BAGHDAD – The Iraqi government approved in principle a deal potentially worth billions of dollars with Royal Dutch Shell to exploit the immense amount of natural gas in southern Iraq that is now being flared off, the government said in a statement.

Under the agreement approved Sunday, Shell will build the infrastructure to capture and purify the 700 million cubic feet of gas now being burned off every day at the southern oil wells to relieve pressure on the reservoirs below.

“That’s about the same amount of energy used to provide domestic power to the whole of Iraq,” said a Shell official who spoke on background, citing company policy. “It’s a very valuable resource going wasted in the absence of gathering infrastructure . . . Just look on Google Earth, particularly at night – it’s lit up with gas flares.”

It was unclear whether the natural gas deal was a production-sharing agreement, under which Shell and Iraq would share profits, or a service contract similar to one signed last month with a Chinese company under which the company would receive a fixed payment.

Last year, Iraq flared off almost half of all the natural gas it produced, far more than the OPEC average, losing millions of dollars in potential income every day.

Iraq has the third-largest proven crude-oil reserves in the world, behind Iran and Saudi Arabia, but years of sanctions and mismanagement left its hydrocarbon infrastructure in disrepair, and violence and sabotage have slowed efforts to improve it.

That may be changing. Last month, Iraq signed a $3 billion service contract with China to develop oil fields near Baghdad. Shell is also negotiating contracts to develop the Missan and Kirkuk oil fields.

Abdul Jabbar al-Hilfi, professor of energy studies at the University of Baghdad’s Arab Gulf Studies Center, described the agreement as a service contract, and said some of the gas would be piped through Turkey to Europe.

“I know this is only one step,” he said. “We are going to have more contracts with more companies – British, Dutch, American. The prime minister is trying to have more than one company to avoid a monopoly.”


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