By Edward McAllister and Julia Edwards
NEW YORK, Dec 5 (Reuters) - Royal Dutch Shell saidon Thursday it has canceled a proposed gas-to-liquids (GTL)plant in Louisiana less than two years after the plan surfacedas costs rose and the company reins in spending.
The project, which would have converted natural gas todiesel, jet fuel and other refined products, was expected tocost more than $20 billion, a Shell spokeswoman said, up fromthe minimum $12.5 billion price tag estimated in September.
Converting natural gas to diesel looked like an attractiveoption last year when record high production pushed natural gasprices to decade lows. Expected increases in natural gas demandfor power generation and for export overseas has since helpedbolster prices.
Shell said it was now unclear if such a project, which hasproved a success in other parts of the world, would be feasiblein North America.
Shell already operates the Bintulu GTL plant in Malaysia,which opened in 1993, and the Pearl plant in Qatar, the largestone of its kind, which started full operations in 2012.
"Despite the ample supplies of natural gas in the area, thecompany has taken the decision that GTL is not a viable optionfor Shell in North America at this time," Shell said in astatement.
A glut of natural gas supplies in North America widened thegap between oil and gas prices last year, prompting the firstserious look at GTL technology in the United States.
South African energy firm Sasol is building a 96,000barrel-per-day GTL plant in Westlake, Louisiana, which isexpected to cost $11 billion-$14 billion.
But the price tag for its 140,000-barrel-per-day Louisianaproject proved too high for Shell, which is slowing spendingunder its incoming chief executive Ben van Beurden. Shellrecently canceled the $10 billion Arrow LNG project inAustralia, potentially in favor of a rival project.
Last year, U.S. natural gas prices fell below $2 per millionBritish thermal units, but they have since rebounded to above$4. Gasoline prices, meanwhile, are expected to fall threepercent next year, according to the Energy InformationAdministration.
"The trend seems to be convergent in that gasoline demandgrowth is not as strong...and natural gas prices will likely notstay low forever," said Anthony Yuen, analyst at Citigroup inNew York. "It is not that [natural gas prices and gasolineprices] will converge, but they will come in somewhat."
