The economics of GTL and CTL
March 26, 2009 8:07pm by Ed Crooks
HSBC has an interesting research note out today on gas to liquid and coal to liquid fuels, lumping them together under the branding of “clean diesel”. (Which is accurate so long as you don’t worry about the horrendous CO2 emissions from CTL. GTL is actually a little better than conventional crude refining.)
The argument is that, although the immediate outlook is not so great, longer-term the “XTL” (where X=gas, coal or biomass) have a great future
Charanjit Singh and Robert Clover of HSBC write:
We estimate that synthetic fuel volumes will grow at a CAGR [compound average growth rate] of around 10% over the next decade, driven by more stringent emission norms, energy security concerns, continued oil price volatility and technological improvements; however, considerable
short-term barriers to growth exist in the form of low oil prices, carbon emission constraints and capital availability.
They estimate that GTL is viable with a 15 per cent rate of return with crude at $67 per barrel, and CTL at $93.
However, Pat Davies, the chief executive of Sasol of South Africa, who has been in London this week, would put those figures somewhat lower. He says GTL is highly competitive with oil at $50, and CTL somewhere between $50 and $100; he won’t give an exact figure because he arguies that gives too much away in negotiations with potential partners.
One of the key developments for GTL in the past few years has been Sasol’s Oryx plant in Qatar. It is not huge, with a nameplate capacity of just 30,000 b/d, but was important for Sasol to demonstrate its technology. It was plagued by technical problems at first, but is now running consistently at 85-90 per cent of capacity, which is about as good as could be expected, and is making money. Sasol is talking about de-bottlenecking to add a further 5,000 b/d to capacity.
The crucial fact about Oryx, though, is that it cost just $1bn, compared to an estimated $18bn-plus for Shell’s Pearl plant. That budget for Oryx is less than half what HSBC estimate an equivalent GTL plant would cost to build today. Although operators expect contractors’ prices to come down, they have so far been surprisingly sticky, Mr Davies says, with the exception of steel and other commodity prices, which have slumped. Today there are just two significant GTL plants under construction: Pearl and the Escravos project being run by Chevron in Nigeria, which has also been hugely expensive.
It is hard to imagine any GTL plants getting past FID in the present environment, and even more so for CTL, which has higher cost and raises serious concerns about CO2 emissions, which are very high unless steps are taken to capture and store them. That CCS is technically possibly, but is also untried and costly. A decision due next year on Sasol’s planned Chinese CTL joint venture could be a crucial sign of the industry’s prospects.
Still, XTL should not be written off yet. Oryx was put on ice in the last downturn in 1998-99, when oil went to $10, only to be revived when the market recovered, when it could benefit from its lower costs.
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