Shell withdraws from giant petrochemical project in Basra

ERBIL, Kurdistan Region - Shell has informed the Iraqi authorities that it cannot continue working with Baghdad to establish a giant petrochemicals plant in the southern province of Basra, citing a policy change, Iraq’s ministry of industry revealed on Tuesday. 

Shell, a group of energy and petrochemical companies, formerly known as the Royal Dutch Shell, in 2015 signed an agreement with the Iraqi government to build the Nibras petrochemicals plant in Basra which would make Baghdad the largest petrochemical producer in the region. The plant would be the fourth-largest in the world. It was expected to come online in six years but its launch has been delayed several times, reportedly due to cash shortage.

Iraq’s ministry of industry and minerals on Tuesday said in a statement that the UK-based company has apologized for being unable to go ahead with the project due to “a change in its policy in investing in petrochemical industries.”

However, the statement added that Shell would continue supporting the Basra Gas Company, a joint venture between Baghdad (51 percent), Shell (44 percent), and Mitsubishi (five percent) aimed at fulfilling Iraq’s energy independence, especially gas. 

Rudaw English reached out to Shell but the company was not immediately available to comment on its withdrawal from the Nibras project. 

In 2015, Iraq’s then Industry Minister Nasser al-Esawi said during a press conference that Nibras Complex would be “one of the largest (foreign) investments (in Iraq) and the most important in the petrochemical sector in the Middle East,” reported Reuters at the time. 

The minister added that the project would produce 1.8 million tonnes of petrochemical products annually. 

Shell would own 49 percent of the petrochemicals plant while Iraq would get 51 percent. The factory was expected to cost around $8.5 billion and make a net amount of nearly $1.4 billion annually, in addition to creating thousands of jobs. 

The Iraqi ministry of industry on Tuesday also said that Iraqi Prime Minister Mohammed Shia al-Sudani has “directed” the ministry and the oil ministry “to study other options which are more responsive to the new gas reality.”

Sudani said in May last year that improving the country’s energy sector has been one of the main priorities of his cabinet, adding that the recent agreements signed with international firms would assist Iraq in ending its import of gas.

Iraq is still one of the world’s largest gas flaring countries. The flaring process is when oil wells burn the excess gas they can't store or use, and is a convenient way to deal with the waste product known as associated petroleum gas, however the process is among the main reasons for global climate change.

The country has never been a strong global competitor in gas exports. Instead, the country has for a long time relied strongly on imports of gas, mainly from Iran, to provide electricity for people.

A deal signed between the Iraqi government and French TotalEnergies will see the energy giant build four projects for oil, gas, and renewables in southern Iraq in the span of 25 years. The contract was initially signed in 2021 but faced a delay due to disagreements over Iraq’s stake in the deal as Baghdad demanded a 40 percent share.