Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
i
Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
ABSTRACT
This report examines the technology to turn natural gas into liquid refined products, known
as Gas-To-Liquid. First of all, the undeniable advantages of such a process have been
underlined. These are divided into economical, strategic and environmental ones. Then, a
deep analysis of the limitations has been carried out. The boundaries of the current GTL
technology do not lie only in its complexity and expense, but above all in its intrinsic financial
risk. Finally, a new concept of the conversion process has been presented. The small-scale
Gas-To-Liquid may disclose the true potentiality of this technology. This is proved by several
factors and can open the door to a wide range of applications.
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
TABLE OF CONTENTS
Abstract ...................................................................................................................................... ii
CHAPTER 1 - Introduction .......................................................................................................... 1
CHAPTER 2 - GTL Drivers ............................................................................................................ 2
2.1 Economic Drivers ...................................................................................................... 2
2.2 Strategic Drivers ....................................................................................................... 4
2.3 Environmental Drivers .............................................................................................. 5
CHAPTER 3 - Limitations of GTL Technology .............................................................................. 7
3.1 Technological Complexity ......................................................................................... 7
3.2 High Capital Cost....................................................................................................... 8
3.3 Financial Risks ......................................................................................................... 10
3.4 Low Competitiveness ............................................................................................. 11
3.5 Hiatus Effect ........................................................................................................... 13
CHAPTER 4 - Small-Scale GTL ................................................................................................... 15
4.1 Modular Reactor..................................................................................................... 15
4.2 Low Risk Project ...................................................................................................... 17
4.3 Small-Scale Applications ......................................................................................... 18
CHAPTER 5 - Conclusions.......................................................................................................... 20
References ................................................................................................................................ 21
Tables ....................................................................................................................................... 27
Figures ...................................................................................................................................... 29
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
CHAPTER 1 – INTRODUCTION
The days of so-called “easy oil” are over, making it harder to meet demand without
complicated and expensive projects (Bloomberg, 2007). Global consumption of liquid fuels is
constantly increasing, while producing crude oil is getting more and more challenging. On
the other hand, large quantities of cheap gas are flooding the market leading to an
undesired drop in price (EIA, 2014). The proved reserves of gas consists of 185.7 trillion cubic
meters on a global scale (British Petroleum, 2013). Therefore, the effectiveness of gas
exploitation is of paramount importance.
According to estimates, more than 70 trillion cubic meters of proven reserves, that is almost
40% of the entirety, are unusable (Society of Petroleum Engineers, 2007). This fraction, also
known as stranded gas, includes both wasted gas and not developable reservoirs. Flaring and
venting are still the main solutions for the former, preventing its unprofitable transport. The
amount of gas flared or vented each year is up to 150 billion cubic meters (The World Bank,
2011). However, new regulations on global gas disposal are becoming stricter, forcing the
industry to find an alternative solution. Furthermore, gas from not developable reservoirs
cannot be extracted for either technical reasons or economic ones. Transport becomes more
expensive with distance and only a larger amount of saleable gas may pay back for the initial
investment. Hence, the distance of the reservoir from the market, along with the small
amount of gas in place, is one of the main economic restraint.
Several methods have been developed to solve the transport issue. Considering also the
growing liquid products demand, one of the most fascinating answers is the conversion of
gas into liquid, or Gas-To-Liquid. Several benefits boosted the interest in this solution, but
each attempt faced the undeniable limits of the technology. At the same time, a completely
new approach can make the difference in GTL future.
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
CHAPTER 2 – GTL DRIVERS
Gas-to-Liquid is a process to convert natural gas into synthetic oil, which can then be further
processed into fuels and other hydrocarbon-based products. In the simplest of terms, the
GTL process tears natural gas molecules apart and reassembles them into longer chain
molecules, like those that comprise crude oil (ENI, 2005). The process is divided into three
main steps: syngas production, Fischer-Tropsch synthesis and refinery. During the first
phase, natural gas is cleaned and treated to obtain syngas, which is a mixture of carbon
monoxide and hydrogen. Then, this mixture flows through a Fischer-Tropsch reactor, where
gas is converted into liquid. This mechanism is enhanced by the presence of a metallic
catalyst (Arno de Klerk, 2011). The output of this reaction ranges from light hydrocarbons to
heavy waxes. Therefore, a successive refining stage is required to get saleable products.
Typical resulting commodities are diesel fuel, kerosene, naphtha, liquefied petroleum gas,
drilling fluids and petrochemicals (Hatch, 2013).
