LONDON Nov 26 Plentiful and cheap supplies of
natural gas, coupled with near-record prices for diesel and
gasoline, provide a seemingly ideal environment for projects
that convert natural gas into liquid transportation fuels. Yet
most gas producers have hesitated to commit to new projects.
Gas-to-liquids (GTL) beats other options like pipelines,
liquefied natural gas (LNG) and compressed natural gas (CNG) for
smaller gas deposits stranded thousands of kilometres from
GTL plants are the most attractive way to realise the value
in natural gas when oil prices are above $60 per barrel and gas
prices are below $8 per million British thermal units, according
to the 2012 "Global Energy Assessment", a landmark study
compiled by the International Institute for Applied Systems
Four commercial GTL plants have become operational over the
last 20 years: Mossel Bay in South Africa (1992), Bintulu in
Malaysia (1993), Oryx at in Qatar (2007) and Pearl also in Qatar
Combined capacity will be almost 225,000 barrels per day
once Shell's Pearl project is fully operational (mostly diesel
with smaller quantities of naphtha, lubricants and waxes).
South Africa's Sasol (Mossel Bay and Oryx) and Royal Dutch
Shell (Bintulu and Pearl) dominate the market, though other
companies including BP, Chevron and Exxon have proposed projects
or built demonstration facilities over the last decade.
Shell is currently expanding Pearl and Sasol is working with
Chevron and the Nigerian National Petroleum Corporation to
finish a GTL plant on the Escravos River in Nigeria.
Escravos, which is a copy of Oryx, will convert about 8.5
million cubic metres per day of gas, currently flared, into
22,000 barrels per day of diesel and 11,000 barrels of naphtha.
Both Shell and Sasol are reportedly considering projects on
the coast of Louisiana in the United States. Sasol has plans to
expand its production in South Africa and to build new plants in
Uzbekistan and Canada. But even the two market leaders have
hesitated to make firm commitments to new projects.
Other major oil and gas producers have either avoided GTL
altogether, or abandoned projects early. Exxon Mobil, Conoco and
Trinidad have all cancelled projects in the last decade. BP
produced 300 barrels per day of synthetic crude oil at a test
facility between 2002 and 2009 but has not chosen to build a
The case for a big expansion of GTL production appears
compelling. Nearly 40 percent of the world's natural gas
reserves are too far from consuming centres to be economically
delivered via pipelines: GTL, LNG or CNG may be the only way to
GTL plants can unlock value by converting plentiful and
cheap gas into scarce and valuable liquids. GTL yields lots of
diesel (70 percent) rather than gasoline (25 percent), which
could help bridge the worldwide shortage of middle distillates.
GTL burns cleanly (it contains almost zero sulphur) and
engine performance is better than for diesel from a conventional
refinery (GTL diesel has a cetane number of 70 compared with 40
for refinery output). It also avoids the expense of fitting and
operating energy-intensive hydro-desulphurisation units to
Together with LNG, GTL is the only way to reduce wasteful
venting and flaring of stranded natural gas from oil wells in
countries like Nigeria, Russia, Iran and Iraq.
GTL plants are currently about 60-65 percent energy
efficient. Their carbon efficiency is 75-80 percent. But
projected improvements over the next decade could push energy
efficiency over 70 percent, and carbon efficiency to 90 percent,
comparable to conventional refining.
Escalating costs have done much to undermine GTL. The
technology is relatively mature. But many developers have opted
for very large-scale plants in a bid to maximise economies of
GTL plants have had to compete for scarce engineering talent
and raw materials such as high-strength corrosion resistant
steels with the enormous number of LNG projects launched over
the last ten years.
The result has been enormous pressure on the relatively
scarce engineering companies and suppliers capable of delivering
advanced GTL plants on this sort of scale.
In much-cited 2005 report, Professor Michael Economides of
the University of Houston, put capital costs for a 65,000 barrel
per day GTL plant at about $25,000 per barrel per day ("The
Economics of Gas to Liquids Compared to Liquefied Natural Gas").
But following cost overruns, Shell's Pearl project ended up
costing $18 billion, or about $110,000 per barrel per day for a
140,000 barrel per day plant. The Sasol-Chevron Escravos project
has seen even worse cost inflation, and will likely end up
costing at least $180,000 per barrel per day for 33,000 barrel
per day of output.
"Construction delays are chronic. Costs escalate as the
giant projects create their own economic weather for
engineering, labour, steel, shipping and other services,"
explains Arctic Gas, which coordinates gas transport projects in
Alaska for the U.S. federal government ("Can gas to liquids
technology get traction?" June 2012).
LARGE AND LUMBERING
Escalating costs are only one aspect of a wider issue. "The
challenge for gas to liquid technology is not high cost, it is
high risk," according to the U.S. Department of Energy's
Advanced Research Projects Agency (ARPA-E).
GTL projects have to cope with multiple risks
simultaneously: price changes in both the feedstock and product
markets, construction costs, cost of catalyst, and how big a
plant to build.
ARPA-E found the biggest risk was not the cost of gas, or
even construction, but the realised price for the products when
the project comes onstream (which explains why Pearl has been
successful despite being wildly over-budget).
It takes so long to develop a large-scale GTL plant there is
no guarantee the configuration of gas and diesel prices which
underpinned the original investment decision will still prevail
when it eventually enters into service.
"Progress has been stymied by the astronomical cost of
building GTL plants, and the career risk facing chief executives
who undertake such investments, as well as by oil prices that
have swung between rock bottom and sky high," Arctic Gas
ARPA-E highlights the tremendous swing in oil prices from
under $40 per barrel to more than $110 between 2000 and 2011,
the typical timeframe for developing and building a GTL project.
Long delays and high costs give rise to enormous market-timing
risks ("Gas to liquid technology" February 2012).
SMALL IS BEAUTIFUL
The solution may be to think smaller. Process engineers
generally prefer bigger plants because costs go up in line with
the surface area while revenues go up faster in line with
volume. The Sasol-Chevron GTL reactor vessel is enormous (see
In Shell's two 1200-tonne reactor vessels at Pearl "the
surface of the cobalt catalyst is so vast that if it were spread
out horizontally it would encompass an area almost 18 times
greater than Qatar itself," Arctic Gas says.
Smaller scale plants would be quicker to build, more
responsive to changing market conditions, and a lot less risky.
Building lots of small plants rather than a few big ones would
also maximise the opportunity to reduce costs through learning
WorldGTL and CompactGTL are already developing small-scale
modular systems for offshore platforms and associated gas
production. Petrobras is piloting a micro-reactor based GTL
system developed by CompactGTL for some of its offshore oil
If GTL is ever to contribute a significant fraction of
diesel demand, developers will have to be convinced the
divergence of gas and oil prices will be sustained in the
long-term, and find ways to manage project risk more
In the meantime, the brightest outlook may be for
smaller-scale plants that can be developed more quickly with