20130115 efar gtl_v06

QNB Economics economics@qnb.com.qa 18 January 2013Global interest in GTL expected to growLast week Doha hosted the first World Gas-to-Liquids much smaller and in South Africa and Malaysia,(GTL) Congress. The event comes at a time of operated by PetroSA and Shell respectively.heightened interest in the industry, according to QNBGroup. Recent landmark developments include the Interest in GTL has come in three waves, according tocommissioning of the second train of Pearl GTL in QNB Group. The first was in the early 1990s, whenQatar, moves by Qatar Airways to utilise GTL as jet the South African and Malaysian plants werefuel and plans for new GTL plants in the US and launched. The second wave was in the early 2000s,elsewhere. when the current plants in Qatar were envisaged, as well as a 33,000 b/d project by Chevron and Sasol inThe GTL process converts natural gas into refined Nigeria, due to be commissioned this year.liquid fuels, such as kerosene and diesel. These can bemore easily transported to relevant markets than gas, However, some other GTL projects, envisaged duringand have a higher sales value than raw gas. The GTL the second wave were subsequently cancelled. Thisprocess is a chemical transformation, in contrast to happened largely because the LNG market looked likepurely physical methods of reducing the volume of gas it offered a better rate of return on capital. Qatarfor transportation by increasing pressure, producing backed Oryx and Pearl GTL, alongside its even largercompressed natural gas (CNG), or reducing LNG projects, in order to diversify its options fortemperature, producing liquefied natural gas (LNG). monetising gas.Unlike CNG and LNG methods, GTL products do notrequire any special equipment to transport or use, as It is too early to judge which technology—GTL orthey are similar to fuels derived from crude oil. LNG—will offer better returns on investment in theMoreover, the purity and quality of the GTL-produced long-term. This will depend on the average premiumfuels also means that they are considered suitable for of liquid fuels over LNG prices over the lifetime of thehigh-value applications, such as jet fuel. projects, compared to the difference in capital and operational costs. Currently, GTL capital costs areThe chemical process underlying GTL was developed about US$100k-200k per b/d, about 2-4 times those ofnearly a century ago. However, high capital LNG, affected by several factors such plant size anddevelopment costs limited its application except in the potentially volatile prices of construction materials.situations where countries lacking oil reserves needed The GTL conversion process also consumes some ofsecurity of fuel supplies. This was the case for the gas feedstock. Depending on the particular plantGermany during the Second World War and for South and local cost of gas, GTL is considered to break evenAfrica under sanctions during the Apartheid era. Both at about US$40-US$80 per barrel. Refined oil pricescountries used coal rather than natural gas as the are currently well above this level, providing strongfeedstock for the process. profit margins.Sasol, a South African firm, brought the technology to One place where a significant premium has opened upQatar to build the 34,000 barrels per day (b/d) Oryx between oil and gas prices is in the US. The US shaleGTL plant in partnership with Qatar Petroleum (QP). gas revolution there has driven down local gas pricesAt its launch in 2006 it was the world’s largest GTL at a time of high oil prices, thereby boosting the appealplant, but has since been surpassed by Pearl GTL, a of GTL. The US government’s Energy Informationjoint-venture of Shell and QP. Its first train was Agency (EIA) forecasts that the ratio of domestic oil tocommissioned in 2011 and the second last summer. gas prices will be twice as high in the period untilThe entire plant is currently operating at around 85% 2030 than it was in the previous two decades. This isof its nameplate capacity of 140,000 b/d of GTL. This why Sasol announced plans last month for a 96,000capacity is equivalent to more than half of global GTL b/d GTL plant in Louisiana, to start operations inproduction. The huge US$19bn project utilised twice 2018. This is part of a third wave of interest in GTL.the concrete of the Burj Khalifa, 40 times the steel of Sasol also has plans for a 38,000 b/d plant inthe Eiffel tower and involved 52,000 construction Uzbekistan, with a final investment decision due thisworkers at its peak. The other commercial facilities are year, and is also investigating a 48,000 b/d plant in Canada. PetroSA is in discussions on a 40,000 b/d 1

QNB Economics economics@qnb.com.qaplant in Mozambique, which has recently discovered The new capacity would not significantly competesizeable reserves of offshore gas. Finally, Shell is also with existing GTL because it would still be well underconsidering a plant in the US. 1% of global oil consumption. Small scale GTL is a new development that has yet to be commercialised,Although Sasol and Shell hold most of the expertise but its prospects look promising. An optimistic caseand patents for large-scale GTL plants, new firms are envisages that it has the potential to produce perhapsentering the sector. Oxford Catalysts, a spinoff from 3m b/d of GTL from currently flared gas, although thethe university science department, is developing installation of this capacity could take decades. Coalsmaller-scale modular GTL technology, suitable for and biomass based GTL capacity is also likely toproduction ranging from a few hundred to a few grow, driven by energy security and sustainabilitythousand b/d. This could help capture “stranded” considerations, respectively.associated gas from oilfields which would otherwisebe flared because the volume and/or location means Global GTL Installed Capacitythat it is not economical to market by pipeline or LNG. (k barrels per day nameplate capacity)Petrobras, for example, is considering this technology 466to utilise the associated gas in Brazil’s offshore Elsewhereoilfields. Waste biomass can also be used as a Qatarfeedstock for small-scale GTL. 63%GTL-derived fuel has less environmental impact thanconventional jet fuel as it has a higher energy density 211and cleaner emissions. Coal-derived GTL jet fuel has 17%been used in South Africa for over a decade, andBritish Airways is planning on using some biomass-derived GTL jet fuel. Qatar Airways is leading the 83% 37% 37way in usage of natural gas-derived GTL jet fuel, and 100%began commercial flights this month utilising up to 2005 2013f 2020f50% GTL kerosene. Source: QNB Group forecasts; 2020 is an upper-rangeQNB Group concludes that the future of GTL will estimate, and assumes that currently announced projects godepend on whether capital costs can be kept under ahead on schedule, but excludes small-scale GTLcontrol and on long-term expectations for the pricepremium of oil over gas/LNG.If the major GTL plants under discussion go ahead,then global production capacity could more thandouble by the end of the decade to nearly 0.5m b/d. 2

20130115 efar gtl_v06

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