SHELL PREPARES WAY FOR GAS DEAL

C O N F I D E N T I A L BASRAH 000084 SIPDIS E.O. 12958: DECL: 10/30/2018 TAGS: ECON EINV ENRG EPET IZ SUBJECT: SHELL PREPARES WAY FOR GAS DEAL REF: BAGHDAD 3101 CLASSIFIED BY: Won Lee, Acting Director, REO Basrah, State. REASON: 1.4 (b) (SBU) Summary: With a preliminary agreement in place, Shell officials continue to visit Basrah and meet with Iraqi officials as they finalize details of a long-term contract expected to be signed in approximately twelve months. They plan to obtain mutual commitment for the long run by signing a 25-year contract with rights to renew for another 25 years. They have initiated a series of projects now so that they will be ready to roll on the day that the Joint Venture (JV) is in place. End Summary. (SBU) Multiple Stakeholders: Shell expects to bring substantial benefits to Iraq: Three and a half thousand South Gas Company (SGC) staff and SGC equipment will be jointly managed by SGC and Shell in an as yet unnamed JV entity. For their part, with a 49 per cent interest in the JV, Shell expects to evaluate the equipment and infrastructure that SGC brings to the deal and contribute a matching amount of financial investment. Shell considers this a group endeavor which goes beyond the JV. The coalition presence here provides a secure platform on which they can build. Shell stakeholders, like GE and Mitsubishi, will most likely come aboard to submit valuable additions to growing Southern Iraq industrial activity. Shell welcomes the interest of Dubai World and Dubai Ports authority in Basrah as these investments add impetus to Basra development. Shell researchers in London and the Hague are looking at which oil fields to start on. (SBU) Good Citizen Shell: Shell hopes to establish some quick wins that will earn the good will of GoI, SGC and the provincial and local folks that will be necessary to a successful JV. Shell Regional Security Manager for the Middle East and North Africa Mark Courtnell says Shell executives have not yet determined exactly what form this will take and to which Iraqi beneficiaries Shell will contribute. Education is a strong possibility. The University of Basrah is under consideration. Shell provides online training to its local staff and Shell SOP is to exchange or TDY staff to other oil facilities or offices for work and training. The Basrah USAID representative made a concise but effective pitch for JV support of USAID projects in Southern Iraq focusing on self-sustainable projects. She requested an opportunity to do a presentation for Shell officials. Shell currently has a team of four or five people working full time on potential Iraqi projects who could review the USAID projects. (SBU) Power Plus: SGC will continue to submit an annual budget, according to Shell. Courtnell did not speculate how much revenue the JV would earn from recapture of the 7-800 million cubic feet gas burn-off per day, but said it would generate all of its own power needs and possibly contribute power back to the grid, although Shell does not want to commit to generating power for the grid until they have completed more studies. SGC now consumes electric power from the Iraqi grid. Courtnell stressed again that this deal is outside the Hydrocarbons Law. (SBU) Laying a Foundation: Shell is sending out about ten people a day, Iraqis trained by Mott MacDonald, to provide on-the-ground information and analyses in Basrah. Shell believes the coalition presence here provides a secure platform on which the JV can build. Courtnell says Shell and Olive Group, Shell's on-the-ground security contractor in Basra, are meeting this week with SGC security to determine the extent of Oil Police (OP) authority and effectiveness. As a part of Iraqi Police, the OP are under the MoI. Shell Olive Group expect to map the security relationships and environment before making any security decisions for the longer term. Shell will assure a strict human rights regime informs any security arrangements made with IP, OP and the MoI. (Confidential) Comment. Shell did not give much credence to a threat from self-proclaimed "Southern Battalions" recently published in local media. Courtnell and the Olive Group Assistant Intelligence Manager Katie Smith said their intelligence indicates the threat was an attempt from someone in the Governor's office to manipulate the negotiations. Shell is interested more in longer-term security and will have twelve months or so in which to probe that security at the ground level. End comment. LEE