Qatar poised to benefit from growth in GTL market

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With plentiful supplies of natural gas, Qatar has over the years looked for alternatives to its liquefied natural gas (LNG) exports, from investments in industrial facilities to value-added processing. One increasingly viable option is the manufacturing of gas-to-liquid (GTL) products, which are enjoying growing demand by the global marketplace.

New life for an old idea

GTL technology converts natural gas into a synthetic liquid fuel through a refining process. While this technology has been in existence for nearly a century, until recently only South African energy and chemical firm Sasol and Royal Dutch Shell have developed GTL facilities on a commercial scale.

Both Sasol and Shell have invested in GTL facilities in Qatar. ORYX GTL, a joint venture between Sasol (49%) and Qatar Petroleum (51%), was the country’s first GTL facility, commissioned in 2007 and located at Ras Laffan Industrial City. With a capacity of 32,400 barrels per day (bpd), the ORYX GTL facility produces a range of GTL products, including diesel, naphtha and LPG, with diesel making up the bulk of output.

The $19bn Pearl GTL plant, the world’s largest such facility, came on-line in 2011. Operated by Shell, which holds a development and production sharing agreement with Qatar Petroleum, the plant turns out 140,000 bpd of GTL products, along with 120,000 bpd of natural gas liquids and ethane. Its GTL production is split between diesel, jet fuel, oils for advanced lubricants and naphtha, which has a number of industrial uses, including for plastics manufacturing. Pearl is integrated from well-head to finished product, while ORYX GTL receives methane as feedstock from Al Khaleej Gas in Ras Laffan.

New source of aviation fuel

Qatar International Petroleum Marketing Company (Tasweeq), the state-owned oil and gas marketing company, has been actively promoting the use of GTL jet fuel, a 50/50 blend of GTL kerosene and conventional crude oil-derived standard jet fuel, produced at the Pearl facility.

The GTL product was approved for use in civil aviation by ASTM International in 2009 as a “drop-in” fuel, meaning that it is interchangeable with conventional jet fuel. Qatar Airways has been using the product since January of this year, and as of June, Tasweeq has been exporting the fuel to other markets in the Middle East. It is also looking to sell the fuel to airlines in Asia and elsewhere.

Advantages of GTL fuel include its lower density, making it lighter and thus more cost-effective. It is also cleaner burning than conventional fuel, reducing maintenance costs and environmental impact.

These factors will become increasingly important to the aviation sector, according to Wael Sawan, managing director and chairman of Qatar Shell. “I believe that in the coming years more airlines will recognise the advantage of GTL due to the lack of particulates in the emissions of the jet fuel,” he told OBG.

A viable alternative to LNG sales

The move toward GTL and other value-added production comes as Qatar’s energy sector has reached a plateau, with limited expansion expected in the gas segment for some years to come, at least until the moratorium on the development of the North Field is lifted. Oil production is also slowing down. A recent note by international credit ratings agency Standard & Poor’s said that it foresaw an average annual gradual decline in oil production of 6% for the 2013-16 period, as Qatar’s fields matured. While oil exploration campaigns are under way and could yield new fields, any additional production would likely not occur for some time.

The development of GTL also limits Qatar’s exposure to gas prices, which are trending downward as they become increasingly de-coupled from oil prices, and new production techniques have lowered costs. This in turn has boosted the commercial viability of processed gas products, including GTL. According to Marjo Louw, president of Sasol Qatar, the future of GTL will be largely dependent on how the market for gas unfolds over the next few years. “While there is significant demand for gas, the prospect of major gas discoveries in Asia and Africa could have a further impact on prices. For markets that can supply large amounts of natural gas at low cost, GTL represents a viable alternative,” he told OBG.

The US, like Qatar, fits that profile, which is why it has been identified as a promising location for GTL facilities. Following the success of the ORYX GTL plant, Sasol has announced plans to build the first GTL facility in the US at a cost of $14bn, and Shell CEO Peter Voser said in November of last year that he was considering a GTL plant for the US. Other smaller operators have noted their intention to build facilities to produce gas-based diesel, gasoline and jet fuel.

Such developments, if realised, could significantly alter a market that so far has remained quite small. Today only a handful of GTL plants operate commercially, in Malaysia, South Africa and Qatar. Together they produce around 200,000 bpd of fuels and lubricants and account for less than 1% of global diesel produced. However, with more customers starting to look closely at GTL as a fuel alternative, it could form an increasingly important part of Qatar’s energy output.

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