New Energy Technologies - Gas
Gas to liquids is the conversion of natural gas (methane) to gasoline (petrol). The process is not new – indeed since the 1980s a gas to liquids plant in Bintulu Malaysia has been producing some 15,000 barrels a day.
Unit technical costs – the cost per barrel to produce this form of fuel, has been some $15 per barrel, rendering the process only marginally economic until recently. In the last few years, the large IOCs have announced joint venture deals in Qatar to produce three new plants totalling some 300,000 barrels of production to be built in the next ten years.
The process takes natural gas and by chilling/condensing, produces high quality gasoline and distilled water as a by-product. Each 100,000 barrel per day plant costs over $1.5 billion - the process is very capital intensive, and plants take five years to plan and build.
In Qatar, there is an almost endless supply of low cost natural gas from the North Field which straddles Qatar and Iran and is of unknown extent. Only part of this giant gas field is developed, so in theory, the gas to liquids plant could be expanded to dramatically increase Qatar’s oil (and gas) production, particularly if prices stay above $30 per barrel.
The liquid gasoline is shipped by tanker to the many markets that require the refined fuel. Because the fuel is ultra-clean and high quality, its market is strong in countries where low sulphur and clean-burn gasoline is required through environmental regulation. It also gives an opportunity to monetise stranded gas in remote land-locked locations – such as Turkmenistan, since the refined fuel can be shipped via pipeline and barge.
Liquified Natural Gas (LNG) as a form of energy supply and investment has a very bright future. Gas is produced through the normal process of extraction via gas wells and piped via a gas plant that processes the gas and knocks the water out (dehrydration).
The gas then passes into a Liquified Natural Gas Plant where the gas is super-cooled and condensed into a liquid. It is then pumped into chilled pressurised tanks on LNG ships and transported to a gas market – often many thousands of miles away. The LNG then passes into a de-gassing plant where the gas pressure is dropped and the gas is warmed – then fed into the gas pipeline system to supply industrial and domestic customers.
To make this whole process economic, the gas needs to be low cost to extract in the first place – typically 50 cents or less per standard cubic foot. The LNG process often costs about 50 cents, with transportation 25-50 cents, degassing 25 cents, and pipeline transport to customer say 15 cents. So typically gas prices for the customer need to be at least $1.65 to make this process economic. Until recently, gas prices in the USA and Europe were only $1.50-$2.00 but recently gas prices have risen to over $4 making LNG economic to import to NW Europe and USA.
Because typical integrated LNG plants with gas development and shipping typically cost between $4 and $12 billion to build – the low gas price and saturated market has until recently put many investing energy companies off. However, LNG in the last few years is expanding dramatically since energy companies can see a long term high gas price and massive future gas growth and requirement for China, India and to a lesser extent USA and NW Europe.
Because of this, Qatar, Indonesia, Venezuela, Nigeria, Australia, Oman, Trinidad and Malaysia are either expanding their LNG production or about to do so.
Because of the technological expertise, marketing requirements and capital requirement, the larger IOCs are still able to get large equity stakes in such joint venture schemes. The technology is not new, LNG has been produced since the early 1970s – but the LNG trains are now some 5-10 times bigger than the ones built 35 years ago. The economies of scale and lower unit costs have made LNG more economic and opened up LNG shipping to ever longer distances (e.g. eastern Russia to western USA, NW Australia to western USA, Qatar to Japan, Nigeria to Spain and southern USA).
IOCs with the biggest capital LNG exposure are Shell, ExxonMobil, BP, Total, ChevTex and BG. NOCs with the biggest capital exposure to LNG include Petronas, Pertimina, Qatar National Oil Company, Oman LNG and the Nigerian National Petroleum Corporation. In Japan, Mitsubishi and Matsui are both large investors in LNG processing and shipment.
It is envisaged that increasing environmental concerns with pressure to lower CO2 emissions and use of cleaner burning fuels will drive LNG demand upwards. The security of supply and long term contracts is also attractive to many large customers. Spot cargos are also commonly available. The gas can be used in power stations – and replace coal (which produces higher CO2 emissions and particulate pollution).
Big new markets are China and to a lesser extent India (as a replacement for some coal, and providing domestic consumers with gas for the first time) and USA and NW Europe (replacing pipeline gas because indigenous gas reserves are in decline).