The New York Times: Exxon to Abandon a Big Investment in Qatar

By CLIFFORD KRAUSS
Published: February 21, 2007

HOUSTON — Exxon Mobil announced on Tuesday that it would abandon one of its biggest investments ever, a project with Qatar’s state-run oil and gas company to produce clean-burning diesel from natural gas.

Instead, Exxon Mobil said that it could concentrate on a new gas drilling project in the emirate’s rich Barzan field, which is close to the site of the gas-to-liquid project. The Barzan project will initially produce 1.5 billion cubic feet of gas a day and eventually much more for the fast-growing Qatar domestic market in 2012.

The Exxon project is apparently a victim of those costs, although the company would not explicitly say so.

“This decision to not progress with G.T.L. is in line with our focus on maximizing the value of resources for both our host government as well as our shareholders,” said Jeanne Miller, an Exxon spokeswoman, using the initials for gas to liquid.

Ms. Miller said the gas-to-liquid project had been slated to cost $7 billion three years ago, “and we have not discussed project costs since then.” She added, “I’m not denying costs were a factor” for the change in company strategy in Qatar.

Energy companies have shelved or delayed several projects in Canada over the last year or so because of cost overruns in oil sands and conventional fields, and Qatar itself announced a moratorium on new gas projects last year. But Tuesday’s announcement came as a surprise since the chief executive of Exxon, Rex W. Tillerson, had said as recently as September that the company was moving forward with the project, albeit with efforts to control costs.

Fadel Gheit, an energy analyst at Oppenheimer & Company, said, “It seems that cost escalation has finally gored even Exxon, and the company decided to shift priorities and resources to maximize investment results.”

The Exxon project would have produced an estimated 154,000 barrels of liquid gas, naphtha and lubricants a day.

Worldwide investments in gas-to-liquid production had been growing as producers contended that the diesel produced from gas would reduce toxic emissions from traditional diesel fuels used in European passenger cars and heavy trucks in the United States.

Qatar attracted the largest investments because of its plentiful natural gas reserves and friendly relations with international energy companies, including Exxon, Royal Dutch Shell and Sasol, the South African energy company.

“Costs for oil and gas development around the world are up 53 percent since 2004, and these rising costs are a top preoccupation of the industry,” said Daniel Yergin, chairman of the Cambridge Energy Research Associates, a consulting firm. “People are reprioritizing and everybody is going back to the drawing board again on major projects.”

A rival company, Royal Dutch Shell, which has the second-largest gas-to-liquid project in Qatar, said Exxon’s decision had no impact on its plans to complete its Pearl plant there, scheduled to begin producing 140,000 barrels a day of diesel, lubricants and naphtha in 2009.

Estimates of final costs for the Shell project have ranged up to $18 billion, but Shell will not comment on what the final price tag may be.

In recent years experts estimated that overall production of diesel from natural gas could reach more than one million barrels a day by 2015, roughly the equivalent of Venezuela’s daily oil exports to the United States. Other projects remain in various stages of planning or development around Africa, Asia and the Middle East.

The gas-to-liquids diesel has been favored by energy companies because unlike many other unconventional and synthetic fuels it can be transported and sold using existing tankers, refineries and gas stations. Producers have argued that the fuel might be sold at a premium in countries like the United States, seeking alternative fuels that can reduce sulfur and other toxic emissions.

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