New GTL Developments

Spending $40 billion for an Alaskan gas pipeline to the lower 48 seems less and less feasible every day.  $20 billion for a short pipeline to Valdez plus another $20 billion for a LNG plant seems to offer only slight advantages over the big line. Other small pipeline options fail to monetize the the full volume of available North Slope gas.

It's always tempting to talk about Gas-To-Liquids (GTL) to convert Alaskan gas to petroleum products but the cost never seem to add up.  I think this is because many GTL projects like Shell's Pearl convert gas to refined petroleum products (low sulfur diesel, kerosene etc). An Alaskan GTL plant only needs to convert gas into petroleum liquid in the C6 to C16 range, i.e. something liquid at atmospheric pressure and pumpable.  Such a material could be blended with crude oil, moved down TAPS, and sold as crude oil.

Another factor working against GTL plants is size. Plant size drives up cost.  The heart of a GTL plant is the Fischer-Tropsch reactor.  The F-T reaction is exothermic (gives off heat) so reactor size becomes is dependent on effective heat transfer.  An  F-T reactor is fed by syngas produced by reforming natural gas.  Some syngas plants require pure oxygen to form syngas.  An expensive air separation plant must be built to supply the pure oxygen.  An air separation plant adds both capital cost and operating cost.

What if the size and cost of a GTL plant could be reduced and a GTL plant could be customized to the needs of Alaskan gas?  A new outfit is commercializing a technology that might just fit the bill. CompactGTL is scaling up a modular GTL technology that can convert Alaskan gas to synthetic crude oil at lower cost than other GTL processes.  (LINK to CompactGTL presentation) Here are the advantages I see for the CompactGTL process:

1) Reduced reactor size. CompactGTL claims to have reduced reactor size by a factor of 10 through the use of  mini-channel reactors.  I believe in that claim.  The mini-channel reactors integrate a reactor within a plate type heat exchanger. This type of heat exchanger provides very high heat transfer rate.  CompactGTL has implemented this type of reactor for both the steam methane reformer (SMR) and the Fischer-Tropsch (FT) reactor. Size reduction will yield cost reductions.

2) No oxygen required. The CompactGTL process does not use an autothermal reformer therefore no costly air separation plant.  That's a cost reduction.

3) No carbon dioxide separation required.Alaskan natural gas contains about 12% carbon dioxide (CO2). The CompactGTL process does not require CO2 removal.  This reduces cost compared to pipeline alternatives.

4) Modular Design. Modular design suits Alaskan construction needs.  Any gas line project envisions modularized gas treatment plants.  Incremental deployment of CompactGTL using modules would take years and extend the oil production benefits of gas reinjection thus optimizing the total field production.

5) Synthetic Crude Oil. The CompactGTL process is geared to produce an unrefined product.  That keeps cost low and options open.  A synthetic crude could be blended with ANS crude or batched to Valdez. The product would be valued near the price of crude depending on the capabilities of the buyer's refinery.  Note - a FT synthetic crude is not an exact replacement for crude oil, it lacks aromatics, the key ingredient of gasoline. On the plus side a FT synthetic crude lacks low value heavy cuts and troublesome sulfur.   FT synthetic crude is ideal for clean diesel, kerosene and naphtha production.  Converting Alaskan gas into a crude oil equivalent would forever break the market link to cheap shale gas.

6) Economics.  CompactGTL shows one cost comparison in their presentation. Since they are currently focused on floating production, storage and offloading (FPSO) units I'll use that cost unescalated. i.e. "Alaska Factor" equals 1.00,  I figure the cost of building a module on a ship will cost the same as deploying a module to the North Slope.  Crunching those numbers I find that a full deployment of CompactGTL for Alaskan gas would cost upwards of $68 billon and it would produce about $15 billion annually in gross revenue if the product is priced at $100/bbl.  The capital figure is 1.7 times higher than a gas pipeline but the synthetic crude product sells for 5 to 6 times the price of natural gas so that a BTU of North Slope gas could sell for 3.5 more if converted to liquids. These are of course very rough calculations, but the conclusion points in the right direction.

Other considerations

1) Timing.  CompactGTL is currently in the commercialization phase with a demonstration plant funded by Petrobras. It will be some years before we're ready to talk deployment to a cold region.  In those years I doubt the gas to liquids value ratio will change all that much.  I also doubt that Alaska will ink a deal to sell gas as LNG into a market flooded with cheap shale gas and cheap shale gas derived LNG.

2) GTL Trend.  The world is full of cheap gas and stranded gas. CompactGTL is only one of many outfits focused on converting stranded or wasted gas into useful liquids. Technological leaps in catalyst and reactor design may push GTL into full commercial in North America in the near future.

3) NGLs.  Most urban Alaskan would like a big pipeline to deliver gas to their homes at an affordable price.  That may never happen and Alaskans need to make other plans for in-State energy needs.  A GTL plant does not exclude the possibility of propane and butane (NGLs) recovery from North Slope gas upstream of a GTL plant.  The economics of a GTL plant is not dependent of the BTU content of the feed gas, so a GTL plant would not compete with the interest of supplying Alaskans with affordable home-grown energy from NGLs.