High Oil Prices Boost Gas-to-Liquids Projects
Record high oil prices are increasing the appeal of Gas-to-liquids projects which have already attracted billions of dollars of investment to exploit rich gas reserves in remote areas, analysts say.
Gas-to-liquids (GTL) technology processes natural gas into petroleum products including "clean" low- sulphur diesel that meets tough new European Union and U.S. environmental rules.
Energy companies are pumping funds into GTL schemes in Qatar, the tiny Gulf state sitting on the world's third largest gas reserves, and looking at projects in Australia, Trinidad and Tobago, and Russia.
"With high prices GTL is more attractive as more companies have raised their assumption of oil prices to $20-$24 (a barrel) from $ 1 6-$18," Rajnish Goswami, an analyst at Edinburgh-based Wood Mackenzie, said.
"Historically there was a big debate over whether projects were viable at $16-$18," Goswami added.
Oil prices hit new record highs of close to $48 a barrel on Thursday, spurred higher by renewed violence in Iraq at a time of tight supplies and continuing demand growth in China and India.
The latest investor in Qatar, ExxonMobil, plans to invest $7 billion in a huge GTL project, helping the country towards its goal of becoming the world's largest GTL producer by 2010.
The U.S energy major follows in the footsteps of Shell, and South Africa's Sasol that already have GTL projects in Qatar under way.
Sasol, which invests in GTL projects in a joint venture with ChevronTexaco, is building a GTL plant in Nigeria and is in talks about projects in Australia and Trinidad and Tobago, a spokesman said.
"We are in discussions with gas owners in Australia. There is quite a lot of stranded gas there. We have to see if there is room for GTL," the spokesman said, adding the company was also looking at projects in Russia and Venezuela.
Sasol, which will start GTL production in Qatar next year, aims to produce 500,000 barrels per day of GTL with its partners by 2013.
For Qatar, GTL technology is a way to exploit its vast offshore North field - the largest gas deposit discovered in the world - as well as diversifying away from the production of liquefied natural gas (LNG) that has been its mainstay.
LNG is natural gas cooled into liquid form for easier and more economic transport by sea. On arrival, terminals heat it back into gas.
The bulk of GTL output will be "ultra-low" sulphur diesel that can be blended with ordinary diesel, allowing refiners to meet tougher environmental rules in force in the United States and due to be introduced in the European Union in 2005
"GTL brings stranded gas into new and liquid markets, and thus provides an alternative for gas producers as the LNG market matures," investment bank Morgan Stanley said in a recent report.
Because both products can be transported by sea, they allow producers to bypass the pipeline constraints that have traditionally tied gas within regional markets.
If all the GTL projects planned or under study in Qatar go ahead, then GTL production could hit 528,000 barrels a day (bpd) within the next seven years, eventually rising to about 800,000 bpd if expansions are completed.
Investment will total over $20 billion by the end of the decade.
First GTL production is due in December 2005 when Sasol 's 34,000 bpd plant comes on stream. Sasol and ChevronTexaco are studying expanding this scheme to 100,000 bpd by 2009 and building a second plant with production of 130,000 bpd.
Shell plans output of 140,000 bpd in a two-stage scheme with a final investment decision 2006, while ConocoPhillips is aiming for 160,000 bpd, also in two phases.
ExxonMobil's scheme is for 154,000 bpd, making it the largest GTL plant in the world.
ExxonMobil, the largest foreign investor in Qatar thanks to its stake in LNG developments, has committed itself to investing nearly $ 18 billion in the country's gas industry over the next decade.
For energy companies, large-scale GTL plants allow them to book the gas as replacement reserves, Goswami said, noting that ExxonMobil would be able to book as much as 13 trillion cubic feet of reserves over the lifetime of its project.
"From the company's side, the reserve replacement issue is very important. They can book a large chunk of reserves from these projects," he said.
Returns on GTL investments are around 13-15 percent a year, based on $18 a barrel oil prices, which is in line with new LNG schemes but less than older projects achieved, Goswami said.
Morgan Stanley estimated that oil company returns would be an average 14.1 percent (return on average capital employed) based on Brent oil at $21.
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