Shell, Anglo to Delay A$5 Billion Clean Fuels Project

By Angela Macdonald-Smith

Dec. 2 (Bloomberg) -- Royal Dutch Shell Plc and Anglo American Plc have delayed plans to develop a A$5 billion ($3.2 billion) project in Australia to convert coal into clean fuels, citing higher costs.

The partners will extend studies into the proposed plant rather than move forward toward development, Roger Bounds, project director at the Monash Energy Holdings Ltd. venture, said in an e-mail. They still believe coal-to-liquids provides a ``long-term'' opportunity for the brown coal resources in Australia's Victoria state, he said.

The decision makes the Monash Energy plan the latest low- emissions energy project to be delayed or scrapped even as Resources Minister Martin Ferguson promotes their development to increase energy supplies while cutting greenhouse pollution. Santos Ltd. and General Electric Co. last year canceled a low- emissions venture in Queensland, while BP Plc and Rio Tinto Group in May dropped a plan to build a carbon capture power plant.

``This is a commercial decision of the joint venture,'' Ferguson said in an e-mailed statement. ``The project is still at pre-feasibility stage and at that stage of any project it is not uncommon for the study period to be extended.''

The Monash Energy initiative was the first to be nominated for development under a clean coal energy alliance formed in May 2006 between Europe's biggest oil company and the world's fourth-biggest diversified miner.

`Long-Term Opportunity'

``Monash Energy and its owners Shell and Anglo American believe that, in the long term, coal-to-liquids may provide an opportunity for Victoria to provide domestically produced clean liquid fuels for Australia and international markets,'' Bounds said in an e-mailed response to questions. ``However, at this stage, critical requirements for the project are not yet in place.''

Bounds declined to comment specifically on the issues that led to the decision to extend studies rather than start detailed engineering and design work. Such projects require a number of elements to proceed, including technology, government support and certainty about the capital and energy price outlook, he said by telephone.

Peter Batchelor, energy and resources minister in Victoria state, in August last year put the cost of developing the project at A$5 billion. Bounds declined to confirm the cost estimate or quantify the escalation of costs. Monash and its parent partners don't regard the project as having been put on hold, and a final decision to approve the investment was always going to be ``some time in the future,'' he said.

Carbon Capture

The partners have so far spent more than A$25 million on studying the viability of the project and will continue to assess ``on a regular basis'' the potential for moving it forward, Bounds said.

The Monash project involves converting brown coal from Anglo's deposits in the Latrobe Valley 160 kilometers (99 miles) east of Melbourne into synthetic gas for processing into zero- sulfur synthetic diesel. Carbon dioxide emitted during the process would be extracted in a concentrated stream for transport to underground injection wells using a carbon capture and storage technology.

``Monash Energy, like other companies, needs to ensure its coal-to-liquids project stacks up economically and environmentally, particularly with a price on carbon emissions and the global financial uncertainty,'' Emma Tyner, a spokeswoman for Batchelor, said by e-mail. The Victorian government believes the final design of the nation's proposed carbon trading system will ``provide more certainty to the industry,'' she said.

More Funding

In submissions to government policy reviews, Monash has been calling for greater funding from the Australian government for carbon capture and storage projects and for exemption from the proposed carbon trading system, due to start in 2010, to help boost project economics.

Shell and Anglo are among eight companies that last week joined as founding members of Australia's A$100 million carbon capture and storage institute aimed at accelerating low- emissions power generation. Brown coal, the primary energy source in Victoria state for electricity production, emits more greenhouse pollution when burnt than the black variety.

Australia's trade deficit in oil and refined fuels reached a record A$12.5 billion in the year ended Sept. 30, EnergyQuest, an Adelaide-based consulting firm, said yesterday.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net