Spiraling costs have made a planned gas-to-liquids plant unfeasible.
Qatar Petroleum and Exxon Mobil Corp. have dropped plans to build a gas-to-liquids plant in Qatar due to spiraling costs and will turn their attention to developing part of the country's huge North gasfield.
Qatari Energy Minister Abdullah al-Attiyah said other projects in Qatar were not under threat and ground would be broken on Thursday for a multi-billion-dollar GTL plant with Royal Dutch Shell.
Costs for that facility, which processes gas into refined products that are market-ready, have risen to as much as $18 billion from a 2003 estimate of around $5 billion. The Exxon/QP GTL scheme, signed in 2004, had an initial budget of $7 billion.
Exxon executives in Qatar and a spokeswoman in the United States declined to say how high costs had risen for the plant which was to have churned out 154,000 barrels per day.
"GTL technology is expensive and very technical," Attiyah said. "Technology for the other projects is proven ... No other projects are under threat."
GTL plants process gas into clean oil products like low sulphur diesel, demand for which is growing on the back of tougher limits on emissions.
QP has offered Exxon a role in the development of the Barzan gasfield, part of Qatar's North field - the largest reservoir of non-associated gas in the world. QP also offered Exxon rights to participate in any future development at Barzan.
Attiyah said it was too early to estimate the development cost of Barzan, which will pump 1.5 billion cubic feet per day of gas from 2012 to meet demand from the country's rapidly growing domestic market.
"We need the gas," he said.
Exxon's Qatar country manager Alex Dodds said the Barzan cost would be similar to the company's al-Khaleej gas project, also at the North Field.
He did not say whether he was referring to the first stage of the project, which cost $1.1 billion, or the more expensive $3 billion second phase.
"We are pleased to have been the only international oil company selected to participate in the Barzan Project and look forward to continuing our successful partnership with Qatar Petroleum," said Stuart McGill, Senior Vice President of Exxon, in a statement released in the United States.
A flurry of gas projects in Qatar have inflated labour and raw material costs, exacerbated by rising costs globally across an oil and gas industry straining to bring new capacity online to meet rapidly rising demand for energy.
Other oil companies, including U.S. oil majors ConocoPhillips and Chevron, have also cut spending or delayed projects due to the increased costs.
"It's hard to say that Exxon is losing out," said Lysle Brinker, an analyst with John S. Herold in Maine, who noted that in terms of overall production the two projects are quite close.
"You have to take Exxon and Qatar at their word that the project is too costly," Brinker said. "Exxon is not going to throw money away - that's their long term record."
Exxon Mobil, the biggest foreign investor in Qatar's energy sector, also has stakes in Qatar's huge Rasgas and Qatargas liquefied natural gas projects.
Qatar is home to the world's third largest gas reserves after Russia and Iran.
Shares of Exxon Mobil fell 47 cents to $74.82 on the New York Stock Exchange on Tuesday.