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Royal Dutch Shell has invested heavily in GTL and is building the world’s biggest plant in Qatar

Financial Times: Pioneer plant to run below capacity until later this year

By Ed Crooks in London
Published: April 4 2008 03:00 | Last updated: April 4 2008 03:00

Qatar’s pioneering plant to convert natural gas to liquid fuels operated by Sasol of South Africa will continue to run at well below full capacity until the second half of this year at the earliest.

The technical problems that have dogged the Oryx project, which opened last year, are further evidence of the challenges in commercialising gas-to-liquids (GTL) technology.

That technology is being touted by some oil companies as an important source of future fuel supplies.

Pat Davies, Sasol’s chief executive, told the Financial Times he expected Oryx to get close to its planned normal operating output in the company’s next financial year, which starts in July.

Once that has happened, he said, it would “reduce the perception of risk” in GTL investments and should lead to other deals for more projects.

“This plant is a combination of firsts and one doesn’t want to have teething problems with these projects, but one does,” he said.

Oryx is the world’s biggest working GTL plant and the first commercial plant to be opened for more than a decade.

But while its notional capacity is 33,000 barrels per day, it produced just 9,000 b/d in December.

The end-product was being contaminated by particles from the catalyst used in the process.

That meant that Sasol has had to instal additional filters, which will not be in place until the third quarter of the year.

Once those filters were fitted, Oryx should be able to raise its output close to 30,000b/d, Mr Davies said.

Sasol hopes to increase the plant’s capacity to 100,000 b/d, but Mr Davies said he had “not started serious discussions” with Qatar on the expansion. “We will have to wait for Oryx 1 to be up and running,” he said.

Rising oil prices and predictions of tight supplies in the future have encouraged interest in GTL. Sasol is a world leader in the technology, thanks to its investment in alternatives to conventional fuels in the apartheid era of South Africa’s international isolation.

Royal Dutch Shell has also invested heavily in GTL and is building what will be the world’s biggest plant when it opens, with a capacity of 140,000 b/d, also in Qatar.

However, that plant, like many big projects, has suffered from soaring costs. It is expected to cost up to $18bn, three times the initial estimate.

Last year ExxonMobil scrapped its plan for a GTL plant in Qatar.

Mr Davies said Sasol’s other GTL plant under construction, a joint venture with Chevron of the US and the Nigerian National Petroleum Corporation, was also “under cost pressure”. He added that the plant, which is scheduled to open in 2010, was “on a particularly difficult site, in a swamp, in a remote area”.

The availability of gas is another potential constraint on new GTL plants. They have to compete with local demand for gas, which is rising fast in many countries in the Middle East, and with plants for liquefied natural gas, which super-cool gas so it can be exported in tankers.

Although Sasol has a joint venture with Chevron for worldwide GTL projects, Mr Davies said the US company would not necessarily be involved in its future investments.

“The default position is we are 50/50, but we can also go it alone,” he said.

Background

The technology to convert natural gas or coal into liquid fuels and lubricants was developed by German scientists in the 1920s, and is known as the Fischer-Tropsch process after its inventors.

It was used on a large scale by Germany in the second world war, but has been seen as uneconomic compared with conventional fuel production from crude oil. It has come into play again as a result of rising oil prices and increased interest in exploiting gas reserves that would otherwise be uneconomic to develop. Several proprietary versions of the technology exist; the other company apart from Sasol with a proven record is Royal Dutch Shell, which has operated a GTL plant since 1993.

Copyright The Financial Times Limited 2008

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