GTL or LNG: Which is the best way to monetize "stranded" natural gas?

Pet.Sci(200895:388394DoI0.1007/s121820080063-8GTL or LNG: which is the best wayto monetize“ stranded” natural gasDong lichun, Wei Shun'an, Tan Shiyu*and Zhang HongjingSchool of Chemistry and Chemical Engineering, Chongqing University, Chongqing 400044, ChinaAbstract: A large portion of worlds natural gas reserves are"stranded"resources, the drive tomonetize these resources leads to the development of gas-to-liquids(GTL) and liquefied natural gas(LNG)technologies. LNG has the advantage of having been developed for the past 40 years and havingan excellent safety record. GTL on the other hand is another option with substantial benefits, but itslevelopment stage and commercial viability are far behind LNG. This paper presents a techno-economicomparison of GtL with LNG, including technical development, plant efficiency, market potential for theproducts, and capital cost for the infrastructure. The aim is to give an overall view on both LNG and GtLand provide a perspective on the profitability of these two technologiesKey words: GtL (gas to liquids), LNG(liquefied natural gas), " stranded "natural ga1 IntroductionLNG and GtL serve different energy markets withdifferent marketing systems, policies and strategies. Thei Natural gas is playing a more and more important role comparison between LNG and GtL is the most prominentthe supply of energy for both industrial and domestic use. debate for resource owners, developers and investorsThe total global annual gas consumption is forecast to rise alike. Several factors have to be considered to evaluateto 4.59 trillion cubic meters by 2020 with an annual increase the project economics. LNG has the obvious advantage ofrate of 3.2%( Chen, 2003), which is much faster than that of having been developed for the past 40 years and has to-dateil and coal the world,s plentiful gas supply sources, the enjoyed robust growth and has an excellent safety recorddesire for less carbon-intensive fuels, and the need for cleaner GTL on the other hand is a developing alternative to LNGair are driving a continuous innovation of gas technologies. with substantial benefits in terms of sustainable economicHowever, a considerable portion of the world natural gas social and environmental development. With the recentreserves fall into the category termed asstranded", whicdevelopment of GTL technology, the debate between GtLmeans that the gas reserves are either located remotely and LNG is no longer"is the project economic"but ratherfrom consumers or are sporadic in the region where any " which project is most profitable". This paper examinessingle reserve is relatively small. For the"stranded"gas, the the technical performance and market potential for LNGconventional means of transportation via pipeline is usually and GTL products, and the capital costs for LNG and GTLnot practical or economical because of geographical, political, infrastructure. The aim is to give an overall view on bothor diplomatic limitations. The owners of the"stranded"gas LNG and GTL and provide a perspective on the profitabilityface a challenge on how to monetize the large stranded gas of the two technologies(Pyrdol and Baron, 2006)resources. This drive leads to the developments in LNG andGTL technologies. The LNG is essentially a physical process 2 Technical developments of GtL and LNGconverting natural gas to liquid for easy transportation,while gtL is a chemical process that methane is convertedThe LnG process first involves a gas treatment plant forto naphtha, transportation fuels, and specialty chemicals via removal of acid gas(sulfur, carbon dioxide, water, and otherFischer-Tropsch(F-T)synthesis or into methanol and into contaminants. The gas is then cooled to separate the heaviergasoline with a methanol to gasoline(MTG) direct process. hydrocarbons such as C,, Ca, and Cs. components. TheseThe discussion in this paper is focused on Fischer-Tropsch heavier components are then fractionated to produce Cs. andsynthesis. The LNG and GTL products offer environmental Liquefied petroleum gas(LPG) products. The purified gas isbenefits over other conventional fuels such as coal and then liquefied in cryogenic exchangers at a temperatureproducts derived from crude oil; both offer excellent -162中国煤化工 of its original volumeprospects to countries having gas resources with potential for inin LNG tanks pricior tomonetizationCNMHGd tankers and regasifiedfor use in conventional gas markets such as power generationand domestic applications(Yang and Wang, 2005). A typicalCorrespondingauthor.email:thy@cqu.edu.cnLNG process is as Fig. 1Received July 23, 2008Like the LNG process, the gtl process also starts withPet. Sci.