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Shell Expects Big Boost From Qatar Gas Projects


NOVEMBER 24, 2009


Royal Dutch Shell PLC’s two mammoth natural-gas projects in Qatar will increase the company’s cash flow by $4 billion a year when they start up in 2011 and give a big boost to the company’s output, said Peter Voser, Shell’s chief executive.

Speaking to reporters in London, Mr. Voser said the Pearl gas-to-liquids plant and Qatargas 4, a liquefied-natural-gas development, would deliver 350,000 barrels a day of oil—some 10% of Shell’s current output.

“These projects combined will have a substantial impact on Shell’s world-wide production [and] generate sustained positive cash flows for decades to come,” he said. Income from the Qatar ventures will underpin Shell’s next wave of new investments, he said.

Mr. Voser was speaking after Shell took analysts round Pearl and Qatargas 4, two projects that are vital to the company’s growth strategy. With a price tag of $18 billion to $19 billion, Pearl—which will convert Qatari natural gas into diesel and other high-value oil products—is the biggest single project in the global oil industry and is also the world’s largest GTL development.

Shell hopes the projects will mark a turning point in the company’s fortunes after years of declining production. Shell’s output has fallen by as much as 15% since 2005 while its costs have risen by 40%, according to Deutsche Bank.

However, Shell also said it was delaying the launch of Qatargas 4 by as much as 10 months, from the start of 2010 until the end of the year. Mr. Voser said the timetable had been disrupted by delays at other LNG projects in Qatar involving other big oil companies, such as Exxon Mobil Corp, Total SA and ConocoPhillips.

Hit by a scandal in 2004 related to the misreporting of its reserves, Shell has endured a tough few years. It was buffeted by political troubles in Russia, where a Kremlin-controlled gas company muscled into one of its flagship natural-gas projects, and saw its Nigerian operations badly disrupted by militant violence.

The company has sought to turn itself around by investing in a string of expensive long-life assets, such as Pearl, a large oil-sands venture in Canada and LNG plants in Australia and Qatar.

Some questioned that strategy last year when the price of oil plummeted from a record of $145 a barrel to around $30. Shell was forced to take on more debt to cover its spending plans and pay its dividend, but with oil now trading between $75 and $80 a barrel, the company feels more secure.

“With oil at $80 a barrel, I don’t need to borrow,” Mr. Voser said.

But some analysts said the company may still struggle to keep investments flowing and sustain its dividend in the next couple of years, while it waits for production to ramp up. “Overall the Royal Dutch Shell investment looks like it is going to pay off but 2010 could still be difficult,” said Keith Morris at Evolution Securities, a London brokerage firm.

Mr. Voser also stressed that Shell wouldn’t be affected by the supply glut now forming on natural-gas markets, which has damped spot prices for LNG. He said some of Qatargas’s LNG volumes were initially destined for the U.S., where gas prices have fallen nearly 30% over the past year: they have now been diverted to China and Dubai, which are short of gas. Shell is also working on new supply routes to countries like Pakistan.

Mr. Voser said Shell wasn’t exposed to the low spot price of LNG because 90% of its contracts are long term and linked to the price of oil. He said gas demand, though weak now in the aftermath of the recession, will grow strongly in the medium to long term—largely because gas produced fewer carbon emissions than other fossil fuels like coal and oil.

Write to Guy Chazan at [email protected]

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