Currently, there are 4 major global GTL plants: Pearl (Shell), Oryx (Sasol/Qatar Petroleum),
Bintulu (Shell MDS) and Mossel Bay (PetroSA), with one additional plant of comparable size
in the planning and development stage located in Louisiana (Sasol), forecasted to produce
96,000 barrels per day. In addition, smaller, less costly plants have been proposed (Edward
O’Brien, 2014). Although only few operating facilities have been realized so far, this
technology theoretically offers numerous advantages. The GTL conversion is interesting not
only from an economic point of view, but also strategically and environmentally.
2.1 – Economic Drivers
On paper, GTL itself is a strongly convenient technology. The economic benefit essentially
lays in the conversion from natural gas to liquid products. While treated in the facility, the
processed fluid becomes more and more valuable. Its economic value progressively
increases, being correlated firstly to gas price, then to synthetic crude oil one and finally to
refined product one. By having incurred in an initial investment and sustaining operative
costs, it is at the end possible to obtain a strong enhancement of the final saleable outcome.
A low sulfur diesel in the US is about 4 $/gal, approximately the same price of a thousand
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
cubic feet of natural gas. (EIA, 2014) Since the former can be converted in 138.490 btu/gal,
while the latter can produce 1,027,000 btu/Mcf, a much higher value in $/btu is profited
with diesel.
In addition, liquid fuels are economically tempting also for market trends. Even if the
forecasts show that the use of gas is going to be larger and larger, also the demand for liquid
fuels is predicted as constantly increasing. The consumption of refined products in 2013 was
estimated being equal to 3.677 MMton, with a growing trend of +1% per year which has
been constant for the last few years (Enerdata, 2014). A non-stopping growth in fuels
request, in addition to the unpredictability of the duration of oil resources, makes GTL
application definitely promising.
Another economic driver is related to transport expenses. The physical nature of natural gas,
very different from that of oil, needs elevated costs for its transportation from “remote”
areas to the markets of consumption, primarily Europe and the United States. Until today,
the natural gas market seems to be essentially as regional one (ENI, 2005). The main
disadvantage in gas transportation is related to the large volumes, which require a more
complex system design. If liquid has to be transferred instead of gas, pipelines can become
much smaller and affordable. The expensive compressors can be replaced by pumps, which
carry lower operative and investment costs. Last but not least, shipping can be evaluated as
an effective low-priced transportation alternative.
Finally, the conversion from gas to liquid represents an effective and profitable alternative to
re-injection. The associated gas from oil reservoirs must be handled with an economically
and environmentally sustainable technology. Since flaring cannot be considered because of
its high environmental impact and other solutions as LNG or pipelines are not always
economically convenient, re-injecting sometimes seems to be the only option. This
procedure allows to increase the oil recovery, but on the other hand the gas pumped down
into the formation is not sold. Moreover, the volumes of associated gas that must be reinjected are sometimes larger than the ones effectively needed to increase the recovery.
This necessarily leads to an over-engineering of the equipment, and thus in unavoidable
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
extra costs. The availability of a technology which allows to convert the associated gas into
high-priced products can change the economic perception of this secondary product.
2.2 - Strategic Drivers
During the last twenty years the proved reserves of natural gas have enormously increased
worldwide, reaching those of oil in terms of barrels of oil equivalent (boe). All these
resources have an important strategic value, besides the economical one. World gas
reserves are more evenly distributed, compared to oil reserves, with one-third in Russia and
Central Asia, one-third in the Middle East and one-third in the other parts of the world
(Alawode, 2011). In the current scenario, those few countries with high production of oil
deeply influence the energy world market. A new stability may be achieved if gas could start
playing a key balancing role.
Around 80% of such reserves are assembled in 12 countries which have, to respect of oil, a
much more diversified geographical distribution (ENI, 2012). This wide dispersion however
carries a relevant implication. Many gas reservoirs are located in places where production
and transportation facilities are missing, and a proper gas market has not developed yet.
Since these reserves are not economically producible, they are nowadays considered
stranded. The Gas-To-Liquid technology may turn these unexploited zones into active and
productive spots. It must be considered also that gas reservoirs are usually located in areas
more geopolitically stable than the main oil producing countries. Therefore, global energy
market would be deeply transformed by the advent of GTL. The historic oil suppliers would
not be able anymore to freely govern the trades, finally faced by emerging gas producing
rivals. Many more investors would appear on the scene, reassured by a more stable
situation.
Another benefit of the GTL technology is the natural integration of its output with already
existing infrastructure. Concerning applications, it allows to use final products in current
internal combustion engines, without adapting them to natural gas fuel. This advantage
make the GTL the immediate answer to the growing demand of liquid fuels on the market.
