After years as the coming thing, gas-to-liquids
(GTL) production appears ready to arrive.
Large-scale, commercial GTL plants should come online
within three to five years.
In May, Qatar Petroleum said it is in talks with
several oil companies to develop a GTL "megaproject" for production
of up to 100,000 barrels per day.
Skeptics can be forgiven.
A survey of industry plans in the late 1990s would
have found a dozen proposals for major GTL projects.
Today, not one of those is complete.
Only two are approved and under way, the Sasol-Qatar
Petroleum Oryx plant at Ras Laffan and ChevronTexaco's Escravos
GTL project in Nigeria.
All of the major oil companies express an interest
Most have departments assigned to study GTL applications.
Yet Shell is the only major now operating a commercial
GTL plant, a relatively small, 12,000-barrel-per day facility in
BP began liquids production last year at its GTL demonstration
plant in Nikiski, Alaska. ConocoPhillips operates a pilot plant
in Ponca City, Okla.
By the first week of June, the Ponca City facility
had been "going through commissioning for 8-10 weeks, in pre-startup
activities. We'll be starting syngas real soon," said Jim L. Rockwell,
ConocoPhillips manager, gas-to-liquids in Houston.
simple explanation of how it’s done: Gas-to-liquids technology,
after years of promise, appears ready to make an impact on the world
GTL typically begins with conversion of natural gas
to synthesis gas, or syngas, through a reforming process.
The resulting hydrogen-carbon dioxide mixture then
can be converted to long hydrocarbon molecules through catalytic
A final step produces shorter, liquid molecules.
GTL output can include a variety of end-products, including synthetic
fuels, either gasoline or middle distillates.
This GTL process is nothing new. A pair of German
scientists, Franz Fischer and Hans Tropsch, developed the commonly
used Fischer-Tropsch GTL conversion in the 1920s.
Companies continue to refine GTL techniques. Shell's
current-generation process targets middle distillate production
and is known as Shell Middle Distillate Synthesis (SMDS).
"Most people are looking at middle distillates. Low-temperature
(GTL processing) is much less expensive to build. Low-temperature
drives you more toward the diesel," Rockwell said.
He described GTL as "incredibly capital intensive,"
making cost containment a critical focus.
"The usual break-even is given at $20 a barrel, and
$12-$14 a barrel of that is just the capital," Rockwell said. "And
that's if you can build it in the United States on a Gulf Coast
Most operators say economics favor GTL only when
oil prices remain above a $20/barrel average. That helps explain
why so many GTL proposals went on hold in the late 1990s.
Some companies believe they can justify GTL operations
even when crude drops as low as $15/barrel.
As a rule of thumb, GTL operators expect to spend
$20,000 for each barrel-per-day of plant production capacity, according
By that measure, a 100,000 barrel-per-day GTL facility
would cost $2 billion.
Economics also favor larger plants, Rockwell noted.
"You just can't build a 10,000 barrel-per-day plant.
You have to have better economies of scale," he said.
Qatar Petroleum awarded a $675 million engineering
and construction contract to Technip-Coflexip for the Oryx GTL plant,
projected to produce 34,000 barrels per day.
That's close to the $20,000 per barrel level. But
total project cost would be $900 million, Qatar Petroleum said.
Another requirement for economic GTL is "cheap gas,"
The industry sees GTL as a way of monetizing stranded
or remote natural gas that would not otherwise be marketable – gas
that has little or no current economic value.
Some gas might even have a negative economic value,
when producers face a penalty for flaring gas, for instance.
And the world contains abundant remote gas reserves
to feed GTL expansion.
"When I go around to conferences and hear people
talking, they're talking about one million to 1.5 million (barrels
per day of GTL production) in 15 years," Rockwell said.
GTL technology may enable the production of synfuels
on offshore facilities, a boon for operators with significant reserves
of deepwater natural gas.
But those facilities will be built later rather than
sooner, predicted Joe Verghese, vice president-technology, oil and
gas, for ABB Lummus Global Inc.
"The offshore is still, in my view, something that
will take more time to come to fruition," he said. "The migration
of technology from onshore to offshore is a hurdle."
Verghese identified several areas of concern that
will affect offshore GTL development:
GTL is much more complex than the industry's
current offshore operations. "With GTL you are introducing petrochemical
processes. You start to see high temperature reactors, product fractionators,
air separation units etc., in an offshore setting," he said.
Offshore GTL systems need to be fitted into
a limited space.
"You have a situation where offshore systems are
much more congested, compared to onshore, with the attendant issues
of safety and maintainability," he explained.
