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Course Correction in Qatar


In a strategic move that redraws the playing field for high-quality base stocks, Qatar Petroleum and Exxon Mobil Corp. have cancelled their planned gas-to-liquids fuels and base oils project. Instead, they say they will pursue development of the Barzan natural gas project in the North Field of Qatar.

Their withdrawal means that the once-hot contest to build GTL base oil plants in the Middle East kingdom has narrowed to a two-horse race: Sasol-Chevrons Oryx and Royal Dutch Shells Pearl, each developed in partnership with Qatar and each promising GTL base oils for delivery in a few years.

The cancellation also may spur to action companies with API Group III base oil plans on the boards, but industry sources remain confident ExxonMobil will build a GTL base oil plant – some day, at some point.

The initial phase of the Barzan project will supply domestic gas to meet the State of Qatars infrastructure and industry growth, according to the Feb. 20 announcement. Qatar Petroleum and ExxonMobil have agreed to form a joint venture to oversee the project development.

The canceled GTL plant was originally announced in 2004 as a $7 billion plant to be located in the industrial hub of Ras Laffan City, and scheduled for completion by 2011. It would have been a 154,000 barrels-per-day facility with a 30,800 b/d base oil plant.

ExxonMobil spokeswoman Jeanne Miller said the discussions about stopping work on GTL, and participating in the Barzan gas project were in parallel. She explained that the initial phase of the Barzan project is a domestic gas project. The State of Qatar is attracting a lot of new businesses and growing, with a lot of infrastructure they need to support, Miller said. Obviously the Barzan project is one that is important to our partners, so we understand thats a priority for them.

She said both decisions – not to progress with the GTL and to participate in the Barzan project – are in line with ExxonMobils investment approach. Both reflect our focus on maximizing the value of our resources for Qatars government, our partners and our shareholders, Miller said. She declined to comment on the projects final estimated costs.

Industry consultants forecast the cancellation could have wide-reaching impacts in the base oil industry, including a morale boost to those making tentative plans for new Group III base oil plants (see page 16) and to those who produce polyalphaolefins.

I think the impact of the ExxonMobil decision may be to stimulate more of the people who were thinking about it to be a bit more serious about thinking about it, said R. David Whitby, chief executive of Pathmaster Marketing Ltd., Woking, U.K. Im not necessarily saying that more Group III plants are going to get built – just that the likelihood has increased that another couple of them are going to get at least further off the drawing board than they currently are.

Stephen Ames, managing director of SBA Consulting in Pepper Pike, Ohio, said the plants cancellation leaves a big hole, quality-wise, in ExxonMobils base oil portfolio going forward.

They do big business in Group I and are a reasonably good-size producer of Group II yet have very little to offer in the way of higher quality than Group II-plus, with exception of PAO – theyre a big producer there as well, Ames said. Theres a growing gap in the Group III and Group III-plus area.

Amy Claxton, principal of My Energy, Hummelstown, Pa., said that while the projects cancellation could make project economics for Group III plants appear more robust, she advised caution. She said automakers may be less enthused about the news, as OEMs have been patiently waiting on larger quantities of GTL lubricant base stocks to facilitate a further shift to higher-quality engine oils.

These same sources expect ExxonMobil to revisit the idea of a GTL plant at some point, in part because of the number of patents the company owns for the technology involved. ExxonMobils Miller emphasized that the company continues to believe its GTL technology remains valuable to resource owners and to global markets.

The GTL project represented a very good source of high-end lube base stocks, Miller said. We will now pursue other previously identified options to meet our commitment to the high-end lubricants business. Thats an important message we want to get out.

Pathmasters Whitby said those in the industry believe ExxonMobil has decided that in the current situation around the world, its less risky to invest in an LNG (liquefied natural gas) plant than in a GTL plant.

Ive no doubt they probably put a GTL plant on a back burner and theyll resurrect it at some point in the future, he said. When that is, I havent got any idea at the moment.

ExxonMobils decision makes good economic sense given the current costs of the construction, and the other opportunities that are available to use for the Qatari gas, said SBA Consultings Ames. However, he added, with ExxonMobil not going forward with its GTL project, you have to question what their future base oil supplies are going to look like. Thats not to say they cant do what everybody else is doing with respect of Group III, and thats adding a bolton base oil plant to a clean-fuel hydrocracker. They do have hydrocrackers at a number of locations for which they could do this, though we havent heard anything to that effect.

My Energys Claxton said monetizing gas – whether via LNG, pipeline sales or GTL – is very resource intense for host governments, who provide the gas, and for oil companies providing capital for the projects.

ExxonMobils Barzan investment and its sole-partnership opportunity with Qatar Petroleum was apparently more strategic to ExxonMobil than GTL at this time, she said. I dont think in any way that this signals that ExxonMobil is walking away from GTL. Clearly they are walking away from GTL in Qatar at this time.

Claxton said ExxonMobils decision to move away from GTL in Qatar appeared to be more about the discipline of capital resource allocation and less about rising project costs of a specific project. She said the company has a fiscally rigorous and finely honed long-term investment strategy. Barzan represents a 15 to 20 percent increase to current gas production from Qatars North Field, putting the magnitude of this project in perspective, she added.

Pathmasters Whitby noted that people in the industry have said that the base oil plants need to be large to make them economically competitive.

The potential for oversupplying the world with very high quality base oils is huge, Whitby said. Each of the three major players has been aware that if they swamp the market, theyll destroy the market in terms of high-performing base oil. My reading has been theyre all very reluctant to commit themselves to doing GTL on a big scale except where theres a definitive market for low-sulfur diesel.

The announcement has the potential to reposition the company from being one of the largest suppliers of Group III-plus base stocks to being one of the leading consumers of Group III base stocks in the 2010 to 2015 timeframe, said Geeta Agashe, director of Little Falls, N.J.-based consultant Kline and Co.s Petroleum and Energy Practice.

We think ExxonMobil will be short on Group III by 2015 and will either need to buy base stocks on the open market or add grassroots capacity to convert fuel hydrocracker bottoms for their own internal needs, Agashe said. This would require a much smaller total investment – around $250 to $300 million for the base stock refining investment – as opposed to $18 billion-plus for an entire GTL facility. Either way, formulators looking to ExxonMobils GTL base stocks to meet their high-performance base stock needs might have to look for other avenues.

Bill Downey, vice president and head of Klines Petroleum and Energy Practice, said the GTL plants cancellation could represent an opportunity for more than just companies investing in Group III refining. This could even lengthen the life of some higher-cost Group I refineries and create additional opportunities for PAO and Group II producers, Downey suggested.

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