Sasol GTL

Sasol has plans to pursue a Gas to Liquids (GTL) project on the Gulf Coast. (LINK).  Chesapeake has been saying GTL will sponge up the shale gas glut (LINK- see page 10).  Looks like they may be right.

Quote from the DownStream Today article:

Sasol Ltd. (SOL.JO, SSL), a chemical company long known for squeezing motor fuel out of coal, is now turning its sights on the glut of natural gas in the U.S.South Africa-based Sasol on Tuesday announced plans to build a plant, at a cost of as much as $10 billion, that would convert natural gas into diesel.

Sasol's board last week approved an 18-month feasibility study for the project, which would be constructed on land adjacent to Sasol's existing chemical facility in Louisiana.If given the final go-ahead, the plant would be the first in the U.S. to use so-called gas-to-liquids technology. Once seen as far-fetched and futuristic, the technology has gained traction in recent years as the discovery of gas supplies has outpaced that of oil.

 Anything that increases demand for lower 48 gas helps Alaska in the long run.  18 months seems like a long time for a study, but I still look forward to approval for projects like this.

GTL - News worth noting

Foster Wheeler has been awarded work on a Canadian Gas To Liquids (GTL) plant (LINK). From DownstreamToday.com:

Foster Wheeler AG announced Wednesday that a subsidiary of its Global Engineering and Construction Group has been awarded a contract by Sasol to perform the technical portion of a feasibility study for a planned gas-to-liquids facility in Canada, on behalf of the Sasol/Talisman Energy partnership. The technical portion of the feasibility study is expected to be completed during the fourth quarter of 2011.

Recent investor updates from Chesapeake have alluded to GTL plants that will sponge up cheap North American gas for conversion to liquids. This sounds like the first credible North American GLT plant.

Before reading this announcement I would have predicted that the first GTL plants would be sited on the Gulf Coast. Citing a GTL plant in Canada makes a lot of sense too. GTL plants convert gas into hydrocarbon liquids that require further processing into fuel. That processing requires capital investment. In Canada GTL liquids could be added to thick oil sand products as a diluent, thinning the oil sand product. This product would be easy to pump. The GTL cut of the blended product would be co-processed into fuels at the refineries that receive the oil sand oil. It's a great strategy the maximizes return on capital employed.

The press release says shale gas will be used for the GTL project however gas from the Alaska Gas Pipeline and / or the Mackenzie pipeline could contribute to other GTL projects or satisfy other market demand as GTL sponges up shale gas.

Press release did not mention volumes, however I assume the plant will be sized along the lines of the other Sasol GTL plants.

GTL in Canada is good news and it's worth keeping an eye on.

Natural Gas Cheerleaders

Some say shale gas has ruined the chances of an Alaska Gas Pipeline. I'll agree that the flood of cheap shale gas in the lower 48 has been a great set back to the sure thing envisioned by Frank Murkowski back in 2006 (Link to Murkowski op-ed piece in the News-Miner). Murkowski's loss of the Governorship to Palin coincided with the growth of shale gas development. Palin's policy shift from Murkowski's plans was the wrong move at the wrong time. Shale gas development reset the pricing basis for natural gas in North America. The one-two punch of Palin+shale gas was the black swan event that may ultimately prove fatal to the Alaska Gas Pipeline.

Of course the resources and the demand haven't gone away. Businesses will adjust and invest in development projects in places with more favorable conditions. Just listen to ExxonMobil CEO Rex Tillerson gush about doing business in Qatar and the acquisition of shale gas producer XTO:



The producers, like ExxonMobil are in this business for the long haul, they'll continue to meet market demands and manage risk with or without Alaska gas. Closure of facilities like the Kenai LNG export terminal shows that market forces govern the sale of Alaska energy and wishing it otherwise won't help.

So who is optimistic about North American natural gas? The shale gas folks of course. ExxonMobil bought XTO and took the lead in shale gas followed by Chesapeake. ExxonMobil sees a bright future for natural gas and so does Chesapeake (Link to Chesapeake Presentations).

The April 2011 Chesapeake investor presentation explains why they are bullish on natural gas. They see a future with compressed natural gas vehicles (CNG), LNG export from the lower 48, and gas to liquids plants fed by cheap and abundant shale gas. They also envision replacement of coal power plants with natural gas power plants:

I agree with Chesapeake's reasoning and ExxonMobil's optimism for the future of natural gas. The demand is great and they have bought the resources at the low point in the cycle. I think Alaska, as a resource owner, should also be optimistic. The selling price of natural gas will be constrained by production cost and the cost of alternatives. The alternatives: coal, oil, and nuclear all have future cost problems, the end result is long term gas prices in the $6/MMBTU range and sufficient demand for a couple of Arctic pipelines.