GTL facilities operating offshore must be
designed to withstand deck movement.
"They've got to be motion-sensitive," Verghese said.
Right now, offshore personnel aren't used
to anything as complex as GTL processing.
"The offshore operations culture of today is not
geared to handle the complexity of GTL operations," he noted.
That makes offshore GTL considerably more problematic
than onshore applications. "When you add all this up, it implies
higher level of technology risk," Verghese observed.
New LNG Terminals
New GTL operations onshore will provide "feedback"
for later offshore units, he said. As operators gain experience,
they can begin to migrate the technology to offshore applications.
Economic risk also increases offshore. If the numbers
now look marginal for onshore installations, they will appear even
more questionable for higher-cost offshore facilities.
"How do you achieve the breakthrough economics?"
Verghese asked. "The momentum clearly now is for onshore plants.
The economics there are much better understood."
From an offshore standpoint, and in the near term,
the industry might put its money into new LNG facilities offshore.
According to the American Bureau of Shipping, at
least five and as many as 20 LNG terminals could be built for U.S.
offshore installation in the next 10 years.
In response to this, Verghese stated: "These are
primarily terminal concepts for the importation, storage and re-gasification
"When we come to the LNG scene, there are projections
of escalating imports of LNG into the United States because of the
longer term gas deficits in this market," Verghese said.
These offshore structures will incorporate facilities
for storage and re-gasification of LNG shipped in by trading LNG
carriers from low cost supply sources worldwide.
Verghese said new offshore LNG terminals have a clear
advantage over onshore LNG facilities in the permitting process.
Significant delays are anticipated in securing the
necessary approvals for construction of new onshore storage and
However, from a product flexibility standpoint, the
delivery of a distillate product slate is favored over LNG since,
in the short-to-medium term, LNG supply could exceed demand in both
the Pacific and Atlantic basins.
In these circumstances, GTL as a solution for monetizing
stranded gas gains becomes more attractive.
Middle distillate synfuels from GTL, even at maximum
foreseeable production rates, would hardly be a ripple in the overall
product volumes traded in the market.
Rockwell said oil companies at first expected to license
and apply existing GTL technology, but now are developing their
"When you do all the combinations, there are probably
hundreds of processes out there," he said.
Two of the best-known providers of proprietary GTL
technology are Sasol in South Africa and Syntroleum in Tulsa.
Syntroleum has shifted away from being solely a process
licenser, said John Ford, the company's director of communications
and investor relations, who retired after giving this last interview.
"Our strategy has changed over the past couple of
years. We thought when we started we would have a technology we
could license and simply collect the royalties," he said.
"What we've discovered is that, while this is still
a viable strategy, we're at the mercy of someone else's timetable,
as to when and whether these producers build a plant," he added.
Now the company looks for equity positions in GTL
projects, and could even become a plant operator itself.
Syntroleum also is working on a 10,000-15,000 barrel-per-day
barge plant under a U.S. Department of Defense contract, with the
ultimate goal of producing synfuels near a given theater of operations,
"They could save a lot of the costs of transporting
fuel, which as you know are enormous in the military," he noted.
Ford sees several positive signs for the near-term
development of GTL:
The funding and initiation of the Sasol-Qatar
Petroleum GTL plant.
"A lot of projects have been proposed. To date, there
has not been a single, economic-scale GTL plant built. The good
news is, one is being built," he said.
The world's resource base of natural gas and
significant reserves of currently unmarketable gas promise a bright,
long-term future for GTL.
"We've signed a number of agreements in Russia. In
the course of producing oil there, they flare a lot of gas," Ford
"We're looking at situations where people have a
problem, whether it's low-Btu gas or stranded gas or gas that couldn't
be brought to market."
Synfuels from GTL are environmentally advantaged,
since they contain no sulfur, aromatics or heavy metals.
Ford noted that many countries, including the United
States, have adopted regulations requiring the reduction of sulfur
levels in diesel fuel.
"What this is doing is creating an increased demand
for low- or no-sulfur diesel, which means refiners will have to
spend a lot of money to reduce the level of sulfur in diesel," he
With its relative purity, GTL synfuel can be blended
into refined fuels to help meet the mandated standards.
Ford acknowledged that GTL has been slow to develop.
"A paradigm change like this isn't going to happen
overnight. But it's accelerating, and we're excited," he said.
He also offered an explanation for the wide industry
interest in GTL, despite the current lack of an operational, large-scale,
commercial GTL plant.
"Everybody wants to be second," he said. "Nobody
wants to be first."