GTL Costs Under The Microscope As Qatar Inaugurates $18.5Bn Pearl Plant

GTL Costs Under The Microscope As Qatar Inaugurates $18.5Bn Pearl Plant

Shell is testing the market with its gas-to-liquids (GTL) products - its first naphtha cargo attracted a record number of bidders, MEES learns, but aviation industry regulations do not permit 100% GTL jet fuel. Five more GTL plants and a gas-to-chemicals plant are under construction or study in other countries. But the industry is still analyzing if the technology is viable without the sale of NGLs, and the secondary issue of whether GTL products will sell at a premium to oil-based products, writes Nick Wilson.

Qatar’s Amir Shaikh Hamad bin Khalifa Al Thani inaugurated Shell’s 140,000 b/d Pearl GTL plant on 22 November, when Qatari Minister of Energy and Industry Muhammad al-Sada announced that the project cost $18.5bn. Although Shell won’t publish expected revenues, thejoint venture with state-owned Qatar Petroleum (QP) looks set to be highly profitable as it will also produce 120,000 b/d of NGLs, stripped from the North Field gas feedstock, which it does not pay for. But planners of future GTL projects in other countries are asking if GTL projects would be profitable based solely on turning methane into liquids that can compete against refined products.

Shell CEO Peter Voser said Pearl will produce at full capacity by mid-2012 – the second unit started commissioning earlier this month. Being more than four times the size of the next biggest plant it will allow Shell to dominate the global GTL market. It also establishes Qatar as what QP calls “the GTL capital of the world” and lies at the heart of Shell’s operations. Combined with Shell’s stake in a 7.8mn tons/year LNG train, its Qatar operations will contribute 350,000 b/d of oil equivalent.

LNG, GTL and pipeline gas – and the NGLs that come with the projects – are part of Qatar’s strategy to diversify from crude exports. The minister said that Qatar expects to increase exports of liquefied petroleum gas (LPG) to 11mn tons in 2012 and 12mn tons in 2013 – up from 10mn tons this year.

Starting in June, Pearl’s first production train has sent to market test shipments of ultra-clean – very low content of benzene, particulates or sulfur – gasoil, base oil and exceptionally high paraffinic content naphtha. The naphtha allows the petrochemical industry to get more ethylene per unit of feedstock. Blending GTL products could save refiners having to upgrade plants to meet ever-tightening fuel grade specifications. Furthermore a GTL plant can change its configuration in 72 hours – compared with up to a week for a complex refinery.

Qatar’s first GTL plant, Oryx – a joint venture between QP (51%) and Sasol (49%) – was less successful. It had problems with its slurry bed and air separation units, delaying full production from the scheduled 2006 to 2009. Its production capacity is 32,400 b/d – down from the slated 34,000 b/d. Sasol said in its June financial report that Oryx will debottleneck to boost capacity 10% by 2014. The increase is a scale-down from previous plans to add a further three trains, taking total capacity to 100,000 b/d.

‘Huge Capex Costs’

Furthermore, MEES learns that the costs for building such a plant have leapt from Oryx’s $1bn to $8bn for a similar plant at Escravos, Nigeria (Chevron 75%, state-owned Nigerian National Petroleum Corporation –NNPC - 15%, Sasol 10%). Escravos was due to start up in 2009 and will not operate until 2013. Sasol, however, says it has fixed the problems for future designs and can now get 50% more production from the same-sized reactors.

Canadian upstream firm Talisman Energy expects to complete a $50mn feasibility study into a 48,000 b/d or 96,000 b/d joint venture GTL plant with Sasol in Alberta in the second quarter of 2012. The front end engineering design (FEED) will finish 24 months later and then a final investment decision (FID) will be taken. Sasol has bought 50% stakes in two large shale gas fields in British Columbia in partnership with Talisman, which also has conventional legacy production in neighboring Alberta. It is not clear how the proposed project would get the product out of a relatively isolated location, assuring that its high quality is maintained, without pipeline contamination.

A project official tells MEES: “It will be an uphill battle [for Talisman] to convince the board to invest in it. There are huge capex costs – without NGLs is GTL profitable?” Escravos’s costs have leapt to $230,000 per b/d capacity, compared to Oryx’s $1bn or $30,000 per b/d, he says. Pearl’s initially expected cost was $6bn, but has soared more than 300%.

Cost competitiveness would be enhanced if GTL can attract a premium. Sasol, however, for reasons of legal sensitivity – it was recently fined €318mn for its role in a fuel price fixing cartel operating on the European paraffin wax market – is unable to share this information with Talisman.

