A facility the size of Pearl GTL relies on strong demand for its diverse product range. It is the largest gas-to-liquids facility in the world, capable of producing up to 140,000 barrels a day (b/d) of GTL products as well as 120,000 barrels of oil equivalent a day of natural gas liquids (NGL) and ethane for use in industrial processes. Its products will have to compete for market share with output from hundreds of crude oil-based refineries worldwide.
Andrew Brown, executive vice-president of Shell Qatar and managing director of the Pearl GTL, does not anticipate any problems.
“The demand for these commodities, especially the middle distillates diesel and naphtha, is 3 billion tonnes a year for products,” he says. “In many ways, the product pool you are placing them in is a bigger one than for liquefied natural gas (LNG).”
Shared marketing responsibilities
Responsibility for marketing Pearl GTL’s products is shared between Shell and Qatar International Petroleum Marketing Company (Tasweeq). State-owned Tasweeq was established in 1997 with the mandate to sell Qatar’s crude, refined products, GTL products, liquefied petroleum gas (LPG), condensates and sulphur.
The product pool for Pearl GTL products, especially diesel and naphtha, is bigger than for liquefied natural gas
Andrew Brown, Shell Qatar
Of the output from Pearl GTL, Tasweeq will market the condensates, LPG, sulphur, kerosene and naphtha, while the base oils and the gasoil is handled by Shell. The ethane goes into a central pool at Ras Laffan. The facility produces 480 tonnes a day (t/d) of sulphur as a by-product. “The products that Shell is marketing are those to which Shell’s global marketing capability adds value,” says Brown.
Pearl GTL will produce more than 1 million barrels a year of group three quality base oils, the main component in lubricants, most of which are sold through small retailers.
“To distribute these products globally, you need an enormous reach in the market,” says Brown. “Shell is the largest seller of finished lubricants in the world, so you immediately get access to that market. We have thousands of formulations that turn GTL base oil into finished formulations for end-market use. That is in itself an enormous marketing effort and we have hubs in the US, Europe and Hong Kong that are built especially to take this base oil and distribute it further. We have created a global supply chain.”
“That’s not something that Tasweeq can do, that’s something that Shell can do, and that’s what we bring to the country,” he says.
Pearl GTL will produce about 50,000 b/d of GTL gasoil – a gas-based version of diesel – enough to fill more than 160,000 cars a day. Most of the product will be used as a high-quality blend component with oil-based diesel and marketed through Shell’s worldwide diesel distribution system. The gasoil will predominantly be sold in Europe, where diesel consumption has traditionally been high.
GTL diesel is virtually sulphur-free, while the aromatics content is also low. These characteristics make it an attractive export to Western markets, where high-emissions standards are now being enforced.
“We do need to bring it on-specification in density,” says Brown. “Because it’s a light component, we have to blend it with some heavier stock to become on-spec in Europe.”
From 2012, the plant is expected to produce about 1 million t/y of kerosene and this will be blended with crude-based kerosene into aviation jet fuel. Pearl GTL’s output will be enough to power an airliner for half a billion kilometres when used in a 50 per cent blend. GTL kerosene burns with lower sulphur dioxide, nitrogen oxides and particulate emissions than conventional oil-based kerosene.
Brown expects most of the blend will be exported, but some demand could come from within Qatar itself. National carrier Qatar Airways has already started to experiment with fuel blends, launching the first commercial passenger flight powered by a GTL jet fuel blend in October 2009. “I can see the jet fuel being used locally,” says Brown.
New aviation fuel approved
The GTL jet fuel market received a major boost in 2009, when the American Society for Testing and Materials approved 50:50 blends as safe for use in civil aviation after two years of research. It was only the fourth time in history that a new aviation fuel had been approved.
Pearl GTL has come on stream at a time when governments are introducing stringent emission regulations
Shell is currently researching the benefits of synthetic aviation fuel with Qatar Airways, Qatar Petroleum, Qatar Fuels, Europe’s Airbus, the UK’s Rolls-Royce and the Qatar Science and Technology Park. Early evidence suggests that GTL kerosene might enable aircraft to carry less fuel to fly the same distance, while the low emissions could help to improve air quality at major airports.
The plant’s naphtha offers an alternative to crude-based naphtha, which is used as a feedstock in the production of plastics. Brown says the output will be shipped eastwards to feed the rapidly expanding Asian petrochemicals industry. As the GTL product is more paraffinic than standard naphtha, it yields around 10 per cent more high-quality chemicals and hence can be sold at a premium.
Normal paraffin is also produced at the plant. This is used in the production of detergents, such as washing powder and soap. Traditionally, detergent manufacturers extract normal paraffin from oil-based kerosene, returning the remainder to refineries. GTL normal paraffin eliminates the need for this extraction phase and so offers cost advantages.
Tasweeq supplies the products free on board to customers, meaning it does not have to arrange and pay for the shipping. It sells the products in the market under short-term deals. Only the paraffin, which is a component for detergents, is sold on a long-term contract as it feeds into small, captive markets.
Pearl GTL’s products are cleaner-burning than their conventional counterparts and have improved performance. This is a major competitive differentiator. Furthermore, the plant has come on stream at a time when governments are introducing more stringent emissions regulations. As a result, global middle distillate demand is shifting toward higher specification products that contain less sulphur and other impurities, burn more cleanly and are better for the environment. With rapidly growing demand and production still limited, higher specification products are able to command a premium.
“One way to think of it is this: Pearl has a capacity of about 140,000 b/d of GTL products,” says John Tottie, an oil and gas analyst for the UK’s HSBC Group in Riyadh. “Each $1 premium translates to $140,000 a day, or $51m a year. Capitalise this at 10 per cent and it is more than $500m. “Yet high-quality diesel can sell at a premium of several dollars versus lower-spec diesel and this premium can widen further if regulatory standards move ahead of the ability of the global refining system to cope.”
Pearl GTL’s operating costs of $6 a barrel are also just a fraction of those of a crude refinery. The higher the oil prices, the greater its margin advantage becomes, due to the increased input costs at the refineries and the corresponding higher sales price for refined products.
Many studies have been written analysing the risks of investing in GTL projects, with particular emphasis on the high capital expenditure compared with conventional refineries. But with the lowest operating costs in the sector, well-established distribution channels and rising demand for premium clean fuels, Shell should quickly recoup its $18bn-19bn investment. Provided oil prices remain as high as expected, Pearl GTL will prove the sceptics wrong.