The project is expected to produce 1.5bcf of sales gas per day in the initial phase, which is anticipated to begin in 2012.
Stuart McGill, senior vice president of ExxonMobil, said, "We understand that the Barzan project is a priority for the State of Qatar." ExxonMobil, the largest oil company in the world and the biggest foreign investor in Qatar's energy sector, also has stakes in Qatar's huge Rasgas and Qatargas liquefied natural gas projects. McGill went on to say, "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." QP will hold 90% and ExxonMobil 10% in the Barzan project.
"The Barzan project is a very important strategic project for Qatar," said Abdullah bin Hamad al-Attiyah, minister of energy and industry and chairman of QP.
The news of the Barzan project came in the wake of the announcement that QP and ExxonMobil had collectively decided to abandon plans for a multi-billion-dollar Gas-to-Liquids (GTL) project. The project, which was to produce clean-burning diesel from natural gas, was to be one of ExxonMobil's biggest ever investments. According to al-Attiyah, the project was stopped because of the high costs associated with the GTL project. Costs for the required facility to process gas into refined products that are market ready, had risen to $18bn from an initial 2003 estimate of approximately $5bn.
Exxonmobil was not quite so unambiguous, "This decision to not progress with GTL is in line with our focus on maximizing the value of resources for both our host government as well as our shareholders," said an Exxon spokeswoman.
Other oil companies, including ConocoPhillips and Chevron, have also cut spending or delayed projects due to increased costs. "Costs for oil and gas development around the world are up 53% since 2004, and these rising costs are a top preoccupation of the industry," said energy analyst Daniel Yergin. "People are reprioritizing and everybody is going back to the drawing board on major projects."
As Jakob Thomasen, managing director of Maersk Oil Qatar, told OBG, "A project with low margins and unexpected high costs soon becomes a no margin project." Thomasen went on to say, "Perhaps we have reached a ceiling where costs are concerned, which is fine as Qatar needs time to digest its growth."
It is a true sign of the boom in Qatar that the sheer quantity of projects is causing shortages. A flood of gas projects in Qatar have inflated labour and raw material costs. This has been aggravated by rising costs internationally across an oil and gas industry striving to bring new capacity online to meet rapidly rising demand for energy.
Despite the challenges of rising costs, two days after ExxonMobil's announcement, Shell announced it was going ahead with its GTL project in partnership with QP, the largest of its kind in the world. The project price tag has crept up to $18bn, $10bn of which has already been allocated.
According to a company statement, the project, dubbed Pearl GTL, is anticipated to produce about 3bn barrels of oil equivalent over the lifetime of the project, which is expected to go onstream at the end of the decade. It covers offshore and onshore project development and operation, with Shell providing 100% of the financing.
The company announced production will start in 2010 and said the Pearl GTL is "not only the world's largest integrated GTL project, but also the largest energy project" in Qatar. Considering the North Field in Qatar has more than 15% of global proven gas reserves, it is easy to appreciate the scale of this project. "We intend to make Qatar the GTL capital of the world," Attiyah said.