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Gas into Oil: Shell's Water-into-Wine Project


The Qatar plant is over budget, but the payoff could be huge

Every morning red-uniformed Royal Dutch Shell engineers board buses at a residential compound in the suburbs of Doha, Qatar's capital. An hour later they reach Ras Laffan, an industrial area in northern Qatar, where they are greeted by a billboard of Sheikh Hamad bin Khalifa Al-Thani, the country's emir. The sheikh holds a glowing lamp. Above him is the slogan: Clean Energy from Qatar to the World.

Ras Laffan is the site of probably the largest single project in the global oil and gas industry. Shell is spending $19 billion on this facility, dubbed Pearl, to convert Qatar's near-endless reserves of natural gas to liquid oil products like jet fuel that fetch high prices. No one has attempted this process on such a scale, and Shell and its Qatari partners face a nail-biting rampup of the plant's many sections before everything is running full tilt. If they succeed, Shell thinks the plant may generate $6 billion a year in profits.

Andrew Brown, Shell's executive vice-president for Qatar, compares Shell's total possible production in the emirate, which includes a large liquefied natural gas plant under construction, to "creating a new Nigeria." That country supplies the Anglo-Dutch major with 10% of its oil and gas. Pearl may even wean Shell off its reliance on the West African state, where rebel attacks have hampered operations.

Shell project engineer Willem Keij says Pearl's startup this year will take months as unit after unit fires up. At the heart of Pearl will be 24 vessels, 1,200 metric tons each, filled with pipes where gas will be converted into paraffin, which will be broken down into kerosene for jet fuel, gas oil for diesel, and base oils for lubricants.

Since the fuel Pearl will produce is purer than traditional crude-based products, Shell hopes to sell it at a premium. The process strips out pollutants such as sulfur, resulting in clean jet fuel for green-minded airlines and scrubbed diesel for cars. (The Pearl plant is energy-intensive, however, and its products still release carbon into the atmosphere.)

Construction has been costly: Shell's $19 billion bill is already three times the estimate. At least the raw material, natural gas, comes from the project's own wells and costs little. An oil refinery, in contrast, may need to pay $80 for a barrel of crude before it starts processing it into diesel or kerosene. "Gas-to-liquid makes sense when there is a spread between oil and gas prices," says Ross Cassidy, an analyst at Edinburgh-based Wood Mackenzie.

Pearl's web of pipes and tanks sprawls across 4 square kilometers, or 1.5 square miles. Some 51,000 workers, their necks draped in cloth to ward off the Gulf sun (temperatures can reach 125F), weld joints, dig ditches, and direct traffic. The project won't be ready to produce flat-out until 2011. "GTL is a very expensive process," says Iain Armstrong, an analyst at brokers Brewin Dolphin in London. "But the result you get is fantastic."

Reed is London bureau chief for BusinessWeek. Robert Tuttle is a reporter for Bloomberg News.

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