Royal Dutch Shell Counting On Integrated Gas Projects

By Eric Fox | March 23, 2011 AAA

Royal Dutch Shell (NYSE:RDS.A) is depending on the successful development of several large integrated gas projects over the next few years to meet the aggressive production goals set by the company at a recent analyst meeting.

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Production Growth
Royal Dutch Shell has established some fairly aggressive production growth targets for a company of its size. The company hopes to reach production of 3.5 million barrels of oil equivalent (BoE) per day by 2012, and 3.7 million by 2014. The 2014 target would represent 12% growth over 2010 production. The capital spending needed to generate this growth is staggering, and will total between $25 billion and $27 billion a year through 2014. Much of this spending will go toward two large integrated gas projects that the company has in its portfolio.

Pearl GTL
The Pearl Gas to Liquids (GTL) is under construction by Royal Dutch Shell and Qatar Petroleum, and will be the largest GTL plant in the world. Pearl is designed to process natural gas from the North Field, an offshore natural gas field that contains approximately 900 Tcf reserves.

Royal Dutch Shell will transport production from this field to a natural gas processing plant which will extract ethane, propane and condensates from the natural gas stream. The plant will also remove sulfur, and then ship the natural gas to Pearl.

Pearl is designed to convert the natural gas into various products including kerosene, paraffin, base oil, gasoil and naphtha. Royal Dutch Shell expects Pearl to have peak production capacity of 140,000 barrels per day of gas to liquids products, and 120,000 barrels per day of natural gas liquids. The project will produce 3 billion barrels total over the lifetime of the project.

Qatargas 4
Another project being developed by Royal Dutch Shell and Qatar Petroleum is the Qatargas 4 project, a liquefied natural gas (LNG) plant that started up production in early 2011. The project will also receive natural gas from the North Field, and consists of a single LNG train with a production capacity of 7.8 million tons per year. Qatargas 4 will have a peak capacity of 1.4 billion cubic feet per day of natural gas and 70,000 barrels per day of natural gas liquids.

Royal Dutch Shell will send most of this LNG to markets in Asia, and in 2008, the company signed an agreement to supply PetroChina (NYSE:PTR) with LNG from Qatargas 4.

This is the fourth LNG plant in Qatar, which has a total of seven trains in four different projects. Other public companies involved with these projects include Exxon Mobil (NYSE:XOM), Total (NYSE:TOT) and Conoco Phillips (NYSE:COP).

Gorgon
Royal Dutch Shell's final integrated gas project is Gorgon, which is operated and 50% owned by Chevron (NYSE:CVX). Gorgon is located offshore of Australia, and will consist of the development of several offshore natural gas fields, and the construction of a LNG facility with capacity of 15 million tons per year. Chevron will also build a processing plant onshore to supply Australian markets with natural gas.

Although production from Gorgon won't begin until 2015, and isn't needed to meet the 12% production growth target, the company still needs to execute successfully on the construction of this complex project to get production growth past 2014.

The Bottom Line
Royal Dutch Shell needs to successfully finish several large integrated gas projects in the Middle East and Australia in order to meet the production growth goals espoused at a recent analyst meeting. The company is making steady progress on these so far. (So you've finally decided to start investing, but what should you put in your portfolio? Find out in How To Pick A Stock.)

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