On the other hand, concerning transportation, liquids can be moved utilizing existing
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
technology, as oil pipeline and tankers, instead of complex processes of compression or
liquefaction. Finally, also stocking problems are positively affected by the GTL. The liquid
products can easily be stocked in low pressure oil tanks and conserved for a considerably
long amount of time, unlike natural gas which requires high pressures and way more
complex containing system.
In addition to a sensible cost reduction, the easiness in transportation and stocking of a
liquid product enhances the flexibility of a GTL system. When a gas field is going to be
produced through conventional technologies such as pipelines or LNG, a potential market
must be defined in advance and long-term agreements are needed. On the contrary, refined
product market is not a regional one and the GTL facility can be developed without the need
of a reference market. The latter can actually change quite easily with respect to market
fluctuations which nowadays characterize the Oil&Gas industry.
2.3 - Environmental Drivers
An extremely low environmental impact must be added to GTL advantages, just after
economic and strategic ones. After the treatments, processed fluid properties are
comparable to those of traditional fuels, but the formers own definitely superior qualities
when considering energetic content and environmental sustainability. The products of the
Gas-To-Liquid conversion are actually often called “clean fuels”, since their combustion leads
to a relatively small amount of emissions.
Natural gas itself is the cleanest fossil fuel available. What is more, in the GTL process all the
sulfur it may contain is removed. Actually, the Fischer-Tropsch reactor requires a sulfur-free
syngas in order to avoid the poisoning of the catalyst. As concerns NOx, the removal
technology known as “Exhaust Gas Recirculation” (EGR) gives promising results when
applied to Gas-To-Liquid products. Thus, the current level of mono-nitrogen oxides
reduction, that is 9%, is likely going to increase. At last, recent studies show that fuelling a
car with GTL fuel instead of conventional diesel has the potential to give an immediate
emission benefit of up to 40% less particulate mass (Shell Global Solutions, 2010).
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
Considering all these benefits, the final product of the conversion from gas to liquid is
definitely not only an high-price and high-energy fuel, but also an environmentally-friendly
one. Therefore, the GTL process easily finds its place in the current situation characterized
by stricter and stricter rules on emissions. Many research groups are nowadays studying new
eco-friendly technologies which should lead to pollution extinguishment. However, the main
problem is that effective positive results will only occur when these clean technologies will
be able to entirely replace the old ones. This radical change in the current scenario will
require a certain time to be reached. On the other hand, the combustion of less-polluting
fuels would give immediate reduction in the emissions. If properly mixed, adding GTL
products to lower quality fuels would allow them to finally fulfill the environmental and
performance specifications.
Another important aspect that must be considered is the possibility to replace the no more
sustainable practice of flaring with the GTL conversion. According to recent estimates,
Russian oil companies are currently utilizing 55 percent of their associated gas. This means
that the rest is burned on top of a vertical tower, or in a pit as waste or unusable gas
(I. Golubovich, 2013). In other countries the situation is not as serious as in Russia, but
flaring still represents a problem whose solution cannot be delayed anymore. Actually, it
globally accounts for 0.5% of all carbon dioxide emissions from fossil fuels (P. Fairley, 2010).
Hence, the Gas-To-Liquid conversion would not only avoid the economic loss, but also the
emissions coming from this pointless combustion.
Finally, stocking liquid fuels is much easier than gas containing. Considering the latter, in
order to reduce volumes, high pressure is usually required. A defect or a malfunctioning in
the system would lead to dangerous consequences for humans and the environment. On the
other hand, liquid tanks have a lower risk of leakage. The safety is ensured without the need
of developing new containment solutions.
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
CHAPTER 3 – LIMITATIONS OF GTL TECHNOLOGY
The abundance of natural gas reserves, the particular interest that different producing
countries have in the valorization of such resources, as well as the market perspectives, are
stimulating industrial projects based on consolidated technologies (gas pipelines, LNG) and
on new emerging ones (Fischer-Tropsch GTL). Notwithstanding the above, GTL has not
broken into the market yet. Even though it will soon be a 100-years old technology, the
progress has been slow and unproductive. Despite several valiant attempts and extensive
research expenditure, up to now gas has failed to make any significant in-road into the
transport fuel sector and non in-road into commodity plastics production (ENI, 2005). This is
due to essential limitations which make the Gas-To-Liquid solution unreliable.
3.1 – Technological Complexity
The complexity of the existing GTL facilities is difficult to figure out. A Gas-To-Liquid plant is
one of the most challenging projects ever commissioned and the enormous scale of the
undertaking really emerges when looked at from a construction perspective (Shell, 2014). In
design engineering, the main issues are strongly correlated to the size of the plant and to the
number of different processes and subsystems involved, as well as to the lack of available
historical data.
