By Justin Scheck
Royal Dutch Shell PLC said Wednesday that it has scrapped plans
to build a big petrochemicals plant in natural-gas-rich Qatar, one
of the first major oil-and-gas projects to be canceled after six
months of plummeting oil prices.
The Al Karaana development, which Shell in a 2013 document
called a "multibillion-dollar, world-class petrochemicals project,"
would have had "high capital costs rendering it commercially
unfeasible, particularly in the current economic climate prevailing
in the energy industry," Shell said in a prepared statement.
Big oil companies began pushing back projects long before the
oil price began dropping last June. For the past few years, the
costs of developing new fields and processing facilities have
ballooned, in part due to a surge in activity that has prompted
contractors to raise prices.
An analysis late last year by Bernstein Research found that big
oil companies deferred or canceled more than two dozen projects in
2013 and 2014 as they tried to rein in capital spending. Shell in
late 2013 dropped plans to build a Louisiana plant that would have
turned natural gas into synthetic diesel. The company currently
runs a similar gas-to-diesel plant in Qatar.
Fadel Gheit, an analyst at Bernstein Research, said oil project
cancellations and delays would accelerate this year, as low prices
were likely to force Shell and its rivals to take on more debt and
cut spending to pay dividends. Projects that "were supposed to be
beginning construction next year, they will definitely be pushed
back," he said.
The Al Karaana plant was supposed to be a big moneymaker when
Shell and Qatar Petroleum signed a deal in 2011 to move ahead with
it. Qatar has cheap and plentiful natural gas, and Shell has the
technology needed for building large-scale plants that can process
it into various industrial chemicals.
In 2013 promotional documents, Shell said the plant would
produce chemicals that would be "very significant for Qatar's
petrochemical industry expansion." Shell and Qatar Petroleum said
they hired a contractor to do initial engineering work. The plant
was to have been run by a joint venture 80% owned by Qatar
Petroleum and 20% owned by Shell.
Mr. Gheit said that while other processing or refining projects
could be delayed, he expects most of the development cost-cutting
to affect exploration and production, where the biggest oil
companies spend most of their capital investment.
Write to Justin Scheck at justin.scheck@wsj.com
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