(2008)5:388-394NaturalremovalydrationPropane>LPGEnd flashFig. 1 The schema of a typical LNG processa gas plant for removal of sulfur, carbon dioxide, water, as the feedstock of Fischer-Tropsch synthesis. The syngas isother contaminants and heavier hydrocarbon components. then converted to paraffinic hydrocarbons in a F-T ReactorHowever, unlike the LNG process, which is a simple physical with the use of cobalt or iron based catalyst. This stage is theprocess to liquefy natural gas at a cryogenic temperature, the key to the commercial success of the Gtl process, and highGtL process involves several complex chemical reactions. a yields of desirable middle distillate products are essential toGTL unit comprises of three core technologies: synthesis gas lower unit cost. In the final stage of the Gtl process, the raw(syngas)manufacture, Fischer-Tropsch(F-T)synthesis and F-t hydrocarbons are subsequently upgraded to final productshydrocracking(Hu et al, 2006: Fleisch et al, 2002; Heng and by using conventional refinery processes: wax hydrocracking.Idrus, 2004; Bakkerud, 2005: Sie, 1998)distillate hydrotreating, catalytic reforming, etc. The primaryIn the syngas manufacture process, the purified gas is products include naphtha, and transportation fuels suchconverted to syngas by partial oxidation, steam reforming, as diesel and jet fuels. gtL is also an efficient process foror a combination of the two processes. The syngas is producing high quality lubes, waxes and white oils, which arepredetermined with a mixture of hydrogen and carbon utilized in the food and pharmaceutical industry. a simplifiedmonoxide with a 2: 1 ratio of hydrogen to carbon monoxide GtL- F-T process is shown in Fig. 2.Natural gasprocessing-C5+, LPG&(Ethaneseparatonpartial oxidationreformingFischerreformingsynthesisFuel Gas(LPG)ProductProduct Grade-up器H凵中国煤化工CNMHGFig. 2 The overall schema of a GTL processPet, Sci.(2008)5:388been economically competitive, and LNG has been actually Carbon Efficiency(CE), which is definedlis ue The other. AAlthough long achieving technical success, GtL has not where LHv stands for lower heating valthe only commercial option for the owners of"stranded"gasuntil recently. Today we see a resurrecting second generationCarbon molecules in the final prox1009%GtL process using low-temperature F-T conversion asCarbon molecules in natural gasa result of abundant gas supply and strong need of highquality transportation fuels. The increasing efficiency of Thermal Efficiency is a measure as how much thethe gtl process and the ability to build bigger plants of total energy in the feedstock is utilized to produce thecommercial scale based on operational experience make final hydrocarbon product, whereas Carbon Efficiency isGTL an attractive alternative to LNG for the gas owners to essentially a measure as how best the carbon atoms in themonetize the"stranded "gas resources. However, the GTl feedstock are utilized to produce the final productprocess is still in its infancy, and only Shell SMDS and Sasol The thermal Efficiency of GTL is considered low and isSynthol are in commercial operation. The other processes, typically around 60%; LNG on the other hand has a Thermalsuch as Rentech, Exxon Mobil AGC-21 and Syntroleum are Efficiency around 88%. The Carbon Efficiency of the gtlstill in the demonstration stage. Therefore, GTL production process is around 77% with the remainder of the carbon beinghas significantly larger technical risk than LNG production at converted to Co2. LNG production on the other hand has aCarbon Efficiency of around 88%. The efficiency of GTLtechnology is relatively low compared with LNG technology3 Plant efficiency of GTL and lng Advances in the gtl technology are projected to increasefacilitiesthe carbon efficiency and the thermal efficiency to 90% and73%respectively within the next 10 years(Pyrdol and Baron,Two