By James Burgess of OilPrice.com
After two years of studying the possibility of building a huge gas-to-liquids plant on the Gulf of Mexico coast in order to take advantage of the cheap supply of US shale gas, Royal Dutch Shell (RDS/A) has decided to cancel the project as estimated costs had risen to $20 billion, no longer making the scheme a viable one.
Peter Voser, the Chief Executive Officer at Shell, said that “we are making tough choices here, focusing our efforts and capital on the most attractive opportunities in our worldwide portfolio.”
Fadel Gheit, an analyst at Oppenheimer, explained to the NY Times that “with all the projects in the U.S. it would have been very difficult to have enough skilled labour to do it without cost overruns.”
The NY Times suggests that this announcement could be a sign that the US petrochemical industry is saturated as so many companies have set up operations there to take advantage of the low shale gas prices.
Shell has placed a lot of emphasis on its natural gas business, focussing on that over oil in many instances, and this decision will likely prove a big blow to their ambitions in the US natural gas market. The NY Times claims that Shell spent decades perfecting its technology to convert natural gas into fuels such as diesel and jet fuel, a process that whilst difficult and expensive to execute, can produce much cleaner fuels which trade at a premium, with prices linked to oil rather than natural gas.
Shell already has a gas-to-liquids facility in Malaysia, and has just finished building a huge plant in Qatar called the Pearl, which cost around $19 billion to build and can produce 140,000 barrels of liquid fuel a day. The installation planned for the US would have been a similar size, but have cost far more to build.
Other than gas-to-liquids, another part of Shell’s natural gas plans involves the construction of huge floating facilities to turn natural gas into liquefied natural gas at sea, where costs will be much lower than on land. The giant Prelude floating LNG vessel is the first of its kind, and will eventually be anchored off the coast of Australia to use the natural gas reserves buried there.