The next frontier

30 November 2001

For alchemist, read chemical engineer. For metal, replace with gas. And for gold, read middle distillates. For the international gas industry, the quest to commercialise gas-to-liquids (GTL) technology has been akin to alchemy, except in one important respect. While alchemy remains in the realms of fantasy, GTL is fast becoming a reality

GTL technology is hardly new. The basic chemical reaction, involving synthesis gas being passed over a catalyst to produce a broad hydrocarbon stream and water, was discovered in the 1920s by two German scientists, Karl Fischer and Hans Tropsch. During the Second World War, the Fischer-Tropsch process was installed on some 130 plants, producing 8,000 barrels a day (b/d) of product for the German war effort. After 1945, South Africa became the GTL standard bearer, installing its first commercial plant in the 1950s. More recently, a clutch of major oil companies, including South Africa's Sasol, the Royal Dutch/Shell Group, the US's ExxonMobil Corporation and the UK's BP, have developed their own GTL processes.

The Fischer-Tropsch principle still remains at the heart of the GTL process. 'You take the gas, blow it apart and put it back together,' is how Simon Clarke, manager of gas-to-market technology at the UK's Foster Wheeler Energy, describes it. Nevertheless, the process has undergone a series of refinements. Whereas all the early plants used the fixed-bed Arge process, the next generation of GTL units will be based on the fluidised-bed or slurry-bed processes.

The merits of GTL technology have long been known. Traditionally, companies looking to exploit remote gas reserves have had two primary choices, and both - liquefied natural gas (LNG) and pipelines - have their drawbacks. In the case of LNG, it is the exorbitant cost of building infrastructure and transport. The 'big fridge process' requires purpose-built tankers and gassification and regassification facilities to get the product from producer to consumer. As for cross-border pipelines, they raise sensitive political and environmental issues and lack flexibility.

In contrast, output from GTL plants can be transported by ordinary tanker. The products are also extremely high quality. A low temperature Fischer-Tropsch plant produces middle distillates such as diesel and associated naphtha or waxes and lubes, the likes of which are not found in refineries. 'GTL makes extremely high quality petrochemical-grade naphtha, which is a step above commercially traded naphtha,' says Clarke. 'As for diesel, a hydrocracker will make product with a cetane count of 65 if pushed hard. GTL plants can make 75 without even trying.'

The biggest obstacle to developing large-scale GTL plants has been cost. They are utility intensive, being both a large producer and consumer of power. Overall, they are exothermic, meaning that large cooling facilities are needed.

Foster Wheeler has over the past five years carried out GTL feasibility studies for eight major clients and prepared about 150 engineering studies and specifications for GTL installations. From its work, the engineering company has concluded that the energy challenge can be met through a 'self-integrated' utility plant. Under this configuration, high grade offgas is used for process heating, with the remaining offgas employed to generate steam. The medium pressure steam is in turn used to generate power and the high pressure steam to balance the energy requirements. Through this approach, the plant's thermal efficiency can be maximised, which leads to lower feedstock consumption, lower carbon dioxide emissions, and less heat ejection to the surroundings.

Engineering work, coupled with improvements in technology, has resulted in significant reductions in overall GTL costs over the past five years. Foster Wheeler estimates that thermal efficiency has risen to 60-65 per cent, from 45-50 per cent in 1996; constructed costs have come down to $17,000-22,000 a barrel of capacity from $25,000-30,000 a barrel; and project schedules have been slashed by a third to an estimated 30-33 months to build a worldscale plant.

More favourable economics have been reflected in a wave of GTL projects being announced. At the last count, four had gone public in the Middle East, with a similar number reckoned to be at the discussion phase. Qatar has taken the lead. In addition to its venture with Sasol at Ras Laffan, Qatar Petroleum (QP) is carrying out a feasibility study with ExxonMobil for a second GTL plant and has held talks with at least two other international companies interested in setting up similar facilities at Ras Laffan.

