Pearl GTL Plan Triples to 30,000 B/D

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Royal Dutch Shell is proceeding with its much anticipated gas-to-liquids project in Qatar, and the project now features a giant base oil plant.

Shell and Qatar Petroleum announced Thursday that they have executed the final investment decision, essentially launching the project, which is dubbed Pearl. On the same day, Shells chief financial officer told reporters the projects base oil plant is now designed for three times the capacity that was previously stated, pegging it at upwards of 30,000 barrels per day.

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Industry observers called that big and unexpected news.

That would be a very significant event, said Stephen Ames, principal of SBA Consulting LLC, of Pepper Pike, Ohio. If Shell does something that big, it significantly increases the volume of very high-quality base stocks being added to the market, and it does so quite a bit sooner than what had been expected.

Shell and Qatar Petroleum unveiled plans for Pearl in late 2003, calling it the largest integrated gas-to-liquids project in the world. Since then the partners have negotiated a series of agreements that fleshed out details of the project and their relationship. With last weeks announcement they indicated they have begun awarding dozens of contracts covering engineering, procurement and construction.

Most physical parameters have changed little since the project was first announced. The plan is still based on wells that would extract 1.6 trillion cubic feet of natural gas per day from Qatars massive North Field in the Persian Gulf. Part of that volume would be transported to facilities that would process it into condensate, liquefied natural gas and ethane. Shell said Thursday that design capacity for that part of the project has doubled to 120,000 barrels of oil per day equivalent.

The rest of the gas would be transported to an onshore complex that would manufacture 140,000 barrels per day of liquid hydrocarbon products – primarily fuel but also base oils, kerosene and paraffins. The companies still plan to build the complex in two 70,000 b/dphases. The original schedule called for the first phase to begin operating in late 2008 or early 2009 and the second within two years. On Thursday the companies said the first phase is slated for around the end of the decade and the second within a year after that.

One parameter has changed drastically: the price tag for the project. Initially Shell estimated the capital investment at $5 billion, but costs for materials, services and manpower have spiked the past two years. Earlier this year Shell said cost estimates had ballooned to $6 billion and led it to reevaluate the project.

Last week Shell officials were clearly loathe to invite comparisons with earlier estimates. They refused to offer explicit figures, but stated that capital expenditures should cost between $4 and $6 per barrel of oil equivalent expected to be produced over the life of the project. The companies expect to derive 3 billion barrels of product from Pearl, suggestinga new cost estimateof $12 billion to $18 billion.

During a news conference Thursday, reporters peppered Shell executives with questions about the price escalation. Chief Financial Officer Peter Voser cited two primary factors. In addition to inflation for goods and services, he stated that the scope of the project has expanded. He offered two examples, saying capacity for the condensate facility has doubled, andthe base oil plant has tripled from originally stated figures.

Voser did not discuss the base oil plant further, and Shell refused this week to comment or even to confirm the original capacity to which Voser referred. However, Shell appears previously to have used only one number in discussing the planned capacity of the plant: 9,600 b/d. Tripling that size would result in a plant with capacity of nearly 29,000 b/d. That would be the second largest base oil plant in the world, behind Motivas 40,300-b/d plant in Port Arthur, Texas. ExxonMobil has announced plans to build a GTL complex with a 30,800-b/d base oil plant scheduled to come online in 2011. Like Pearl, the latter project is a joint venture with Qatar Petroleum and would be located in Ras Laffan Industrial City.

A third GTL base oil plant is currently planned, also in Ras Laffan. Sasol Chevron has said it will build an 8,000 b/d plant as part of the Oryx GTL complex developed by Sasol and Qatar Petroleum. That plant is slated to begin operating in early 2009. All three projects have been heavily anticipated by the lubricants industry, because GTL base oils are expected to perform comparably to polyalphaolefins with a significantly cheaper cost basis.

Of course, that cost basis is rising, as evidenced by Shells price tag projections. Still, observers agreed that the Pearl plant will have a big impact on the market, especially at the expanded design capacity.

All [three of] those plants are going to be a big deal because of the quality and the volume, said Jamie Brunk, a senior consultant for Dallas, Texas-based Solomon Associates. But when you start getting up around 30,000 barrels per day, thats really a lot of volume.

While declining to discuss capacity numbers, Shell did state that it foresees strong demand for high-quality base stocks like those produced by GTL facilities.

GTL technology, in which Shell has a leading position, will be important in meeting future quality requirements for finished lubricants, spokesman Jonathan Charles told Lube Report. These are changing due to environmental and performance demands of motor manufacturers.

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