Shell plans venture to expand presence in Iraq

Shell is considering expanding its operations in Iraq by adding a petrochemical venture to its upstream portfolio

Dubai, 13th December 2011. Iain John Lo ( Vice President New Business Development & Ventures, Shell Chemicals, Shell Eastern Petroleum Pte Ltd ) pose for a photo after his interview. ( Jeffrey E Biteng / The National )
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Royal Dutch Shell plans to follow up its success in the Iraqi oil and gas sector with a petrochemical venture.

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Shell already has a big presence in Iraq, where it is developing the huge Majnoon oilfield near Basra. It will also gain access to vast amounts of natural gas, one of the main feedstocks for the petrochemical industry, with a project to capture associated gas from the country's southern oilfields.

The company is now looking to add to a string of new petrochemical projects by capitalising on the emerging feedstock source, and is undertaking a study to access the feasibility of an Iraqi venture.

"We're very interested in petrochemicals in Iraq, so we are working on the feasibility of that at the moment," said Iain Lo, the vice president for new business development and ventures at Shell.

"Iraq is a very interesting future possibility because it has large oil reserves, and when you produce that there will be associated gas that comes with it. There is clearly feedstock for petrochemicals."

As part of a US$17.2 billion (Dh63.18bn) deal signed late last month to capture as much as 700 million cubic feet of associated gas a day from the giant oilfields in the south, Shell will build a liquefied natural gas plant in Iraq once domestic gas needs are satisfied. Channelling gas into a downstream industry would be another way to utilise the gas surplus.

Shell is becoming increasingly active in the petrochemical business. This month, it signed a heads of agreement with Qatar Petroleum to build a $6.4bn petrochemical complex in Qatar. In China, a joint venture between the two companies and China National Petroleum Corporation to develop a $10bn refining and petrochemical complex in Zhejiang province is awaiting government approval. Mr Lo expects the government to give the project the green light by the end of the year.

In the US, Shell is deciding on a location for a petrochemical plant that will feed off the country's boom in shale gas.

If Shell decided on a project in Iraq, it would be a significant boost to the country's petrochemicals industry, which has struggled to attract interest since the end of the second Iraq war in 2003. So far, the only sizeable project in the sector is a $3.2bn deal between Iraq's State Company for Petrochemical Industries and South Korea's STX Heavy Industries for a petrochemical plant that will take up production in 2014.

Shell's interest in Iraq is compounded by a lack of feedstock in other countries in the region. In Saudi Arabia, an expansion of its Sadaf joint venture with Saudi Arabia Basic Industry Corporation in Jubail is prevented by a shortage of gas, the source of the required ethane feedstock.

"It's tough to grow, we want to expand our joint venture there, but it's very difficult to obtain the feedstocks," Mr Lo said. With the exception of Qatar, Gulf countries are struggling to find sufficient gas to supply both the rapidly expanding power sector and downstream industry, and Saudi Arabia might have to increasingly switch to more expensive feedstocks to supply its burgeoning petrochemicals sector.

"The Saudi chemical industry can continue to expand, but it will have to be based on heavier and more expensive feedstocks," said John Tottie, an energy analyst at HSBC. "The next phase of growth for the industry will have to be driven by heavier feedstocks, including naphtha."

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