Costs bury GTL plant
ExxonMobil drops Qatar project but gets a moratorium-busting domestic gas deal.
By Nigel Armstrong
Posted: 05 March 2007
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ExxonMobil and Qatar Petroleum (QP) have abandoned plans to build what was going to be the world’s largest gas-to-liquids (GTL) plant because of spiraling costs and a shift in Qatar ’s energy priorities.
 “We have dropped plans to build a GTL plant due to the mounting costs,” said Second Deputy Premier and Minister of Energy and Industry Abdullah bin Hamad Al Attiyah, indicating there would be further delay in other proposed GTL plants.
The decision, announced at a joint Press conference in Doha , is a major setback for GTL which its backers hope will become an important source of transport fuel and petrochemical products.
A replacement agreement has ExxonMobil and QP shifting focus away from GTL to develop the Barzan gas field, part of Qatar ’s massive North field, producing 1.5 billion cubic feet per day of natural gas for the domestic market, beginning in 2012. The agreement also guarantees ExxonMobil a role in future North Field developments and the potential to sell that gas in more lucrative overseas markets.
“ Qatar is becoming a major gas consumer,” Al Attiyah said. “New power generation stations, water desalination plants…will all increase the demand for gas.” He said that local demand is expected to reach 4.25 billion cubic feet per day by 2012 and the country needs “to step up natural gas production to meet the needs of local industry.”
ExxonMobil ( Qatar ) president Alex Dodds said: “We understand the Barzan project is a priority for Qatar . We are pleased to have been the only international oil company selected to participate in it.”
Neither Dodds nor Al Attiyah would reveal the estimated cost of the project.
Asked whether more GTL projects would be taken up in Qatar , Al Attiyah said: “For the time being we will not go ahead with projects which we have been discussing with our various partners. The cost is very high and we have decided to wait.”
 Other GTL proposals already frozen by a moratorium on further development of the North Field include Sasol Chevron, ConocoPhillips and Marathon .
ExxonMobil’s decision to drop out of GTL came as something of a surprise since the CEO Rex W. Tillerson said as recently as September that the company was moving forward with the Qatar project, albeit with efforts to control costs.
Until the announcement, Qatar had been heavily championing GTL, a process that converts natural gas into ultra-clean diesel and other products, in the hope that it would provide a new market for its huge natural gas reserves.
In 2005, Al Attiyah said Qatar would become the “GTL capital of the world” with a production capacity of 400,000 bpd by 2011 or 2012.
The ExxonMobil GTL deal with QP was announced in 2004. The venture was to produce 154,000 barrels per day of GTL. Exxon was to provide 100% of the capital costs, its AGC-21 GTL technology and was expected to complete work on the plant in the Ras Laffan industrial city by 2011.
The Qatar project was ExxonMobil’s only active involvement in a GTL plant. However, it said it would continue to look for alternative opportunities for the AGC-21 technology in which it had invested $600 million over two decades and taken out 3,500 patents.
ExxonMobil’s decision to drop out of GTL does not affect Shell’s GTL project - Pearl - which was given final approval last July. An official ceremony at the Pearl site to mark the start of construction took place two days after the QP/ExxonMobil announcement.
However, the number of large-scale gas projects in Qatar , and elsewhere in the region, has inflated labour and raw material costs that are already exacerbated by rising costs globally as oil and gas companies rush to bring new capacity online to meet rapidly growing demand for energy.
In 2003, when Qatar and Shell signed the Pearl agreement to build 140,000 barrels per day GTL plant, total costs were estimated at $6 billion. They have since escalated to an estimated $18 billion. First phase development of 70,000 barrels per day is expected by 2009 and the second phase by 2011.
A $1 billion Sasol-Chevron and QP deal for the country’s first commercial-scale GTL plant – Oryx - producing 24,000 barrels per day of diesel by end 2005, has seen delays and cost overruns. Its first shipment will be this month.
“Oryx works,” general manager Chris Turner said recently. “We are producing GTL products and we are on target to have product ready for market by the end of the first quarter as previously announced.”
With the Barzan deal, in which it has a 10% stake, ExxonMobil sidesteps Qatar ’s moratorium on new projects in the North Field, introduced last October. At that time, Qatar said no more development deals would be signed until a full survey of the field had been completed in 2010. The field, the largest in the world, holds an estimated 900 trillion cubic feet of gas.
This increased Qatari extraction from North Field could give added impetus to Iran ’s plans to enter the GTL market. Iran has already set aside one phase for GTL development in its South Pars fields adjoining Qatar’s North Field, although no project has been tendered to date.
Before the Qatar moratorium, Iran had voiced concern about the long-term split of resources from the fields, which could possibly give Qatar an advantage if it continues to develop its extraction while Iran struggles to attract bidders for increasingly costly projects.
See more news and analyses in Future Fuels, a sister publication of Pipeline, at www.futurefuelsme.com |
