Shell pulls out of Iraq’s mega petrochemical project

Shell, one of the world’s largest oil and gas companies, has decided to withdraw from the Nebras petrochemical project in Iraq, citing financial and contractual issues. The project, which was expected to cost nearly $11 billion and produce almost two million tonnes of petrochemicals per year, was seen as a key opportunity for Iraq to diversify its economy and reduce its gas flaring.


The Nebras project was first announced in 2012 as a joint venture between Shell, Iraq’s Ministry of Oil, and the state-owned South Gas Company. The project aimed to build a world-class petrochemical complex in the southern oil hub of Basra, using the associated gas from the nearby oil fields as feedstock. The project would have included a cracker unit, a polyethylene plant, a monoethylene glycol plant, and an oil refinery with a capacity of 300,000 barrels per day.

The project was part of Iraq’s vision to become a major petrochemical producer in the Middle East, and to utilize its vast gas resources that are currently wasted by flaring. According to the World Bank, Iraq flared about 17.8 billion cubic meters of gas in 2019, ranking it as the second-largest gas flaring country in the world after Russia. Flaring not only causes environmental damage, but also deprives Iraq of a valuable source of revenue and energy.

Reasons for withdrawal

Shell’s withdrawal from the Nebras project comes after years of delays and challenges in reaching a final agreement with the Iraqi government. According to an Iraqi energy expert, Shell faced two main problems that blocked its plans to go ahead with the project. The first was a logistics problem, as Shell had sold its stakes in two major oil fields in southern Iraq, Majnoon and West Qurna 1, in 2018, reducing its presence and influence in the region. The second was a financial and contractual problem, as Shell considered the Iraqi law on the percentage of national manpower in the project to be too high, adding an extra $3-4 billion to the project cost.

The security situation in Iraq was another factor that may have influenced Shell’s decision, as the country has witnessed frequent attacks on oil and gas facilities and personnel by militant groups. Shell also faced pressure from its shareholders and environmental activists to reduce its carbon footprint and invest more in renewable energy sources, as part of its strategy to become a net-zero emissions company by 2050.


Shell’s exit from the Nebras project is a setback for Iraq’s ambitions to develop its petrochemical sector and to curb its gas flaring. Iraq will have to look for another partner to replace Shell, or to revise the design and scope of the project to make it more feasible and attractive for investors. Iraq may also have to offer more incentives and guarantees to potential partners, such as tax breaks, security provisions, and flexible contractual terms.

The Nebras project is not the only petrochemical project that Iraq has been pursuing. In 2019, Iraq signed a memorandum of understanding with China’s Sinopec to build a $6.5 billion petrochemical complex in the Fao Peninsula, near Basra. The project, which is expected to produce 1.5 million tonnes of petrochemicals per year, is still in the feasibility study stage. Iraq has also been in talks with Saudi Arabia’s Sabic to build another petrochemical plant in Basra, with a capacity of 500,000 tonnes per year.

Iraq’s petrochemical industry, once promising, faced setbacks due to sanctions, wars, and neglect, leaving its facilities damaged or operating below capacity. Iraq has the potential to become a petrochemical powerhouse, given its abundant oil and gas resources, its strategic location, and its growing domestic and regional demand. However, Iraq will need to overcome the political, security, and economic challenges that have hampered its progress, and to create a conducive environment for investment and development.

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