Shell ditches plans for US gas-to-liquids plant - The Financial Times Ltd

Posted - December 5, 2013 - By Guy Chazan and Ed Crooks - The Financial Times Ltd

Royal Dutch Shell has dropped plans for a multibillion-dollar flagship plant in the US that would have converted natural gas into diesel and jet fuel, amid concerns over the costs of the $20bn-plus project. It said the gas-to-liquids plant was “not a viable option for Shell in North America”, citing the likely cost, “uncertainties on long-term oil and gas prices and differentials”, and the company’s strict capital discipline.

Shell had touted the possible GTL plant in the Gulf of Mexico region as a way to exploit the arbitrage opportunities that have opened between cheap and abundant US shale gas and expensive crude oil.

However, with shale oil production also now booming in North America, putting downward pressure on US crude prices, that argument looks less compelling.
There were also concerns about the price tag. The original estimate suggested a budget of least $12.5bn, but the project was on course to cost more than $20bn.
Tens of billions of dollars of investment projects in petrochemical plants and terminals for exporting liquefied natural gas have been proposed for the US gulf region, to take advantage of the shale gas boom, raising fears of shortages of labour and equipment and consequent inflation in construction costs.

Shell has come under mounting pressure from investors to show more capital discipline, after spending a record $45bn this year; $5bn more than it had planned.

Peter Voser, Shell chief executive, who will leave the job at the start of next year, said: “We are making tough choices here, focusing our efforts and capital on the most attractive opportunities in our worldwide portfolio, to add value for shareholders.”

The decision leaves Sasol of South Africa as the only company that still has plans to build a large GTL plant in the US. It said in 2011 that it would build a $10bn facility near Lake Charles in Louisiana, which could produce up to 96,000 barrels a day of diesel and naphtha, a chemical feedstock.

But the exit of Shell is a big blow to the embryonic GTL industry. Shell is a leader in the technology, having built a $19bn gas-to-liquids plant in Qatar that is one of its flagship projects.
As recently as September it announced it had picked a site in Louisiana for the proposed 140,000 barrel per day GTL plant, while continuing to warn that it had not yet made a final decision to go ahead.
Simon Henry, Shell’s chief financial officer, hinted that the plan was at risk in a call with analysts at the end of October.

The company had three big potential projects under consideration to profit from cheap shale gas in North America, he said: the Louisiana GTL plant, a plan to export LNG from the west coast of Canada, and a new “cracker” in western Pennsylvania that would convert ethane, a natural gas liquid, into ethylene, a standard building block for many plastics.

However, Mr Henry added: “We cannot afford to take all three together at once. And even if we could, I’m not sure we have the engineers and the project managers to do so.”

Shell is also pursuing other gas projects in the US, including an LNG export facility in Georgia being developed as a joint venture with Kinder Morgan, the pipeline group.

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