Shell Australia company chairman, Dr Alan Parsley, said an investigation into building a second generation Shell middle distillate synthesis (SMDS) plant in Australia had not produced a commercial project. The plant would have produced about 70,000 barrels per day of clean diesel for transport.

Shell said the first plant would most likely be built in Qatar however Australia would be considered for the third or fourth SMDS plant and would benefit from the experience gained in Qatar.

Dr Parsley added Shell had an interest in supplying gas to the two alternative Australian gas-to-liquids project with Sasol Chevron negotiating to take Gorgon gas in which Shell has a 28 per cent stake and the British group, Syntroleum, which will take its gas from the North West Shelf Gas project, in which Shell is part owner.

In other Shell news, senior executives from Shell Australia have warned unless the company improves its performance, head office in Holland would be entitled to question the value of remaining in Australian refining and marketing.

Shell normally requires its worldwide business units to produce a 15 per cent return on capital however Shell Australia's refining and marketing operation last year produced a loss of $88 million, which represents a return on capital of negative 3%.

The Australian refinery operation was producing a margin of about 2.2 cents a litre above production costs while Shell needed a margin of about 6c a litre to remain comfortable about staying in business.

While downstream operations continue to hurt Shell's bottom line, upstream operations helped the company to a billion dollar profit, although the result was 23% lower than the $1.29 billion earned a year earlier.

The company put the strong result down to steady crude oil prices and better than expected liquefied natural gas and domestic gas sales.