GTL Special: Changing Tides

Costly large scale gas-to-liquids technologies are taking something of a backseat, giving way to smaller, more agile and economic alternatives

Iran's rapidly growing methanol industry is presenting excellent opportunities for MTG developments.
Iran's rapidly growing methanol industry is presenting excellent opportunities for MTG developments.

Global Gas-To-Liquid (GTL) market valuation stood at around $8.4bn in 2014 and is expected to grow at an estimated Compound Annual Growth Rate (CAGR) of around 6.5% from 2015 to 2020, a report by Grand View Research has found. The growth is estimated to come mainly from rising demand for alternative energy sources, as well as the economic incentives to monetise gas that is otherwise stranded and unavailable for use. On the back of this, the need to convert methane-rich gases into economic, clean synthetic fuels is likely to foster growth of innovative smaller scale GTL technology, the report claims.

“Generally, the latest developments in GTL technologies and catalysts have significantly increased efficiency and reduced the required capital investment, with some research specifically focusing on mini compact units,” said Elena Shpinel, senior technical consultant at EPC.

“All these developments and growing industrial experience make GTL projects, and in particular those of medium to small size, an attractive investment option with reduced associated risks and a shorter return on investment period.”

Shpinel explains that under certain market conditions, gas transformation to liquid fuels is considered a very attractive alternative, particularly in remote fields where pipeline construction is too costly an option. This applies to both traditional Fisher-Tropsch and newer Methanol-to-Gasoline (MTG) processes, where the latter requires somewhat less capital investment.

According to Shpinel, one of the top drivers to build a GTL plant is when doing so makes better economic sense compared to traditional gas trade via pipeline transportation, Liqufied Natural Gas (LNG) and terminals or even fertilizer production.

Currently, the main market for small-scale GTL installations is onshore, says Dr Neville Hargreaves, business development director of UK-based Velocys.

“Because the oil price can be relatively low at the moment, it is the particular niches that work best for smaller scale GTL – places where the gas is cheap and the product is of high value.

“It might be gas fields where there is a local demand for diesel fuels for mining operations or for the oilfields themselves. This can happen in countries which are rich in gas but rather poor in finished products and fuels,” he added.

The recent development of stringent environmental regulations by governments to control pollution, promote cleaner fuel sources and put an end to the practice of flaring gas, is further expected to drive investment in the GTL market.

“Most countries don’t like to see their gas being flared. It’s bad for the environment and it is a waste of valuable resource. But actually oil companies in many cases don’t have any alternative. Sometimes they do — if there is a demand for electricity they can build a gas turbine but that doesn’t work in every case because quite often there isn’t a sufficient demand, so transforming [gas] into readily transportable liquid is [more] attractive,” Hargreaves expalined.

Another important driver for GTL plant operators is being able to produce higher quality waxes and lubricant oils using the Fischer Tropsch process as opposed to refined oil. Although the market for these products is much smaller compared to that for GTL fuels, Hargreaves believes it still holds some significant potential.

Making investment decisions with respect to new GTL projects is by no means an easy task. Simply selecting the right location requires careful consideration of various factors such as geo-political, macro-economic and local conditions, followed by resource availability, technology development, products market, environmental and tax regulations.

Huge gas reserves in the Middle East are expected to form the basis for the development of various ways of gas monetisation in the region, with mid-to-large scale GTL likely to play a crucial part.

Home to the world’s second and Africa’s fourth largest gas reserves respectively, Iran and Egypt are increasingly seen as attractive markets for Gas-To-Liquid technology.

“Iran, which possesses 34tr m3 of gas reserves, will definitely be the focal point for GTL projects development. Greatly supported by the recent lift of sanctions, the drive to implement new projects has accelerated,” said Shpinel.

She added that one of the fastest growing sectors in Iran is the methanol industry, which produces some 5mn metric tonnes of methanol annually and is expected to add at least 10mn mt more by 2025.

“Since methanol is a basic feedstock for MTG process generating clean gasoline and about 15% of LPG and can be easily added to existing or projected methanol plants, this is indeed a great opportunity for new GTL and MTG plants,” Shpinel said.

However, Stephen Jones, vice president for the oil markets and downstream practice at IHS Energy, is of the opinion that, the high cost and competing alternative uses for natural gas, such as LNG could potentially hinder developments of new GTL projects in the region.

Commodity prices, particularly those of oil and gas, tend to play an important role in determining the feasibility of many projects, but their intrinsic volatility can prove especially problematic when long-term investments are made.

“Clearly, oil is one of the main pillars of the Middle East economy and in this respect low oil prices do not make any investment simple. However, if we look specifically at GTL projects, the main driver is oil to gas price ratio, rather than oil price alone. For decades, gas prices were linked to oil prices in most supply contracts,” said Shpinel.

“However, the latest development demonstrates their decoupling. The emergence of shale gas technologies, new gas fields discoveries, in particular the one in Egypt, in combination with already existing excess of gas supply to the market will likely push gas prices further down, shifting the oil and gas price ratio to a higher end.”

The ideal situaiton from an economic point of view is high oil prices and low gas prices, according to Hargreaves, but since that rarely happens to be the case, he suggests the best solution is to “go after the niches with remote places” where the oil price is almost irrelevant and it’s the physicial location and logistics of the field that matter.

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