(Updates with licence partner comment, analysts, project size)
By Balazs Koranyi and Joachim Dagenborg
OSLO, April 11 (Reuters) - Royal Dutch Shell hasdropped one of Norway's biggest and most innovative industrialprojects due to rising costs and complexity, dealing a blow to atechnology that some hope could revolutionise offshoreproduction.
Shell said on Friday it would postpone a project to providesubsea compression at the North Sea's Ormen Lange, thesecond-biggest Norwegian gas field, despite the objections of akey licence partner.
The decision will not be re-evaluated for several years,until new technology and reservoir information become available,Shell said.
Costs have soared in Norway's vast offshore oil sector overthe past decade, and oil firms are cancelling or delaying majordevelopments to save on costs and earn more cash for dividends.
Although Shell gave no cost estimate, a subsea compressionproject by Statoil at the Aasgard field is estimated tocost 15 billion crowns ($2.5 billion). Ormen Lange is morecomplex because waters are deeper and there would be no platformnearby to supply power and other equipment.
"The oil and gas industry has a cost challenge," OdinEstensen, chairman of the Ormen Lange Management Committee, saidin a statement.
"This, in combination with the maturity and complexity ofthe concepts and the production volume uncertainty, makes theproject no longer economically feasible."
Shell said it would not build a platform either given thecosts and its new analysis shows that compression was nottime-critical to the ultimate recovery of the field.
Petoro, the government's holding firm and the biggestshareholder in the licence, objected to the postponement, sayingthe project had already cost "several billions of Norwegiancrowns".
The move shows that "the major oil companies now are goingmeticulously through their portfolios and cutting the mostmarginal projects to limit their investment level", HaakonAmundsen, an analyst at ABG Sundal Collier, said.
"There have been six to seven similar delays now, so thiswould not come as a shock to anyone. This is a gas project withnew technology and production many years away, sometime in thefuture, so it is obviously vulnerable to high costs," he added.
Statoil has already delayed its $15.5 billion Arctic JohanCastberg projects and pushed back by one year the start-up dateof Johan Sverdrup, Norway's biggest oil find in decades.
Ormen Lange produces an equivalent of a fifth of Britain'sgas needs, and will eventually lose its natural pressure. Subseacompression was seen as a cheaper alternative to building aplatform.
A Shell spokeswoman said: "We are not giving up on offshorecompression at Ormen Lange, but we can't give any timeline (forhow long the postponement could last)."
Norwegian oil services firm Aker Solution designedand built the compression pilot project for the field, hopingShell and its partners would use the technology.
Subsea pumps could have squeezed more from the field andeliminate the need to keep workers offshore, but it is a new andstill untested technology.
Shell is the operator of Ormen Lange with a 17.8 percentstake, while Norway's state-owned Petoro has 36.5 percent,Statoil 25.4 percent, Dong Energy 14 percent and ExxonMobil 6.3 percent.
Shell said Petoro was the only partner against postponingthe offshore compression project.
($1 = 5.9186 Norwegian crowns) (Additional reporting by Nerijus Adomaitis; Editing by EricaBillingham and Dale Hudson)
