The success of Shell’s Pearl gas-to-liquids (GTL) project – which last year completed its first full year of production – has re-ignited interest in a technology that converts natural gas into premium liquid products, such as synthetic diesel, kerosene and naphtha. Not surprisingly, the wide differential between oil and gas prices in North America has shifted people’s focus from Qatar, currently the “GTL capital of the world”, to Canada and the United States. But getting projects to happen in North America is taking longer than was initially anticipated.
When Shell took its final investment decision on Pearl GTL back in 2006, the price of crude oil was around $65/barrel. In 2009, when Shell arranged a visit for investment analysts, to show them the construction site and go through the project’s economics, the price of oil was down to $62/barrel. Shells' presentations to the analysts indicated that at oil prices of $50/barrel and $70/barrel, the plant would make a healthy return on investment. In 2012 the average Brent crude price was $112/barrel. With the plant running at virtually full capacity, Shell and the state of Qatar have found it to be a handsomely profitable investment.
INDICATIVE ECONOMICS FOR PEARL GTL – At current crude oil prices, Pearl GTL is a very profitable project indeed.
Not surprisingly, this success has re-ignited interest in a process developed as long ago as the 1920s by two German scientists, Professor Franz Fischer and Dr. Hans Tropsch.
A long time coming: The Fischer-Tropsch process was used during the second world war in Germany and during the apartheid era in South Africa to produce liquid fuels from coal. But it wasn’t until the early 1990s that world-scale plants came on stream using natural gas as a feedstock. The Mossgas plant in South Africa, now known as the Mossel bay plant, entered service in 1992 and has the capacity to produce 22,500 barrels/day of GTL products. It was soon followed, in 1993, by Shell’s Bintulu plant in Malaysia, which today has a capacity of 14,700 barrels/day.
Despite the success of those two projects, high hopes that GTL would become a mainstream technology – especially during the first half of the 2000s in Qatar – have yet to be realised.
It was not until 2007 that another world-scale plant started up - the Oryx GTL plant in Qatar – and that experienced technical teething troubles that meant it did not reach full capacity for several years. The problems were eventually solved and at today’s oil prices the plant is very profitable.
However, a similar plant in Nigeria – Escravos GTL – has yet to come on stream. Around five years late, its costs have escalated dramatically and are now approaching $10 billion.
Focus on North America: All this helps to explain why the success of Pearl GTL has been so important to the industry. And with a moratorium in place on new projects in Qatar, the focus od project development has shifted primarily to North America, where the shale gas boom has led to a wide differential between the prices of gas and oil – precisely the kind of conditions that favour GTL.
Two projects in particular are being watched with keen interest: one being evaluated by Shell and the other by Sasol, the South African company that developed Oryx GTL and which is the other major technology provider for large-scale GTL projects.
Shell has indicated that it is working on a possible GTL project to be located on the Gulf coast but it has not disclosed how large the plant would be, precisely where it would be sited or how much it would cost. It has, however, said that its GTL technology has advanced since Pearl GTL was designed so the plant is likely to be more compact and more efficient.
Sasol has been more forthcoming. It is proposing to construct a world-scale ethane cracker and GTL facility at its Westlake site in Southwest Louisiana. However, the GTL part of the project is likely to cost more and come on stream later than originally hoped. Front-end engineering and design (FEED) on the 96,000 ballers/day plant will be completed in 2016, at which point the company will make its FID. Cost is currently estimated at $11-14 billion.
Small-scale GTL: While Shell and Sasol are currently the industry leaders, a host of other companies are developing GTL technologies. Two companies of particular interest are CompactGTL and Velocys, which have developed small-scale GTL technologies that will extend the range of applications.
Despite all the work currently under way, if GTL is to become a mainstream technology, it is not likely to be until the 2020s. When Escravos comes on stream global GTL capacity will be around quarter of a million barrels/day. That compares with a global oil market of close to 90 million barrels/day. Much will depend on the relative trajectories of oil and gas prices over the long term.
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