Pearl GTL Project Is Competitive At $12-18Bn, Shell Argues

At a cost of $12-18bn, the Pearl GTL project will be Shells largest foreign direct investment (FDI), Andy Brown, Managing Director of Pearl and Chairman of Shells Qatar operations, said on the sidelines of the 6^th Doha conference on natural gas. He explained that Shells guidance on project cost is $4-6/B for the 3bn barrels of oil equivalent of allocated reserves (which gives $12-18bn). This puts the project at the lower end of Shells portfolio in terms of price per barrel, he said. Shell is bearing 100% of the costs in a production-sharing agreement struck with Qatar Petroleum, which will see the company responsible for the whole product chain, from offshore subsurface production units through onshore gas and liquids processing to marketing.

Shell is funding the project off its balance sheet and, despite the huge outlay, has not been tempted to sell a stake. We always look at partners that can add value, but at this point were keeping 100% of the investment for ourselves, he said. Equity financing the project gives the company flexibility, is appropriate for a project of this size and type, and has also allowed Shell to avoid the climb in financing costs faced by borrowers as a result of the US subprime mortgage crisis, he said. It has a short pay-back time and is an economic project. It is a legacy asset that will generate cash as long as there is gas in the North Field, he added.

The Pearl GTL plant will use 1.6mn cfd of gas to produce 140,000 b/d of GTL products (using two trains) and 120,000 b/d of condensate, LPG and ethane. It will be the worlds largest GTL operation and the biggest producer of premier quality base oils. The first of the two GTL trains will be started up at the end of 2010 with the second train brought on-line a year later. It is based on proven technology 20 years ago Shell built a pilot plant in Amsterdam (still operating today), and over 10 years ago started up the Bintulu plant which produces 14,700 b/d and is one of the most reliable gas plants in the Shell global portfolio, said Mr Brown. Some say that at 10 times bigger Pearl is a major scale-up, but if you actually look at the components for each unit the separation unit is only slightly bigger and the core of the plant, the reactors, are actually of similar size, although he noted that Pearl would use a more active catalyst. Bintulu, he said, had increased its productivity and Pearl was expected to continue this trend: We would not be going ahead with Pearl without Bintulu under our belts. Weve been given a good block offshore and the upstream production of 120,000 b/d helps the project.

Pearl GTL Progress

Part of the revenue stream from the Pearl GTL project will cover costs and part used to generate a profit for Shell and the state of Qatar. Over $10bn worth of EPC contracts have been placed, 11,000 workers are on site, and all of the equipment has been ordered. Contractors are numerous and include: JGC and KBR for core GTL processing facilities; Chiyoda/Hyundai for gas processing plant; Toyo/Hyundai for fluid processing plant; Linde for air separation, McDermott for platform pipelines; and Honeywell for process automation.

Over half the contracts are lump-sum turnkey (LSTK), including the separation unit, liquid processing, refinery, effluent treatment plant, and storage tanks. The core unit, home to Shells proprietary technology in the GTL and utilities area, is covered by reimbursable contracts. JGC/KBR helped Shell order equipment, so the contracting strategy is mixed, said Mr Brown. We had been on a single lump-sum route and we appreciated that the market was tight, so we split the scope up in order to create competition. Every single one of those contracts was competitively tendered, he added. Asked why he did not use one EPC contractor for whole project, Mr Brown said that single contractors did not want to bear such a significant lump-sum risk.

The project will occupy 2.5 sq km, consume 1.2gw of electric power, generate 8,000 tons/hr of steam and use over 5,000 tons of catalyst. For construction it needs 100,000 tons of piping, 100,000 tons of structural steel and 100,000 tons of equipment, requiring 200mn man-hours to execute and a workforce in excess of 34,000. Its hydrocrackers will be the worlds largest, as will the oxygen plant, and it will have full recovery of process water. Bringing the 1.5mn tons of freight materials into Doha and Mesaieed for transport to the Ras Laffan site would create traffic jams, so an offloading facility was completed last month to reduce traffic by 100,000 trucks. The first of the GTL reactors has been completed, three gas turbines are ready for shipment and the company is taking delivery of catalyst on site. The offshore drilling rig has arrived in the UAE, pending delivery to the North Field.

Shells GTL Marketing Plan

Pearl GTL products will go via Shells distribution channels to markets in the East, Europe and US. Base oils/lubricants will be sold globally, and GTL fuels will go to markets delivering the highest value. That will often be driven by the refinery margin of gasoil over crude today youd get more for that in Europe. Its all about which market, at which particular time is generating the highest netbacks for us and Qatar, he said. Shell is promoting its GTL products directly to consumers, and Mr Brown believes that as a cleaner burning technology it will see strong demand. The company has set up pilot trials to use GTL for home heating in Japan. It is in talks with engine manufacturers and airlines such as Qatar Airways regarding use of GTL kerosene to fuel aircraft. This is a positive development for airports, since GTL fuels higher energy density means that less fuel can be carried, while its cleaner burning can reduce emissions.

We calculate that the GTL fuel from Pearl can fuel all buses and taxis in 20 mega-cities, having a considerable impact on air quality thats why weve been working with some metropolitan authorities in some of worlds largest cities to make this happen, he said. Car fleets in London and Germany are running on GTL, and the technology got a further fillip when the European parliament voted to promote synthetic fuels and asked the EC to make sure these were introduced. Additionally, Shell has a partnership with Audi to provide GTL fuel for its R10 racing car, which won the Le Mans 24-hour race in 2006 and 2007.

Copyright MEES 2007.