The extent of the structures is far from being fixed, but in most of the cases is really
impressive, pointing out one of the limits of this technology. For example, Pearl GTL, a joint
venture of Shell and Qatar Petroleum, is the world’s largest Gas-To-Liquid plant and its plot
size of 1.6 by 1.4 kilometers is the equivalent of more than 450 football fields (Shell, 2014).
Even though other facilities can’t equal this record, their sizes are still relevant. Therefore,
finding convenient areas wide enough to develop a field is an obstacle itself.
The technological complexity doesn’t lie only in the dimension of the plants, but also in the
several steps and components involved in the actual process. Usually more than 3500
patents are required to build up the conversion process, while the number of equipment can
be up to 3000, including pumps, compressors, columns and vessels (Cannonway, 2014).
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
Therefore the optimal interface among all of them can be difficult to accomplish. Moreover,
the connection between each one of the main constituents is also problematic. The three
steps of the conversion, that are syngas processing, liquid synthesis and refining, have been
conceived to operate as stand-alone facilities. In a GTL plants they have however to
collaborate and interact with each other. Hence, even though syngas production and
refinery seems to be mature technologies, their cooperation with the Fischer-Tropsch
reactor is still challenging.
In addition, the peculiarity of GTL projects is that historical data are not available for
comparison and technology development. So far, only few plants have actually been
designed, built and operated. This results in the knowledge being insufficient, above all what
concerns the Fischer-Tropsch synthesis and the interface between processes. This lack of
expertise is the main reason why a GTL plant is nowadays a completely unsettled problem. In
contrast, the availability of historical data from realized plants relieves the design of future
similar projects. New developments only require to adapt former studies to current
specifications. Finally, the analysis of accessible information allows not to repeat already
occurred mistakes.
3.2 – High Capital Cost
Once the technical issues of a new GTL plant have been overcome in the design phase, cost
analysis is the first step towards the physical construction. The profitability of the project is
one of the main drivers and it is strongly affected by the high capital cost of the technology.
Plant realization usually involves a large initial investment that is paid off during the lifecycle
of the facility. GTL brings together several expensive processes on a large scale: these
include gas processing, industrial gas manufacturing, refining, power generation, and
effluent treatment. (ENI, 2005). The coexistence of all these steps definitely makes the GTL a
capital intensive technology.
Since high unit cost characterizes these facilities, an economy of scale must be applied. Cost
per unit of output generally decreases with increasing scale as fixed costs are spread out
over more units of output. To reduce unit cost, a larger size of the plants is needed to raise
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
the processable volume of hydrocarbons. This concept stands out comparing Shell’s Pearl
with Escravos GTL, a 2014 plant in Nigeria operated by Sasol, Chevron and the Nigerian
National Petroleum Company. While the former is estimated to cost about 110000$/bbl,
given a conversion of 140000bbl/day, the latter is valued at 180000$/bbl, with a quarter of
the production, that is 34000bbl/day (Arno de Klerk, 2012).
GTL facilities seldom process gas coming from external fields. This leads to the conclusion
that only considerable reservoirs can be exploited. Therefore an effective application of the
economy of scale requires not only an extensive plant but also a reservoir large enough to
support high production volumes of natural gas. For instance, only 6% of the world’s known
gas fields are large enough to sustain GTL plants on these scales, and the majority of
potential undiscovered gas finds are thought to contain less than 1 trillion cubic feet of gas,
an amount too small to make conventional GTL plants economic (Lipski, 2013).
Furthermore, the lacking knowledge about fundamental steps and the inadequate
experience of plants composed of such a large number of processes drive to a complex
estimation of investment capital. For example, Shell's initial estimate for the Pearl plant was
$5 billion, but by the time the project was completed the costs were estimated to be around
$20 billion (Consumer Energy Report, 2012). A wrong estimation of costs could result in
longer payback time and in lower profit. In the worst case scenario, this miscalculation can
lead to an unprofitable investment.
Hence, these uncertainties exacerbate an already unfavorable situation. The exorbitant
capital costs present a barrier to many who are interested in GTL. Huge plants and huge gas
reserves are necessary to create the economy of scale needed for a venture to be economic.
Thereby, the Gas-To-Liquid conversion process is developable only in those large reservoirs
where more reliable processes are already established. On the other hand, the exploitation
of small reservoirs through GTL is still not economically feasible.
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
3.3 – Financial Risks
A project is economically viable when the final profit overcomes the initial capital cost.
