Royal Dutch Shell plc (LON:RDSA) (NYSE:RDS.A) (NYSE:RDS.B) announced Thursday that it won’t build its proposed gas-to-liquid plant on the Gulf Coast. The European oil giant has been analyzing the feasibility of building a plant in the Gulf of Mexico for almost two years to benefit from the U.S. shale gas boom. But Royal Dutch Shell found it would cost the company more than $20 billion. That’s much higher than the company’s original estimate of about $12.5 billion. Louisiana had offered the company grants and tax breaks of $112 million.
Royal Dutch Shell’s expertise in GLT technology
Royal Dutch Shell plc (LON:RDSA) (NYSE:RDS.A) (NYSE:RDS.B) chief executive Peter Voser said in a statement that it was a tough decision for the company. The Netherlands-based company will instead focus its capital and efforts on more attractive opportunities elsewhere. Oppenheimer analyst Fadel Gheit told The New York Times that there are already a large number of projects in the U.S, so Royal Dutch Shell would have found it difficult to bring enough skilled workers for the project without cost overruns.
Royal Dutch Shell plc (LON:RDSA) (NYSE:RDS.A) (NYSE:RDS.B) is a major investor in the United States. Its decision also signals that the U.S. oil and gas industry might be overheating. The company is known for its technical expertise in converting natural gas to fuels such as diesel. Prices of these fuels is linked to oil, which is much higher than the gas price in North America. But Royal Dutch Shell doubts long-term sustainability of those differentials.
Shell spent $19B on Qatar plant
Currently, the company has a gas-to-liquid plant in Malaysia. Recently, it built another plant in Qatar, called Pearl, that has a production capacity of 140,000 barrels of liquids per day. Royal Dutch Shell plc (LON:RDSA) (NYSE:RDS.A) (NYSE:RDS.B) spent about $19 billion to develop Pearl. A similar plant in the U.S. would have cost a lot more, the company said. As Shell backs out, South African oil giant Sasol is the only company that is planning to build a gas-to-liquid plant on the Louisiana Gulf Coast.
Royal Dutch Shell plc (LON:RDSA) (NYSE:RDS.A) (NYSE:RDS.B) CEO Peter Voser has announced that he will retire next year. He will be replaced by Ben van Beurden, who currently heads the company’s refining business.
Royal Dutch Shell plc (LON:RDSA) (NYSE:RDS.A) (NYSE:RDS.B) shares soared 2.45% to $67.43 at 10:17 AM EST.