The Rising Influence of Rising Affluence

[DewDiligence]

Shell Sees Big Lift from Megaprojects in Qatar

[The Pearl GTL plant, the world’s most expensive energy project, is scheduled to begin production in late 2010.]

http://online.wsj.com/article/SB20001424052748703819904574555960576279166.html

›NOVEMBER 25, 2009
By GUY CHAZAN

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 are up and running in 2011 and give it a big boost in 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, will deliver 350,000 barrels a day of oil—about 10% of Shell's current output. [The 350K bbd is Shell's working interest—total output from the projects will be about 600K bbd.]

"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 added.

Mr. Voser was speaking after Shell showed analysts around Pearl and Qatargas 4, which are vital to its growth strategy. With a price tag of $18 billion to $19 billion, Pearl is the biggest single project in the global oil industry, and is the world's largest gas-to-liquids development. It will convert Qatari natural gas into diesel and other high-value oil products.

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

Shell said, however, that 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 major 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 some tough years. It was buffeted by political troubles in Russia, where a Kremlin-controlled gas company muscled into one of its natural-gas projects, and it saw its Nigerian operations disrupted by violence.

Shell has sought to recover by investing in costly long-life assets, such as Pearl, a big oil-sands venture in Canada and LNG plants in Australia and Qatar.

Some analysts questioned that strategy last year after the price of oil plummeted to around $30 from $145 a barrel. 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, I don't need to borrow," Mr. Voser said.

Mr. Voser stressed Shell wouldn't be affected by the glut now forming in natural-gas markets. He said some of Qatargas's future LNG output that had been destined for the U.S., where gas prices have fallen nearly 30% in the past year, has been diverted to China and Dubai, which are short of gas.

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 in the aftermath of the recession, will grow strongly in the medium to long term.‹