Royal Dutch Shell (RDS.A) Ditches Plans For Louisiana Super Plant Amid Rising Costs

Energy giant Royal Dutch Shell plc (NYSE:RDS.A) has shelved plans to build a $12.5 billion natural gas-to-diesel conversion plant in Louisiana, citing high costs that ballooned the price to about $20 billion and drove down expected profit margins.

The plant was supposed to be built in the state's Ascension Parish and would have created 740 permanent jobs with salaries of around $100,000 plus benefits. The loss to the local economy is even greater, as the facility would have created a further 3,900 indirect jobs once built and around 10,000 jobs during construction, according to LSU's economic impact study.

Shell CEO Peter Voser said, “We are making tough choices here, focusing our efforts and capital on the most attractive opportunities in our worldwide portfolio to add value for shareholders.”

The company said in September that there was no guarantee that the facility would be built and it would be a few years before a final decision would be made, but with new estimated costs hitting $20 billion, the company decided to pull the plug early.

"It’s somewhat disappointing and we did anticipate that this might happen," said Ascension Parish President Tommy Martinez. "From a business standpoint it didn’t make sense for them, but we already have $5 billion worth of projects going on here and we do appreciate Shell. We’re alive and kicking and it’s not the end of the world."

Louisiana had offered Shell a $112 million grant to help land acquisitions, road improvements and other infrastructure costs. In addition, the plant would have been eligible for Louisiana’s Competitive Projects Payroll Incentive Program, which offers a 12 percent rebate on every job created, and it would have also qualified for the state’s Industrial Tax Exemption Program, which would have meant 10 years without paying property tax.

In spite of the cost savings, Shell decided that in would have not made enough profit on the project.

The plant would have been the first of its kind in the United States. A similar plant that exists in Qatar cost Shell in excess of $20 billion.