parameters are often used to define the efficiency 2006 Fleisch et al, 2002; Smith, 2004; Patel, 2005). A typicalof LNG and GTL facilities. The first is Thermal(Energy) energy and carbon balance of GTL is shown in Fig 3Efficiency (Te), which is defined asLNG has higher processing efficiency, then LNG candeliver more energy to the market than GtL for a givenTE_LHV of liquid final products x100%quantity of natural gas feed, however, the Gtl products areLHV of natural gasmore valuable, one can not declare that LNG is the ultimatewinner simply from the delivered energyFuel losses(CO2)Fuel losses(co2)严會23KJ10 KJ10 CarbonsTo customersGas feed100 Carbons100 CarbonsfutureWater makeWater make17 KJ0 Carbons0 CarbonsEnergy Efficiency: 60%(at present)73%(after 10 years)Fig. 3 The plant efficiency of GTL4 Products and marketBCC(Business Communication Company, USA), the totalLNG trade will reach 2.50x 10 tonnes in 2010(Zeng, 2006)The primary market for LNG is power generationBefore 2000, the world LNG trade was in a period ofindustrial fuel and domestic and commercial heating and short-term balance. However, with the strong rise in theair-conditioning. Since its inauguration in 1964, LNG has price of crude oil from the winter of 2000, the world LNGThe total LNG trade is 8x10 tonnes in 1964 and increased the中国煤化工 major markets of LNGto 1.318x10 tonnes in 2004 with an annual increase rate of th20. 34%. If we just take the development from 1994 to 2004 107CNMHGoth America was 9.23x005. and was increasedinto account, the annual increase rate is also as high as 7.31%. by 9.6%, 25.9%, and 21.4% compared to that in 2004,The portion of LNG trade in the world total natural gas trade respectively. This supply/demand imbalance combined withincreased from 0.3% in 1970 to 26.2% in 2004. According to w high oil price caused a significant rise of LNG price for(20085:388394g-term contracts and on the open market, The FOB price alternative fuel into the market. Given this market potentialfLNG contract signed in 2003 was less than $3. 5/MMBTU and superior product quality, it is perhaps only a matter ofI MMBTU =28 m ) whereas the price increased to $5/ time before F-T-GtL becomes a formidable industry (Patel,AMBTU at the end of 2005, and $6/MMBTU in 2006(Zeng, 2005)2006: Zhang and Pang, 2005; Wang, 2005)Unlike LNG, GTL products are commodities that do notsUn Due to the large growth potential in the LNG market, the require long-term purchase agreements and can be sold insupply-demand balance for LNG in the short to medium term the open market. Although GTL diesel is environmentallyis forecasted to remain very competitive. However, the world superior to diesel derived from crude oil, the pricingnatural gas resource is abundant and the high price of lng mechanism for the gtl products will essentially be similar tohas attracted aggressive investment in LNG facilities, which that of the refined products, which is essentially benchmarkedis estimated to be over $67 billion from 2005 to 2009, and the on crude oil prices(Patel, 2005; Yao, 2005)potential supply of LNG will exceed demand. The imbalancesituation of LNG supply versus demand is forecasted to 5 Capital costschange after 2010 and the prices of LNG would possiblydecline in a long-term prospect. Therefore, many naturalThe total capital cost for a typical full chain LNG facilityprocessing l BSCFD(103. 36x10" m/a)is estimated at aroundgas owners are devoting a lot of effort to develop other 2.4 billion us dollars, which can be conveniently dividecompetitive projects except LNG facilities and gain marketshare even while the lng prices remain fairly aggressiveinto three units: liquefaction facilities(gas plant, liquefactionThe pricing mechanism for LNG is usually based on process, utilities, and offsites), transportation (mainly thelong-term commitment by the supplier and consumer Via LNG ships), and receiving regasification terminals. Amonglong-term contract, the suppliers can reduce the high risk them, the cost for the liquefaction plant is about 52% of thetotal cost, the cost for the receiving regasification terminalsguaranteed and reliable LNG supply. Therefore, most of the is about 16%, and the LNG ships is about 32%. During thefor building new LNG facilities and the buyers can getthe actual price adjusts