However, the huge initial investment carries a financial risk that must be taken into account
in an exhaustive decision-making process. For a company, the financial risk of a project
defines the uncertainty of an economic return on an investment, or a potential loss. This risk
is due to the asynchrony of the financial cycle, that is the time lag between outcomes and
incomes. Therefore three fundamental factors have to be considered in the financial
analysis: the amount of the capital invested, the expected gross margin and the payback
time.
The initial investment leads the company into a situation of financial exposure, when sunk
costs return and contingent profit are uncertain, although budgeted. The higher the initial
capital cost the tougher the financial risk index, considering constant other factors such as
payback time and revenue. From this point of view, a Gas-To-Liquid plant turns into a
dangerous and complex investment.
The economic convenience of turning natural gas into fuels depends on the relationship
between the prices of oil products and gas. The GTL process is profitable as soon as a low
price gas is available while liquid fuels value is high. The prices of these refine crude oil
products are to a large extent determined by the prevailing crude oil quotation. For a GasTo-Liquid plant to make money, a barrel of oil has to trade at a ratio of about 16 times the
cost of a million British thermal units of natural gas (David Constable, 2014). In a case where
natural gas prices have the potential to go substantially higher, the economics for the
process become much more uncertain and risky. In the same way a considerable oil price
fall, as occurring nowadays, may most likely increase the level of risk. In this scenario, the
unpredictability of oil and gas markets represents the most critical concern for a GTL
investor (CSMonitor, 2012). The limited capacity of prediction and the persistent instability
of oil prices have to be analyzed through the “oil price dichotomy” (Fattouh, 2010).
According to this perspective, oil has to be seen both as a commodity traded over the
physical market, where the equilibrium price emerges from the interaction of supply and
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
demand, and on the other side, as a financial asset ruled by speculative actions and
unpredictable events.
The payback time is the period required to reach the breakeven point, that is the moment
when funds expended in an investment are recouped. With equal cash flows, the longer this
period the higher the risk that must be taken, since longer is the period when the project is
characterized by an economical deficit. According to the actual oil and natural gas prices, the
application of the GTL technology to a considerable reservoir is advantageous from an
economical point of view. However, from a financial point of view, the realization of a GTL
plant may not be sustainable. For example, it would normally need 25 or more years of low
natural gas prices, or at least a high oil/natural gas price ratio over that time in order to
reach the break-even point (Onaiwu, 2005). In this time lapse, the unavailability of reliable
forecasts is a relevant source of risk.
Louisiana GTL Plant, a Shell unrealized project, is emblematic. Europe’s biggest oil company
halted plans to build a $20 billion Gas-To-Liquid plant in Louisiana, citing the potential cost
and uncertainty about future crude and natural gas prices (Bloomberg, 2013). The plant
would have turned natural gas into diesel, jet fuel and other liquids at a rate of 140,000
barrels per day, but the company determined that it would be too risky, accordingly to
Shell’s policy (Zain Shauk, 2013). This example points out how deeply the decision-making in
a GTL project is affected by its financial risk.
3.4 - Low Competitiveness
Many positive benefits would make the Gas-To-Liquid technology one of the most
fascinating solution in field development. Nevertheless, other technological solutions have
been more willingly applied so far to deal with gas production. Natural gas needs to be
moved from the reservoir to the user, but many issues lie on the way. How to effectively and
profitably transport gas from the field to the marketplace, in one form or another, is
definitely one of the most important. This problem has seen multiple solutions during the
last two centuries, from the first 5.5 miles long rough pipeline in Pennsylvania, completed in
1859, to the most advanced technologies currently applied (Natgas, 2013).
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Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
The entire process of field development results affected by the growing complexity in
the transportation design. Since the newly discovered gas resources are getting smaller and,
at the same time, more isolated from the market, the transport issue is becoming more and
more challenging. Pipelines are the simplest and most convenient solution for those large
reservoirs which are located close to the market. However, even though customers are
relatively near, small resources are not profitable enough to pay back the substantial
investment of a pipeline system. In such cases, the established transportation technologies
for small volumes of available gas are CNG (compressed natural gas) and GTW (gas to wire).
The transport solutions which have been implemented so far are not economically and
technologically sustainable for long distances. The main restriction is connected to the low
energy density of gas. In order to produce from remote reservoirs it is necessary to find new
technologies that allow to reduce considerably the transported gas volumes. In this scenario,
GTL may play the leading role, at least in theory. However, the present situation is
completely different. Another technology, the Liquefied Natural Gas, is dominating the
scene.
