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Natural Gas: Gas-to-liquids gaining ground in global gas market?

by Christina Nagy-McKenna, Enerdynamics Instructor

Gas-to-liquids (GTL) is a technology that chemically converts natural gas to a liquid synthetic fuel that can be used in place of diesel and jet fuels. The process is based on work done by scientists in the 1920s and the 1970s. While GTL can also produce other chemical feedstock, the primary commercial interest in this technology is the creation of transportation fuels.

For many years natural gas and crude oil prices moved in tandem with one another. If one went up or down, so did the other. Since 2009 when oil prices rose again after their spectacular rise and dramatic fall in 2008, natural gas prices have remained low. Analysts agree that the two fuels are now decoupled — they now move independently of one another. U.S. gas producers, flush in production from shale gas fields, have spent two years watching natural gas prices drop to levels not seen in a decade.

Although the U.S. imports liquefied natural gas (LNG), producers are now considering exporting LNG to Europe and Asia as gas prices there are much higher. GTL offers another way to monetize natural gas and get a piece of the more lucrative transportation fuels market instead of just a larger piece of the traditional end-user energy market.

 

How does it work?

GTL takes hydrocarbons such as methane-rich natural gas and converts them into longer-chain hydrocarbons such as diesel fuel. There are two primary processes:  Fischer-Tropsch and Mobile. Fischer-Tropsch was developed by two German scientists in the 1920s, while Mobile was developed in the mid-1970s. Fischer begins the process with the partial oxidation of natural gas (methane) into carbon dioxide, carbon monoxide, hydrogen, and water. The ratio of hydrogen to carbon monoxide must be adjusted and later the excess carbon dioxide and excess water are removed. This leaves a synthetic gas (syngas) that is reacted to in an iron or cobalt catalyst. The result is liquid hydrocarbons and other byproducts. 

The Mobile process converts the natural gas to a syngas, and then it converts the syngas to methanol.  It is then polymerized into alkanes over a zeolite catalyst. 

Where is it done today or being planned for tomorrow – and who is doing it?

The economics of GTL demand that the process take place in an area that possesses a large, long-term supply of

cheap natural gas.  Countries with high natural gas reserves and low marginal costs for natural gas such as Qatar, Nigeria, and Trinidad and Tobago are great candidates. 

There are several plants in place today:

  • Royal Dutch Shell owns and operates the world’s largest GTL plant, Pearl GTL in Qatar. It also produces diesel fuel from natural gas in Malaysia. 

  • SASOL, a South African company, has built a GTL plant in Qatar.


Photo: Storing liquid fuels in Qatar. Among its products, Pearl GTL will make diesel
equivalent to fill over 160,000 cars a day.
Photo courtesy of Shell Flickr album: http://www.flickr.com/photos/royaldutchshell/5552566092/in/set-72157623792015947

.

 

Known future plans include the following:

  • Chevron is partnering with the Nigerian National Petroleum Corporation to build a GTL plant at Escravos, Nigeria.  It is expected to begin operation in 2013.

  • Petrobras, a Brazilian company, intends to post two small experimental GTL plants off-shore. It would be cost prohibitive to build pipelines from the off-shore wells to on-shore GTL plants. Thus, the gas would otherwise be stranded.

  • Royal Dutch Shell is studying the feasibility of a plant in Louisiana.

  • SASOL is studying the feasibility of a plant near Lake Charles, La.

What are the economics of GTL?

The capital outlay for a GTL plant is enormous. The Pearl GTL plant owned by Shell has an estimated cost of U.S$18-$19 billion. Variable costs are unpredictable particularly for the natural gas that will be converted into liquid. For instance, while natural gas prices have been low for the past two years, the volatility of the market is dramatic.  In the past 12 years, gas has swung from $15/MMBtu to $2/MMbtu. The volatility makes it very difficult to forecast future prices. Operating costs and shipping costs must also be factored into the equation. Shipping costs are estimated to be the same as for oil tankers.

Could GTL work in the United States?

GTL could physically work in the U.S.  However, in order to work financially, a GTL processing plant would need to be located next to a source of natural gas that would remain cheap and stable for the next 20 years.  It is possible that a large shale gas field could provide such a stable fuel source, however we have no data from the modern era of natural gas that would support such stable market behavior. The U.S. Energy Information Administration (EIA) estimates that such stability would require natural gas to be in the range of $6/MMBtu as long as oil is hovering around $100/barrel. 

In comparison, when it reaches its peak in mid-2012, the Pearl GTL facility will process close to 1.6 Bcf/day of wellhead gas from the North Field in Qatar, the largest non-associated gas field in the world.  It will process the equivalent of 3 billion barrels of oil-equivalent during its useful life.  Pricing for gas from this field is expected to remain stable.

If so, how would it change gas and diesel markets?

The impact of GTL on transportation fuels is estimated to be very modest.  EIA forecasts that at least 1 million barrels of transportation fuel would need to be produced per day to have any meaningful impact on diesel prices.  Right now worldwide production of GTL is estimated to be a little over 400,000 barrels per day.

So, while the future for GTL is bright in some parts of the world, it remains to be seen if it will be meaningful to the U.S. market. Long-haul trucking is used to a great extent in the U.S., and diesel fuel accounts for nearly half of all vehicle fuels worldwide.  Developing countries also use diesel for buses in addition to trucks, thus GTL-produced diesel may well find a robust global market for its product.


References:

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