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Reuters: Shell launches huge gas-to-liquids scheme in Qatar

Thu Jul 27, 2006 2:22 PM GMT
 
By Stuart Penson

LONDON (Reuters) – Royal Dutch Shell on Thursday launched the world’s biggest gas-to-liquids (GTL) project in Qatar that will convert gas from the Gulf State’s vast North Field into clean fuels for the world market.

Shell said it expected the Pearl project — which confirms the Anglo-Dutch company’s position as leading player in the emerging GTL sector — to start around the end of the decade, with a second unit to follow within a year.

Shell’s long awaited go-ahead for Pearl, which could help boost the company’s 2006 reserve replacement, comes amid speculation the project’s costs have spiralled because a flurry of gas projects in Qatar have inflated labour and raw material costs.

Shell, which announced forecast-breaking second-quarter profits on Thursday, gave no further guidance on capital expenditure for Pearl. The company stuck to its 2006 and 2007 overall capital spending plans.

“Previous capex guidance (on Pearl) was $6 billion, although recent comments from the Qatari Energy Minister have suggested this now exceeds $10 billion,” CitiGroup said in a research note.

Qatar’s Oil Minister Abdullah al-Attiyah has repeatedly voiced concern about a tight contracting industry and rising material costs.

Pearl is being developed under a development and production sharing agreement with Qatar, covering offshore and onshore costs. Shell is providing 100 per cent of project funding.

“Given the long-term outlook for oil prices, GTL still looks attractive even with higher capital costs,” Frank Harris of Wood Mackenzie said.

GTL plants process gas into clean oil products like low sulphur diesel, demand for which is growing on the back of tougher limits on emissions.

RESERVES BOOST?

Shell is in talks with the U.S. Securities and Exchange Commission (SEC) on whether it can book Pearl reserves, and indicated it would do so this year if it can, chief financial officer Peter Voser said.

Pearl will include development of offshore gas in the North field, considered to be the world’s biggest gas reservoir that is not associated with oil production, with estimated recoverable reserves of more than 900 trillion cubic feet (25.48 trillion cu metres), Shell said.

“Over its lifetime, the integrated project will produce upstream resources of approximately 3 billion barrels of oil equivalent,” Shell said.

Downstream, Pearl’s two GTL units, each with a capacity of 70,000 barrels per day, far bigger than $1 billion Oryx plant — the world’s first commercial GTL plant launched in Qatar last month by South African fuels group Sasol Ltd.

“Pearl is an extremely important project to the GTL sector as a whole as it will be the world’s largest plant and it is a big step-up in size from the current largest project – Oryx GTL,” Harris at WoodMackenzie said.

Other gas projects with Exxon Mobil, ConocoPhillips, Marathon and Sasol/ChevronTexaco have been delayed while Qatar reviews reserves at its North field and after a jump in construction costs.

Aside from Pearl, Shell is investing in Qatar’s rapidly growing liqueifed natural gas (LNG) industry.

Qatar wants to develop GTL as way to get its gas to market, together with LNG and pipeline projects.

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