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Royal Dutch Shell's (NYSE:RDS-A) widely reported decision to end its role in a gas project in Qatar threatens the Gulf state's dominance in the production of liquid natural gas (LNG).

In 2010, the British energy giant had signed a contract with the state-owned Chinese company PetroChina and with Qatar Petroleum (QP) to drill two wells as part of a five-year project to explore for gas in the North Field, part of the Pre-Khuff formation off the coast of Qatar.

Shell owns a 75 percent share of the initiative and PetroChina holds the remaining 25 percent.

In 2013, however, one Shell well in Block D of the field came up dry, although Qatar had promoted it as a rich source of energy. As a result, Shell decided against even beginning a second exploratory well, anonymous sources told The Wall Street Journal.

Similar, independent reports were carried by and the Gulf Daily News.
One Qatari official told The Journal, "Shell made it clear that the second well is not going to be commercially viable and they want to get out of the acreage by next year, if not earlier."

A person identified by The Journal only as a Shell spokesman said the first well had reached the depth planned to explore for gas, but "it did not encounter commercial volumes of hydrocarbons." Now, he said, Shell is negotiating with QP and PetroChina on how to withdraw from the venture without drilling the second well.

The reported withdrawal is bad news for Qatar, which is now the world's largest producer of LNG, a status that's given it the world's greatest wealth per capita. The news is equally bad for QP, which was to have shipped the LNG to customers around the globe.

Shell and PetroChina aren't the only foreign energy companies that are contractually obliged to explore for gas in the Pre-Khuff formation. Others include GDF Suez of France, JX Nippon of Japan and a second Chinese company, CNOOC.

The chief of consulting at Manaar Energy in Dubai, Robin Mills, told The Wall Street Journal that these companies also had had disappointing results in their exploratory drilling, and a second Qatari official told the newspaper that his country fears Shell's withdrawal could prompt them to reconsider their commitments.

Mills said Qatar might have to scramble to find new LNG projects. Otherwise, he said, "while Australia, North America, East Africa are expanding in LNG, [Qatar's] share of the market will fall."

These poor results aren't good news for Shell, either. The company has so far done well in Qatar, and invested $20 billion to build a huge LNG export plant and a modern facility, named Pearl, to convert gas to LNG.

As a result, it's unlikely that Shell is pulling out of Qatar altogether, an anonymous official told This source said it would keep working on other projects in the country.

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Written by Andy Tully at

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