As the level of interest highlights, Ras Laffan is viewed as a premier location for GTL production. It is the landing post for gas from the largest non-associated gas reservoir in the world, the North field. Through the industrial city, it offers investors much-needed infrastructure.

GTL projects are notoriously capital intensive and require substantial up-front funding. Over the course of a 25-year period, the biggest drain on funds is capital expenditure accounting for about 52 per cent of total costs. That is more than double both the feedstock and operating costs. Consequently, anything that can be done to reduce capital expenditure has a strong bearing on the overall project's economics.

For the Middle East's most advanced GTL scheme, under implementation at Ras Laffan by the QP/Sasol venture, minimising capital costs has been a priority. The planned 34,000-barrel-a-day (b/d) plant, which will use Sasol's low temperature slurry-phased technology, will not have a dedicated seawater cooling system. Instead, its cooling needs will be met by the $300 million Ras Laffan common cooling system. Electricity will be supplied by a third party, the Ras Laffan independent water and power project (IWPP), while the stranded gas feedstock will come from the enhanced gas utilisation project, planned by QP and ExxonMobil

The estimated $800 million plant will require 330 million cubic feet a day of lean natural gas to produce 24,000 b/d of fuel, 9,000 b/d of naphtha and 1,000 b/d of liquefied petroleum gas (LPG). In addition, significant quantities of water will be produced as a by-product of the GTL process. This will be treated and used for irrigation purposes in and around the industrial city.

Work on the nine-month front-end engineering and design (FEED) contract began in July at Foster Wheeler's office in Reading. The next milestone in the project's implementation is expected to come in January with the release of the engineering, procurement and construction (EPC) bid package to prequalified contractors. The first quarter will also see the venture and its financial adviser, the Royal Bank of Scotland, hold roadshows for banks interested in financing the project's debt element. Financial close, scheduled for September, will be accompanied by the signing of the EPC contract.

In the past, the fortunes of GTL projects have tended to rise and fall in line with the price of crude. In 1998, the Ras Laffan scheme was effectively put on hold after the oil price crash raised serious doubts about its economics. When it was revived 18 months later, Sasol said that advances in the technology meant that the project was commercially viable at a lower crude price, of $12-13 a barrel. Since then, further cost improvements have been made in engineering and technology.

Sasol will not comment on what the current breakeven point is. However, officials stress that the project is in no danger of being derailed by a return of low energy prices. 'The first time we will come to the market with product is four years from now,' says Peter Cook, Sasol's business manager for the Ras Laffan project. 'We therefore can't worry about the oil price today.'

Economics aside, both joint venture partners have powerful incentives for seeing the project succeed. Having already established a strong petrochemical base and overseen the development of the fastest-growing LNG industry in the world, QP sees GTL as another means to monetise the vast gas reserves contained in the offshore North field. The fact that GTL is a cutting-edge technology, seldom used on a commercial basis, only adds to its attraction in QP's eyes.

As for Sasol, the Ras Laffan scheme marks a critical step in GTL's development. 'No one has said that this first project is our [final] aim [as far as GTL is concerned],' says Cook. 'The first project at Ras Laffan will be the tester, where we can prove the technology and the capacity. The future expansion is where the real money will be made.'

This view is shared by engineers at Foster Wheeler, which is also working as FEED contractor on a similar-sized project in Nigeria for Sasol and the US' ChevronTexaco Corporation. 'Everyone wants to see these projects succeed as they will prove that GTL economics are competitive,' says Don Harris, business development director at Foster Wheeler International Corporation. 'They are likely to be the only plants of this size, for as with LNG technology, it will become an issue of economies of scale.'

The sheer number of competing projects suggests that after 70 years of promising much and delivering little, GTL's day is close at hand. Interest in the technology has never been higher and its economic and environmental case has never been stronger. Indeed, some have gone so far as to suggest that the next 10 years will be the GTL decade. If it is, then the Ras Laffan project will undoubtedly have played its part.

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