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Shell Says Exports, Truck Fuel Among Options for U.S. Shale Gas

By Eduard Gismatullin – Dec 7, 2011 12:01 AM GMT

Royal Dutch Shell Plc (RDSA), Europe’s largest energy producer, is weighing options for rising North American natural-gas output including exports and making liquid fuels, Chief Executive Officer Peter Voser said.

Shell will double North American gas production in the next three years to the equivalent of 400,000 barrels of oil a day as output from shale deposits rises, Voser said in an interview. Shell may channel gas into chemical production, an export project in Canada, and a program to use the fuel to power trucks, he said.

“We are getting now into production phase in a big way,” Voser said at the World Petroleum Congress in Doha, Qatar. “It’s about the right time to look for further options. We are really looking at the usage of gas in a much wider way in North America.”

Pumping gas trapped in shale rocks has transformed the U.S. into the world’s largest gas producer, cut prices about 75 percent from their 2008 peak and made exports to higher priced markets in Asia and Europe a viable option. The fuel will overtake crude oil to account for more than 50 percent of Shell’s global production next year, driven in part by the development of shale gas fields in Texas and Pennsylvania.

“This percentage goes up over the next years to come as most of our projects are actually gas projects,” Voser said. “Given our huge gas reserves in the U.S. we are looking at a possibility to actually build a gas-to-liquids plant.”

Largest Project

Shell has invested about $19 billion in its Pearl gas-to- liquids plant in Qatar to make transportation fuel. It’s the company’s largest project to date and it plans to build another “large scale” unit, Andy Brown, Shell’s chief in Qatar, said earlier this week.

The company has gas reserves in North America of 40 trillion cubic feet, about 12 percent of the continent’s total at end of 2010, based on data from BP Plc’s Statistical Review of World Energy. The company spent $4.7 billion last year to buy most of East Resources Inc., a shale producer with fields in Texas’s Eagle Ford area and Marcellus in Pennsylvania.

The Hague-based producer is working on the Green Corridor project in Canada to convert gas into 300,000 tons of liquefied natural gas a year to fuel long-haul trucks from next year. The fuel will be offered to operators along western Canada’s busiest truck route from Calgary to Edmonton, said Malcolm Brinded, executive director for exploration and production.

Shell is looking at using the LNG-to-transport technology in China and Europe, Voser said. It will be a smaller market than using gas to fire power plants, “but it’s a good usage of the gas,” he said.

“There is a great appetite for this type of solution,” he said. This market “will be growing. You can think of more, you can use it in the shipping industry.”

LNG Exports

The gap between natural gas and crude oil prices in North America is opening up the prospect of LNG exports to Asia and making chemical projects commercially viable. Today’s gas price is equivalent to about $27 a barrel of crude, while oil is trading at about $100 a barrel in New York.

Shell, together with PetroChina Co. and Japanese and South Korean partners, plans to develop an export facility in British Columbia in Canada to supply LNG to Asia.

In June, Shell announced plans to build an ethylene plant in Appalachia, the first so-called cracker built in the region in half a century, to tap low-cost natural gas for making plastics. The cracker would process gas from the Marcellus shale. The ethylene probably will be converted to polyethylene plastic at a second factory to be built at the site, Shell said.

To contact the reporters on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net;

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net;

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