Replies to post #784 on The Rising Influence of Rising Affluence

[DewDiligence]

I interpret the assertion that the project’s input NG is “free” to mean that the taxes and fees that would be levied on commercial NG are not applied. The opportunity cost of the consumed gas is real, however, as you pointed out.

Don't agree at all that GTL is a dead end.

Now I have a dilemma… should I believe you, or should I believe XOM? :- )

[OakesCS]

zebra,

The Saudis would love to have more natural gas; unfortunately they insist on it coming from Saudi Arabia. Rather than being sensible and doing as you infer, the Saudis would rather burn crude oil for electrical power production. I've forgotten what the magnitude is but it's a disgusting amount of oil. Neighbors don't always get along so good and they'll literally go to ridiculous extremes to avoid giving the other guy money.

As for the 15% - that's not as bad as it gets. I've heard numbers up to about 30%.

Regarding skilled workers: unemployment among nationals in that part of the world is extremely high. It's not like there isn't work - it's just that many nationals will not do work that they consider to be beneath them. The exaggerated level of self-esteem, amongst other things, contributes to the competency problem referred to in the article.

There are some other stinky things underlying the article Dew posted but i can't talk about them (which are probably related to the 'free' aspect of the gas). I think Dew's skepticism is well-founded.
Charlie

[DewDiligence]

Sasol Enters Gas-to-Liquids Arena

http://www.nytimes.com/2010/12/24/business/energy-environment/24fuel.html

›December 23, 2010
By MATTHEW L. WALD

WASHINGTON — Diesel and jet fuel are usually made from crude oil. But with oil prices rising even as a glut of natural gas keeps prices for that fuel extraordinarily cheap, a bit of expensive alchemy is suddenly starting to look financially appealing: turning natural gas into liquid fuels.

A South African firm, Sasol, announced Monday that it would spend just over 1 billion Canadian dollars to buy a half-interest in a Canadian shale gas field, so it can explore turning natural gas into diesel and other liquids. Sasol’s proprietary conversion technology was developed decades ago to help the apartheid government of South Africa survive an international oil embargo, and it is a refinement of the ones used by the Germans to make fuel for the Wehrmacht during World War II.

The technology takes “a lot of money and a lot of effort,” said Michael E. Webber, associate director of the Center for International Energy Environmental Policy at the University of Texas, Austin. “You wouldn’t do this if you could find easy oil,” he said.

But with the huge spread between oil and gas prices, and predictions of oil topping $100 a barrel next year, the conversion technology could be a “a money-maker for whoever is a first mover in that space.”

Several other companies have intermittently tried to make liquid fuels from natural gas or coal. For example, the energy company Baard has been planning a coal-to-liquids plant in Ohio but has not been able to pull the pieces together, and Peabody Coal has discussed a similar plant.

Sasol figures that the natural gas needed for a gallon of diesel, plus operating costs, comes to about $1.50 a gallon. In comparison, a gallon of diesel made from crude oil now costs more than $2, even before refining, and many forecasts are for the price of oil to go higher.

But there is a hefty cost of building the chemical plant to do the conversion [duh], which might run over $1.5 billion for a new Canadian plant that would handle 40,000 barrels a day.

The calculations also exclude another cost: greenhouse gas emissions, which may be higher for a conversion plant than a typical refinery, depending on how the work is done.

“Everything ugly is in vogue again,” said Josh Mogerman, an energy specialist at the Natural Resources Defense Council, which has been fighting a proposed coal-to-liquids plant in Ohio.

From a financial perspective, the technology is far from ugly. A barrel of oil has historically cost one to two times as much as the equivalent amount of energy from natural gas. But right now, vast supplies of natural gas from shale formations in North America have driven prices down, so oil is triple the price of the gas equivalent.

The new ratio creates “a very attractive economic option,” said Lean Strauss, senior group executive at Sasol.

While the operating costs favor conversion, the cost to build the chemical plant is another matter; gas-to-liquids plants are far more capital-intensive than traditional refineries that make the same products from crude oil.

A plant opened by Sasol in Qatar in 2006, in partnership with the national oil company, Qatar Petroleum, cost $37,000 per barrel of daily capacity, but costs in Canada would be higher, Mr. Strauss said. Sasol produces 160,000 barrels a day of its liquids — diesel, naphtha and propane — in South Africa. It also turns out jet fuel, which is routinely blended into fuel for airliners departing from Johannesburg. In August, Sasol supplied 100 percent of the fuel for a Boeing 737 flight from Johannesburg to Cape Town.

In the deal announced Monday, Sasol acquired a 50 percent stake in Farrell Creek shale gas assets, in British Columbia. With the other owner, Talisman Energy, it will begin a feasibility study early next year on building a gas-to-liquids plant, and Talisman will have the option to own 50 percent of that.

Sasol is building a similar plant in Nigeria with Chevron, and last month, it completed a feasibility study in Uzbekistan. It also recently submitted a proposal to Shenhau, the Chinese coal company, for a similar plant.

The Sasol process cooks a hydrocarbon, either coal or natural gas, into a fuel gas made of hydrogen and carbon monoxide. Using a patented process that involves cobalt catalysts, it converts that gas into a mix of liquids: 80 percent diesel fuel, 15 percent naphtha and 5 percent liquid propane.

But the process is not 100 percent efficient. In fact, the finished product has only about 62 percent as much energy as the raw material did.

