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Qatar project hit by soaring costs

Shell to look at rising material and manpower outlay before a final decision on Qatar GTL plan

The incredible price of crude has begun hurting the hydrocarbon industry itself. Rising material costs and a tight, contracting industry has taken its toll on the Shell gas-to-liquids (GTL) project in Qatar, where the Anglo-Dutch company said it will look carefully at rising costs before making a final decision on the project outlay.

The Shell GTL project is a US $6 billion, 140,000 barrels per day GTL plant that was planned to start in two-stages, with the first one coming onstream in 2008-2009, and the second two years later. “There will be a very thorough and in-depth look at what the whole cost escalation means for this project,” CEO Jeroen van der Veer said. “We have to think about what it means.”

“We are at the pre-financial investment decision stage — we hope that we can take a decision this year,” he told Reuters, without saying by how much project costs had risen or at what level they would become prohibitive. GTL projects are not the only ones affected, as the rising cost of steel is making drilling more expensive. Also labour for the Middle East oil industry comes from South Asia, where domestic infrastructure development is booming, making the Gulf region less attractive.

Though the entire industry is said to be facing the problem, Qatar seemed to be the hardest hit last year, where a sudden surge of activity in the first half of 2005 pushed Doha ahead of Dubai as the region’s hottest construction spot in terms of construction costs. By May 2005, construction costs in Qatar had risen by 35% since December of the previous year. While prices rose in other markets as well, Qatar was the only country to have seen universal inflation across all of its construction costs, from the price of cement through to professional salaries, according to a survey carried out by UK cost consultants David Langdon, last year. Steven Coates, UK cost consultant, Davis Langdon’s Gulf director has said: “The thing that stands out in the region is what is happening in Qatar. The fact that Doha is sitting on 900 years of gas reserves has triggered a sudden construction boom that is pushing up prices.

“Concrete providers in Qatar charge more...because there is no competition in the country. It is due to a combination of state-owned monopolies controlling production and restrictions on imports.”

Qatar energy minister, Abdullah bin Hamad Al Attiyah has repeatedly said that some projects may need to slow down.
He has said the energy industry itself was driving up the prices, and the demand needed to be damped before the country embarked on any more large-scale projects.

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