A Pearl beyond compare

In spite of finding myself forcibly detained in Doha for a few days by the Eyjafjallajokull volcanic eruption, one of the highlights of my recent trip to Qatar was a visit to the immense Ras Laffan site in the north of the country, where gas from the North Field comes ashore. As well as being home to Qatar’s two huge liquefied natural gas (LNG) projects, Qatargas and Rasgas, and the Oryx gas to liquids (GTL) plant, the largest and most imposing complex on the site is Shell’s new Pearl GTL plant, now nearing completion.
Pearl is an amazing sight, easily dwarfing the two next door LNG complexes, and Shell are quite justifiably proud of it and keen to dwell on its superlatives. It is the largest project ever undertaken in Qatar; the complex’s footprint covers a larger area than Hyde Park here in London – almost as large as Central Park in New York - and it is made up of two million tonnes of steel and pipes – enough, Shell say, to build 2.5 Eiffel Towers every month during the four month construction phase, which occupied an army of 50,000 workers from 50 countries. There is enough concrete to build eight Wembley stadiums, the 67 control servers run 12 million lines of computer code, while 5,850km of control cables alone would stretch from Doha to Tokyo if laid end to end. At the end of the pipe is the immense water treatment facility which processes water from the site (GTL production produces one barrel of water for every barrel of GTL products from reacting hydrogen with oxygen) through pipes several metres across. It is the world’s largest industrial water processing plant with zero discharge capability, and the treatment plant could serve the equivalent of a city of 140,000 people, according to Shell.
Once it reaches peak production next year, Pearl will be producing 140,000 barrels/day of synthetic diesel, as well as processing 120,000 bbl/d equivalent of natural gas liquids and ethane. It will be by far the largest gas to liquids plant ever built, and at a price tag of $19 billion (some say as high as $24 billion), Shell have had to pay handsomely for that privilege.
The next question will be whether it provides Shell with a return on investment. The Wall Street Journal called Pearl “the most expensive gamble on clean fuel in the history of the energy industry.” But is it such a gamble? Shell is reported to have negotiated a gas price with Qatargas that is virtually free, and the company say that at an oil price of $70/bbl it should generate $6 billion per year in profit. Indeed the surprising thing is that no-one else is doing it, given the difficulties western oil and gas majors have had in breaking into regions now largely under the sway of national oil companies, and their consequent focus on alternatives like sour gas and oil sands. However, this overlooks the fact that the major competitor for GTL over the past few years has not been conventional fuels but the opportunity cost of using the gas elsewhere, primarily for sale as LNG. Until the banking crisis of 2007-8, natural gas costs were high and LNG provided the best returns around for gas monetisation. It is the reason why the LNG industry has expanded by leaps and bounds, but GTL is limited to just a handful of projects.
Now however the boot seems to be firmly on the other foot. The rise of unconventional natural gas production has changed the dynamics of the natural gas market. The USA, which was predicted to be a huge importer of LNG by now, is virtually self-sufficient in natural gas. The LNG industry faces massive overcapacity. And with gas relatively cheap and oil still relatively expensive, even at its massively over budget cost Pearl begins to look like a very shrewd investment once again. Nevertheless, the economics is only one of the hurdles. There has been a large scale-up – Pearl is ten times the size of the other SMDS plant at Bintulu, Malaysia. Given the teething troubles that Oryx faced when it started, Pearl may still not be out of the woods just yet. It will be interesting to see next year – assuming that there are no technical issues with the plant – whether the oil and gas industry swings back towards GTL in the way that it did ten years ago.