North America’s gas monetisation opportunities and challenges

Ramin Lakani's picture
Ramin Lakani, Consultant, Muse, Stancil & Co.
Ajey Chandra's picture
Ajey Chandra, Director & Managing Partner, Muse, Stancil & Co.
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Natural gas is growing in importance worldwide and is widely seen as the fuel of choice in the power generation industry. Gas, along with the associated NGLs (Natural Gas Liquids), is being used as the preferred feedstock for petrochemical projects, especially where prices are low or large volumes are readily available.  

As the reliance on fuel oil and coal for power generation drops, gas is often regarded as a ‘bridge fuel’ until renewables can achieve a larger market share. As a result, gas resources have taken on more importance in the portfolios of many IOCs and they are looking to deploy additional capital in the purchase or development of gas resources.

The largest growth in the gas sector has been in the LNG business, primarily in large production increases, new technology, increases in the shipping fleet capacity and a significant increase in trading volumes. Project finance, commercial arrangements and project execution has delayed projects in some regions around the world, but US producers have been involved in a large wave of LNG export capacity construction, with increases nearing 20 MMTpa in less than 5 years. As a result, the US has moved from a net importer of LNG a decade ago to become the third largest exporter in the global LNG trade. US LNG is not just being marketed in the western hemisphere or shipped to China and other Far East destinations, some of this LNG is finding its way to the Middle East and Europe. The low gas prices and the availability of excess supply is also making petrochemical projects economically viable in North America.

Furthermore, there is a desire to develop ‘mini-GTL’ and ‘small-scale LNG’ projects in the US, targeting isolated/stranded gas volumes. For example, there are pockets of produced gas in remote areas of the Bakken Shale or Permian Basin that cannot be monetized economically as the pipeline gathering is not currently in place. Ironically, some of these areas are net importers of diesel fuel. The cost of diesel in these areas, along with the need for additional infrastructure could make small/mini GTL technology a good fit, especially given the new technology associated with many of the GTL processes. The mini-GTL concept has existed for many years and the product mix makes it ideally placed to monetize stranded gas volumes in remote areas. While the industry has historically focused on large-scale GTL projects using Fischer-Tropsch technology, new technologies associated with mini-GTL projects could prove to be both economically and technologically attractive. New advances in catalyst development have made it possible to be selective about the yield of certain products such as diesel fuel, which could be more easily marketable in remote areas and hence provide higher value to producers and financial returns to investors. Some of the new technologies have much lower capital requirements, as complex products such as waxes, which require additional processing and handling, are not produced.

Equally, there is a desire by some ship operators to use LNG as a replacement for bunker fuel oil, especially in light of the upcoming changes in the fuel oil sulphur specs led by the IMO (International Maritime Organization). There is particular interest by cruise ship operators to consider LNG as it helps to promote their green credentials and their vessels tend to travel between a smaller number of set ports on a regular basis. Technology companies are now looking at small scale LNG plants that can be fed by pipeline gas and could produce the required LNG in or near the ports, and hence reduce some of the expensive storage requirements of LNG.

Therefore, from large scale LNG projects, gas-to-petrochemicals and to mini-GTL, there is renewed interest in gas monetisation and the desire to create value from the relatively cheap produced gas in North America. We expect this trend to continue and for North America to lead the way in the gas monetisation arena.

           

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Image courtesy of Muse, Stancil & Co.