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Shell pulls back on oil production in Iraq to focus on natural gas

 

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Shell is withdrawing from two of Iraq’s flagship oil fields signaling an end to a century of oil production in the Arab state. For Iraq, which sits on some of the largest oil reserves in the world, this is the result of low-margin oil contracts which have plagued a number of its foreign operators over the last several years.

On Wednesday the Anglo-Dutch firm confirmed it will relinquish operations at the Majnoon field to the Iraqi government due to disagreements regarding future production plans and investment budgets. Additionally, Shell will be selling its 20 percent stake in the West Qurna 1 oil field, currently operated by Exxon Mobil.

Exact contract terms have not been released to the public. However, a source told Reuters in 2016 that there was limited financial benefit from Iraq oil production for Shell because they have very limited say on strategy.

A Shell company spokesman commented “The Oil Minister of Iraq formally endorsed a recent Shell proposal to pursue an amicable and mutually acceptable release of the Shell interest in Majnoon, with the timeline to be agreed in due course.”

The decision comes after Iraq applied performance penalties against operations in the Majnoon oil field which, according to Shell “had a significant impact on its commerciality.”

Last year Shell produced nearly 20 million barrels of oil from Iraq. According to their annual report, that amounts to nearly 3.5 percent of the firm’s total oil output for 2016.

A letter signed by Iraq Oil Minister Jabbar Al-Luiebi responded stating: ”We respect your desire and decision to seek an acceptable end of Shell Iraq Petroleum Development interest in Majnoon.”

Instead Shell will shift its focus efforts in Iraq towards the growth and development of the Basra Gas Company which was established in 2013. The Basra Gas Company, a joint venture between Shell, Mitsubishi, South Gas Company, and the Petrochemical Project NEBRAS, was designed to take advantage of previously flared natural gas.

Iraq produces roughly 1 billion cubic feet of gas a day but 70 percent of that gas was flared due to poor infrastructure. Shell intends to convert that gas into electricity which, they state, will generate about 4.5 gigawatts of power, enough to power three million homes and introduce the equivalent of 3.5 billion US dollars into Iraq’s economy annually.

Article written by HEI contributor Kevin Abbott.

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