By MOHAMMED ALY SERGIE

Qatar Petroleum and Royal Dutch Shell called off plans to build a $6.5 billion petrochemical plant in the emirate, saying the project is no longer commercially feasible amid the upheaval in global energy markets.

The companies formed a partnership for the Al-Karaana project in 2011 and planned to operate it as a joint venture, with state-run QP owning 80% and Shell the remaining 20%. They decided not to proceed after evaluating quotations from bidders for engineering and construction work, the companies said today in a joint statement.

The expected capital cost of the petrochemical complex planned in Ras Laffan industrial city “has rendered it commercially unfeasible, particularly in the current economic climate prevailing in the energy industry,” they said.

Al-Karaana is the second petrochemical project in Qatar to be canceled in recent months due to unfavorable economics. Industries Qatar, the state-controlled petrochemical and steel producer, halted plans to build a $6 billion plant in September.

Qatar, an OPEC member and the world’s biggest exporter of liquefied natural gas (LNG), is seeking like other energy producers in the Persian Gulf to diversify its economy away from oil and gas exports by building factories to make petrochemicals, aluminum and steel.

“The region is beginning to reduce its capital expenditure for petrochemical and hydrocarbon expansion, and that is expected given that oil prices have plunged,” said Riyadh-based John Sfakianakis, Middle East director at Ashmore Group.

Brent crude, a benchmark for more than half of the world’s oil, has tumbled 56% in the last 12 months and was trading below $47/bbl today in London.

Some projects were in planning when oil was over $100/bbl and may have to be “scaled down” as a result of lower prices and a potential petrochemicals glut, Sfakianakis said. Saudi Arabia’s $19.3 billion Sadara Chemical Co. is among other petrochemical projects being built in the region.

“Qatar is right to take a view of how the supply side will look over the medium term,” he said. “Some of theseprojects will be reconsidered when oil prices rise and there is more excitement about the sector.”

Qatar Petroleum will study how to use ethane feedstock that was earmarked for Al-Karaana in existingpetrochemical plants operating in the country, QP said in a separate statement.