Shell gears up for start-up of Pearl GTL

I am in “Gas City” or Doha, the capital of the state of Qatar. Located halfway along the Western coast of the Gulf, Qatar has been enjoying a construction boom fuelled by its hydrocarbon riches, in particular the world’s largest single gas field, the North Field. The field contains more than 900 trillion cubic feet of gas, equivalent to 150bn barrels of oil, or more than 10 per cent of worldwide gas resources.

The field was first discovered in the early 1970s by what is now Royal Dutch Shell and in just a few week’s time the Anglo-Dutch oil and gas giant will make history when it starts up its Pearl Gas-To-Liquids (GTL) plant. Via pipelines feeding from two offshore platforms 60km off the Qatar coast, the plant will take gas from the North Field and turn it into valuable liquids such as cleaner-burning diesel and aviation fuel, oils for advanced lubricants and naptha used to make plastics.

It will be a big moment for Shell. Although a joint development between Shell and Qatar Petroleum, Pearl’s development costs have been 100 per cent funded by the Western major to the tune of almost $20bn. Under the terms of the agreement Shell will receive the cost of recovery of its investment and shares any profit with the state of Qatar.

Shell is about to reap the benefits of this huge investment. Once up and running fully by the middle of next year, the plant will add 8 per cent to Shell’s production worldwide, making it the company’s main engine of growth for 2012. It will have a capacity of 260,000 barrels of oil equivalent per day.

The scale of the task should not be underestimated – everything about Pearl is huge. It is the largest construction site in the oil and gas industry, involving more than 52,000 workers at its peak; the plant’s footprint is the size of Hyde Park and Kensington Gardens in London combined; and all of this has been built in the desert where temperatures can reach the high 40 degree Celsius.

Andy Brown, Shell executive vp and managing director of Pearl GTL, describes the plant and Shell’s other current big investment in the country, the Qatargas 4 liquefied natural gas (LNG) project , as “a new heartland” for the company. He won’t say exactly when the official start-up will be  – “around the end of next month” is all that he will say – but the two projects together will generate around $4bn a year in cash for the company at oil prices of $70 per barrel. With Brent crude trading comfortably at above $100 per barrel today Shell’s massive investment may well have been worth it.

But it will also be a big moment for Qatar which is a huge exporter of LNG. GTL will provide the state with a natural hedge against the natural gas market where prices have not enjoyed the huge upsurge as in the oil market. Instead of relying on the vagaries of the gas market, Qatar will be able to monetise its vast gas reserves in a different way.

This post was amended  on June 2. We have changed “Arabian Gulf” to “the Gulf” to reflect FT style.

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