Hosting the world’s largest gas-to-liquids (GTL) plant, while also being a global centre for GTL research and development, Qatar today is at the forefront of this high-tech hydrocarbons sub-sector. Indeed, the success of GTL in the state has acted as a catalyst for development elsewhere, with the global sector expanding in 2014. Yet, as with other segments of the hydrocarbons industry, recent movements in oil and gas prices may have an effect on GTL, with the arbitrage at the heart of the finances of the process the subject of recent debate. Nonetheless, with GTL in Qatar able to provide high-quality products at large volumes, the sector’s future seems secure.
HIGH TECH: Several different GTL processes exist, yet the basic procedures follow a similar route. Natural gas from reservoirs is first stripped of water and condensates to produce a pure, methane gas, which is then put into a gasifier and subjected to temperatures of 1400-1600C. This converts the gas into syngas – a mixture of hydrogen and carbon monoxide. The syngas is then fed into reactors containing a catalyst that triggers its transformation into long-chain, waxy hydrocarbons and water.
After further separation, taking out the water, the hydrocarbons are subjected to cracking, producing a range of different products via a final distillation process. GTL naphtha, base oils for high-quality lubricants, paraffins, kerosene, which can be blended to produce jet fuel, and gas oil – a diesel-type fuel – are then produced, according to demand. “The beauty of the GTL process is that you are not competing in a gas market; you are competing in a liquid oil market,” Wael Sawan, the managing director and chairman of Qatar Shell, told OBG.
One of the defining characteristic of GTL products is that they are of a very high quality. The range of fuels mentioned comes at near-zero sulphur levels, with the base oil equal to or better than the Group III+ standard of that delivered from normal crude oil. Group III base oils are those with a saturate level over 90%, less than 0.03% sulphur and viscosity over 120; these quality levels make them ideal for high performance uses. “GTL products are of high quality and high value, returning well on the investment made by Qatar and its partners. Those smart decisions a decade ago position the country well today and into the future, where clean fuels will continue to be part of the energy mix,” Marjo Louw, the president of Sasol Qatar, told OBG.
The know-how and technology for making GTL has been around for some time – the basic process, known as Fischer-Tropsch (F-T), was developed in laboratories in Germany in 1925. In the 1950s, South Africa’s Sasol began commercial production using this process, but with coal as a feedstock. The first large-scale commercial plant using natural gas was built by Shell at Bintulu in Malaysia’s Sarawak province. This began operations in 1993.
KEY CONDITIONS: For GTL to be successful, two conditions need to apply. First, there has to be good availability of natural gas; and second, there have to be market conditions in which the price of gas is considerably less than the price of the hydrocarbon and wax products that GTL produces. This is particularly so given the high initial capital expenditure involved in building a commercially viable GTL plant.
With the discovery and exploitation of the huge North Field, Qatar clearly became a good destination for GTL in terms of the first of these conditions. In terms of the second, natural gas prices have long been low – indeed, for many decades, the gas was considered of almost no commercial value and largely flared off. While there have been occasional spikes due to supply constraints over the years, the overall trend has continued to be a low one. Meanwhile, oil prices began rising around the beginning of the first decade of the century, reaching record highs before the global crash – after which they began rising until 2014. Thus the arbitrage conditions have been there to make GTL a highly profitable business.
BEARING FRUIT: Major investments in GTL in Qatar made in the 1990s have also been highly successful. The first to begin production was Oryx GTL, a joint venture between Sasol and Qatar Petroleum (QP), with the former holding 49% of the shares and the latter 51%. Oryx GTL was the result of discussions between Sasol and the Qatar government that began in 1996, although a contract did not materialise until 2003. Construction began in 2006, with full-scale operations starting in 2007.
The plant, which is located on a 72-ha site at Ras Laffan, uses Sasol’s slurry phase distillate process, which includes a low-temperature F-T conversion – the first time this has been used commercially worldwide. Oryx GTL also brings together technologies licensed to a number of sources: the syngas production unit is licensed by Haldor Topsoe, the F-T unit by Sasol, and the product work-up – which separates out the different products – by Chevron.
When operating at full capacity, some 330m cu feet per day (cfpd) of natural gas comes to the plant from the offshore North Field. This is then converted into 32,400 barrels per day (bpd) of liquids, with three products the focus: 22,400 bpd of low-emission, high-performance GTL diesel; 9000 bpd of GTL naptha; and 1000 bpd of liquefied petroleum gas. These products are now marketed in partnership under the Oryx GTL label. The main markets are Europe – for the high-quality diesel, which is often used to blend with lower-quality products to bring down overall sulphur content – and Asia, where most of the naphtha goes, mostly to be used as feedstock in petrochemicals manufacturing.
Oryx GTL was followed by a second plant in the shape of Pearl GTL, a joint venture between QP and Shell. Launched in 2006, it started production from its first phase in 2011 and ramped up to full production with a second phase by the end of 2012. Using a second-generation F-T synthesis catalyst, the plant has 24 reactors and two trains, making it the world’s largest GTL facility. Also located at Ras Laffan Industrial City, the development cost was $18bn-19bn, according to Shell’s website. The plant takes 1.6bn cfpd of natural gas from the North Field, turning this into 140,000 bpd of GTL products and 120,000 barrels of oil equivalent per day of natural gas liquids and ethane. The GTL output – which is 10 times the capacity of Shell’s Bintulu plant – includes kerosene, gas oil and naphtha, while from 2014 the plant began releasing clear base oil made via GTL under the Shell PurePlus Technology label, with this expected to be a major sell for the company’s motor oil division.
These two major facilities give Qatar a total capacity of 174,000 bpd of GTL products, with the state home to two out of five GTL plants in commercial operation worldwide. According to a 2014 report by RPS Energy, the global capacity of GTL is 13m tonnes per annum (mtpa), with Oryx GTL and Pearl GTL responsible for 8.5 mtpa, or 65% of the total.
COSTS & PRICES: The supply of natural gas from the North Field at rates widely thought to be below market levels at a time when oil prices were running well over $100 a barrel undoubtedly helped make the two plants successful, despite both seeing major overruns in construction costs. Now, though, there is debate as to where current market conditions leave GTL. At time of press, oil prices were around $57 a barrel – half what they had been only six months before. Bloomberg reported at the end of 2013 that Sasol’s CEO, David Constable, saw financial viability for GTL as occurring when a barrel of oil was trading at a level at least 16 times the cost of 1m British thermal units (mbtu) of natural gas. Spot prices for this vary with the season, with a high during the winter, which gave a $3.04/mbtu price in January 2015. This would mean that GTL was still viable, although the margin is far from what it was, at a break even of around $48 a barrel.
There are, however, reasons for thinking that gas prices will continue to fall, particularly with more supply coming on-stream from North American shale projects, although these go alongside reasons for thinking oil prices will also continue to decline. For Qatar, however, the low cost of gas supplied to Oryx GTL and Pearl GTL will likely continue to buffer them against any ongoing falls in oil prices. At the same time, the investments made by Shell and Sasol are so large that the two companies have had to take a very long-term view, overriding price fluctuations.
FLEXIBLE FRIENDS: GTL also has a major advantage in that it produces such pure products. This leaves it well positioned to supply the higher-end, higher-performance market, with areas such as jet fuel a likely future growth area. Shell can also alter the balance of its product slates according to market conditions, producing more of one GTL product over another if that product is in higher demand and selling at a higher premium. Qatar continues to hold the global number-one spot for GTL, with two high-quality facilities hooked up to the world’s largest non-associated gas field, a successful combination.
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