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Gulf Times, Qatar: Shell says plant cost could triple to almost $18bn

By Andy Critchlow & Stephen Voss

DUBAI: Royal Dutch Shell, Europe’s second-biggest oil company, yesterday said the Pearl GTL project may cost as much as $18bn, triple earlier estimates.

The project will cost $4 to $6 per barrel of oil equivalent to produce, The Hague-based Shell said yesterday in a statement. The venture is expected to produce the equivalent of 3bn barrels of oil during its lifetime, the company said in a separate statement.

Oil and gas project costs are climbing amid shortages of equipment, labour and raw materials such as steel. A year ago, Shell said costs for its Sakhalin II venture in Russia’s Far East doubled to $20bn. Shell yesterday cut its 2006 output target.

“Shell is falling behind competitors in gaining access to traditional oil and gas opportunities,” said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh, who has a “hold” recommendation for Shell. “Their focus on expensive, unconventional projects like Pearl GTL is still to be proven.”

Shell spokesman Andy Corrigan declined to provide a figure for the project’s overall cost. Earlier this year, the estimated the cost of the gas-to-liquids project was put at $6bn.

The Qatari GTL project involves developing offshore resources in Qatar’s North Field and turning them into fuels similar to diesel, Shell said. The facility will be built in Ras Laffan Industrial City.

Shell’s oil and gas reserves at current production levels will run out in about nine years, the lowest level among its peers. Last year, Shell replaced 67% of its output, compared with 95% for BP Plc, using US accounting rules.

The reserves controversy led to the ouster of Shell’s chairman, investor lawsuits and fines from US and UK regulators.

Shell yesterday also said second-quarter net income climbed 40% to $7.32bn as record crude prices overcame production losses in Nigeria.

The company lowered its full-year output target, saying “no firm date can be given” for starting shuttered Nigerian output.

South Africa’s Sasol Ltd was the first to begin GTL production in Qatar, when its 34,000 barrel-a-day Oryx plant opened in Ras Laffan in June.

Shell already sells GTL fuels from an existing plant in Bintulu, Malaysia. – Bloomberg

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