With its massive unconventional natural gas reserves, the United States has “all the elements” that would make a gas-to-liquids (GTL) project successful, the CEO of Royal Dutch Shell plc said Thursday.
Earlier this year Shell launched the massive Pearl GTL project in Qatar, which is the largest GTL facility ever built (see Daily GPI, March 25). Once in full operation, expected in 2012, the facility could generate up to 120,000 b/d of condensate and natural gas liquids, and 140,000 b/d of other products, using 1.6 Bcf/d that is produced from the offshore North Field in the Arabian Gulf.
CEO Peter Voser, who discussed the company’s second quarter performance during a conference call with financial analysts, was asked whether the United States might qualify for a future GTL project along the lines of Pearl.
“On the GTL side, we need gas that has a reasonably low cash breakeven cost and a big liquids market,” he said. “In that sense the United States has all of these elements that make GTL a possibility.”
Because of Shell’s development of Pearl and other GTL investments, “we are the company with the best and widest experience in this field,” Voser said. Shell management is “looking” at a possible U.S. project “and will update once we are going forward with the specifics on what type of gas quality would be needed and what that means for us later on.”
In mid July Chesapeake Energy Corp. launched a $1 billion venture capital fund to invest in companies and technologies to replace gasoline and diesel fuel with gas and GTL fuels (see Daily GPI, July 12). The state of Wyoming also is studying a potential of a GTL facility (see Daily GPI, June 30).
GTL projects are on a long list of strategic investments that Shell is considering to boost its global output for the long-term. Several complex projects worldwide are drawing billions from the European-based oil major, mainly to convert gas reserves into liquefied natural gas (LNG) and motor fuel. In addition to its Australian LNG and Qatari gas ventures, Shell has a substantial foothold in North America’s unconventional gas resources.
Shell this year has ramped up three projects in which it has invested about $30 billion to date: a Canadian oilsands venture and two in Qatar, including the Pearl GTL project and Qatargas 4, an LNG train. The Qatargas 4 project, which came on stream in the first quarter, now has fully ramped up with a capacity of 7.8 million tons/year of LNG. Pearl has sold its first shipment. Together the three projects at peak production are expected to contribute more than 400,000 boe/d.
Those three projects alone will underpin “our targets for financial and production growth to 2012,” said Voser. Shell already has invested about $8 billion on projects in the first six months of this year and plans to invest “at least” $100 billion in new energy supplies until 2014, he said. Among the future investments are LNG projects in Australia and Indonesia.
Originally the majority of Shell’s Qatari and Nigerian LNG was to be directed to U.S. markets, CFO Simon Henry told analysts. Because of low Henry Hub prices, he said the cargoes were diverted.
“We have optionality built in about where to take the LNG cargo over long periods of time,” he said. “We diverted cargoes from both plans that were initially targeted to the United States to more attractive markets. The volumes from Qatar have been “higher than expected,” and the “number of diversions has roughly doubled to about 30 cargoes, primarily into Asia and the Middle East..,
“The arbitrage between Henry Hub and others is particularly attractive in Europe where spot link prices are at least double Henry Hub, typically trading at $9 to $10. That’s particularly attractive for LNG.”
Voser thinks that “it’s the end of low-cost oil and gas…I think we are going into a world where finding the oil and gas is going to be more complex. It needs more money, [it] needs more investment.”
A plan to export gas from Canada is “progressing,” Voser said. “What we need to progress LNG exports is to move the gas to Asian markets where there is a different pricing exposure from Canada’s differential.” Canada has only “one market, one driver…the United States.” North American LNG and GTL are both “future strategic questions” for Shell.
Shell’s profit nearly doubled in the latest quarter on higher commodity prices and from its new ventures coming on stream. Earnings jumped to $8.7 billion from $4.4 billion in 2Q2010. Production in the second quarter was down 2% year/year to 3 million boe/d from 3.1 million boe/d. Some of the decline came from asset sales, but the company also lost about 50,000 boe/d during the Gulf of Mexico (GOM) drilling moratorium.
Asked what the loss of the GOM production had cost Shell to date, Henry said the “profit loss was something over $200 million last year, which is quite a significant reduction in earnings potential.”
The moratorium was lifted early this year but it will be well into 2012 before Shell is able to get back to production levels prior to the Macondo well blowout, said Voser.
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