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Shell's long-standing plan to capture and refine gas in southern Iraq has moved a step closer following approval by the country’s state-owned gas company.

Speaking at the ongoing Iraq Petroleum Conference in London yesterday, H.E. Thamir Ghadban, Chairman of the Advisory Commission to the PM of Iraq, confirmed that the project had been initialled by Iraq's South Gas Company, which owns a 51 per cent stake, and by Japan’s Mitsubishi Corporation, which has five per cent. The US$12.5 billion investment project now has to be approved by Iraq’s cabinet.

The joint-venture, named the Basrah Gas Company, would collect and process raw gas from Iraq’s southern Rumaila, Zubair and West Qurna 1 oilfields which are currently being flared.

According to Shell some 700m square cubic feet of gas is flared every day in southern Iraq. The company hopes to process it into natural gas initially for domestic consumption and later for export.

The project was first signed in 2008 but has since faced legal disputes, some political opposition and renegotiations on gas pricing.

The joint venture is part of ambitious plans by the Iraqi government to modernise its oil facilities, boost oil exports and lessen blackouts which have continued to plague the country in the aftermath of the US-led invasion in 2003.

The deal could still face opposition from various Iraqi political factions. Last week the oil and energy committee at the country's parliament called on lawmakers to issue a decision banning the government from signing any new oil or gas deal until a long-awaited oil and gas law is enacted.

According to the draft deal with Shell and its partners, the venture would meet local needs and the extra produced gas would be for exports outside Iraq.