Liquid assets: An ideal location for a gas-to-liquids industry

Abundant supplies of natural gas and strong links to global supply chains for downstream products have enabled the presence of a growing gas-to-liquids (GTL) industry. GTL, first developed on an industrial scale in South Africa in the 1970s, is a process of creating diesel and gasoline products using natural gas as feedstock. There are two basic processes: low-temperature processes that produce diesel and high-temperature processes that make gasoline.

Oryx GTL Facility

In 2002, Sasol, an international integrated energy and chemical company based in South Africa, formed a joint venture with Qatar Petroleum (QP) to build the world’s first GTL plant based on the low-temperature process in Qatar. QP has a 51% stake in the ORYX GTL plant with Sasol controlling 49% of the shares.

Construction of the facility, located in Ras Laffan Industrial City, was started in 2003 and completed in 2007. The plant started production in 2007 and has maintained an output at its design capacity of 32,400 barrels per day (bpd) since 2012. Al Khaleej Gas supplies the ORYX GTL facility with 330,000 cu feet of natural gas per day. The feedstock, which has a high quantity of methane, is sourced from the country’s North Field. ORYX GTL has the capacity to convert the gas into a total of 32,400 bpd of liquids per day, with 26,000 barrels of GTL diesel, 6000 barrels of naphtha and 400 barrels of liquefied petroleum gas being produced.

ORYX GTL claims that its GTL diesel performs better and has a much lower environmental impact compared with crude oil diesel. “GTL products have attractive characteristics for different applications,” Abdulrahman Al Suwaidi, CEO of ORYX GTL, told OBG. “GTL diesel is also compatible with existing fuel distribution infrastructure and can be used in both current and envisaged future diesel engines,” he added.

Pearl GTL

More recently, Royal Dutch Shell also entered the GTL market with an investment of over $19bn to build Qatar’s second GTL plant. Also located in Ras Laffan Industrial City, Pearl GTL is the largest GTL production facility, with a total capacity of producing 140,000 barrels of GTL products a day. In addition to GTL products, the plant produces 120,000 barrels of oil per day of natural gas liquids and ethane.

The plant started production in 2011 and currently produces GTL gasoil, kerosene, naphtha, normal paraffin and base oils for lubricants, which are sold locally and in global markets. Shell worked with Veolia to design a zero-liquid discharge system, which includes an industrial water-processing plant that treats and reuses all water at the plant. Output from the plant is credited with boosting industrial output with a major impact on Qatar’s GDP.

The Pearl GTL plant is the first to produce jet fuel at a GTL plant. As a result, Pearl GTL collaborated with Qatar Airways to supply the airline with GTL jet fuel. The first shipment was delivered at the end of 2012 and used to fuel a flight to London with flag carrier Qatar Airways. The GTL jet fuel is a blend of GTL output and traditional jet fuel. Qatar International Petroleum Company, known as Tasweeq, is responsible for selling all of Qatar’s regulated products that are exported, including regulated GTL output from the Pearl GTL and ORYX GTL facilities.

Technical Needs

On the technical side, the process of producing GTL outputs is complicated and energy-intensive. The process requires producing a synthetic gas from oxygen and methane, which is supplied to the plants by QP, and then creating a synthetic crude by catalysing the gas under high temperatures and pressure. This crude output can be refined into synthetic products. These requirements make GTL plants more expensive to build and maintain compared with traditional oil refineries.

GTL uses natural gas as feedstock to manufacture the final products. The economic viability of the technology, therefore, depends on a disassociation between gas and oil with low purchase prices for gas and high sales prices for diesel and gasoline.

The price of oil is relevant because it determines the level at which the final GTL products can be sold. Marjo Louw, president of Sasol Qatar, commented on the market, stating that, “The determining factor for the future of GTL will depend on continued disassociation of oil and gas prices. If gas prices are low compared to oil then there should be more expansion. The future of the gas supply and demand balance will determine where the GTL market goes.”

There are thus few players investing in GTL besides Sasol and Shell. BP and ConocoPhillips developed pilot plants in the US but have yet to invest in a commercially operational plant. ExxonMobil and ConocoPhillips had indicated an interest in investing in GTL in Qatar but shifted the funding into other energy investments in the country. Until recently, Shell and Sasol were assessing opportunities to build additional GTL facilities. Sasol has completed a feasibility study for GTL in the US and Canada and is now finalising a front-end engineering and design (FEED) study in Uzbekistan. The firm also has a joint venture with Chevron in Nigeria and FEED studies are being done to install two GTL plants in the US state of Louisiana. The company also sees potential for additional research and development in Qatar.

Future of Investment

Shell’s Pearl GTL plant is the second that the energy major has developed. The firm’s plant in Bintulu, Malaysia was its first commercial plant. However, the company recently abandoned plans to build a third plant in the US. The Financial Times reported that the cost of construction, which mushroomed from an initial estimation of $12.5bn to more than $20bn, as well as the uncertainty of long-term oil and gas prices were key reasons behind the decision. Sasol is therefore the only company with current plans of investing in GTL. Shell’s decision is a major change that puts the viability of GTL into question.

However, both Shell and Sasol remain confident that the market for Qatar’s GTL products will continue supporting output. Shell estimates the Pearl plant will be able to generate annual revenues of $4bn at oil prices of $70 per barrel. One reason is likely because both firms benefit from long-term contracts for natural gas feedstock with QP.

“The future of GTL will be largely dependent on how the market for gas unfolds over the next few years. While there is significant demand for gas, the prospect of major gas discoveries in Asia and Africa could have an impact on prices. For markets that can supply large amounts of natural gas at low cost and have an energy imbalance, GTL represents a viable alternative,” Louw told OBG. Sasol has indicated that there is room for additional players in the global GTL market, especially with technology advancements allowing smaller-scale operations. Qatar remains an ideal location for the GTL industry, however, broad market mechanisms could influence future possibilities. According to Louw, Sasol believes GTL will remain a viable option as it is a clean fuel and a shortage of hydrocarbons will support growth.