GTL's Back and Qatar's Got It

Multibillion-dollar gas-to-liquids projects will abound in Qatar, which has the world's third-largest gas reserves. Because they promise to monetarize much of the world's 'stranded' gas, don't hold your breath in waiting for the Hydrogen Age.

Remember gas-to-liquids (GTL) technology? It got a lot of publicity back in the latter part of the 20th century prior to the shift in emphasis to liquefied natural gas (LNG) during the first part of this century.

The technology involves converting natural gas into liquid fuels and chemical feedstocks using catalytic reaction. The liquid fuel is chiefly of the diesel variety, and the main chemical feedstock is naphtha. The basic technology, known as the Fischer-Tropsch process after its German inventors, was developed in the 1920s. But it was before its time, what with the world's plentiful supply of cheap and plentiful crude oil for refining into fuels and chemicals. For the most part, synthetic fuel of any kind never got off the ground.

World politics, however, contributed to keeping the technology alive. For instance, it was used when and where liquid fuel was totally unobtainable--such as in Germany during World War II and in South Africa during the apartheid era (where oil and coal, respectively, were the basic feedstocks rather than natural gas).

But scientists have added new wrinkles to the process since then, applying the technology to natural gas and producing more environmentally acceptable fuels than those refined from oil or synthesized from coal, at least thus far.

Along with liquefying and exporting natural gas itself through the burgeoning LNG market, GTL technology now appears to be an ideal way to turn so-called "stranded" gas reserves into viable and (maybe) highly profitable resources, given the worldwide acceptance of gas as the basic fuel of the future, (i.e., until the Hydrogen Age gets here). And even then, GTLs may be a major source of the cheap hydrogen the world will need to advance the forthcoming fuel cell epoch. In fact, proponents of GTL technology believe that from now on, no gas will ever be deemed stranded.

And thanks to possessing what currently is considered the world's largest gas field (the North field in its sector of the Persian Gulf), the kingdom of Qatar is the odds-on favorite for becoming the GTL center of the world.

Qatar, a recently "enlightened" monarchy (headed by Amir Hamad bin Khalifa Al Thani, who overthrew his father in a 1995 bloodless coup), is one of the most progressive countries in the Arab world. Somewhat smaller in area than the State of Connecticut, Qatar entered the oil production arena back in the 1960s, with production both onshore and offshore. But its oil reserves began to wane in the late 1980s, and subsequent discovery of the North field gas reservoirs encouraged the kingdom to seek export markets for the gas. After giving serious consideration to pipelining it to India and elsewhere in both Asia Minor and Asia, Qatar and its multinational oil company partners embraced the benefits of LNG technology, which, as the worldwide gas market grew steadily, had matured to the point of viability. A series of large LNG export plants currently are either on stream or under construction in Qatar, with new ones being announced regularly.

And Qatar does have huge gas reserves. The U.S. DOE's Energy Information Administration (EIA) in January 1, 2002 estimated that its recoverable gas reserves were somewhere between 509 and 758 tcf. That placed it third behind Russia and Iran, with estimated reserves of between 1,680-1,700 tcf and 812.3 and 939.4 tcf, respectively. But Russian gas hasn't yet been developed sufficiently for introduction of GTL technology into the mix, though LNG export plants are planned for various projects along the Arctic and Baltic seacoasts. Meanwhile, in Iran, the effects of decades of religious isolationism and the long war with Iraq delayed a headlong rush into LNG-GTL.

The EIA admitted that its 2001 international reserves estimates were based on incomplete information, which caused quite a stir. However, Qatar itself estimated this past June that the North field alone contains 900 tcf of recoverable gas. Whichever case you choose, the amount is huge, and Qatar will become the first source of meaningful exports of both LNG and GTL products.

That's why, during the waning months of last year, two multinational companies announced deals to build in Qatar what will be--at least, for a while--the world's two largest GTL plants.

In October 2003, a Royal Dutch/Shell Group unit, Qatar Shell, announced it had signed a Development and Production-Sharing Agreement with Qatar Petroleum (QP) the country's national oil company, to set up a $5 billion, 140,000 b/d GTL plant at the new Ras Laffan Industrial City, which lies on the coast near the North field. The agreement states that GTL products (primarily naphtha and transport fuels, with a smaller quantity of normal paraffins and lubricant base oils, along with significant quantities of associated gas condensate and LPGs) would be manufactured from about 1.6 bcf/d of North field resources. The two-phased project would start sometime between 2008-2009, producing around 70,000 b/d of GTL products. The 70,000-b/d second phase would be completed less than two years later.

At the time, the project was recognized as by far the largest planned GTL operation in the world. That is, until fewer than two months later, when Conoco-Phillips on December 8 signed an estimated $6.5 billion deal with QP to process still more North field gas into 160,000 b/d of GTL fuels. That project also would be built at Ras Laffan, and in two phases. The first, to cost an estimated $1.5 billion, would yield 80,000 b/d of GTL products, with start up expected in the 2009-2010 time frame. The second phase, if built, would double project capacity at a cost of up to $5 billion. If completed, the project would succeed the Shell-QP project as the world's largest.

But even that could be short-lived. Several other projects now "on the table," if built, would dwarf the Conoco-Phillips development. For instance, Canada-based Ivanhoe Energy currently is negotiating with QP to build a whopping 185,000-b/d plant; ExxonMobil is mulling one for 180,000 b/d; Marathon is talking about a 140,000-b/d version, and finally, ChevronTexaco is chewing on the details of a 120,000-b/d unit.

But Qatar is fixing to enter the GTL business much sooner.

Sasol, the South African coal- and GTL-producer, currently has the $900 million Oryx GTL plant under construction at Ras Laffan in partnership with QP. Scheduled to go on stream by the end of next year, it will produce 34,000 b/d of GTL products, including diesel fuel, naphtha, and LPGs. The 330 mmcf/d of feedstock will come from--you guessed it: the North field.

Though the GTL methods being brandished by the companies operating or planning to operate in Qatar differ in some way in proprietary catalytic processes, the results likely will be multifold from all.

The specialty products from GTL technology, such as normal paraffins, a feedstock used in the detergent industry, and lubricant base oils, probably will affect future markets for similar products derived from crude oil feedstocks, since the GTL plants will contain much newer technology that allows them to compete successfully, at today's gas prices, on a cost basis with older oil refinery processes. And they'll deliver a much lower environmental impact, to boot.

On the other hand, GTL technology also will produce clean, water-clear, low-particulate, and sulfur-free liquid fuels with high combustion quality that can be blended with conventional diesel for use in existing engines or by itself in new

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