Thursday, Jul 27, 2006

By Benoit Faucon

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Royal Dutch Shell PLC may have once again fallen victim to industry-wide cost inflation for its wholly owned Qatar Pearl gas-to-liquids project, as the rising price of oil may push project costs to more than double, according to Dow Jones Newswires calculations.

The company previously said the project, for which investment was approved Wednesday, would cost $6 billion.

However, a cost of $4 to $6 per barrel of oil, combined with an expected output of 3 billion barrels-of-oil equivalent over the lifetime of the project, could mean a $12 billion to $18 billion total cost, according to Dow Jones Newswires calculations.

The spending per barrel, of which Shell will cover 100%, is for integrated projects costs of resources, a spokeswoman said. She declined to comment on Dow Jones Newswires' calculation.

Shell surprised the markets last July when it said the budget of its 55%-owned Sakhalin II liquefied-natural-gas project in Russia had doubled to $20 billion.

The Shell spokeswoman said that, on numerous occasions, "we made it clear no budget had been set" for the Qatari GTL project.

A memorandum of understanding on the GTL project with the Qatari government was signed in 2003.

But "the final budget was decided this month" and the final investment decision voted by Shell's board Wednesday, the spokeswoman pointed.

"The preliminary estimates were not based on detailed design and did not reflect today's costs" rise in project contracting and engineering.

She added the 2003 memorandum of understanding didn't include the full potential of production Shell was now aware of following appraisal of the project's natural gas fields.

Nasser Jaidah, director in charge of oil and gas ventures at state-owned Shell partner Qatar Petroleum, already warned earlier this year the budget would be more than $10 billion.

The Pearl GTL complex, which is expected to be the largest gas-to-liquids plant in the world when it starts around the end of the decade, will consist of two 70,000 barrel-a-day GTL trains and associated facilities.

Company Web site: http://www.shell.com

By Benoit Faucon, Dow Jones Newswires; +44-20-7842-9266; benoit.faucon@dowjones.com

(END) Dow Jones Newswires

07-27-06 0417ET

Copyright Zawya Dow Jones Newswires 2006