In addition to losing energy, the process creates excess carbon dioxide, compared to burning the natural gas or coal directly for energy. But starting with natural gas, said Mr. Strauss, the amount of carbon dioxide released per finished gallon of liquid fuel was comparable to the carbon footprint of a gallon from a traditional refinery.

Environmentalists are not so sure. “It’s unclear right now,” said Simon Mui, a scientist at the Natural Resources Defense Council. “There hasn’t been a large global experience in natural gas to liquids.”

But, he added, “it’s definitely not a greenhouse gas reduction strategy.” And recovery of gas from shale can itself be energy intensive and environmentally challenging, he said.

The Sasol move comes as Canada is increasing its production of oil from oil sands, which is clearly carbon-intensive. Environmentalists in the United States are trying to stop large-scale imports of oil from oil sands.

Mr. Mogerman, of the Natural Resources Defense Council, said that given the historical market prices for oil and natural gas, only countries with no other choice had pursued the conversion process. “The only ones who’ve done it are people with their backs against the wall, and who had no financial considerations,” he said.

But if oil prices stay high and gas prices remain low because of shale gas, that view could be history.‹

[DewDiligence]

Shell’s Pearl GTL Is Ready for Production

[At a cost of $19B, this is the most expensive individual hydrocarbon project in the world; at full production, it will generate 260K boe/d of liquids. See #msg-49175823 for background.]

http://finance.yahoo.com/news/Pearl-GTL-The-Worlds-Largest-prnews-4241936290.html?x=0&.v=6

›THE HAGUE, March 23, 2011 /PRNewswire-FirstCall/ -- The world's largest plant to turn natural gas into cleaner-burning fuels and lubricants took a major step closer to production today when gas began flowing from a giant offshore field.

Pearl GTL will process around 3 billion barrels of oil equivalent over its lifetime from the world's largest single gas field, the North Field in the Arabian Gulf. The field stretches from Qatar's coast and contains more than 900 trillion cubic feet of gas, equivalent to 150 billion barrels of oil, or over 10% of worldwide gas resources.

The gas-to-liquids (GTL) plant - a joint development by Qatar Petroleum and Shell (NYSE:RDS.A) (NYSE:RDS.B) – will add almost 8% to Shell's production worldwide - making it the company's main engine for growth for 2012. It has a capacity of 260,000 barrels oil equivalent a day and is expected to ship its first product in 2011 and reach full production in 2012.

"We're on the verge of starting up a project that will be a foundation for Shell's future growth for decades to come," says Shell's Country Chairman in Qatar, Andy Brown. "For Qatar it means another way to generate revenues from gas reserves, in addition to selling pipeline gas or liquefied natural gas. It diversifies the country's revenue streams and provides long-term income."

The plant will produce cleaner-burning diesel and aviation fuel, oils for advanced lubricants, naphtha used to make plastics and paraffin for detergents. It will make enough diesel to fill over 160,000 cars a day and enough synthetic oil each year to make lubricants for more than 225 million cars. The products will reach customers in every major energy market through Shell's global retail network.

In bringing Pearl to production, Shell engineers have built on more than 30 years of experience in gas-to-liquids technology. We built the world's first commercial-scale GTL plant in Bintulu, Malaysia, in 1993. Pearl's output of GTL products will be 10 times greater than Bintulu's.

Safety record

Building Shell's biggest engineering project to date in Ras Laffan, a vast industrial zone on Qatar's coast some 90 kilometres north of Doha, was a major feat. At the peak of construction, it involved more than 52,000 workers from over 50 nations.

Despite the massive number of workers involved and the complexity of Pearl's construction, a strong safety culture helped Qatar and Shell achieve a record-breaking 77 million hours worked onshore without injuries leading to time off work.

Preparing for a smooth start-up

Getting the huge plant into full operation will take a series of carefully executed system start-ups. Pearl GTL's control room - the nerve centre of one of the largest and most sophisticated plants ever built in the energy industry - has powered up.

The first turbines and auxiliary steam systems have begun to generate steam and electricity to power the plant. The first two oxygen separation units are up and running.

Drilling record

Sixty kilometres offshore, natural gas from the North Field - discovered by Shell in 1971 - is now flowing from to two platforms standing in water up to 40 metres deep to feed Pearl GTL. Eleven wells were drilled for each platform in record drilling times for the field.

Two underwater 76-centimetre (30-inch) diameter pipelines are carrying the natural gas to a gas separation plant onshore that extracts natural gas liquids: ethane for industrial processes, liquefied petroleum gas (LPG) for domestic heating and cooking and condensates as a feedstock for refineries. The separation process also removes contaminants like metals and sulphur. The sulphur is turned into pellets and shipped to the nearest market to make hydrosulphuric acid, fertiliser or other valuable products.

Turning gas into liquid fuel

The pure gas, or methane, that remains will then flow to the GTL section of the plant, where it will be converted in a three-stage process into a range of gas-to-liquids products using Shell proprietary technology.

Finally, the liquid hydrocarbon wax is upgraded using specially developed technology involving new catalysts into the range of products. It takes some 2,000 steps to prepare all GTL systems for production.

In Qatar, summer temperatures exceed 40degreesC (104degreesF) and rainfall is slight. Conserving water is critical. Pearl was designed to be self-sufficient in its use of water.

Pearl, the largest investment by Shell in any single project, is a fully integrated project spanning production from an offshore gas field to finished marketable products. Shell is funding 100% of the development costs under a profit- sharing agreement with the state of Qatar.‹