By Justin Scheck 

Royal Dutch Shell PLC said Wednesday that it has scrapped plans to build a big petrochemicals plant in natural-gas-rich Qatar, one of the first major oil-and-gas projects to be canceled after six months of plummeting oil prices.

The Al Karaana development, which Shell in a 2013 document called a "multibillion-dollar, world-class petrochemicals project," would have had "high capital costs rendering it commercially unfeasible, particularly in the current economic climate prevailing in the energy industry," Shell said in a prepared statement.

Big oil companies began pushing back projects long before the oil price began dropping last June. For the past few years, the costs of developing new fields and processing facilities have ballooned, in part due to a surge in activity that has prompted contractors to raise prices.

An analysis late last year by Bernstein Research found that big oil companies deferred or canceled more than two dozen projects in 2013 and 2014 as they tried to rein in capital spending. Shell in late 2013 dropped plans to build a Louisiana plant that would have turned natural gas into synthetic diesel. The company currently runs a similar gas-to-diesel plant in Qatar.

Fadel Gheit, an analyst at Bernstein Research, said oil project cancellations and delays would accelerate this year, as low prices were likely to force Shell and its rivals to take on more debt and cut spending to pay dividends. Projects that "were supposed to be beginning construction next year, they will definitely be pushed back," he said.

The Al Karaana plant was supposed to be a big moneymaker when Shell and Qatar Petroleum signed a deal in 2011 to move ahead with it. Qatar has cheap and plentiful natural gas, and Shell has the technology needed for building large-scale plants that can process it into various industrial chemicals.

In 2013 promotional documents, Shell said the plant would produce chemicals that would be "very significant for Qatar's petrochemical industry expansion." Shell and Qatar Petroleum said they hired a contractor to do initial engineering work. The plant was to have been run by a joint venture 80% owned by Qatar Petroleum and 20% owned by Shell.

Mr. Gheit said that while other processing or refining projects could be delayed, he expects most of the development cost-cutting to affect exploration and production, where the biggest oil companies spend most of their capital investment.

Write to Justin Scheck at justin.scheck@wsj.com

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