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In a bid to reduce gas flaring and pay off outstanding reparations for the 1990 invasion of Kuwait, Iraq has hired Japanese firm Toyo Engineering to help it build a gas pipeline to Kuwait, in what could be a blow to Shell’s gas ambitions in Iraq, industry sources tell Reuters.
Kuwait is looking to diversify its gas imports from Qatar after several Arab states led by Saudi Arabia severed ties with Qatar earlier this year accusing it of sponsoring terrorism.
Iraq has gas reserves, and it extracts large volumes of gas together with the oil, but the gas is currently being flared.
“The Kuwaiti gas project is a quick fix and an easy way to monetize gas resources,” a senior industry source told Reuters.
Part of the supplies could be used to help pay the US$4.6 billion remaining reparations that Iraq has to pay to Kuwait for the Gulf War.
However, talks on the gas pipeline have hit a snag over the price of the gas to be delivered, according to Reuters sources.
Talks about the Iraq-Kuwait gas pipeline and a petrochemical complex construction are ongoing, but no final investment decision has been made yet, Kensuke Waki, CFO at Toyo Engineering, told Reuters.
Iraq has so far focused on the Basrah Gas Company (BGC) to process the gas that is being flared. BGC is a 25-year joint venture between Iraq’s state-run South Gas Company holding a 51-percent stake, Shell with 44 percent, and Mitsubishi with 5 percent. The project is designed to capture, treat, and monetize associated natural gas that is currently being flared in the license round 1 oil fields of West Qurna 1 (operated by ExxonMobil), Zubair (operated by ENI), and Rumaila (the largest of the three and operated by BP), according to Shell’s website.
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However, price issues are also holding back this project and talks have been further complicated by Shell wanting out of the large Majnoon oil field.
“Shell’s main aim was always to develop an LNG terminal and ultimately a petchem complex in Iraq,” a Shell insider who worked on the project told Reuters.
“Iraq is furious at Shell and prospects don’t look that great for the Basra gas company,” according to an Iraqi industry source.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.