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Citing Cost Concerns, Shell Will Not Build Gulf Coast Plant

“We are making tough choices here, focusing our efforts and capital on the most attractive opportunities in our worldwide portfolio,” Peter Voser, Shell’s chief executive, said in a statement. The decision would appear to be a blow to Shell’s ambitions both in natural gas technology and in the United States, where it is a major investor.

By STANLEY REED: December 5, 2013

Royal Dutch Shell said on Thursday that it would not build an immense gas-to-liquids plant on the Gulf Coast because of concerns over its cost. Shell had been studying the possibility of building a plant to take advantage of cheap shale gas in the United States for at least two years.

“We are making tough choices here, focusing our efforts and capital on the most attractive opportunities in our worldwide portfolio,” Peter Voser, Shell’s chief executive, said in a statement.

The plant would have cost more than $20 billion, the company said.

“With all the projects in the U.S. it would have been very difficult to have enough skilled labor to do it without cost overruns,” said Fadel Gheit, an analyst at Oppenheimer in New York.

The decision would appear to be a blow to Shell’s ambitions both in natural gas technology and in the United States, where it is a major investor. The news could also be a sign of overheating in the oil and petrochemical industries in the United States.

Shell, Europe’s largest oil company by market capitalization, has spent decades perfecting the technology that converts natural gas to fuels like diesel and jet fuel. The process is tricky and expensive but it has the advantages of producing fuels that are free of pollutants like sulfur. These fuels also sell at prices linked to oil which is currently much more valuable than gas in North America. In Shell’s statement, the company referred to “uncertainties” about whether these differentials would remain over the long term.

Shell has long operated a gas-to-liquids facility in Malaysia and recently completed a much larger installation called the Pearl in Qatar that produces 140,000 barrels of liquids each day.

Pearl was one of the oil industry’s most expensive projects and it cost about $19 billion.

Shell says that it calculated that a similar plant in the United States would cost more. The company looked at different parts of the United States but had focused on Ascension Parish, on the Louisiana Gulf Coast.

Shell has distinguished itself among the major oil companies by making a particularly large bet on natural gas. Investing in a gas-to-liquids plant was one part of that strategy.

The company is also building enormous floating facilities to process natural gas into liquefied natural gas at remote locations. The hull for its first such facility, called Prelude, was recently floated out of a dry dock in South Korea. It is destined for Australia.

Shell has struggled recently in the United States, particularly in efforts to drill in Arctic waters off Alaska, where it has spent more than $4 billion on leases but was forced to halt exploration activities this year after accidents involving its drilling vessels and other problems last year. Shell recently said it was gearing up for a new foray.

In August, the company said it was writing off about $2 billion in the shale oil properties after taking previous write-downs on shale gas acreage. Mr. Gheit said he expected Shell to make large asset sales next year.

Mr. Voser previously announced that he will be leaving Shell at the end of the year. He is to be succeeded by Ben van Beurden, the current director of Shell’s refining business.

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