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GTL: Ambition to become the capital of novel technology

By Thomas Catan
FINANCIAL TIMES

Qatar has professed many world class ambitions in recent years.

But one of the most closely watched on the energy patch is its desire to become the “world capital” of gas-to-liquids or GTL – a novel technology that proponents hope will produce a commercially viable alternative to petrol for cars.

To be sure, GTL has been around for a while. The basic process was invented in the 1920s and then developed by Nazi Germany and apartheid South Africa – both of which had problems getting enough petrol for their vehicles.

Initially it was used to turn coal into a liquid. Today it is used to turn natural gas into a clean burning fuel for use in diesel engines, naphtha, lubricants and a range of other products.

At the moment, there is only one commercial GTL plant in operation – a relatively small one operated by Shell in Malaysia.

But several much larger plants are due for construction in Qatar, giving birth to a real market in GTL products for the first time.

The first to enter production is a $1bn plant built by a joint venture between Oryx, Qatar Petroleum and South Africa’s Sasol, which should be in operation next year. Shell and ExxonMobil both have complex plants on the drawing board, but have yet to take the final investment decision.

The stakes are high – ExxonMobil’s $7bn plant alone will be the most expensive single project it is undertaking anywhere in the world, according to Wayne Harms, the company’s country manager.

For consumers, the advantages of GTL are clear – it offers the promise of a “designer fuel” which combines lower emissions with increased engine performance.

For Qatar, GTL represents another way to transport its gas to far off markets.

It enables the country to gain access to the vast market for fuel in vehicles, and, because it is transformed into a stable liquid, it can be loaded on to conventional tankers and does not require special terminals at the receiving end.

For the companies, GTL is an attractive alternative fuel that does not directly challenge their main oil business. Shell already blends GTL fuel into its V-Power diesel in the Netherlands, Austria and Germany, where it is marketed as a performance-boosting fuel.

Blended fuels are also available in Thailand and in Greece, where they are used in taxis.

GTL can also be used neat. To show off its relative cleanliness, Shell has been conducting a series of trials with fleets of buses in London and delivery vehicles in the US and Japan.

Automakers such as Toyota, DaimlerChrysler, Mitsubishi and VW have also been designing experimental engines especially for GTL to get the full benefits of the fuel.

The demonstrations “really help us work with car manufacturers but also help us get the regulators, the governments and the consumers interested in the products,” says Shell’s Andrew Brown.

A win-win proposition for all? Perhaps, but there are drawbacks. While it clearly holds out promise, GTL products remain relatively untested in the market and turning gas into liquid uses up a huge amount of energy – up to 40 per cent of the gas is consumed in the process, engineers say.

For that reason and others, Qatar’s energy minister last month put the brakes on several planned GTL projects, including joint ventures with ConocoPhillips, Marathon Oil and a Sasol and ChevronTexaco pairing. Other projects, including those of Shell and ExxonMobil, are unaffected.

As a reason, the energy ministry said it wanted to analyse what effect such rapid extraction of gas would have on the geology of the North Field reservoir. But analysts also believe that the logistical challenges involved in getting so many mammoth gas projects under way are starting to place limits on Qatar’s ability to execute its plans.

Other than Qatar, there are few countries with large enough reserves of “stranded” gas to justify setting up a GTL industry.

GTL products will certainly start to appear throughout the world over the coming years.

But, in spite of its promise, GTL fuel seems unlikely to challenge the supremacy of petrol for a good while yet.