Iraq initials $12bn Shell gas deal: sources

Iraq initialled a final contract on Tuesday with Royal Dutch Shell and Mitsubishi for a $12 billion deal to capture flared gas at southern oilfields, two sources close to the deal said.

The long-awaited deal still needs the approval of Iraq's cabinet.

The signing took place in a closed meeting without media despite last-minute confusion over whether it was going to happen. Two sources told Reuters on Sunday the oil ministry had scheduled the signing for Tuesday, but then on Monday the ministry announced it would be delayed without giving a reason.

But an Iraqi oil source and another source close to the deal told Reuters the contract had been initialled on Tuesday morning.

The joint venture, named Basra Gas Co, would be at the forefront of Iraq's plans to modernise its energy facilities and boost oil exports that hover around levels seen before the US-led invasion in 2003. The Iraqi government will hold 51 per cent of the venture.

Iraq has struggled for years with power blackouts and risks years of electricity shortages until associated gas from vast oilfields in the south is captured and fed to new power plants.

Iraq is losing 1 billion cubic feet per day of gas through flaring, mostly from the south. It would use the gas produced under the agreement with Shell in the domestic market to help meet rapidly rising demand for electricity and could export the surplus.

The 25-year development deal would help Iraq capture more than 700 million cubic feet per day of gas currently being burnt off at three southern oilfields - Rumaila, Zubair and West Qurna Phase One, auctioned in the first bidding round in 2009.