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Conoco brings GTL expertise; Phillips joins other big gas owners Merger will make ConocoPhillips third of companies on North Slope with gas-to-liquids technology; Conoco building $75 million demonstration plant in Oklahoma Allen Baker PNA Contributing Writer
Phillips Petroleum will soon join its North Slope gas partners with the technology to turn crude into a liquid product that could be shipped down the trans-Alaska oil pipeline.
Fellow North Slope gas owners BP and ExxonMobil already have well-established research programs on the nascent gas-to-liquids process, and the pending merger with Conoco will give Phillips the same punch.
“Our first plant won’t be on the North Slope, but plants will be built there,” says Jim Rockwell, Conoco’s manager for gas-to-liquids in Houston.
“I think the first locations will be in warmer climates.” Oklahoma pilot plant Conoco is currently building a $75 million demonstration plant for its technology at its Ponca City, Okla., refinery. The plant, which will turn 4 million cubic feet of gas into 440 barrels of liquid fuels daily, is scheduled for completion by the end of the year. Conoco plans to start building a commercial-scale gas-to-liquids plant by 2004.
“This is the final scale. We would go from this to a commercial plant,” Rockwell said. “Our notional commercial plant would be 60,000 barrels per day. The purpose of this plant is to properly size things.”
About 150 people are working on the Conoco project, including the scientists, engineers and technicians, Rockwell said. The first of 56 production modules was installed last month. DuPont connection Conoco doesn’t have a lot of “stranded gas” that’s far from markets, Rockwell said, but “we just saw a huge opportunity there.” And in 1997, when the decision was made to move forward, Conoco was part of the DuPont chemical giant.
“The DuPont connection gave us the courage to go ahead. It gave us some capabilities that we wouldn’t have had otherwise,” said Rockwell.
“Given the fact that most upstream development opportunities are very competitive, to get into new projects is very difficult. We saw this (GTL) as something that would differentiate us from everybody else.” Phillips talks ahead The merger of Conoco and Phillips isn’t a done deal yet, even though shareholders of both companies have approved the deal and antitrust issues aren’t expected to derail the combination. Still, the companies have been careful about beginning the integration before government regulators give their blessing, so Phillips and Conoco executives haven’t discussed the potential for GTL.
“We’re anxious for the day when we can get together and talk about it,” Rockwell said.
Refining the idea Developers of new technology keep their cards close to the vest, and Rockwell isn’t saying much about the refinements Conoco has made on a process that’s had scientist tinkering since the 1920s.
“Our syngas (the first stage in the conversion system) is a totally different process than others can use,” Rockwell said. He would say it’s a catalytic partial oxidation process.
“But it’s not just catalyst design” that makes the process workable and potentially profitable. “It’s how you build this refinery. There are literally hundreds of designs involved.” Billion-dollar plants Building a commercial-scale GTL plant is expected to cost in excess of a billion dollars, and it’s not going to make money if oil prices don’t stay in the neighborhood of $25 a barrel or more.
“If you think about GTL, it’s very capital-intensive,” Rockwell said.
“When you think about the North Slope, it’s even more.”
For a commercial-scale plant, “the capital cost is about $12 per barrel,” Rockwell says, noting even that figure “is not using the North Slope location factor.” Operating cost would be about $4 per barrel, he said.
Paying producers just 50 cents per thousand cubic feet of gas adds about $4.50, which would bring the cost per barrel to just over $20 a barrel, before shipping costs.
Give the producers $1 per thousand cubic feet and you’ve brought your raw material cost to $9 a barrel, and the total cost to $25 per barrel.
But the product that comes out is amazingly pure, and would command a premium of a few dollars a barrel from refineries trying to meet new, lower sulfur standards. GTL products made at an operating Shell GTL plant in Indonesia are being used for lubricating oils and other products that tend to bring a higher price, Rockwell said. Big gamble Still, it’s a big gamble to spend in excess of a billion dollars on a project that would run at a loss if oil prices were in the teens.
With current prices, though, the investment could still be profitable, and competitive what producers would get for their gas with a pipeline.
Transportation costs from the North Slope to market are estimated at $2.38 per thousand cubic feet with a gas line, which would mean $1 at the wellhead if the market price was $3.38. That’s about what gas is fetching right now. BP startup Meanwhile, BP is expected to begin production later this month at its $86 million, 300-barrel-per-day GTL pilot plant in Nikiski. That facility, like Conoco’s Oklahoma plant, is the final testing step before a commercial GTL refinery.
ExxonMobil, the other major North Slope gas owner, has been active in GTL research for quite some time, and has proposed a 100,000-barrel-per-day plant in Qatar.
Other oil companies have also pursued the technology, and a handful of plants are operating around the world, particularly in South Africa, where they were built to replace crude oil imports during the world boycott of the country over racial policies of the former white-run government.
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