Shell Strengthens Its Iraq Presence

After the deal with Turkey to explore and develop natural gas off the shore of Antalya in the Mediterranean, Shell (NYS: RDS.A) (NYS: RDS.B) has clinched another big deal with OPEC member Iraq to capture, process, and market flared gas from the country's southern oilfields.

What's the deal?
Shell has entered into a deal worth $17 billion with Iraq to tap the flared gas market from the oil-rich region of Basra. The deal will lead to the creation of a joint venture with Iraq's government and Mitsubishi, with Shell having a 44% stake.

The goal is to capture more than 700 million cubic feet per day of natural gas from three oil fields in the Basra province. The oil field in Rumaila is operated by BP (NYS: BP) and CNPC group, while the Zubair oil field is being developed by Eni (NYS: E) and Occidental (NYS: OXY) and KOGAS group, and the deal to explore West Qurna Stage 1 is with ExxonMobil (NYS: XOM) and Shell group. Combining these three oil fields, the oil majors burn around 50% of the total 1.5 billion cubic feet per day of gas that they produce.

What to expect in the goody bag?
Tapping this huge quantity of flared gas will not only decrease waste of valuable energy sources and curb greenhouse gas emissions, it will also help Iraq meet its domestic demand. Iraq is rich in oil and natural gas reserves, with almost 143 billion barrels of crude oil and 127 trillion cubic feet of gas, but it burns around 10 billion cubic meters of natural gas a year.

The country, by tapping this huge amount of gas, can meet the shortage in its electric demands. Moreover, the deal with Shell includes the provision to build an LNG export terminal for $4.4 billion. Shell, together with Iraq, wants to utilize the gas left after meeting the country's domestic demand and supply it to the emerging Asian economies, which are currently facing huge demand for natural gas.

Foolish bottom line
Shell has increased its presence substantially in Iraq, which contains the world's fifth-largest reserves of crude. The only thing missing was the infrastructure to tap these resources, and this deal is a step toward achieving the goal. The stock is worth watching.

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At the time thisarticle was published Fool contributor Amitabha Chakraborty does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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