according to the crude oil price with a by 25%0-35%, the cost for transportation has decreased byfloor and a ceiling(Zhang and Pang, 2005)GtL plants are capable of producing a slate of productsis much slower. The Fig. 4 is the typical capital costith highly desirable properties, including lube basestocksbreakdown of a full chain LNG processing I BSCFD (Smith,diesels/kerosene,petrochemical naphtha and waxes as Fig. 2 2004: Patel, 2005)shows. These products meet or exceed virtually all productrequirements and, therefore, are fully compatible withpetroleum-derived products. F-t diesel is characterized byRec/Regas 20%low sulfur(-3 ppm), low aromatics(1%), a high cetaneGas Plant 20%number(-70), and excellent cold flow properties( ColdFilter Plugging Point, CFPP <-10C). These propertiesmake gtl diesel significantly different from diesel derivedProcess 10%0from crude oil, which is under increasing environmentapressure to reduce its sulfur, nitrogen, olefins, aromaticsUtilities 6%and metals content. GTL naphtha due to its high paraffincontent is an excellent feedstock for petrochemical plantsThese environmental benefits of the GtL products make theOffsets 20%GTL technology important for the supply of low sulfur, lowHigh costs of shippingaromatic transportation fuels(Yang and Wang, 2005; Fleischet al, 2002; Heng and Idrus, 2004; Bakkerud, 2005; Sie,Fig. 4 The typical capital cost breakdown of a LNG facilityThe primary market for GTL products is the everincreasing transportation fuels sector. The current world Similarly, the capital cost of a GTL processing I BSCFDdemand for diesel derived from crude refining is enormous is estimated at around s 2.5 billion, which can be dividedat around 28 MMbpd (1 MMbpd= 5x10 t/a). GTL is into the following units: gas plant, syngas unit including theconsidered a very small player in this vast diesel market and air separation unit, Fischer- Tropsch unit, product upgradingconsidered unlimited. The high-quality of GTL diesel exceeds unit, other processing units, utilities, and offsites. Signithcantall anticipated future diesel requirement anywhere in the develop中国煤化工 n made in the pastworld. More important, the GTL fuels work well in existing several yvery likely to see acontinuoCN MH Gital cost of gtl ininfrastructure and in standard diesel fuel engine technology. the near future. Fig. 5 is the typical capital cost breakdown ofThis is not usually the case for many other alternative fuels thatrequire customized vehicle modifications. A smooth transition a full chain GTL processing I BSCFD(Smith, 2004; Patel,can significantly increase the speed of introducing GtL as an 2005)Pet. Sci(20085388391marketing and international circumstances, making GTL moreOffsites16%suitable for small"stranded"natural gas storages(Hu et alGas Plant 20%2006: Yao, 2005: Han et al, 2006: Antari and Mokrani, 2002Qian and Zhu, 2007).Utilities 12%o6 Economic evaluationOther processThe economic evaluation of gtl versus LNG can beUnits 8%onducted in terms of production costs and product valueSyngas production 24%(Patel, 2005). Table I presents the costs of producing GTLProducts upgrade 8% F-T synthesis 12%transportation fuels and LNG at a natural gas price ofS70-11.0/MMBTU and refinery fuels at a crude oil price ofHign cos:s D! SyngeS80-120/bbl(1 bbl =0. 14 tonnes). Since one barrel of GTLproduct requires approximately 10 MMBTU of natural gas,Fig. 5 The typical capital cost breakdown of a GTL facilitythe comparison of the production costs in Table I is made ata standard of 10 MMBTU natural gas feedstocks. Althoughthe operating and capital costs are higher for gtl than forBoth GTL and LNG require large capital investment, and refinery products, the overall cost of producing diesel fromthe magnitude of capital investment is similar for GTL and gas by gtL is similar with that from crude oil by refinerya full chain LNG facility processing equal amount of natural The cost of LNG production corresponding to 10 MMBTUgas feed. However, the capital costs for LNG production of natural gas is estimated to be S80-125, which is slightlyfacilities alone are much less than those for GTL because smaller but close to that of GtL. therefore, the profitabilityLNG importers usually take the responsibility for investing of the two gas monetizing options is essentially