Being given a personal tour of the UK/Dutch Shell Group’s hi-tech Pearl gas-to-liquids (GTL) programme is a little like trying to negotiate a maze. Even Andrew Brown, managing director of the project and Shell’s Qatar country chairman, struggles at times to get his bearings while driving around the enormous site. He freely admits that although he visits the Ras Laffan site once a week, it is growing faster than he can keep up with.

“It is one of the biggest construction sites in the world,” Brown tells MEED as he overlooks the final touches being made on one of the site’s labour camp recreation areas. “We have got about 25,000 working on the site [and] it is still early days in terms of construction productivity.”

Pearl is by far the biggest GTL plant ever constructed, surpassing the 34,000-barrel-a-day (b/d) Oryx facility at Ras Laffan and, at 140,000 b/d, 10 times the size of Shell’s only other facility, in Malaysia.

Increasing costs

The cost is also big, with the original $5bn budget increasing almost fourfold to nearly $20bn, according to some estimates. Just two years ago, the sharp increase in costs led to speculation that the client could defer or even cancel the project, with Shell forced to write a letter to all its prospective contractors and suppliers reassuring them that the project was proceeding on track.

Brown, however, says the most recent $12-18bn forecast is still accurate. “We tend not to say anything on project costs and are broadly in line with budgets,” he says. “That is not because Pearl has a cost issue but because we are not saying anything on project costs within the Shell group.”

While the economics of the project may seem less weighty in an era of record oil prices, working for a large corporate ensures Brown cannot afford to relax. “A budget is a budget,” he says. “It is a lot of money. We have a large capital programme in Shell and we are very much held to account to meet our targets. There is certainly no attitude of ‘it does not really matter because oil is $126 a barrel’.”

One step Shell took early on to mitigate contractor risk was to change its contracting strategy during the initial phases of the project. The original plan was to let just one engineering, procurement and construction (EPC) contract for the entire onshore works. But with cost inflation on the rise, Shell’s decision to shelve a bulk contract in favour of dividing the different elements into smaller EPC packages with the US/Japanese joint venture of KBR and JGC managing the core element has proved a smart move.

“I go around the site and see all the international contractors doing their stuff and bringing in their resources and their management skills, and you look around and think, in today’s market could one contractor have done that?” says Brown. “The answer to that would be no. Not only would it have been too much of a financial risk, but [there is also] the sheer number of resources it requires.”

Brown may be referring to some of the cost issues that have challenged several contractors, including Chiyoda, in other parts of Qatar’s gas industry in recent months.

Missing targets

Along with France’s Technip, Chiyoda made a claim for about $700m to Qatar Liquefied Gas Company (Qatargas) earlier this year because of spiralling costs as a result of missed targets. The massive inflation complications on the project were the first tangible sign in the Middle East energy sector of the enormous risk surrounding lump-sum turnkey contracts because of rising materials costs.

Brown agrees that a combination of contracting methods have proved suitable for Pearl. “[To] separate out the GTL utilities as reimbursable or EPCM [engineering, procurement, construction and management] was the right thing to do because that is where the proprietary technology sits and utilities tie everything together,” he explains.

“[We kept] the basic things like feed gas processing, the refinery part, water treatment, air separation unit, the tanks and the buildings as a separate lump sum, which are more conventional types of technologies and much more standalone.”

On such a large project, worker productivity and training is crucial to hitting targets. Brown admits it will be a challenge to deliver on schedule. “We acknowledge that productivity is the key to construction and driving productivity is the key to success,” he says. “Across the Middle East, that has been something contractors have struggled with to get to planned productivity levels.

“It is an essential theme for us and is one we are working on with all of the contractors ahead of time. We are not waiting to get halfway through construction to say ‘oh, productivity is not very good’. Ultimately, it is all about resources, skilled workers and equipment, as well as good organisation and work methods.”

He insists that linking payments to contractors is standard for any deal that is signed in the construction industry.

“We will have payments against milestones and damages against late delivery,” he says. “It is one of those things that no one can argue with when you say you want to drive productivity, [and] it is in their [contractors’] interests as well to get good productivity.”

Shell was one of the last international oil companies (IOCs) to receive permission for a gas project in Qatar. Qatar Petroleum (QP) attempted to take some of the heat out of the market by announcing, in 2005, that three ‘uncommitted’ GTL projects had been put on hold while a study was completed on the North field reservoir.

Intense interest continues to surround the results of the North field study, especially as the initial 2010 completion date looks to have slipped to 2013 (see feature, page 32). Brown gives few clues away about Shell’s own drilling programme in the reservoir, except to say it will continue to hit targets.

“We have 22 wells and are absolutely bang on schedule with drilling, and I can say we are very pleased with our drilling performance,” he says. “I think we are quite positive with the results we have from the reservoir.”

He also reinforces the message of why the moratorium was originally imposed, given the huge ramp-up in output from the field. “You have to recognise that the field is producing about 9 billion cubic feet a day (cf/d) at the moment and it is going to go to over 20 billion cf/d by the time we are on stream [in 2011],” he says. “That is a big increase. It is important for QP to see how the field responds to the higher offtakes.”

On the technology side, Brown is also confident in Pearl’s ability to hit production of 140,000 b/d. He says Shell’s existing Bintulu GTL plant in Malaysia has been operating for 15 years, albeit at a fraction of the size of Pearl.

“Essentially, we have done more replicating rather than scaling up,” he says. “So it [Pearl] may be 10 times more production, but we have six times more reactors. The reactors are a bit more productive, run at slightly higher pressures, but the scale-up is otherwise modest.”

He also dismisses concerns raised by the neighbouring Oryx GTL plant at Ras Laffan, which revealed in May last year that it was operating at only a third of its expected 34,000 b/d capacity because of technical problems.

The project developer, a joint venture of state-owned QP (51 per cent) and South Africa’s Sasol (49 per cent), blames the problem on the build-up of fine material produced during the GTL conversion process, constraining the plant’s overall output.

“What happens on their plant they like to keep to themselves and I think fundamentally it is a different process,” says Brown. “Shell uses a fixed-bed reactor for the synthesis, while Oryx uses a slurry bubble column-type reactor for the synthesis process. They have quite a significant scale-up and we have a very modest scale-up. Although it is interesting and important for the GTL business, it is not something that we think necessarily will have a direct learning for us.”

Brown says his focus remains on driving productivity at Pearl and hitting the company’s ambitious two-pronged deadline target. “It is phased between 2010 and 2012 – and we hope to get to 140,000 b/d by 2012,” he says. “Most contractors have done a really good job and given themselves the best chance of success.”

With one of Shell’s biggest global energy investments weighing on his shoulders, all eyes are on the Pearl project and Brown’s ability to deliver.