Gas-to-Liquid: Is it an attractive route for gas monetization? Part II GTL or LNG: Which route to choose?

A gas producer is always trying to maximize his profit from this valuable hydrocarbon resource. His target revolves around the need to have a sustainable market for his gas at minimum operating cost and highest revenue.
If a gas market is available to producer within relatively a short distance, for instance less than 2000 km, and if the gas buyer can commit a long term gas purchase agreement for the total quantity of gas, then the most economical option available to the gas producer appears to be the installation of a pipeline to sell the gas to this market (a take or pay clause is sometimes incorporated in such agreements). In actual practice, this is not the case for most of the gas producers.
Gas production, in most of the cases, exceeds the gas demand of the nearby market and sometimes, the gas production is located in locations very far from the market, which makes the pipeline option either less economically attractive or even not technically feasible.
Excluding this pipeline option, it is essential to find another mean to monetize the gas discoveries at these locations. Considering the fact that liquid is economically easier to be transported for very long distances, the option of liquefying the gas or converts it into liquid is emerged.

First Option:  LNG
The process of gas liquefaction and the production of LNG are based on chilling the gas to a very low temperature, around –165oC after the removal of impurities in the gas, such as Sulphur, Carbon Dioxide and in some cases Nitrogen; which is normally removed from the LNG product rather than the gas feed.  The LNG is then stored in a specially designed tanks, shipped in a special LNG carrier, received in a suitable LNG receiving terminal where it gets re-gasified (converted into gas) and then supplied to consumers which are mainly power stations. The gas is also used after compression (CNG) as a clean fuel for vehicles. 

The LNG route requires:

  • Large proven gas reserves. A world scale LNG plant requires a proven gas reserve of at least 4 Trillion SCF of gas
  • Long term gas supply commitment, normally for not less than 20 years
  • Long term gas purchase agreement for the same period which includes in most of the cases a Take or Pay clause to protect the large investment of LNG production made by the gas seller
  • Special LNG carriers to be dedicated for the LNG plant production and its market
  • LNG receiving and vaporizing terminal

The problem of LNG marketing is that it traditionally does not have a spot sale market which means that any LNG plant should have its own dedicated market for the life of the plant.  At present, minor quantities of LNG is being marketed on spot basis. However, the LNG spot market is increasing.

Second Option:  GTL
The other option of gas utilization is converting it into petroleum products of superior quality through the Gas to Liquid (GTL) process.
The GTL process is based on Fischer – Tropsch (F-T) reaction for the conversion of Synthesis gas (CO + H2) into liquid petroleum fraction. The products from GTL plants are the same as those produced from a refinery. They can mix easily with the available infra structure of the petroleum products

  • Production Cost for The GTL Route
    The quantity of natural gas required to produce one barrel of products is about 10,000 SCF. The investment required is in the range of $25,000 – 30,000/BPD of products. GTL plant operating cost, excluding depreciation and feedstock cost is in the range of $4–6/Bbl.
    Based on the above, the production cost of a barrel of GTL products is estimated as follows:
    Feedstock Cost:
    $5 (at gas price of $0.5/MMBT) – $10 (at $1/MMBTU gas price)
    Capital Cost (at 15 % ROI): $11- $14
    Operating cost: $ 4-6
    Total Production Cost: $20-$ 30 (per barrel of products)

    Note that for each increase of $0.5 /MMBTU in gas price, GTL operating cost increases by $5/Bbl of GTL products.

    By: Osama Abdul Rahman
    General Manager of Orient Environmental Consultants (OEC)


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