Foresight analyst sees high potential in gas-to-liquids technology

By OGJ editors

HOUSTON, Oct. 9 -- Gas-to-liquids technology is "the ideal fuel to fill the widening wedge between rising world oil demand and falling legacy production," said Bernard J. Picchi, senior managing director of Foresight Research Solutions Inc., New York.

GTL unit capital costs have come down, while oil and gas prices have spiraled in the last 2 years, he noted.

Picchi called GTL "the most promising current alternative to conventional oil production and refining. We liken GTL's current situation to that of LNG in the early 1970s: an exotic hydrocarbon processing technology not taken too seriously then. It won't take 30 years for GTL to achieve the prominence that LNG enjoys today."

GTL will be needed among many new fuels and energy technologies required to fill a growing gap between escalating world oil demand and falling oil production, he said.

"GTL project economics are healthy even if GTL products—mostly distillates like zero-sulfur diesel fuel—were priced off $25/bbl crude oil," on the New York Mercantile Exchange, Picchi said.

GTL projects with output capacities totaling about 800,000 b/d have been announced within 18 months. In July, ExxonMobil Corp. announced plans to spend $7 billion on a 166,000 b/d integrated GTL facility in Qatar (OGJ Online, July 14, 2004). Other GTL players include Sasol Ltd., Shell International Gas Ltd., and ChevronTexaco Corp.

"It is the first inning of GTL's commercial life," Picchi said. "Many more facilities are likely to be built. GTL, now a distant cloud on the horizon, is likely to come into sharp focus quickly. This may not be a welcome sight for oil refiners."

GTL plants, which convert natural gas to finished oil products including diesel and naphtha, are poised to release an abundant supply of fuel products in the next decade, he said.

"Unlike traditional refineries, GTL plants lock in their raw material costs—natural gas—for decades at prices 90-95% below the current market value of crude oil," Picchi said. "No oil refinery could compete against such a cost advantage. Further, once the high capital cost of building a GTL unit has been sunk, the facility will operate at the highest possible utilization rate under almost all oil price scenarios because GTL cash operating costs are expected to be low—about $10/bbl, we estimate."

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