SINAN SALAHEDIN

BAGHDAD (AP) ¿ A final deal between Iraq and Royal Dutch Shell PLC to tap natural gas in southern Iraq is likely to be delayed until after January's national elections, a senior Iraqi oil official said on Saturday.

A preliminary deal was signed last September to establish a long-term and multibillion-dollar joint venture within a year to gather, process and market associated natural gas in oil-rich Basra province. Fifty-one percent of the joint venture would go to Iraq, 44 percent to Shell and 5 percent to Japan's Mitsubishi Corp.

Deputy Oil Minister Ahmed al-Shamaa said the focus on campaigning had complicated efforts to reach agreement, but he expects a final deal from Iraq's next government.

"The current political atmosphere is the one factor that determines more than anything else," he said.

The deal has drawn criticism from parliament's oil and gas committee, which says the Oil Ministry's selection of partners on a no-bid basis lacked transparency. The committee's lawmakers also say the deal will allow Shell to monopolize natural gas resources and influence prices.

The delay is another sign that Iraq's political wrangling is threatening its hopes for investment in natural resources to fill the national coffers with the badly needed cash. It could also contribute to the perception that Iraq is an unstable partner for international oil companies looking to invest.

Samuel Ciszuk, Mideast energy analyst for London-based IHS Global Insight, said any progress on the Shell deal is unlikely "unless the parties favoring the deal strengthen their positions in the forthcoming election."

Encouraged by security improvements since the second half of 2007, Iraq has since set ambitious plans to develop its energy industry.

But the fight for power between the country's political factions has become an obstacle and so has the opposition from nationalist Iraqis who fear bringing in international oil companies could cede control over national oil wealth.

Similar objections forced the Oil Ministry to scrap plans to develop five oil fields in June 2008. Iraq's first postwar oil bidding round to develop eight oil and gas fields also had its share of critics, most of whom objected to awarding contracts to Western developers.

The June 30 bidding process resulted in just one contract being awarded out of eight due to tough financial terms.

Also complicating the development plans is the absence of a national hydrocarbon law, which has been repeatedly delayed. The law is designed to regulate Iraq's natural resources investment. It has been stalled in parliament since 2007 because of disagreement about the level of control that the central and regional governments would have over resources.

Iraq has the world's third largest oil reserves after Saudi Arabia and Iran with at least 115 billion barrels of proven reserves. It also sits on at least 112 trillion cubic feet of natural gas reserves.

But due to decades of war, lack of investment and U.N. sanctions, the OPEC-member country produces only between 2.3 million and 2.4 million barrels a day. It exports just over 2 million barrels a day, under OPEC's production quota.

It plans to produce 4.5 million barrels a day by 2013 and up to 6 million barrels a day by 2015. It also aims to increase associated gas production to 5.1 billion cubic feet per day from the current 1.7 billion cubic feet over the same period. About 700 million cubic feet are being flared daily due to lack of sufficient infrastructure.
Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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