‘Watch what we do, not what we say': Shell cancels U.S. gas-to-liquids plant

When civil rights advocates grew restless because of President Richard Nixon’s right-wing rhetoric on the issue of desegregation, then-Attorney General John Mitchell told them, ”Watch what we do, not what we say.”

Those following the hype over America’s supposed newfound abundance of oil and natural gas would do well to follow that advice when evaluating what oil and gas company executives and their surrogates say.

When Royal Dutch Shell pulled the plug on its U.S. gas-to-liquids project recently, the company offered the same explanation it used when it shut down its oil shale project earlier this year: Shell sees better opportunities elsewhere. This explanation–much like the I’m-resigning-to-spend-more-time-with-my-family explanation–tends to deflect questions about why things aren’t working out.

What’s not working out for Shell is a planned $20 billion plant in Louisiana designed to turn natural gas into diesel, jet fuel, lubricants and chemical feedstocks, products typically produced by oil refineries. The plug was pulled, however, while the project was still in the planning stage.

Shell did actually say a little more about why it is abandoning the project in this almost inscrutable piece of corporate prose:

Despite the ample supplies of natural gas in the area, the company has taken the decision that GTL is not a viable option for Shell in North America, at this time, due to the likely development cost of such a project, uncertainties on long-term oil and gas prices and differentials, and Shell’s strict capital discipline.

Now, here’s the same paragraph translated into simple English:

The plant is going to cost a lot more to build than we thought it would. Natural gas prices are going up and could easily make it uneconomical to produce diesel and jet fuel from natural gas when compared to making them from oil. And, we don’t have unlimited funds to spend on everything we think of just to see if it works.

Shell CEO Peter Voser has voiced doubts about the so-called “shale revolution” in the United States (which refers to advances in drilling technology that have opened previously inaccessible shale deposits of natural gas and oil to exploitation). In fact, Shell took a $2.1 billion write-down on its shale assets in the United States. In lay terms, the company had to reduce the value of those assets on its balance sheet to reflect reality. The company also sold small tight oil fields related to shale deposits, fields that it no longer wishes to develop.

Voser said he still believes Shell’s remaining $24 billion investment in U.S. shale gas and tight oil will “be a success story for Shell.” Three-quarters of that investment is devoted to natural gas from shale. But, Voser added that the potential for natural gas and oil from shale elsewhere in the world has been “a little bit overhyped” citing concerns specifically about Europe.

Now, because this rhetoric is coming from an oil industry CEO, we can assume that he is walking the line between saying things which will get him removed from the invitation lists of his fellow oil executives’ cocktail parties–things otherwise known as the awful truth–and misrepresenting the facts to shareholders, which would get him into trouble in other ways.

But abandoning the gas-to-liquids plant speaks much more loudly than Voser’s actual remarks. It means Voser expects that natural gas prices simply won’t stay low long enough to make such a huge investment pay off. And, that means that he doesn’t believe the hype about an ongoing glut of U.S. natural gas.

So, Voser directs Shell to abandon a gas-to-liquids plant, the profitability of which would be destroyed by high prices for the natural gas which the plant must purchase. At the same time, he has Shell retain most of its shale gas wells, a move which only makes sense if he expects U.S. natural gas prices to go higher. And, those prices will only go higher if there is increased demand or reduced supply, or a combination of both.

It’s not hard to figure out the meaning of what Peter Voser is doing. But it is understandably difficult to shut out the constant din of abundance stories sponsored by the industry and its well-financed public relations machine–that is, until you understand that it’s not what the industry says that’s important, but what it actually does.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

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2 Responses to ‘Watch what we do, not what we say': Shell cancels U.S. gas-to-liquids plant

  1. Chuck Raybon December 24, 2013 at 11:04 am #

    It is understandable that someone in the know would realize the futility of producing another GTL facility and adding increased burden on an already fragile distribution system. While it is true that America has huge sources of natural gas reserves in its shale fields the ability to recover them is billions of dollars and years worth of effort away. As an example, if a wellhead is one mile from a pipe line (which very few are that close) then it would cost over $300,000 just to get it connected. If you couple this with; the huge push on converting power plants from coal to natural gas; converting vehicles from gasoline and diesel to natural gas; and the existing efforts by other GTL facilities exporting liquefied Natural Gas, the ability of the natural gas industry to maintain its current pricing levels is unrealistic. Shell has done what it always does, protect the bottom line for the share holders. I think if someone took a closer look into the shale holdings that Shell off loaded verses the ones that they kept, I think they would find that Shell kept the ones closest to an existing pipeline infrastructure and off loaded the more costly remote ones. That’s just my guess.

  2. freedomev December 24, 2013 at 2:41 pm #

    Let’s remember that in 20 yrs oil will be too costly to burn and so many other fuel sources for much less will be available, even made by the consumer.

    Facts are by the time you pay for all the FF greed, it costs too much.

    For instance current well shopped PV, sunelec, can be done at $2/kw now making 40,000kwhrs each kw comes to about $.04/kwhr or $1.32/gal gasoline energy equivalent along with other simple energy catchers, makers.

    Once everyone figures this out, and it’s already started, both US utilities and FF sources are going to shrink. In fact shrink enough so we’ll be energy independent in 10 yrs because it’ll be so much lower cost.

    And let’s not forget it was the head of Shell’s oil exploration unit that predicted peak crude oil and happened just as they said. Remember it was for conventional crude, not tight, syn, NGL, etc.

    And I bet he has seen the writing on the wall that in the 10 yrs to get the GTL built it’ll only have a 10 yr life before FF’s get priced out of the market, rendering it useless.

    Also multiple tech’s are making NG/NGL wellsite to gasoline/diesel converters are coming on the market now to make stranded NG viable and stop flaring off ethane, etc.

    As for supply they could have just bought enough NG fields now to cover it’s needs so that is just an excuse.