The announcement last month of a
$21 billion project to capitalize on abundant, low-cost US natural gas should have caught the attention of everyone interested in this resource. As reported in the
New York Times, Sasol, a South African energy company, intends to build a 96,000 barrel-per-day gas-to-liquids (GTL) plant in southwestern Louisiana, in conjunction with a new gas processing plant and ethylene cracker. The synthetic diesel fuel produced by this facility would provide a different pathway for shale gas to displace imported crude oil in the US transportation sector, in competition with compressed or liquefied natural gas (CNG or LNG.)
GTL involves a
two-step conversion of the methane that makes up the bulk of natural gas into synthesis gas and hydrogen, which are recombined into liquid hydrocarbons by means of the decades-old
Fischer-Tropsch (FT) process. GTL is also energy-intensive, with an overall efficiency
around 60%. South African companies have vast experience with such synthetic fuels. Sasol are partners in the
Oryx GTL plant in Qatar, and their
coal-to-liquids plants in South Africa utilize a similar syngas step and the same FT process as GTL.
With the US suddenly perceived to be sitting atop a
century's worth of natural gas, mainly in the form of unconventional gas from shale, tight gas formations and coal-bed methane,
T. Boone Pickens isn't the only one to see an opportunity to displace imported oil with gas. Yet as attractive as that sounds for reasons of energy security and trade, it isn't obvious whether the public or even fleet operators are willing to switch on a larger scale to a lower-density gaseous fuel requiring both new distribution networks and new or modified powertrains. Only
0.1% of the natural gas consumed in the US now finds its way into vehicles, equivalent to
less than 0.1% of US oil demand. Under the circumstances, it would be surprising if someone weren't looking seriously at GTL, one of the few practical ways to circumvent the mechanical and logistical barriers that have impeded the fueling of more US cars and trucks with natural gas.
When I read about Sasol's proposed project, I immediately thought of another, less well-known South African synfuels facility. Since 1992 the
Mossel Bay GTL plant has been turning natural gas into gasoline, diesel and other fuels, drawing first on the Mossel Bay gas field and then on
newer fields as the original one depleted. Although owned by another firm, the
ongoing struggles to keep the "Mossgas" plant supplied are well-known in South African energy circles. I can't imagine Sasol embarking on a project like the one in Louisiana if they had any doubt about their ability to keep it supplied for decades.
Of course volume and price are two very different aspects of supply. A decade ago, conventional wisdom held that GTL required a gas cost of around $1 per million BTUs to be viable. Even with the shale bonanza today's US natural gas price is well above that level. What now makes it possible to conceive of GTL in the US is that the price of the crude oil used to make diesel and other fuels has risen so much higher than that of natural gas. That comparison is more obvious when one converts natural gas prices into their energy equivalent in crude oil. Today's
US natural gas price is below the $23 per equivalent barrel that it was in 2001. Meanwhile crude oil has increased from about
$26 to $95 per barrel. The drastically improved attraction of GTL becomes even clearer when comparing ten years of wholesale US Gulf Coast diesel prices to natural gas prices using the approximate GTL conversion rate of 10 million BTUs of gas per barrel of liquid product.
As the chart above reveals, this theoretical GTL margin has exploded since 2009. Yet it also shows that if gas prices returned to the levels we experienced just a few years earlier, the proposed project would encounter significant risks. Perhaps that helps explain Sasol's concept of a larger integrated gas complex with multiple sources of margin, capitalizing on the waste heat from the GTL process and the lighter hydrocarbons it yields as byproducts.
It remains to be seen whether GTL will prove an attractive means of leveraging the US shale gas revolution to back out imported oil. However, if Sasol and others proceed with US GTL projects, anyone eyeing our gas surplus for other purposes, whether in manufacturing, fertilizer production or power generation, would face serious competition linked to the global oil market. That includes potential LNG exporters, who passed an important hurdle with the publication of a favorable analysis by the Department of Energy.
A slightly different version of this posting was previously published on the website of Pacific Energy Development Corporation
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