Gas-to-liquids plants face challenges in the U.S. market

Energy Information Administration ^ | FEBRUARY 19, 2014 | Energy Information Administration

[thackney]

Gas-to-liquids (GTL) is a process that converts natural gas to liquid fuels such as gasoline, jet fuel, and diesel. GTL can also make waxes. The most common technique used at GTL facilities is Fischer-Tropsch (F-T) synthesis. Although F-T synthesis has been around for nearly a century, it has gained recent interest because of the growing spread between the value of petroleum products and the cost of natural gas.

The first step in the F-T GTL process is converting the natural gas, which is mostly methane, to a mixture of hydrogen, carbon dioxide, and carbon monoxide. This mixture is called syngas. The syngas is cleaned to remove sulfur, water, and carbon dioxide, in order to prevent catalyst contamination. The F-T reaction combines hydrogen with carbon monoxide to form different liquid hydrocarbons. These liquid products are then further processed using different refining technologies into liquid fuels.

The F-T reaction typically happens at high pressure (40 atmospheres) and temperature (500o-840oF) in the presence of an iron catalyst. The cost of building a reaction vessel to produce the required volume of fuel or products and to withstand these temperatures and pressures can be considerable. Several companies are pursuing an alternative method that uses a different reactor design (called a micro-channel reactor) and proprietary catalysts that allow GTL production at much smaller scales.

There are currently five GTL plants operating globally, with capacities ranging from 2,700 barrels per day (bbl/d) to 140,000 bbl/d. Shell operates two in Malaysia and one in Qatar, Sasol operates one in South Africa, and the fifth is a joint venture between Sasol and Chevron in Qatar. One plant in Nigeria is currently under construction. Three plants in the United States—in St. Charles, Louisiana; Karns City, Pennsylvania; and Ashtabula, Ohio—are proposed. Of these, only the St. Charles facility is a large-scale GTL plant. In December 2013, Shell cancelled plans to build a large-scale GTL facility in Louisiana because of high estimated capital costs and market uncertainty regarding natural gas and petroleum product prices. The Annual Energy Outlook 2014 (AEO2014) Reference case projection does not include any large-scale GTL facilities in the United States through 2040. Other uses for available natural gas in industry, electric power generation, and exports of pipeline and liquefied natural gas are more economically attractive than GTL under AEO2014 Reference case facility cost assumptions and energy prices.

To improve the long-term profitability of GTL plants, developers have reconfigured their designs to include the production of waxes and lubricating products, which are another primary product of the F-T process. Because of the smaller size of the chemical market, smaller-scale GTL plants similar to those proposed in the Midwest are economically viable. U.S. imports of waxes similar to those produced out of the F-T process have experienced steady growth over the past decade because of increased demand in the chemicals market. F-T waxes are used in industries producing candles, paints and coatings, resins, plastic, synthetic rubber, tires, and other products.

Using projected natural gas and product prices in the AEO2014 Reference case and assuming a GTL plant can produce 2,800 barrels per day of products, a GTL plant is projected to be profitable only when it is configured to maximize wax production. As such, most GTL developers are looking to configure their plants to maximize wax production for the chemicals market instead of production of liquid fuels with minimum or no wax.

[Still Thinking]

When Sasol built their first plant in SA (Sasolburg), they got a guarantee from the government to buy product at $20/bbl equivalent, so at that time they could make a clear, un-subsidized profit at any crude price over $20. And now that SA’s pussed out and are no longer international pariahs and can buy crude wherever they want, they STILL built an additional gasification plant (Segunda). If it’s such a bad deal even in a nation with access to oil, why would they build it?

I’m sure operating costs are somewhat higher now, so figure maybe $40-50 crude should be break-even. We’re substantially above even that. Plus, part the the reason the Seffricans wanted it was strategeric, they wanted to be energy-independent (and besides, had no choice, as you note). So both from a strategic sense and a pure economic sense, it would seem to me to be a good idea, so long as there isn’t something about our coal that makes it more expensive or less feasible in some way.

[thackney]

they STILL built an additional gasification plant (Segunda).

You do know they built that 3 decades ago, right?

The first half of Secunda CTL, completed in 1980, cost U.S.$3.2 billion in dollars of the day. Sasol 3 (the mirror-image of Sasol 2), completed 1984, cost $2.5 billion in dollars of the day.

[Still Thinking]

Geez, time flies. I thought it was much more recent than that.