governed byLNG ships and regasification terminals. For LNG and GTL the final value of the productsfacilities, the bigger the scale, the more the profit. However, Table 2 compared the production value (Ievenueseveral companies such as Syntroleum and Exxon Mobil have generated from the same quantity of gas(10 MMBTU)developed small-scale Gtl technology that requires relatively between LNG and GTL. If the typical current market price ofsmaller capital investment. Therefore, the GTL production the gtl diesel is assumed as S120-160/bbl and one barrel ofis more flexible and can easily be regulated according to the gtL product requires approximately 10 MMBTU of naturalTable 1 Production cost of GTL transportation fuel, Refinery fuel and LNGFacilityGTLRefineryLNGNatural gas(10 MMBTU)s70110s70-110Cash costsCrude oil (1 BarrelOperating costss6-8s2-323Capital costss9-14Total cost of products85132586-130s80-125Table 2 Production value of GTL and LNGGTLLNGMarket price of productHs120-1MBTU中国煤化工Conversion efficiencyCNMHG10 MMBTU1. 14 MMBTUProduction value of feeds120160sl23215.84Pet. Sci(20085:3883gas, the ultimate production value of the natural gas resource products, whose value is at the uptrend, under the normalis S120-16.0 per MMBTU for GTL. If the typical current crude oil pricing range GtL appears to offer better revenuemarket price of LNG is $140-18.0/MMBTU, taking account for the resources(Smith, 2004; Yao, 2005; Kashav andof the conversion efficiency, the ultimate production value Basu, 2007). Table 3 is the economic analysis of GTL andof the natural gas resource can be calculated as S12 32-15. 84 LNG by Syntroleum Company for the gas resources atper MMBTU for LNG. As the production cost, the product Yamal peninsula, which forecasts similar investment andvalue of the natural gas resource appears to be very similar a fairly higher profitability of GTL for large-scale naturalbased on the above pricing assumptions for the two systems. gas reservoirs(Qian and Zhu, 2007). Although the analysisThe above analysis suggests comparable investments for of Table 3 is made in 2004 with the price for crude oil andboth GTL and LNG. The long term pricing mechanism for natural gas increasing significantly during the past severalLNG is not conducive to maximize the resource revenue. years, the forecast still works reasonably due to the similarThe gtl product value on the other hand is vulnerable to scale increase of crude oil and natural gas pricecrude oil prices. However, due to the high quality of gtLTable 3 Economic analysis of GTL and LNG for large-scale natural gas reservoirsGTLs220tale volume550x10t640×10°tFacility investmentS3. 4 billion52.3 billionOil tanker investmentS0.3 billionS1. 0 billionTotal investmentS3. 7 billionS3.3 billionMarket locationRotterdamZMarket distance4000kmInternal repayment rate15%12%Notes: Data from Petroleum Review, 2004, 58(690): 14-167 Summary and perspectivemajor oil companies suggest that the GTL industry is likelyto expand rapidly over the next decade and will develop intoIn summary, GTL F-T technology is beginning to a significant commercial factor in world energy markets overshow commercial viability, whereas LnG has been well the next few years. More GTl means that less lng will beestablished. A GTL facility is more complex, has lower available on the world market, slowing the development ofplant efficiency and is more expensive than an LNG facility. competition and resulting in higher prices and less availableHowever the full chain capital expenses of both GTL and supply of LNG, potentially altering LNG's projected role inLNG are comparable. Due to the similar capital investment the world s natural gas market.the decision to invest in LNG or gtl from a resource owner's perspective can be challenging. Besides the capital, other Referencesfactors, such as technology risks, plant availability, localmarket, overall company strategy and political consideration Antari A中国煤化工 eum Congress, Rio Deare also important in the decision-makingJanetGTL and LNG serve different energy markets and bothBakkerCNMHGtion for GTL. Catalysisare attractive for monetization of stranded gas reserves. Today. 2005. 106: 30GTL products, dependent upon the crude oil price, exhibit Chen Z. 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