Royal Dutch Shell and Mitsubishi are expected to sign a US$12.5 billion (Dh45.91bn) contract for a long-delayed Iraqi gas project this month.
The Iraqi oil ministry yesterday advised the government to approve the project, which would eliminate the wasteful flaring of gas produced from its big southern oilfields.
"We sent the recommendation to the government so that it takes the appropriate measures," said Abdul Kareem al Luaibi, the Iraqi oil minister.
The project, under discussion for the past three years, would involve capturing and marketing gas produced in Iraq's main oil-producing province of Basra at the Rumaila, Zubair and West Qurna 1 oilfields, which between them contain about 34 billion barrels of crude reserves.
They also produce more than 1 billion cubic feet per day (cfd) of gas, most of which is burnt because of insufficient infrastructure for gas gathering and processing.
Production of oil and gas from the fields is expected to rise sharply under Baghdad's latest master plan for energy development.
"We are expecting these three fields to produce up to 3 billion cfd in the coming six to seven years," Ali Khudheir, the director general of Iraq's state-owned South Gas Company, told Dow Jones.
The project stirred deep political controversy in Iraq because the government negotiated directly with Shell rather than inviting competitive bids, and because early gas exports were proposed as the country struggled to boost domestic gas supplies for power generation.
What may have broken the deadlock was Shell's agreement to allow Iraq's State Oil Marketing Organisation (Somo) to take charge of any exports.
"Shell wanted to handle exports, but now it is agreed that Somo would handle export," Mr Khudheir said.
Despite Baghdad's desire to address severe domestic power shortages as quickly as possible, the rapid development schedule for the Basra oilfields means that additional gas may be pumped faster than new power generation and transmission capacity can be built to use it.
Shell has proposed installing a floating gas liquefaction plant in the Gulf to meet the need for temporary gas exports from Basra and to supply emerging regional gas markets.