[thackney]

Notice they haven’t built one since.

I’m all for the process. And I had high hopes for Shell’s GTL in the US. With three commercial plants already in operation, they knew the real costs better than anyone.

CTL or GTL would be great because the distribution and consumption infrastructure is already in place.

[bestintxas]

“there has to be a hitch somewhere
That would be the cost of converting to a liquid.”

Actually, the feedstock cost(i.e - raw gas price) is the main problem on commerciality.

Check out where those five GTL plants are

1. Malaysia(Bintulu) - lots of very cheap gas, also has LNG there for many years
2. Qatar - largest gas field in world, largest LNG in world

South Africa does not have cheap feedstock; however, they do have abundant supplies of coal which is synthesized into gas. This happened during aparthied when no one would sell them hydrocarbon liquids. Different situation, and they have become experts on this technology in the interim.

[thackney]

Cheaper feedstock can overcome the profitability. But the feedstock cost is less than the conversion cost, or it would be already profitable already in the US

[thackney]

South Africa does not have cheap feedstock;

BTW, in addition to their coal classification, they get significant amounts of Natural Gas from Mozambique.

http://www.sasol.co.za/about-sasol/south-african-energy-cluster/sasol-gas/business-overview-sasol-gas

[bestintxas]

“Cheaper feedstock can overcome the profitability. But the feedstock cost is less than the conversion cost, or it would be already profitable already in the US”

I worked LNG many years and found this a true statement(feedstock cost must be cheap). Reason Mobil built Arun plant and the Algerians built those a long time ago.

GTL might have different metrics than LNG. Have you seen a comparison of the two?

[thackney]

Not a direct dollars comparison. But the GTL plants in Qatar are economical because they really compete with exported LNG versus a significant local demand like in the US.

It is why companies like Shell built the GTL after the LNG facilities were already up and running in Qatar. Both were spending capital to build facilities to buy local natgas and export to another country. If there was greater profits to be made in LNG, I expect that they would have built that instead. With two other commercial GTL facilities, they had already proved their process and economics.

[thackney]

For reference: Same country, same company and almost the same time frame

First LNG, then as the American Market began to shift and no longer would need Nat Gas imports, the GTL. But the start of that GTL economic justification is not firm to me.

http://www.shell.com/global/aboutshell/major-projects-2/qatargas.html

http://www.shell.com/global/aboutshell/major-projects-2/pearl/overview.html

[bestintxas]

“It is why companies like Shell built the GTL after the LNG facilities were already up and running in Qatar. Both were spending capital to build facilities to buy local natgas and export to another country. If there was greater profits to be made in LNG, I expect that they would have built that instead. With two other commercial GTL facilities, they had already proved their process and economics.”

When I recall Bintulu GTL being built, it was representing a small-scale “test” of GTL as it had never been commercialized prior to that time. Shell’s LNG was up and running an very profitable but LNG had reached virtual saturation conditions so Shell had difficulty in building more LNG trains and instead tried to see if GTL could create new markets, since Shell still had access to the cheap Brunei gas.

Their target was the high-end industrial users who needed very high quality product. Since Fischer-Tropsch essetially rearranged the hydrocarbon atoms in order to turn natural gas into kerosene, gasoline, naptha, or whatever, the product was essentially contaminant-free.

So GTL followed LNG as GTL was a lot more complicated and needed new markets, whereas LNG industry was simply supplying gas via liquefaction instead of pipeline.

Both need sources of very cheap raw feed.

BTW, I read somewhere that as a grassroot endeavor, the GTL never made the economics, and is now only profitable if opcosts are considered, no capital included.

[thackney]

Bintulu was a commercial test, could it be scaled up to commercial size economically.

But I don’t believe 15 years after Bintulu, they spent $18~19 billion as another test.

[bestintxas]

“Bintulu was a commercial test, could it be scaled up to commercial size economically.

But I don’t believe 15 years after Bintulu, they spent $18~19 billion as another test.”

That’s a lot of money to bet so yes, I would agree on that statement.

A long-term approach here would be to undertake more GTL in this country as our unconventional supply of natural gas will enable us to procure the liquids we need, particularly for the transportation and lubricant sectors.

We will have difficulty on the feedstock cost, however, as we will be expensive on gas (at least $5/mmbtu) required to drill these gas resources, compared to the other countries that have the cheap($1-2/mmbtu) supplies.

But we will need it to keep our standard of living high enough and not be subservient to countries which are not our friends.