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Lloyds List: Shell Qatar LNG plans on track despite $1bn overrun

Tony Gray
Published: Jul 12, 2007

A major liquefied natural gas project involving Shell and Qatar, requiring nine of the largest LNG carriers, is on course despite cost escalation of at least $1bn since initial agreement was reached 18 months ago.

Qatar Liquefied Gas Co (4), a joint venture between Qatar Petroleum (70%) and Shell (30%), was yesterday officially incorporated by the partners.

At the same time a Shell affiliate signed a sale and purchase agreement with the Qatargas 4 joint venture as buyer of all the LNG volume produced by the project.

But the cost of Qatargas 4 has risen to $8bn, Qatar’s energy minister Abdullah al-Attiyah said.

This is substantially more than initial cost estimates of about $6bn-$7bn mentioned by Qatari officials when the project was first announced in 2005.

It is no surprise, however, as LNG construction costs have been under pressure for the past couple of years due to the enormous expansion of the industry.

Qatargas 4 centres on a 7.8m tonnes-a- year liquefaction train.

The main engineering, procurement and construction contract for onshore facilities was awarded in December, 2005, and construction activities were ‘progressing well’,‛ the partners said.

The first LNG cargoes are scheduled for delivery around the end of the decade.

Shell will market the gas mainly in the eastern US. The oil major has capacity at the Elba Island regasification terminal in Georgia as well the new Elba Express pipeline, which will facilitate distribution to the eastern US.

The project is expected to support long-term charters on nine vessels of between 210,000 cu m and 266,000 cu m which Qatar Gas Transport (Nakilat) has on order.

Nakilat and Shell International Trading and Shipping also formalised their November agreement under which Shell will manage at least 25 newbuilding LNG carriers the Qatari company has ordered.

Shell will provide a full range of shipping services for Nakilat, including staff recruitment, training and operational management of the vessels.

A key element of the agreement is a commitment to the development of Nakilat’s shipping expertise in support of its aspiration to become a fully integrated LNG shipping company.

Under the 25-year deal the intention is for operational management of the vessels to be transferred to Nakilat within 12 years of the delivery of the last vessel in the series.

Nakilat’s fleet of LNG vessels will be put into service over the next four years to transport LNG from four of Qatar’s main LNG projects, Qatargas 4.

These vessels will have capacities ranging between 210,000 and 266,000 cu m.

Nakilat also has equity interests, ranging from 20% to 60%, in a further 29 LNG carriers.

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