Financial Times: 'Designer fuel' fires oil companies' optimism

By Thomas Catan
Published: March 6 2006 02:00 | Last updated: March 6 2006 02:00
Audi will field a new car at the 12-hour American Le Mans race in a fortnight, a machine that in tests has already broken track records.
Its secret: the R10 will run on a special fuel with asynthetic diesel component produced by Shell from natural gas using “gas-to-liquids” technology. “Particularly for petrol heads, this is exciting stuff,” says Jack Jacometti, Shell's vice-president of gas-to-liquids development. “Never before has a diesel-powered engine been a serious contender.”
For Audi, GTL offers a “designer fuel” capable of delivering greater engine power, fuel economy and even a quieter ride. For oil companies, the process represents a way to turn remote natural gas fields into highly valuable products. And for energy-hungry nations like the US and Japan, the nascent technology is seen as a way to cut their dependence on crude oil from unstable parts of the world.
Because it is clean-burning, large cities are also becoming interested in using GTL to power buses and delivery fleets.
After decades in which it largely languished in laboratories, GTL technology appears poised for a period of explosive growth at a time when many are actively searching for alternativesto oil.
The world's first large-scale GTL plant is due to open in Qatar in the coming weeks, an event being closely watched by others in the industry.
The Oryx GTL plant, a joint venture between South Africa's Sasol and Qatar Petroleum, “is almost a test case”, says Alan Gelder, GTL analyst at WoodMackenzie, the oil consultants. “Also, it's project financed, so there's a lot of banks that are interested in the outcome.”

Oil companies are making big bets on the future of GTL. Shell and ExxonMobil are both planning large plants in Qatar, at a combined cost of at least $13bn. Sasol and Chevron are building a $3bn plant in Nigeria.
BP has plans for a project in Colombia and companies are vying to build another in Algeria. Australia, Iran, Trinidad and Egypt are all considering GTL projects.
All told, the next 10 years could see more than $40bn invested in GTL, according to Wood Mackenzie.
GTL is hardly new. In the 1920s, two German scientists, Franz Fischer and Hans Tropsch, invented the basic process that can be used to turn gas, coal or even biomass into products traditionally derived from oil. Because Germany lacked oil during the Second World War, the Nazis used the method to create aviation fuel from coal.
South Africa further developed the technology when it faced trade sanctions during the apartheid era. Oil companies like Shell were spurred to develop their ownversions of the technology during the crises of the 1970s, when consuming nations first began to worry about the security of their supply.
But the technology has been given new life by the huge rise in oil prices over the past year. Until now, countries with gas too distant from markets to transport by pipeline have had only one option: liquefied natural gas.
LNG involves supercooling gas into liquid form, shipping it on special tankers and turning it back into gas at its destination.
Since its inception four decades ago, LNG has matured into a thriving global industry. But when the price of crude rises above $30 a barrel or so, it becomes more profitable to turn the natural gas into products normally refined from oil using GTL. And oil prices have been double that level for much of the past year.
“The game-changer here has been the oil price,” says Frank Harris, an analyst at Wood Mackenzie. “These companies have laboured away with GTL for years, but given where we are now, to say the oil price might remain in the 30s on a sustained basis doesn't sound ridiculous any more.”
High oil prices and a tight supply have also made energy-consuming nations receptive to technologies that offer an alternative.
The Japanese government reportedly wants 20 per cent of its transport fuel to come from GTL or biodiesel by 2030. The US Department of Energy has been sponsoring the development of GTL-ready engines by Detroit Diesel. Carmakers like Toyota, DaimlerChrysler, Mitsubishi and VW have also been designing engines to get the full benefits of the fuel.
Analysts see between 600,000 and 1m barrels a day of GTL products by 2015. That still represents a small proportion of the 80m b/d of oil production today and proponents say it has a good deal further to grow.
“I like to compare it with LNG, say, 35 years ago,” says Mr Jacometti. “You can grow the GTL market along similar lines to the way the LNG market grew.”

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