Europe > Western Europe > Netherland > Shell drops $6.5bn Al Karaana

Netherland: Shell drops $6.5bn Al Karaana

2015/01/16

Royal Dutch Shell has scrapped plans for a $6.5bn petrochemicals project with Qatar Petroleum, citing “the current economic climate prevailing in the energy industry”, the oil major said on Wednesday.
The Al Karaana project, an 80:20 joint venture between Qatar Petroleum and Shell, would have produced 2m tonnes a year of petrochemicals products, largely intended for Asian markets.

The decision not to proceed — a significant move following the halving of oil prices since last summer — was taken “next a careful and thorough evaluation of commercial quotations” from engineering, procurement and construction bidders, Shell said.
These showed “high capital costs rendering it commercially unfeasible, particularly in the current economic climate prevailing in the energy industry.”

Crude oil prices have plunged by additional than 50 % since mid-June, creating winners and losers.
Those who have suffered include producers and governments, whereas some companies stand to benefit from a fall in energy costs. This has encouraged analysts to liken the potential boost for the world economy to a huge programme of “quantitative easing”.

For oil companies, the falling price has triggered industry-wide scrutiny of capital spending, with the so-called majors — the biggest groups with upstream and downstream operations — expected to cut billions of dollars from exploration and development projects in the coming year, deferring and even axing programmes.

Under pressure to improve returns following the initial profit warning in its history last year, Shell had by presently embarked on an intense round of cost-cutting before the slide in international crude prices to below $50 a barrel, from additional than $110 last summer.
By the end of the third quarter, the Anglo-Dutch major had announced investment disposals of $14bn under a belt-tightening programme initiated by new chief executive Ben van Beurden.

It has promised to pursue profits over production increase and aims to deliver $30bn to investors through dividends and share buybacks over 2014 and 2015. It said in October it was braced for a sustained price downturn and was presently taking further action.
Al Karaana, which took its name from an ancient Qatari village, is an example of the kind of planned spending the oil majors will be paring back. The joint venture to develop a huge complex at Ras Laffan, agreed in December 2011, would have produced 2m tonnes a year of petrochemicals, the bulk of which would have come from a monoethylene glycol plant, the major of its kind in the world.

In March 2013 Fluor of the US won the major front-end engineering and design arrangement for the project. Feedstock for the plant would have come from natural gas projects in Qatar.

Shell’s existing ventures with Qatar Petroleum, inclunding Pearl GTL, the world’s biggest integrated gas-to-liquids plant, located at Ras Laffan, are unaffected.
Shares in Shell were down 2.3 % at £20.28 in afternoon London trading, following further falls in Brent crude to $46.

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