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Shell and Iraq Government sign deal for $11 billion Nibras Petrochemicals

Shell to take advantage from flared gas gathering

2B1st_Project_Smart_Explorer_Sales_Pursuit_ToolIn January 2015, the international oil company (IOC) Royal Dutch Shell (Shell) and Iraq Government signed a new agreement to prepare ground in Nibras, near Basra, for the largest ever built petrochemical complex in the country in order to monetize the gigantic reserves of flared associated gas in the south of Iraq.

In a context where the communication about oil and gas and petrochemical projects is focusing on the bad news only, this decision illustrates how much the operating companies such as Shell and other majors are revising their strategy and wisely reallocating their investment more than just pulling the brakes on the capital expenditure.

Shell_Iraq_Nibras_Petrochemical_Project_MapIn that respect Shell is an excellent example of this strategic move and the way it is interpreted by medias.

A week before the Iraq deal, a big noise had been made out Shell decision to withdraw from the joint venture with Qatar Petroleum (QP) in the Al-Karaana Petrochemical project.

This decision had been take as a great evidence of the devastating barrel price free fall on the major companies.

In reality Shell had only 20% interests in the $6.5 billion Al-Karaana project, meaning that its commitment was limited to $1.3 billion.

Therefore the Al-Karaana decision looks like a non-event in regards Shell total capital expenditure.

A week later Al-Karaana announcement, Shell is signing for $11 billion capital expenditure in Iraq for a similar project in Nibras, just twice bigger and calling for eight time more capital expenditure from Shell side.

If we should interpret Shell and QP decisions as a consequence of the falling barrel price, no sure what should be the conclusion.

QP to prepare a new project to replace Al-Karaana

In reality the link between these two projects relies on the business model whereas Al-Karaana was a pure downstream project where the profitability is measured between the input and output of the petrochemical complex.

In Qatar the natural gas is cheap, but as cheap as the local Authorities accept to make it cheap, especially compared with the $4 per million btu in US which has become the global reference.

QP_Petrochemical_Ras-Laffan_Industrial_CityIn Iraq, the situation is far different since Shell is investing for years in a $17 billion capital expenditure program to gather all the flared associated gas in the South of the country for environmental reason, but also to supply series of much needed gas-fired power plants and to develop a competitive petrochemical industry.

Therefore in Iraq Shell measures the profitability of its investment along an integrated upstreamdownstream business model where the Basra region can provide the major company with nearly unlimited gas reserves at unbeatable price.

In addition to Shell good news, Qatar Petroleum reacted to Al-Karaana withdrawal in announcing a new petrochemical project to be developed from the methane becoming available now.

These examples illustrate how the international oil companies such as Shell and national oil companies such as Qatar Petroleum (QP) adjust their respective strategy in a context of lowering oil and gas prices without pulling the brakes. 

For more information about oil and gas and petrochemical projects go to Project Smart Explorer

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