Shell Delays Project to Boost Ormen Lange Gas Output on Costs

Royal Dutch Shell Plc (RDSA), Europe’s biggest oil company, postponed a project designed to recover more natural gas from its Ormen Lange field offshore Norway, citing higher costs and doubts on reserves.

“The oil and gas industry has a cost challenge,” Odin Estensen, chairman of the Ormen Lange Management Committee, said in a statement posted on Shell’s website. “This, in combination with the maturity and complexity of the concepts and the production volume uncertainty, makes the project no longer economically feasible.”

The decision to delay the compression project was supported by partners Statoil ASA (STL), Dong Energy A/S and Exxon Mobil Corp. (XOM), with the exception of Norway’s state-owned Petoro AS, according to the statement. The partners remain committed to maximizing recovery at Ormen Lange “in a sustainable manner,” said Shell, the operator of Norway’s second-largest gas field.

Shell and other oil companies including Statoil are cutting spending amid rising costs and stagnating oil and gas prices. The decision to postpone the project at Ormen Lange, which delivers as much as 20 percent of the U.K.’s gas consumption, comes as the standoff between Russia and the European Union over Moscow’s annexation of Crimea has raised concerns over gas supplies to Europe.

Norway is western Europe’s largest oil and gas producer.

Shell said in a letter in February to the Norwegian government that a tax increase last year on oil and gas will make the project less profitable. Prime Minister Erna Solberg this month warned oil companies against “unacceptable” delays to increased-recovery projects, saying they risk damaging the goodwill they enjoy from the government.

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Jonas Bergman, Alastair Reed

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