The future will be micro for GTL technology

Nearly 75% of China’s pipeline network was owned by PetroChina by the end of 2012. (PetroChina)

Shell’s decision at the beginning of December to abandon plans for the 140,000 barrel per day Gulf Coast GTL project in Louisiana has shone a light on the problems large GTL facilities face and the opportunities for smaller ones.

New and so far commercially unproven technology could offer dramatically smaller plants a chance to exploit stranded gas reserves and tap gaps in the markets for middle distillate and specialist cuts of oil products, while potentially reducing carbon emissions as regulators seek to cut pollution.

An approaching gas glut and increasing concerns about supply of popular oil products such as diesel could see small, less capital-intensive GTL plants take advantage of supply gaps. The generous arbitrage between cheap gas and expensive oil products also offers good margins.

Size matters

Shell said the likely development cost of a project such as Gulf Coast GTL, uncertainties over long-term oil and gas prices and differentials, and the company’s strict capital discipline led it to decide that GTL is not a viable option in North America at present, despite the ample supply of gas.

Roy Lipski, chief executive of Velocys, a provider of technology for small-scale GTL, cautioned gas supplies may not have been ample enough.

“The Shell plant, which was slated at 140,000 b/d, would have required more than a billion cubic feet of gas each day. Securing that amount of gas is almost impossible,” he told Interfax. He added units are so large for GTL facilities of this nature that they have to be transported by water, restricting location options to coastlines. The Shell project would also have had to compete with a Sasol project in Louisiana and this posed the risk of cost escalations, poor availability of skilled labour and strains on the supply chain.

“Our technology is able to target a much smaller scale, from 1,000 to 15,000 b/d compared with 100,000 b/d. But now, because of this modular approach, we can also put them in remote locations. There is a lot of cheap gas in remote locations, such as Siberia. So now we can deal not only with stranded gas, [but with] with cheap shale gas and flared gas,” Lipski said. The smaller plants can also be located where there are shortages of middle distillates, which GTL plants predominantly produce.

The smaller plants take 18-24 months to build, compared with five years for the larger versions.

A question of technology

The technology that makes small GTL plants possible is new and brings together two innovations. The first came from the University of Oxford, which developed a technique to make very active catalysts that can do more work in a smaller volume. The problem was that conventional reactors cannot accommodate such active catalysts.
The Pacific North West Laboratory in the United States then invented a new type of chemical reactor, called the micro-reactor, which performs the chemistry in very small chambers and can handle more heat, which allows much more work to be done.

Favourable numbers

“Using data from company presentations, the economics of small-scale GTL could be robust… if the technology can be proven,” analysts at Bernstein Research said in a note. Taking a base case capex estimate for $100,000 per day of liquids, a standard energy conversion efficiency of 60%, an effective diesel-gas spread of $13/MMBtu and two years for construction, they model a 12% internal rate of return. This is more or less level with larger energy projects.

Lipski said capital and operating costs will probably be about $100/bbl. “In comparison with conventional refining under current North American market conditions, we can produce a finished barrel of diesel for around $70, where it would cost a refiner more than $100,” he said.

Environmental opportunities

As regulators become increasingly concerned about emissions, companies such as airlines are facing the prospect of carbon restrictions. The environmental consequences of GTL are disputed, but there is some opportunity for reductions in harmful emissions.

If conventional gas is taken as the starting point for a GTL unit, its carbon footprint is comparable with a conventional refinery, although it produces cleaner-burning fuel. The real opportunity to cut pollution comes when biomass or other renewable feedstock is used. The carbon footprint of a pure biomass-to-liquids (BTL) plant is 90% compared with conventional fossil fuels, Lipski said.

“We are looking to build a 2,000 b/d BTL plant in East London that is going to supply enough jet fuel for all of British Airways’ needs for City Airport. The idea is to build these plants in metropolitan areas, taking the city’s waste and turning it into aviation fuel,” Lipski added.

GTL also offers the environmental and economic benefits of reduced flaring. According to the World Bank more than 5.3 trillion cubic feet (150 billion cubic metres) of gas is flared every year, equivalent to 25% of US consumption or 75% of Russian exports.