Monday, August 29, 2011

Who Will Ride the Gas-to-Oil Price Differential to Riches?

There is always big money to be made in substituting a lower cost feedstock or commodity for a higher priced one. The obvious big money substitution opportunity in the energy field, is the substitution of low cost natural gas for high priced oil. Natural gas is difficult to transport globally, unless it is transformed into a denser liquid form, such as LPG or GTL. The more economical the transformation process to liquids, the more money that can be made.

Shell's gas-to-liquids (GTL) technology is producing high value hydrocarbon fuel and chemicals in Qatar and in Malaysia. But it is very expensive to build large scale GTL plants based on this technology, which limits entry into the field. As the technology proves itself in the market, other big players are likely to step in.

Sasol and PetroSA have GTL plants in South Africa, where rich shale gas fields are coming under development. Shell is moving into those gas fields, and may be thinking about opening its own GTL plant in South Africa, if it can deal with the government corruption.
applications of excess product. Primarily, natural gas is used as feedstock for the Gas To Liquid process. The GTL process converts natural gas to synthetic fuels. This has proven to be far more profitable product for oil/energy and exploration companies to supply into the energy markets. There are currently only two plants in SA capable of refining natural gas to liquid petroleum products. Sasol has its GTL plant located in Secunda and PetroSA has its plant in Mosselbay. _CBN

Australian companies are looking at building GTL plants to take advantage of large gas deposits there, but are somewhat daunted by the high cost of entry. The uncertainty of long term oil prices also causes planners to hesitate.
"Higher oil prices provide the incentive to look at ways and means of producing synthetic fuels, other than simply refining crude oil," Mr Wendt told AAP.

However, he says a major barrier is the high price of setting up a processing plant to make a product that is a commercial alternative to oil-based fuels.

It would cost $1 billion or $2 billion to build a plant that produces synthetic diesel at $40 or $50 a barrel.

But if the price of oil drops dramatically, people won't buy the synthetic product, leaving the owner of the plant unable to get a return on the investment, Mr Wendt said. _ninemsn

There is also debate in Alaska about turning North Slope gas into more lucrative liquid fuels. One of the problems is deciding on the best chemical approach to the transformation of gas to liquid fuel.
For a number of years there has been discussion of the potential to convert North Slope gas to diesel fuel on the North Slope using a process called gas to liquids, or GTL, and then shipping the diesel fuel down the trans-Alaska oil pipeline. The core of the GTL process is the Fischer-Tropsch synthesis, a chemical process first used in Germany in 1936 to produce synthetic liquid fuel. However, a study of the relative costs of the Fischer-Tropsch process and MTG has indicated that it is significantly cheaper to produce a given volume of fuels with MTG than with Fischer-Tropsch, while the gasoline produced from MTG has a higher value and quality than the diesel from GTL, Van Wijk said. _PetroleumNews

The Oxford Catalyst microchannel Fischer Tropsch GTL approach is just getting started, commercially, but is already receiving "buy" recommendations from Charles Stanley -- assuming the investor possesses abundant intestinal fortitude and staying power.

One of the largest driving forces behind the drop in natural gas prices -- and the opportunity to take advantage of the gas-oil price differential -- is the recent advances in horizontal drilling and hydraulic fracking technologies. Gas and oil trapped within shale has existed for eons, only waiting for a species intelligent enough to go in and get it.
The image above provides a modest comparison of the relative quantities of energy which are potentially available from conventional and unconventional hydrocarbons. Note the gas to liquids, coal to liquids, and kerogen to liquids potential. It is all about finding the best and most economical ways to liberate the hydrocarbons in high-value form.

Summary of gas-to-liquids technologies

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