| 2007: Shell And Dow Prepare $2.1 Billion Iraqi Petro Plan |
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August 29, 2007 LONDON - Anglo-Dutch oil company Royal Dutch Shell is reportedly in talks with Dow Chemical to develop an Iraqi petrochemical plant for $2.1 billion, in a likely attempt to gain a strong foothold prior to the hoped-for opening up of the country's broken oil industry. But analysts believe the project itself has little hope of being profitable. The plant is to be based in the southern city of Basra, and would therefore rely on the city's 120,000 barrels-a-day refinery for its feedstock. The problem, according to Global Insight energy analyst Samuel Ciszuk, is that Iraq is experiencing a refining shortage that would have a severe supply impact for any major petrochemical project. "Unless the facility operates small-scale, it is hard to see it run on Iraqi refined products," said Ciszuk. "Of course, in the Gulf you don't need to look that far for feedstock, but it is still more expensive than sourcing it locally." The real value of the reported project may therefore be political rather than financial. After all, the revelation that Shell (nyse: RDS.A - news - people ) and Dow Chemical (nyse: DOW - news - people ) were in talks over the joint venture came from Iraqi Industry Minister Fawzi Hariri, who told Reuters on Wednesday that the upgrade would help "the local market and beyond." "The Iraqi government has repeatedly been saying that they want investments in petrochemicals," said Global Insight's Ciszuk. He added that this particular project would be a gesture of goodwill to build on, especially if it led to favorable status when Iraq's oil industry is liberalized. A spokesperson for Shell, Alexandra Wright, confirmed the company was in talks with the Iraqi government "on a range of issues," but would not elaborate on the specific petrochemical plan. Dow Chemical declined to comment. Shell's A shares rose 15 pence (30 cents), or 0.8%, to £18.55 ($37.41) in London on Wednesday afternoon. The company's B shares rose 19 pence (38 cents), or 1.0%, to £18.59 ($37.48). Shares in Dow Chemical rose 37 cents, or 0.9%, to $42.07 in New York during morning trading. Although any real long-term profitability for the petrochemical project will depend on the reconstruction of Iraq's security and industrial infrastructure, the real advantage for Shell and Dow lies in getting a favorable position ahead of the passing of the country's notorious oil law. The law will be the foremost issue to address when the Iraqi parliament reconvenes in September, and companies are hoping that the plan to unlock over two-thirds of the country's reserves of 112 billion barrels will finally get approval. Source: Forbes |