Gas to Gasoline?

Petroleum News carried additional details (LINK) on Janus Methanol chairman Deo van Wijk's ideas for un-stranding Alaska's natural gas. The idea is called "MTG" or Methanol to Gasoline. Given the dismal prospects of the umpteen dozen proposed gas lines maybe this idea is worth a second and even a third look.

In a nutshell van Wijk's concept is to convert Alaska's natural gas into valuable liquids and batch the liquids to market via the existing TAPS oil pipeline to Valdez and then on to markets where the material will trade as gasoline.

How it works - Cleaned up natural gas is converted to Syngas (carbon monoxide and hydrogen), Syngas is converted to Methanol (MeOH) and Methanol is converted to liquids, i.e. gasoline via a process owned by Exxon.

Quote from the Petroleum News article:

Using ballpark estimates of development costs on the North Slope, assuming for example a more than doubling of costs compared with a region such as the U.S. Gulf Coast, Van Wijk has estimated a $7.7 billion price tag for an initial two-train plant. Assuming a 20 percent return on investment over a 15-year period and a tax rate of 35 percent, gasoline could viably be sold at a price of $1.583 per gallon at a natural gas price of $2 per thousand cubic feet, Van Wijk said. The viable gasoline price rises with increasing natural gas prices, with the gasoline price reaching $3.458 at a natural gas price of $10 per thousand cubic feet, he said.

Van Wijk estimates the initial two train unit will produce 63,000 bbls per day of low sulfur low benzene gasoline. The economics, as stated look good, although where are North Slope gas producers going to get $10/MMBTU for their gas? (LINK TO VAN WIJK SLIDES)

The price of North Slope gas is really an imaginary number without other viable outlets. I figure that gas input to the facility should be at cost with gas producers compensated and tax assessed on the product stream ex-Valdez.

Van Wijk didn't indicate if the cost of a train includes gas pretreatment so let's tack on some capital cost for other items, say $1.3B for offsite utilities (gas treatment) , tankage at Valdez and assorted items along the pipeline. At $9B per two trains the project should still work.

What's good about this idea:

1) It converts Alaska's gas into revenue.

2) It's incremental, initial cost are more easily financed.

3) It fills the pipeline, extending the life of the pipeline.

4) It puts Exxon in the game as the technology licensing participant.

5) Fewer permits required, fewer jurisdictions.

6) It's an "All Alaska" option.

7) The incremental approach depressurizes the North Slope more gradually than a full size gas pipeline, i.e. it extends some oil field production.

8) There are actual buyers for the product.

Here's what people will hate about this idea:

1) No gas for Alaskans - Better start thinking propane

2) $500 Million for AGIA down the drain, maybe $1.5 Billion if damages are paid to TransCanada. Maybe the viability of MTG will force the discussion of AGIA feasibility.

Conclusion - I say why not - Van Wijk's team should press on and develop a full cost estimate. Clean up the concept and minimize capital installed on the North Slope. Get a proof of concept unit going on the Gulf Coast and iron out the arctic constructability issues.