Shell Exits Abu Dhabi's Bab Gas Project as Oil Slump Takes Toll

  • Venture doesn't fit with strategy in current price environment
  • Company has previously canceled projects in Alaska, Canada

Royal Dutch Shell Plc exited a natural-gas project in Abu Dhabi as the decline in energy prices deepens.

Europe’s biggest oil company won’t develop the Bab sour-gas reservoirs with state-run Abu Dhabi National Oil Co., or Adnoc, Shell said Monday in an e-mailed statement. The project “does not fit with the company’s strategy, particularly in the economic climate prevailing in the energy industry,” it said.

Energy producers are canceling or delaying projects, taking billions of dollars of writedowns and cutting thousands of jobs as the crude-price slump forces them to trim spending. About $380 billion of investments have been deferred to early next decade as companies go into survival mode, according to industry consultants Wood Mackenzie Ltd.

Shell’s exit from the sour-gas project follows its decision last year to abandon drilling in Alaska after failing to find commercial qualities of oil. The company also shelved the Carmon Creek oil-sands project in Canada in October.

Adnoc picked Shell as its partner at Bab in 2013, giving the Anglo-Dutch company a 40 percent stake in the onshore field about 150 kilometers (90 miles) southwest of Abu Dhabi city. The project was scheduled to begin gas sales in 2020.

Sour gas typically contains high amounts of hydrogen sulfide, which needs to be removed before the fuel can be burned. That process can drive up costs.

Shell’s relationship with Adnoc remains “very good,” Andrew Vaughan, Shell’s vice president for Abu Dhabi, Kuwait and Syria, said in an interview in Abu Dhabi. "We are still interested in the Adco concession,” he said.

Shell said in November that talks continued with Abu Dhabi about taking a stake in Abu Dhabi Co. for Onshore Petroleum Operations, a unit of Adnoc focused on onshore oil fields.

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