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Financial Times: Industry left to cool heels a little longer

By Kevin Morrison
Published: September 25 2006 03:00 | Last updated: September 25 2006 03:00

The long awaited arrival of a commercial technology that could significantly alter the incomes of big Qatar gas producers has been put on hold until the new year, leaving the energy industry and financiers to cool their heels before they can truly assess the merits of gas-to-liquids (GTL) technology.

The delay in the Oryx GTL plant in Qatar until the start of next year, almost a year after it was scheduled to begin delivering diesel and a range of products to customers, underlines the complications with such an advanced technology.

Oryx is to be the world’s first commercial-scale GTL plant, with a capacity to produce 34,000 b/d of diesel, naphtha and lubricants. There is only one commercial GTL plant in operation, a relatively small one operated by Royal Dutch Shell in Malaysia.

Oryx is planned to be the first of several GTL projects to start in Qatar by the end of the decade. The Pearl project, a joint venture between Royal Dutch Shell and Qatar Petroleum, will see 140,000 b/d of GTL products produced once completed in 2011, and there is ExxonMobil’s 150,000 b/d GTL plant.

The Oryx plant is operated by Sasol, the South African group, and its partner Qatar Petroleum, while Chevron will market the products in Europe and north America. Leon Strauss, group manager of international oil business at Sasol, says Oryx will provide a chance to prove the technology commercially. He is confident of success because Sasol has already produced about 1.5bn barrels of oil equivalent from its coal-to-liquids technology.

“Gas-to-liquids is an easier process than coal-to-liquids because the important step of gasifying the coal is removed. If we can produce so much oil from coal, I am very confident we can do the same from gas,” says Mr Strauss.

However, Oryx will be delayed following problems with a super heater that turns gas into a liquid form.

“Based on current progress, we are confident that the first product will be produced during the fourth quarter of 2006 and will be ready for market by the first quarter of 2007.”

Oryx is the cornerstone of Sasol’s expansion into GTLs. “When we prove this is successful, we want to expand Oryx by 66,000 b/d to 100,000 b/d in the second phase of the project,” he says. Although, Qatar’s official position on any further expansion at Oryx is unclear.

Mr Strauss says a government moratorium on new projects has affected the plan to expand Oryx by a further 130,000 b/d, which would have meant a plant with total capacity of 230,000 b/d has been affected. This expansion was to have included Sasol participating in the drilling for gas in the North Field. The moratorium has also put the brakes on proposed GTL plants by ConocoPhillips and Marathon.

Qatar wants to develop GTL as a way to get its vast gas reserves to market, alongside sales of liquefied natural gas (LNG) and pipeline gas.

Mr Strauss says GTL is a higher value alternative to LNG and pipeline gas. “LNG is competing with coal and nuclear prices for generating electricity from power stations, if it goes too high then it faces the risk of losing out to coal or nuclear.”

He says GTL product prices can command a premium because they carry less sulphur, and petroleum retailers pay more for this type of fuel due to tighter emission standards as governments attempt to curtail greenhouse gas emissions.

Alan Gelder, vice president downstream oil at Wood Mackenzie, says that despite the premium prices that GTL products may be able to command, the process is very energy intensive and gas wastage levels are as much as 40 per cent.

Mr Strauss says GTL technology is not reliant on high oil prices. “When we first signed for Oryx, oil prices were about $20 a barrel. So we were not relying on high oil prices back then, and we don’t rely on them today.”

Copyright The Financial Times Limited 2006

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