ExxonMobil Shelves Qatar Gas-to-Liquid Project in Favor of Natural Gas

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Includes: RDS.A, XOM
by: SA Eli Hoffmann

ExxonMobil Corp. and Qatar Petroleum announced Tuesday they were abandoning their joint gas-to-liquids project that sought to produce clean diesel from natural gas, instead focusing on providing natural gas to Qatar. The new project, Barzan, will concentrate on a drilling setup in Qatar's rich Barzan field. While the details were vague, Exxon didn't deny that higher-than-expected costs were a factor in its decision. Jeanne Miller, Exxon spokeswoman: "This decision to not progress with G.T.L. is in line with our focus on maximizing the value of resources for both our host government Exxon 21 02 2007 Chartas well as our shareholders." Qatar has attracted GTL investments because of its large NG reserves and friendly stance towards energy companies. Costs for oil and gas development are up 53% since 2004, causing producers to reprioritize many major projects. Royal Dutch Shell, which owns the #2 GTL project in Qatar, said Exxon's decision will not impact its plans; its Pearl plant is slated to produce 140,000 barrels/day of diesel and byproducts by 2009. GTL has been favored by energy producers because it can be transported and sold using existing equipment and stations, unlike other unconventional fuels.

Sources: Press Release, ExxonMobil Q4 2006 Earnings Conference Call, New York Times, BusinessWeek
Commentary: Sasol and the Liquid Coal RevolutionSyntroleum Corp: Tremendous Technology, Tremendous Risk
Stocks/ETFs to watch: ExxonMobil Corp. (NYSE:XOM), Royal Dutch Shell (NYSE:RDS.A). Gas/coal to liquid players: Syntroleum Corp. (NASDAQ:SYNM), Rentech Inc. (NYSEMKT:RTK), Sasol Ltd. (NYSE:SSL). ETFs: PowerShares WilderHill Clean Energy ETF (NYSEARCA:PBW), PowerShares WilderHill Progressive Energy ETF (NYSEARCA:PUW)
Related: In its Q4 2006 Earnings Conference Call on Feb. 1 2007, XOM VP Henry Hubble told investors regarding the Qatar GTL project: "There are cost pressures, no question about that. We are working very hard on the concept of development with the Qatarries and what we have found in all of these projects is the real focus -- you have to get that development concept right or you lose it. And so that -- we're spending the time to get that concept right, and so when we're ready to go forward from there, we will let you know, but we are still optimistic about it."

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