HOUSTON — Royal Dutch Shell said Thursday it is abandoning plans for a massive gas-to-liquids plant envisioned for Louisiana, citing poor economics for the project that was expected to cost more than $20 billion.
The plant would have turned natural gas into diesel, jet fuel and other liquids, but the company determined that it would be too costly.
The plant would have turned natural gas into diesel, jet fuel and other liquids at a rate of 140,000 barrels per day, but the company determined that it would be too costly.
“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,” Shell CEO Peter Voser said in a statement.
Shell announced the potential site for the project in September, but said it was no sure thing as the company was continuing to evaluate its economics.
A prior Shell gas-to-liquids project in Qatar, the Pearl GTL project, cost about $19 billion and offered more value than the conceived Louisiana project, according to the company. The Louisiana project would have cost $20 billion, the company said.
The huge costs of building a large, complex gas-to-liquids plant, likely combined with other factors to help Shell decide to bet on other projects it is considering worldwide, said Pavel Molchanov, an analyst for Raymond James.
“I think because of its experience with the Pearl project in Qatar, which was heavily over budget, I think that gives the company some perspective about the risks associated with mega projects such as this,” Molchanov said.
A major difference between the projects was that Shell produces and owns all of the natural gas it uses at the Pearl facility, but would have had to buy natural gas from the U.S. grid in order to supply the Gulf Coast project.
Shell’s decision came down to that and other costs, with the projected construction tab expected to be too high, and the margin the company hoped to earn on the natural gas it processed projected to be too low, spokeswoman Kimberly Windon said.
Shell’s decision doesn’t mean that gas-to-liquids is a bad idea, Molchanov said.
“It’s not a comment that gas-to-liquids are inherently problematic or not appealing but there’s a limited amount of capital and lots of project competing for that limited capital,” he said. “I look at this in the context of Shell’s portfolio, which is very global … and Shell’s rather negative experience with the Pearl GTL project.”
Other companies are moving forward with smaller efforts to convert cheap natural gas into fuels and other liquids.
Another large Louisiana project, by Sassol, is expected to cost more than $10 billion.
Several companies are advancing plans for relatively small gas-to-liquids projects, which can still cost more than a billion dollars. A $1.3 billion plant is being developed by Houston-based G2X Energy and a more than $1 billion plant to be built in Beaumont was announced last month.
Shell made its decision to abandon the planned Gulf Coast project, which was to be located along the Mississippi River in Ascension Parish, despite a $112 million incentive offered to the company by the state of Louisiana.
“Despite the ample supplies of natural gas in the area, the company has taken the decision that GTL is not a viable option for Shell in North America, at this time, due to the likely development cost of such a project, uncertainties on long-term oil and gas prices and differentials, and Shell’s strict capital discipline,” the company said in a statement.
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