By Stanley Reed and Robert Tuttle
March 4 (Bloomberg) — Royal Dutch Shell Plc spent $19 billion, triple the original estimate, to build the world’s largest gas-to-liquids plant. Now, it’s pay-off time and the company says the project may generate $6 billion a year.
Shell needs the plant, known as Pearl, to bolster output, which fell for a seventh year in 2009 in part because rebel violence hampered oil ventures in Nigeria. Qatar, the arid Gulf state that’s become the world’s biggest exporter of gas on ships, may account for 10 percent of the company’s production after Pearl and a liquefied natural gas project start deliveries next year.
Shell’s work in Qatar is “like creating a new Nigeria,” Andrew Brown, the company’s executive vice president for the country, said in an interview in the capital, Doha. Pearl will begin processing gas toward the end of this year and start delivering fuel in early 2011, he said.
Gas-to-liquids technology, a relatively expensive way to make diesel and jet fuel, makes more sense given today’s disparity between natural gas and oil prices. Converted into barrels of oil, gas is less than half the price of crude, which doubled to near $80 in the last year. At full capacity, Shell said Pearl will churn out 140,000 barrels a day of liquid fuel and 120,000 barrels equivalent of ethane gas and condensate, a by-product that’s like a light crude oil.
“GTL is a very expensive, energy intensive process,” said Iain Anderson, an analyst at brokers Brewin Dolphin Holdings Plc in London. “But the result you get is fantastic.” Pearl could be paid off in five years, Anderson said.
Airlines, Cars
Since the fuel Pearl will produce is purer than traditional crude-based products, Shell may be able to sell its production at a premium. Pollutants such as sulfur are stripped out of the gas, making it well-suited to green-minded airlines or clean diesel for cars.
Operating costs at Pearl will be about $6 a barrel, Brown said, and the company can reclaim the cost of building the plant through the production-sharing agreement it has with Qatar. With crude at $70 a barrel, Pearl would generate about $6 billion a year in profit for Shell and Qatar, he said.
“GTL starts to make sense when there is a spread between oil and gas prices,” said Ross Cassidy, an analyst at Edinburgh-based Wood Mackenzie Consultants Ltd.
Ras Laffan
Pearl’s webs of tanks and piping sprawl over a 4-square- kilometer (1.5-square-mile) area at Qatar’s Ras Laffan site. An estimated 51,000 workers, their necks draped in cloth to ward off the blazing Gulf sun, weld joints, dig ditches and direct traffic with red and green flags. The workers, mostly men, wear color-coded helmets indicating their roles. White hats are for managers, red for scaffolders, yellow for pipefitters.
Shell project engineer Wiliam Keij said that the start-up will last for months as unit after unit is fired up. At the heart of Pearl will be twenty-four 1,200-metric-ton reactor vessels filled with pipes where gas will be converted into paraffin through interaction with catalysts. The paraffin then flows on into refinery-like units where it will be broken down into kerosene for jet fuel, gasoil for diesel, naphtha for plastics and base oils for lubricants.
The technology and energy required to make gas-to-liquids work mean it has rarely been used to bring natural gas resources to consumers. The 34,000-barrel-a-day Oryx GTL, Qatar’s only operating gas-to-liquids plant, reached full power last year after hitting snags following its start in 2006. Oryx is a venture between state-controlled Qatar Petroleum and South Africa’s Sasol Ltd.
Ironed Out Kinks
Shell said it has ironed out a lot of the kinks of gas- to-liquids at a smaller plant it’s operated in Malaysia since 1993. Bintulu, which had early glitches, has been generating about $200 million a year in earnings. At 14,700 barrels a day, Bintulu is only about a 10th of the size of Pearl.
Alongside Pearl, Shell has a 30 percent stake in Qatargas 4, part of the world’s largest LNG complex, due to start exports in 2011. With oil prices at $70 a barrel, the two projects should generate more than $4 billion a year for Shell after revenue sharing with Qatar, Brown said.
Last year, Shell had a net income of $12.5 billion as New York oil futures averaged $62.09 a barrel. The company’s oil and gas production averaged the equivalent of 3.15 million barrels a day, according to company filings on Bloomberg.
In Nigeria, Shell’s share of production for its onshore fields dropped to 150,000 barrels a day after an oil spill shut a pipeline, Chief Financial Officer Simon Henry said last month. At full capacity, output from the fields is more than 350,000 barrels a day.
When Pearl and Qatargas 4 are both up and running they will add 350,000 barrels a day to Shell’s total production.
–Editors: Will Kennedy, Amanda Jordan
Mar/04/2010 00:01 GMT
To contact the reporters on this story: Stanley Reed in Doha, Qatar on sreed13@bloomberg.net; Robert Tuttle in Doha, Qatar at rtuttle@bloomberg.net.
To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net.
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