LNG is the liquefying process of natural gas through cryogenic temperatures. The gas is first
cleaned from undesired components and then treated in the liquefaction unit. This
technology leads to a considerable volume reduction and therefore to the possibility of
transporting natural gas over long distances at extremely competitive costs. Moreover, it is a
relatively simple process and many years of researches and applications have allowed to
overrun the complexity related to the cryogenic temperatures. This have been resulting in an
active LNG market characterized by high competitiveness and low prices. Even big
companies as Lockheed Martin, leader in the aerospatial field, have recently developed
tanks suitable for liquefied gas (Lockheed Martin, 2014).
The intense activity of this market has positive consequences on the economics of this
technology. Although the initial capital cost of an LNG project is enormous, it turns out to be
much lower than the investment of a Gas-To-Liquid plant, assuming a similar capacity. It is
interesting to compare GTL and LNG biggest operative plants. Qatargas LNG, which has a
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Gas-To-Liquid: Beyond Boundaries
Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
capacity of 42 MMtpa, that is approximately 1 MMboe/day, cost 12.8B$ (Hashimoto et al,
2004). On the other hand, Pearl GTL’s capital investment was 20B$, with a conversion of
0.14MMbbl/day. It means that, with a seven times lower production rate, a GTL plant almost
requires to double the economical effort.
Extremely restrained capital costs lead to an economic profitability for LNG also in producing
from not extended reservoirs. Considering small fields, GTL is instead a not competitive
alternative because of the correlated limited incomes. Moreover, not only initial expenses
are lower but also the operative ones. A sustained activity in research and development has
actually resulted in an optimization of the process. Thus, the total energy consumption in
LNG facilities has today dramatically reduced. Moreover, the Liquefied-Natural-Gas solution
is deeply attractive for investors also because it ensures greater stability, focusing on the
profits. The profitability is actually poorly dependent on the fluctuations in oil and gas
values. A growth in gas prices, threatening for a GTL plant, in a LNG project turns directly
into an higher product value. The expected monetary benefit results increased while the
payback time decreased. At the same time refined product and crude oil prices do not affect
the profit gained by natural gas marketing, and the risk level for an LNG project is
substantially reduced. Therefore, in a context of political and economical instability,
Liquefied Natural Gas looks more attractive than Gas-To-Liquid conversion.
3.5 - Hiatus Effect
Back in the ‘20s, the Gas-To-Liquid conversion was already theorized. Nevertheless, this
technology is still characterized by those technical and economical unsolved issues, which
usually affect much newer processes. Answers to these kind of problems are normally
studied in research and development projects. It was actually found that the most critical
factor in the successful improvement of a technology is the continuous support of a R&D
program over an extended period of time. It often results into an improvement of the
process, hence leading to its commercialization on the market. Any discontinuity in research
and development seriously undermines the probability of success; this has been called
“Hiatus Effect” (Arno de Klerk, 2012).
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Federica Caresani, Debora Cresta, Riccardo Frittoli, Massimo Varano
The temporary enthusiasm towards the Gas-To-Liquid conversion has often been deposed
by times of low appeal. In those short periods characterized by uncertainties about future oil
reserves, the interest in new alternative fuels turns into strong development plan of the GTL
technology. However, new discoveries of relatively low price oil results in a deferment of
R&D programs. At the same time, specialized teams and laboratories are dismissed. While
knowledge and experience are gained during the first period, these are all lost as soon as an
extended span of low interest in the technology occurs. Therefore, every time new
researches are commissioned, they cannot rely on previous achievements and they need to
start from scratch.
Nowadays, since the future availability of liquid fuels is strongly uncertain, the interest in the
GTL technology is rising. Some research projects and some study teams are starting up. The
purpose is to finally develop a construction plan for productive facilities. However, from a
commercial point of view these realizations have so far been unsuccessful. According to the
Hiatus effect, this failure is due to the lack of continuous and supporting research programs.
Probably the most important step towards a real improvement in the GTL technology is the
establishment of an effective R&D project, which, in order to be continuous, shall not be
driven by the seek for an immediate profit.
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CHAPTER 4 - SMALL-SCALE GTL
Although GTL presents a large number of economical returns, as well as strategic and
environmental ones, some essential weaknesses make the conventional technology a not so
attractive solution. Nevertheless, the idea behind the conversion from natural gas to liquid
products still draws the attention of the oil and gas industry. As a result, some companies
are currently trying to reduce the impact of such a complicate investment on the enterprise
dynamics. The unit cost reduction of a facility or a technology is usually achievable by means
of two different ways. The first one consists of a drop in price due to the R&D progress,
which is the improvement of the technology characterizing the process. The second one is
the economy of scale, where plant size is increased in order to lower investment costs.
While the research in the GTL field has not been sponsored, the growing dimension
introduces numerous limitations that prevent this technology to spread. This situation
highlights the need of designing a new concept for this interesting idea. The small-scale GasTo-Liquid conversion may likely be the answer.
