Iraq has agreed a final $17bn (£11bn) deal over 25 years with Royal Dutch Shell and Mitsubishi to capture flared gas at southern oilfields.
It is one of the largest Iraq has signed with foreign energy firms, and should boost production of electricity.
Gas will be gathered from three major oil fields in Basra province that is currently wasted due to a lack of infrastructure.
More than 700 million cubic feet per day of gas is burned off at present.
Shell has signed a number of previous deals to develop oil and gas resources in Iraq.
The new venture will be called Basra Gas Company, with Iraq holding a 51% stake, Royal Dutch Shell's 44% and Mitsubishi 5%.
As well as providing for domestic energy, there may also be options for gas exports.
Iraq sits on top of 143.1 billion barrels of crude oil and 126.7 trillion cubic feet in gas reserves.