Page last updated at 10:43 GMT, Tuesday, 23 September 2008 11:43 UK

Iraq strikes gas deal with Shell

Workers on an Iraqi oil pipeline near Basra
Greater stability has helped Iraqi oil but it needs more investment

Iraq has agreed to set up a joint venture with oil and gas giant Royal Dutch Shell to invest in developing the country's natural gas supply.

The deal, which will see Shell supply the local market, is the second between the government and a foreign firm since the US-led invasion of Iraq in 2003.

It was signed by Iraqi Oil Minister Hussein al-Shahristani.

Iraq has enormous potential as an oil and gas supplier but has so far lacked the investment for it to be realised.

Under the terms of the deal, signed on Monday, Iraq will have 51% in the venture and Shell 49%.

The country will invest in natural gas in the oil-rich southern province of Basra.

International investment

The venture will initially focus on capturing some 700 million cubic feet of natural gas released per day as a by-product of crude oil extraction in the region.

But there are also plans to create a facility to produce liquefied natural gas - which is not a by-product of oil - for export.

With Europe keen to reduce its reliance on Russia for its energy supply, Iraq is seen as a viable alternative.

Iraq has proven natural gas reserves of about 112 trillion cubic feet, but analysts believe this is likely to represent only a fraction of what exists.

It opened its lucrative oil and gas fields to a select group of foreign companies in June to rehabilitate its ageing facilities.

The first foreign oil deal came when Iraq agreed a $3bn (1.6bn) oil service contract with China.

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