Iraq embarks on one of the biggest oil development programmes in history.
Repeated delays could force it to seek other solutions to avoid flaring volumes of gas, which have already reached an estimated 1 billion cubic feet per day. It could invite other firms to build new gas facilities or ask each producer developing southern fields to manage gas themselves.
In a sign of those complications, industry sources say some oil companies are already starting their own plans to integrate oil and gas, while others oppose handing over associated gas needed for reinjection and power generation in their fields.
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