Prices rocket for Qatar's GTL projects

The Pearl GTL project, which is being undertaken by Qatar Petroleum and Royal Dutch Shell, is the world's largest integrated GTL project and, also, the largest energy project ever undertaken in Qatar. Since the scheme was launched last summer, a total of $10 billion worth of contracts have already been awarded for the project, including all major engineering, procurement and construction contracts. Actual construction got underway in the third quarter of 2006.

When it is fully functional in 2011, the plant will generate 120,000 barrels per day of oil equivalent of condensate, liquefied petroleum gas and ethane, as well as 140,000 barrels per day of GTL.

Escalating costs

But while the scheme will diversify Qatar's gas production and will provide a steady supply of cleaner fuels, at a time when a reduction in carbon emissions is vital to reducing air pollution and global warming, its mushrooming costs have made a few people question its viability.

The project was originally slated to cost about $5 billion but this could eventually snowball to more than three times this amount due in part to the rising costs of raw materials. Shell has remained defiant that the GTL plant will be profitable and inflated costs were factored into the original predictions. But analysts from Citigroup, cited in The Peninsula, have calculated the Pearl GTL project will achieve an internal rate of return of nine per cent, slightly below the level firms usually target, if the facility costs no more than the conservative prediction of $15 billion.

Indeed, during the same week as the Pearl stone-laying ceremony, Qatar Petroleum and ExxonMobil announced they had scrapped the even bigger GTL project they had unveiled back in July 2004 as projected costs spiralled out of control. The 154,000 barrels per day venture was originally estimated to cost around $7 billion but once that figure had soared to at least $18 billion, both parties decided to cut their losses. ExxonMobil has, instead, been offered a 10 per cent stake in the development of the Barzan gas field, which will pump out 1.5 billion cubic feet of gas per day for Qatar's domestic market when it is up and running in 2012.

Into production

But while the outlay required to develop the Pearl GTL plant may seem like a major headache, Shell can take heart from the smaller Oryx GTL scheme which is now operational and set to make its first shipment of diesel before the end of this month. The 34,000 barrels per day venture is a tie-up between Qatar Petroleum and South Africa's Sasol Chevron and, according to the Gulf Times, the latter is keen to boost the plant to 100,000 barrels per day and also launch a separate 130,000 barrels per day operation in spite of the rocketing costs. The expansion of its Oryx facility was initially estimated at $1.5 billion but this has unsurprisingly been re-adjusted upwards.

Sasol's expansion plans in Qatar are on ice, however, not so much due to prohibitive financing reasons, but because of the Qatar government's current moratorium on the exploitation of the giant North Field. The firm is setting up another GTL facility in Nigeria and is eyeing up Algeria, Australia and Russia for other possible projects.

Although getting Gas-To-Liquids plants off the ground is clearly becoming an increasingly expensive business, there is no doubting the strong, and growing, demand for cleaner hydrocarbon products right across the globe. Once the Pearl GTL facility is in production, and assuming Sasol finally gets the go-ahead for its expansion plans, Qatar will be, by far and away, the world leader in GTL production and it will then be able to reap the financial benefits.