RAS LAFFAN INDUSTRIAL CITY, Qatar — The compact assembly of towers, tubes and tanks that make up the Oryx natural gas processing plant is almost lost in a vast petrochemical complex that rises here like a hazy mirage from a vast ocean of sand.
But what is occurring at Oryx is a particular kind of alchemy that has tantalized scientists for nearly a century with prospects of transforming the energy landscape. Sasol, a chemical and synthetic fuels company based in South Africa, is converting natural gas to diesel fuel using a variation of a technology developed by German scientists in the 1920s.
Performing such chemical wizardry is exceedingly costly. But executives at Sasol and a partner, Qatar’s state-owned oil company, are betting that natural gas, which is abundant here, will become the dominant global fuel source over the next 50 years, oil will become scarcer and more expensive and global demand for transport fuels will grow.
Sasol executives say the company believes so strongly in the promise of this technology that this month, it announced plans to spend up to $14 billion to build the first gas-to-liquids plant in the United States, in Louisiana, supported by more than $2 billion in state incentives. A shale drilling boom in that region in the last five years has produced a glut of cheap gas, and the executives say Sasol can tap that supply to make diesel and other refined products at competitive prices.
Marjo Louw, president of Sasol Qatar, says that his company can produce diesel fuel that burns cleaner, costs less and creates less greenhouse gas pollution than fuel derived from crude oil.
“We believe the planets are aligned for GTL,” Louw said during a recent tour of the Oryx plant. “Other players — much bigger players — will follow.”
Perhaps. So far, however, the record for converting gas to liquids is spotty.
The newest and largest plant in operation, Royal Dutch Shell’s giant Pearl plant, also in Qatar, cost the leviathan sum of $19 billion, more than three times its original projected cost, and has been plagued with unexpected maintenance problems. BP and ConocoPhillips built and briefly operated demonstration plants in Alaska and Oklahoma but stopped short of full development of the technology. Exxon Mobil and ConocoPhillips announced plans to build giant plants in Qatar, but backed out, putting their capital instead into terminals to export liquefied natural gas.
Today only a handful of gas-to-liquids plants operate commercially, in Malaysia, South Africa and Qatar. Together they produce only a bit more than 200,000 barrels of fuels and lubricants a day — equivalent to less than 1 percent of global diesel demand.
“The reason you see so few GTL plants is the economics are challenged at best,” said William Colton, Exxon Mobil’s vice president of corporate strategic planning. “We do not see it being a relevant source of fuels over the next 20 years.”
Many analysts and industry insiders say the technology makes sense only when oil and gas supplies and prices are far out of balance, as they are today in Qatar and the United States. When oil and gas come into alignment, gas-to-liquids ventures will become white elephants, these skeptics say. Environmentalists also say that the huge energy inputs required to transform natural gas into diesel or other fuels negate any greenhouse gas benefits.
Until recently, the method used to convert natural gas or coal to liquid fuel — known as the Fischer-Tropsch process after the Germans who invented it — had been used only by pariah nations desperate for transportation fuels when they had little or no oil available. For decades, South Africa defended its system of apartheid from international oil embargoes by producing synthetic oil from its rich coal resources. Nazi Germany did the same to fuel its military machine in World War II.
But with North Africa and the Middle East chronically unstable and natural gas cheap and plentiful in the United States, some say the technology is now an enticing option to produce various fuels without importing a drop of oil.
Shell may soon announce a tentative site for a gas-to-liquids plant on the Gulf Coast of the United States. Given what the company learned from its Qatar plant, executives say it would reduce costs in any new one by using different types of valves and alloys.
But Ken Lawrence, Shell’s vice president for investor relations in North America, said the company was still two years away from a final decision on an American plant.
That leaves Sasol in the forefront of the gas-to-liquids effort.
Sasol is building a gas-to-liquids plant in Uzbekistan with the Malaysian oil company Petronas. It is working with Chevron to build another plant in Nigeria. The company says that a plan to build a plant in Canada has been shelved until after the Louisiana project, which could cost $11 billion to $14 billion, the largest single investment proposed in the state.
“It can be a game-changer,” David Constable, Sasol’s chief executive, said in an interview. He said the United States was a logical place for gas-to-liquids to take off because of the availability of cheap gas, the proximity of large markets and the availability of trained labor, modern industrial shops and friendly state governments along the Gulf Coast.
The U.S. plant will build on knowledge the company acquired at the Oryx plant in Qatar.
The heart of the Oryx plant is a pair of 164-foot reactor towers that contain a patented system for transforming purified natural gas into so-called long-chain carbon compounds that can be refined into liquid fuels.
“Gas bubbles up through a cobalt slurry bed, and out comes the good stuff — the sellable products,” said Etienne Rademeyer, chief operations officer at the Oryx plant.
The process is challenging and complex. First a synthetic gas is made from pure oxygen and methane, the main component of natural gas, which is cleansed of sulfur, metals and other impurities, under intense pressure and heat. Then the synthetic gas is put in giant reactors that make a synthetic crude through the Fischer-Tropsch process. The process essentially forces heated synthetic gas to react with a catalyst, typically cobalt, to convert into a liquid hydrocarbon. Finally that liquid is refined into one fuel or another.
The process is far more complex than that at a typical refinery, so the plant is much more expensive to build and operate. Alfred Luaces, a refining specialist at the consultancy IHS, said a conventional oil refinery could be built for $50,000 per barrel of capacity, less than half of what Sasol says it is willing to spend on the proposed Louisiana plant.
The plant here is a maze of refining towers, reactors, evaporators, pipes and storage tanks. It employs about 120 workers from more than 30 countries to produce about 32,000 barrels of liquid fuel a day, less than a third of the amount it hopes to produce in Louisiana.
Rick Manner, a vice president at consultancy KBC Advanced Technologies who has contributed to gas-to-liquids studies for Sasol and other companies, estimated that the projects must keep capital costs at $100,000 for every barrel a day of production capacity to be worthwhile economically at current prices of about $100 a barrel for oil and $4 per thousand cubic feet for natural gas.
By that formula, Shell needed to cap costs at its plant in Qatar, which can make up to 140,000 barrels a day, at $14 billion. Instead, the project has cost at least $19 billion, which suggests that it will need a sustained crude price of about $125 a barrel, or lower natural gas prices, to be economic, Manner said. “There’s not a big future in it,” he said.
Shell executives said they could make money in Qatar, though they would not be more specific except to estimate that the Pearl plant, including its adjoining liquefied natural gas facility, can generate $4 billion in annual cash flow from operations at an oil price of $70 a barrel, which determines at what price the refined products can be sold. “It’s a good solid project,” said Marvin Odum, president of Shell Oil Co. “We’re very pleased with it.”
Louw, Sasol’s Qatar president, said that the Oryx plant was designed to be profitable with oil at $25 a barrel. That implies a very low long-term price for the natural gas feedstock. He would not specify what Sasol pays its Qatari partner for gas, but he said it was “not zero.”
Outside gas-rich Qatar, natural gas and diesel prices can be unpredictable, and if enough companies build gas-to-liquids plants or find other uses for natural gas, gas prices could rise with demand.
And environmental concerns exist. A 2008 Carnegie Mellon study estimated that plants in Qatar and Malaysia produced fuels that generated 20 to 25 percent more carbon emissions than conventional petroleum-based liquid fuels because the production process consumed so much energy.
“We’re not talking about an environmental solution to the carbon problem,” said Simon Mui, a scientist at the Natural Resources Defense Council. “GTL will likely make the problem worse, unless the industry adopts effective safeguards on drilling and additional pollution controls on these refineries. Those are big ifs.”