4.1 - Modular Reactor
A small-scale plant is not merely a step to bring the whole system towards smaller
dimensions. It also implies a different technology which characterizes reactors and single
components, as well as a new complete understanding of how all the parts must be
integrated. Unfortunately, the dimension of current chemical reactors are too vast to apply a
much more efficient technology, when more efficient usually means more expensive.
Moreover, in such cases an on-site assembly of the equipment is often, if not always,
required.
A lower capacity of the process, and thereby smaller reactors, does not only reduce the
initial investment but may also value a more advanced and recent technique. A new
technology has indeed made the scale-down of GTL facilities a plausible reality.
Microchannels are a developing field of chemical processing that intensifies chemical
reactions by reducing the dimensions of the channels in reactor systems (Lipski, 2013).
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Microchannel reactors enhance considerably mass and heat transfer, increasing the
conversion rate and component performances.
The newly discovered compactness may represent a revolution in the GTL industry.
Nowadays, the realization of a Gas-To-Liquid facility is preceded by tests and researches on a
pilot plant, where the real plant is essentially shrunk down to a small industrial system which
is operated to optimize the design of a larger one. Then, obtained results are transferred on
the real project, but the dynamic of the facility may not be consistent with the expected
behavior. Here is where the small-scale concept definitely have an edge. Tests are not run on
pilot plants anymore, but on industrial full size models. In this way, the information gathered
during experiments is more reliable and can be applied directly on the actual realizations.
The standardization of small scale components may easily lead to their optimization and,
even further, to a mass production. When the same equipment is used in multiple
applications, the comparison of available data in different operative conditions can result in
remarkable improvements of the applied technology. Optimized thermo-fluid dynamics of
the process may be achieved, as well as a more suitable configuration of the system. At the
same time, a mass production of GTL modules will be likely to occur. The production of
modularized deliverables will create established construction techniques, reducing costs and
saving time.
Furthermore, reduced dimensions facilitate the transportation and the installation of FT
reactors. The Gas-To-Liquid technology would be a concrete solution also in those areas
where space requirements, manpower availability and adverse weather conditions currently
do not allow these facility to be realized. The achieved simplicity of the system and the
presence of ready-made components may reshape, to a large extent, shut down periods.
Those plants that were earlier forced to face long time of inactivity due to technical
malfunctioning, they can now replace the non-working component with a new one.
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4.2 - Low Risk Project
One of the most limiting factor of a GTL facility is the huge financial risk associated to the
initial investment and to the unpredictability of natural gas and oil prices. With the
traditional GTL technology, significant capitals are needed in order to take advantage of the
scale economy. The possibility of spreading the investment on a greater capacity reduces
specific fixed costs, making the project more attractive for potential investors.
When applied in the small-scale field, the traditional technology would lead to a cost
escalation. Thanks to microchannels, unit costs have been shown to be constant and
independent of sizes. In the GTL technology all the parts of the assembly contribute to the
high initial costs, but each single part has a different weight. As the size of the plant is
reduced, the syngas production system, which is the most onerous process in the traditional
applications, became less and less expensive. Therefore, for a small-scale plant, the cost of
the Fischer-Tropsch reactor is the main issue and its reduction, along with the limited
dimensions of the plant, can considerably cut the initial investment related to the
technology.
The possibility to reduce the scale and to modularize the output leads to a sensitive
reduction in the construction time. Technical complications, usually due to design
uncertainties or to the availability of the equipment, often delay the realization of big
projects. Extra time means extra costs and therefore budget overrun. The modularization of
the facilities allows to break free from protracted design processes and long deliverability
times. It results in an easier and quicker assembly phase and in a lower risk of unprofitable
stops in the construction process. An example comes again from Shell’s GTL plant in Qatar.
This large plant has been affected by a continuous growth in the required investment cost.
Private and public investors are not obviously attracted by the perspective of a possible
increase in capital expenses with respect to the budgeted ones. Since this exposure is
definitely attenuated in smaller project, the GTL modularization turns into a safer gamble.
Small scale Gas-To-Liquid technology seems to be a solution also to the problem of market
instability. The higher risk lays in the volatility of the fuel demand, deeply governed by
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geopolitical scenarios. As first, the modularization allows to add so-called trains to the initial
installation. It results in an expansion of the plant capacity and in the possibility to answer to
a growing fuel request. On the other hand, the modular solution permits also to front a
decrease in the demand. It is actually easy to shut down some of the trains in those periods
when only a partial load is required. Therefore, the modularization would really lead to a
better response to the fluctuating demand. The process efficiency would not be affected by
lower work regimes and the costs would not consequently increase.
