Driving Home the Value of Natural Gas
Gas-to-Liquids is another idea to beat high gas prices
Want to beat the high price of gasoline? Here’s another idea: Gas-to-liquids, or GTL, which is a fuel substitute that could ease the demand for pure crude as well as provide productive uses for stranded natural gas.
It’s expensive. But it’s an arrow in the energy quiver. And it’s already being used in practice by the likes of Shell and South Africa’s Sasol. Indeed, the success of some of their projects in combination with $4 gas is adding value to those alternatives.
“GTL is more viable today than ever before,” says Paul Grimmer, chief executive of Eltron Research in Boulder, in a talk with this writer. “The capital costs to build a GTL plant have gone up. But the value in making use of natural gas for anything other than the pipeline is potentially worth the risks.”
The GTL alternative is similar to that of liquefied natural gas (LNG) in that both concepts strive to make use of otherwise stranded gas. But, LNG freezes the gas so that it can be efficiently transported on tankers before it is subsequently re-gasified and piped to a final destination. GTL, by comparison, converts natural gas into a synthetic fuel. It is shipped as a liquid and used mostly to power cars, buses and trucks, and possibly jet engines. It’s cousin, meanwhile is that of coal-to-gas, which uses similar processes.
Grimmer says that natural gas and crude oil prices have traditionally moved in tandem with each other. If oil spiked then so did natural gas, meaning the value of the conversion would be less. But now those commodities have been “decoupled,” he says. His rule of thumb is to multiply the price of natural gas by 5.5 to get the equivalent of what it would be if that were a barrel of oil. Natural gas at $4 a Btu would then be $22 an oil-barrel equivalent.
Today, a barrel of oil is more than $100, meaning that developers of GTL can sell their product for significantly less than crude oil. Consider Sasol: It began by converting coal-to-gas in the 1950s. But it has since used that same know-how to produce gas-to-liquids in Qatar. It is now talking with officials in Louisiana near Lake Charles to build a similar plant there.
Meantime, Shell got its start in the business in the 1990s in Malaysia by building a facility there that produced roughly 12,000 barrels a day. Now it operates the globe’s biggest one in Qatar -- a plant that makes 140,000 barrels a day. It cost the oil giant roughly $20 billion to construct the facility. But it is profitable because oil prices are so high.
“For the first time ever, there is a real possibility you will see GTL in the United States, says Grimmer. “Before, we looked to the OPEC countries or to Russia.”
Calculating the Risks
What’s the downside? It’s all about the price relationship between natural gas and oil. As long as there is a wide spread and as long as oil prices are high, it’s a good bet. But the capital costs to build a facility are huge. At the same time, a GTL plant has only a 60 percent thermal efficiency rate, meaning that a lot of energy content is lost before it gets to end-users.
How are the risks to be calculated? Despite the relatively low price of natural gas, the U.S. Energy Information Administration is showing that gross production is higher than ever; last October it was around 2,500 billion cubic feet. Long-term, it is expected to keep growing mainly because of the abundance of shale gas.
Unlike other minerals that must be discovered and mined, Grimmer says that developers know exactly where the shale is located and how to get it out of the ground. Environmental risks persists, although natural gas is sold as a cleaner alternative than coal. So if production is high now when natural gas prices low, exploration will only increase once such values rise.
“If you believe that we have this huge glut of shale gas, then it would make sense to build a conversion plant -- anything to enhance the value of the resource,” says Grimmer. “But the real question is: How long will this last? What happens in five years if the economies change and you have just spent all of your money?”
The 21st Century is not just about the production of green fuels. It’s also about the development of modern energy technologies. The shale gas boom is presenting new opportunities. One of those challenges is the generation of GTL that could help ease the demand for crude oil.
EnergyBiz Insider is the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.
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Industry thought leaders will be discussing this topic and more at the upcoming EnergyBiz Leadership Forum, Harnessing Disruption, taking place in Washington D.C., March 19-21, 2012. Review full conference details by visiting www.energybizforum.com