* Final draft of agreement yet to be completed
* Talks stalled after legal snags
* Gas needed to deal with chronic power shortage
By Rania El Gamal
BAGHDAD, May 10 (Reuters) - Iraq and Royal Dutch Shell have settled most of the pending legal issues that have delayed a $12 billion gas deal for more than two years, an Iraqi deputy oil minister said on Tuesday.
Since the signing of an initial agreement in 2008, Iraq has been working to finalise a joint venture between its South Gas Co, Shell and Mitsubishi to capture associated gas at southern oilfields.
Iraq has struggled for years with power blackouts and risks years more of electricity shortages. Using associated gas is a centrepiece of its master plan to boost electricity production to keep up with demand that is double the rate of supply.
Deputy Oil Minister Ahmed al-Shamma said he expected a final draft of the agreement to be ready by next week but could not give a timeframe for when it would be presented to the Iraqi cabinet for approval and signing.
"I just came back from meetings with Shell in Istanbul. We have found satisfactory solutions for all the issues that we (disagreed) upon before," Shamma said. "We have reached a common agreement."
The deal has suffered a series of setbacks including legal hurdles and political opposition.
On Monday Deputy Prime Minister Hussain al-Shahristani said the oil ministry had reached a final draft contract on the gas deal and sent it to Iraq's cabinet for approval.
But Shamma said legal advisers from both parties were still trying to finalise a final draft, a positive step towards ending the saga.
"We left it now to the lawyers to draft the final agreement," he told reporters.
"The deal has been delayed because the country does not have instructions or laws that govern gas (production). There is not enough understanding. Gas is more difficult than oil in processing," he added.
If a deal is reached, more than 700 million cubic feet per day of gas could be captured at southern fields to help deal with power shortages.
(editing by Jane Baird)