QATAR - Gas-To-Liquids Ventures.

There have been seven different GTL projects under discussion in Qatar. But in April 2005 QP declared a moratorium on four of them, reducing them to a total capacity of between 328,000-404,000 b/d of ultra-clean fuels, compared to almost 1m b/d in previous plans (see background in Vol. 61, DT No. 10). In February 2007, ExxonMobil cancelled a GTL project because its cost had risen to $18 bn, from an original budget of $5 bn.

GTL conversion is a term for technologies which can make liquid synthetic fuels from a variety of feedstocks. The basic technology was developed in Germany in the 1920s, and is known as the Fischer-Tropsch process after its inventors. In essence, it uses catalytic reactions to synthesise complex hydrocarbons from simpler organic chemicals. This can make identical liquids from a variety of feedstocks, although the technical challenges are greater for biomass and coal.

There are three main parts to the process. Natural gas is first partially oxidised at high temperature and pressure in the gasification process. The second stage revolves around heavy paraffin synthesis (the Fischer-Tropsch synthesis step), where the gas is converted into liquid hydrocarbons. Finally, the heavy paraffin conversion (hydrocracking) reactor is used to fine-tune the product by selective cracking and fractionation to separate the desired middle distillate products. The products from Fischer-Tropsch GTL plants include middle distillates such as GTL fuel for transport use, naphtha for chemical feedstocks, normal paraffin for detergent feedstocks and lubricant base oils. In addition, there could be condensates and LPG production from the treating of well-stream gas.

Technology differs between the leading GTL companies. Sasol, for instance, converts synthesis gas into a broad range hydrocarbon streams using its slurry phase distillate technology. The process works by feeding pre-heated synthesis gas into the bottom of the reactor, where it is distributed into slurry consisting of liquid hydrocarbon and catalyst particles. As the gas bubbles up through the slurry, it diffuses into the slurry and is converted into a range of hydrocarbons by the Fischer-Tropsch reaction.

In a few months, the hi-tech world of GTL has been transformed from an emerging sector to a high-risk field threatened by escalating costs and technology problems. Of the three giant GTL projects under development in Qatar at the start of this year, ExxonMobil's 154,000 b/d JV was cancelled in February 2007 because of enormous cost escalations, South Africa's Sasol's JV has come in on budget but is delivering more modest volumes than planned, but Shell's 140,000 b/d Pearl JV went into the construction phase in February despite its costs having risen from $5 bn in 2004 to $18 bn. (QP and ExxonMobil had been working for a decade on developing their GTL venture, which would have been the largest in history. More significantly, the project was the last being planned in Qatar, having been categorised as "committed" and given a gas allocation. Unlike four other planned GTL projects, it had been exempted from the moratorium placed by Doha on new North Field-based developments -see background in down10QatrRefSep5-05).

The 34,000 b/d two-train Oryx venture of QP (51%) and Sasol (49%) on May 22, 2007, surprised the market when it revealed that its plant was only operating at a third of its capacity, because of technical problems. The announcement knocked more than 6% off Sasol's shares on the South African exchange, with analysts then predicting that, including depreciation, the plant would generate a higher operating loss than originally envisaged. The announcement came on top of a series of delays since launch of the project, about six months behind schedule, in June 2006.

Sasol said the problem related to the build-up of fine material produced during the GTL conversion process, which was constraining the plant's overall output. It said the "ongoing issue" was to prolong the ramp-up period and, until the production of fine material was reduced, Oryx was to generate only a marginal cash contribution.

Sasol's CEO Pat Davies was on May 22 quoted as saying: "Oryx is a large and complex petrochemical facility. We have been having teething problems. We thought by now we would have resolved this issue. It is taking longer to find the root cause and we do not know what the problem is".

A back-up plan has since been initiated, involving additional downstream equipment to handle the increased amount of fine material. Davies said "This will be treating the symptoms and not the cause, so we will be able to run both trains [at full capacity] at the same time". But Leon Strauss, group general manager of Sasol International Energy, was in June quoted as saying the interim solution was not to be in place before mid-2008 and will cost "tens of millions" of dollars to fix.

Sasol's recognition that it cannot adequately pinpoint the problem has had analysts worried about the knock-on effect for other GTL projects. Sasol is building a second GTL plant in Nigeria and is considering a similar venture in Australia. The group is also looking to construct two coal-to-liquids (CTL) plants in China, using similar techniques to the GTL process. Sasol then said the technical issues will not compromise any of its future investments.

Despite the problems, Sasol says Oryx still makes excellent commercial sense, with its operating expenditure amounting to $7-10/b, excluding gas. MEED in June quoted a London-based GTL analyst as saying that, while Sasol was likely to recover from its initial teething problems, it was in an unenviable position as the first oil major to effectively test the process, adding: "There are really only two major players in the game right now and Shell has until 2010/11 to sort any kinks out that it might have".

Shell may benefit from Sasol's failings. If the super-major can prove its processes over Sasol, it could be a real money-spinner for the company. MEED quoted a QP executive as saying Sasol may look for external assistance to "help iron out" its problems should the situation deteriorate, adding: "Sasol has people and partners it can turn to if it needs help with the project, but we are still confident this is just a temporary technical matter".

MEED quoted a Shell executive as saying it was confident its existing plant in Malaysia, where it operates a 12,000 b/d plant, stood it in good stead, adding: "There is no sense of panic within Shell at all. Sasol investors were already unsettled by some of the jitters over delivery delays, so technical issues on top of that were always going to be problematic. We have been using this technology for some time now and do not foresee any issues".

In May 2007, Algeria cancelled a planned 36,000 b/d GTL venture at Arzew, which was to use gas from fields in the Tinhert basin, because of a rise in costs and Sonatrach's preference for a smaller GTL plant. Other plants planned for India and Trinidad may be deterred by Sasol's problems. Until Sasol's technical difficulties are resolved, all eyes will remain on Oryx in its bid to resume normal production.

The Al-Khaleej Gas-1 (AKG-1) plant at Ras Laffan, a JV of QP and ExxonMobil, has been committed provide gas to the Oxyx facility. AKG is also building facilities to supply fuel gas to the Ras Laffan Olefins Co. and the Ras Laffan splitter and to handle LPGs recovered by the refinery starting in late 2008.

QP and Shell on Feb. 22 launched their $18 bn GTL project, with $10 bn already earmarked for this, at the Ras Laffan Industrial City, 80 km north of the capital Doha. The foundation stone was laid by Crown Prince Tamim bin Hamad al-Thani and Britain's Prince Charles.

A joint QP-Shell statement said: "A total of 10 billion dollars of contracts have already been awarded for the project, including all major engineering, procurement and construction", which began in the third quarter of 2006. A development and production-sharing agreement (DPSA) on this integrated project covers offshore and onshore development and operation, with Shell providing 100% of funding. The upstream element will be producing 1,600 MCF/d (45.3 MCM/d) of wellhead gas. This will be transported and processed to produce 120,000 b/d of oil equivalent of condensate, LPG and ethane". Downstream dry gas will be used as feedstock to produce 140,000 b/d of clean, high quality GTL fuels and products. The statement said the plant "is expected to produce some three billion barrels of oil equivalent wellhead gas over the period of the development and production sharing agreement". Production would start in 2010. Chiyoda of Japan and Hyundai of South Korea in July 2006 won the $1.8 bn contract to build the gas processing plants.