Finally, an easy modularized design would lead to a more active market. Nowadays the lack
of companies working on the Gas-To-Liquid technology causes an extremely low
competitiveness in this sector. Actually, a proper GTL market has not been successfully
established yet. The development of a simpler system would attract more investors, who
instead would be discouraged by the large scale complications. A higher number of
competitors on the market would result in a faster improvement of the technology and in a
reduction of the costs.
4.3 - Small-Scale Applications
Different disadvantages prevent conventional GTL to become a competing technology in gas
processing and long-distances transportation. On the other hand, small scale Gas-To-Liquid
conversion may be applied in several innovative solutions. A global profound change in the
oil and gas market may therefore come.
The main application of small scale GTL is the direct conversion of reservoir wellhead gas.
Since low production volumes cannot payback enormous initial investments, standard
transport systems are not usually applicable to small reservoirs. Oppositely, small Gas-ToLiquid plants would still be economically profitable even producing the limited amounts of
this valuable and available gas. Economical profit would come from increasing the value of
single wells, and from widening the range of producible fields.
In many oil reservoirs, associated gas still represent a challenging problem whose solution
may be found in small scale GTL process. What was before a secondary and sometimes
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unwanted product, it may now become an economically relevant resource. Converted into
liquid, it may be sold using the existing facilities originally conceived for oil and the
production from reservoir would result sensibly increased. In this scenario, small scale GTL is
definitely more attractive than the expensive re-injection technology and the
environmentally unsustainable flaring procedure.
Beside wellhead applications, the modularity of small scale GTL makes this technology
appropriate for refinery processes. Gaseous fluxes coming from distillation and cracking may
be transformed into higher quality liquid products. The meager amount of gas in a refinery
doesn’t usually justify the considerable initial cost required by conventional GTL conversion
plant. On the other hand, small and less expensive reactors would be economically suitable
to be optimized and integrated in the refining phase.
Small scale would finally lead to an expansion in the range of suitable feed fluids for GTL
technology. Not only natural gas, but for example also waste products as garbage and
biomass may be converted into saleable liquid fuels. The basic process of this technology,
called WTL (Waste-To-Liquid), is the same as GTL. The main difference lays in the syngas
production, which has to start from solids. The result is a slightly more complex solution,
which on the other hand carries incomparable environmental advantages. It is actually a
profitable way to dispose of waste products, converting them into extremely clean fuels.
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CHAPTER 5 – CONCLUSIONS
The increasing demand of liquid fuels, along with the huge amount of gas flooding the
market, turns into a new challenge for the oil and gas industry. The GTL technology appears
as the perfect solution to this scenario. At the same time, it offers the possibility of
exploiting remote and unprofitable reservoirs, where other concurrent technologies cannot
be conveniently applied.
The numerous advantages of the Gas-To-Liquid conversion collide with the as much copious
limitations revealed by the traditional facilities. The economic and financial risks of a
conventional GTL process prevented the launch of a proper market of this technology. Only
few projects have been developed and completed, and most of them have been affected by
delays and cost rises. That was also due to the lack of prior experience and of focused R&D
programs.
Recent developments, linked to the small-scale concept, allow to reduce drastically the risks
correlated to GTL facilities, attracting new investors and capitals. The strategic importance of
gas resources and the recent improvement in the technology can lead to its unexpected
rebirth. The small-scale conversion may represent a solution for a large number of
applications. From stranded gas to enhanced refineries, the value of relatively small flows of
natural gas can considerably increase. The transition from conventional plants to small-scale
facilities literally pushed the Gas-To-Liquid conversion into a world full of extremely
stimulating opportunities.
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TABLES
Table 1 Flaring volumes per year
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Table 2 Existing and proposed GTL plants
Table 3 Automotive fuel requirements
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FIGURES
Figure 1 liquid fuel consumption forecast, EIA
Figure 2 Distribution of proved natural gas reserves, BP statistical review
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Figure 3 Energy mix outlook 2035
Figure 4 Flaring events by year
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Figure 5 GTL block diagram
Figure 6 Geographical distribution of stranded gas, EIA
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Figure 7 Oil and gas price from 1980 to 2011
Figure 8 Application field of different natural gas transport technologies
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Figure 9 Capex vs distance for different natural gas transport solution
Figure 10 LNG vs GTL economics comparison
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Figure 11 Pearl GTL, Qatar
Figure 12 Small scale horizons, small reservoirs opportunities
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Figure 13 Specific costs comparison between conventional and small scale reactor
Figure 14 Size comparison between small scale and conventional GTL reactor
35