Shell Enters Multibillion Dollar Deal With Qatar

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 |  About: Royal Dutch Shell plc (RDS.A)
by: Zacks Investment Research

Energy major Royal Dutch Shell plc (NYSE:RDS.A) has entered into a memorandum of understanding with state-run Qatar Petroleum to jointly study the development of a multibillion-dollar world-class petrochemicals plant in the industrial city of Ras Laffan, Qatar.

As per the deal – signed in Doha by His Excellency Abdulla bin Hamad Al-Attiyah, Deputy Prime Minister and Minister of Energy and Industry of the State of Qatar, and Peter Voser, Chief Executive Officer of Shell – the companies will build a mono-ethylene glycol (“MEG”) facility with a capacity of up to 1.5 million tons per year using Shell's proprietary OMEGA (“Only MEG Advantaged”) technology. Together with other specialty chemicals, the complex will yield more than 2 million tons of finished products annually.

MEG is an important raw material for industrial applications, especially used to make polyester resins, films and fibers. Additionally, MEG is important in the production of antifreezes, coolants, aircraft anti-icer and deicers as well as solvents.

The Hague-based Shell, the largest foreign investor in Qatar, is already involved in the Pearl gas-to-liquids development and the Qatargas 4 LNG (“liquefied natural gas”) project – two of the largest initiatives in Ras Laffan – with Qatar Petroleum.

The estimated $6 billion project, which is expected to come online by 2016, will combine Shell's experience and technology with the ambition of the State of Qatar to unlock more value from its natural gas resources, increase its petrochemical production, and expand the downstream industries. Incidentally, the Persian Gulf nation owns the world’s third-largest gas reserves and is the world’s biggest LNG exporter.

Royal Dutch Shell – Europe's largest oil company by market value and ahead of BP plc (NYSE:BP) and Total SA (NYSE:TOT) – owns one of the largest integrated oil and gas businesses in the world. The group has operations all over the world and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources and other energy-related businesses.

Royal Dutch Shell ADRs currently retain a Zacks #3 Rank, which translates into a short-term 'Hold' rating. We are also maintaining our long-term 'Neutral' recommendation on the stock.