One of GTL’s cost problems is that the Fischer-Tropsch process is highly exothermic, leading to 40% of gas being lost in the reaction. Research is ongoing to improve efficiency, but the results are either incremental – not game changing – or commercially unproven. California-based Carbon Sciences, for example, says it is developing a catalyst for the dry reforming of methane into synthesis gas (syngas) – the first step in making GTL. It replaces methane with CO₂ as part of the carbon feed, reducing feedstock loss. And being low steam it will be a more energy-efficient process, Carbon Sciences says. An industry source, however, dismisses such commercially untested research as “science experiments,” adding that ExxonMobil reportedly invested $1bn in such research before pulling out of GTL. In 2007 ExxonMobil cancelled what would have been the world’s biggest GTL plant – the 154,000 b/d Palm project in Qatar. BP also spent a lot of money researching GTL and decided not to join the race – but this was before large amounts of shale gas hit the North American market, driving feedstock prices down.

If GTL is to take off on a big scale across North America, where the gas-oil price spread may make it attractive (MEES 4 October 2010), it has to be economic on market priced methane alone. Escravos gas is free as it comes from flaring. Prudhoe Bay is a potential site as huge amounts of associated gas are being recycled, which cost $0.50-0.60/bn cfd, but Alaska is also considering pipeline and LNG export options.

Sasol nonetheless says developing GTL is core to its business strategy and it is pushing on with new plants. It is doing a feasibility study into a 48,000 b/d or 96 000 b/d integrated GTL and chemical facility in Lake Charles in Louisiana. The feasibility study is expected to be completed in the latter half of the 2012 calendar year for a possible start up in four-seven years. The project is already being questioned by some in the industry, and the Louisiana plant will be competing against top-drawer sophisticated refineries nearby.

Meanwhile, having completed a feasibility study into a 34,000 b/d GTL project in Uzbekistan, Sasol announced in September that it had signed an agreement with partners including Malaysia’s Petronas to develop it.

Shell Chief Financial Officer Simon Henry said last month that Shell was studying a GTL project on the US Gulf Coast and a gas-to-chemicals project using gas from its Marcellus Shale production in Pennsylvania.

Market Watching Qatari Sales

Cheap shale gas in the US is already driving petrochemical production capacity expansion, which hangs a question mark over the commercial viability of Middle Eastern plans to massively expand petrochemical export capacity. Some US refineries are also preparing to switch to natural gas as a feedstock for hydrogen production, instead of naphtha. It remains to be seen if North America’s petrochemical industry will be joined and aided by a North American GTL program too. The market is keenly watching the performance and sales of GTL products as they come off the Qatar plants. Shell Lubricants announced on 23 November that the first GTL product to reach the US – base oil for Shell’s blending facilities – had arrived at the Port of Houston.

GTL gasoil, which includes diesel, has a better ignition performance, with a cetane number of 60-70 compared with refinery produced diesel’s rating in the high 40s. Shell is initially targeting the European market through blending and direct sales, a Qatari source tells MEES. But in the long term Asia-Pacific will probably take most of its GTL products.

Qatari naphtha is sold by state-owned marketing firm Tasweeq, since a change in regulations in April. Tasweeq also markets the country’s NGLs. The petrochemical industry is “very interested” in GTL. “The first cargo got a record number of bidders – everyone wants to see what it’s like,” the Qatari source says. GTL-based naphtha is 95-99% paraffinic content compared to refined naphtha’s 65-90%.

Shell’s GTL kerosene jet fuel interests the aviation industry. It has a higher energy density than standard refined aviation fuel – more kilocalories per kilogram – allowing a lower fuel payload. However, its physical density is too low to meet industry regulations. “The regulators never expected kero to be this light,” the official said. Pearl is producing kerosene, which is being blended with diesel. Next year it will sell its first cargo of blended kerosene jet fuel. Qatar Airways said on 23 November that it aims to fuel all its flights from its hub at Doha with a 50% blend of GTL kerosene. “GTL is a zero soot, zero sulfur-emitting clean synthetic fuel. With the plant getting operational by 2012, we aim to fuel all our outward flights with GTL. Though the fuel is comparatively costlier, its consumption rate is low, which mitigates the cost,” said Qatar Airways chief Akbar al-Baker.

A question that many in the industry are asking is whether GTL products will attract higher prices than their refined product counterparts. In 2008 Shell sold GTL diesel from its small scale Malaysia plant at a $40/B premium to Brent crude. Not enough Pearl GTL products have gone to market yet to determine if they will attract a premium over refined products. But premiums are not consistent and will not be the backbone of GTL’s commercial success. “Premiums are never there forever. The project has a lifetime of 20-30 years – it is highly unlikely you will get that for 20 years,” the Qatari source said. What matters is if the cost of turning gas into liquids is lower than turning oil into products, he said.  

Copyright MEES 2011.