Gas-to-liquids as an alternative to LNG

Converting natural gas to liquids on Slope would extend life of TAPS, provide more value than LNG; but GTL process more complex

TIM BRADNER

For Petroleum News

If a conventional gas pipeline from the North Slope is not viable, gas-to-liquids, or GTL, a process that converts natural gas into a liquid, might be a possible alternative. Liquids that are made could be moved through the existing Trans Alaska Pipeline System.

One attraction of this is that a GTL project would boost the volumes shipped through TAPS, extending the pipeline’s economic life and lowering the cost of shipping the conventional crude oil produced in North Slope fields.

Another is that the liquids made through gas-to-liquids, whether synthetic crude oil or ultra-clean fuels like diesel or gasoline, can have two to three times the value of North Slope natural gas sold as liquefied natural gas.

That is because the energy in the liquids is sold into higher-value crude oil or fuels markets, and through an existing pipeline, rather than sold into LNG markets, currently oversupplied, through an expensive gas pipeline and gas liquefaction plant that have yet to be built.

As a quick example, if the entire proven 35 trillion cubic feet of natural gas on the North Slope were sold at $3 per million British thermal units, a likely value of the gas on the North Slope, sales could generate $95 billion dollars. If the same amount of gas were converted into GTL liquids, as synthetic crude oil, and sold at $50 per barrel the revenues would be more than $210 billion. If the gas is converted into final products like diesel or gasoline the values would be much higher.

A challenge for GTL, however, is its complexity compared with the relatively simple LNG process of chilling gas into liquid form and shipping and then regasifying it. Also, LNG is done in many places including Alaska, so most major oil and gas companies and gas customers are familiar with it. GTL is done commercially also but in fewer places, so there are fewer companies familiar with it. Shell and Sasol are the most advanced today in their understanding of GTL. Among North Slope producers ExxonMobil is most advanced in GTL, and has previously studied its application to the Slope.

What is it? How does it work?

“GTL plants are giant chemistry sets,” which basically rearrange hydrocarbon molecules, says Richard Peterson, an Anchorage-based gas project developer who has worked in the field for years.

“Gas-to-liquids is a generic name for processes that convert a carbon-based gaseous material (the G) into a liquid (the L) at room temperature, through a three-step process,” he said.

The most common GTL process is making methanol, a liquid, from natural gas, which is mostly methane.

A second common GTL procedure is the Fischer-Tropsch process, a chemical reaction named the two German scientists who developed it in the 1920s.

While methane-to-methanol makes one product, methanol, Fischer-Tropsch can make several finished products or a synthetic crude oil, which can be sold on its own and blended with conventional crude. Finished products can include products like ultra-clean diesel, gasoline, jet fuel or naphtha made through a conventional refining process.

Some GTL manufacturers, such as Shell, make petrochemicals in addition to fuel products, Peterson said. Shell does a good business with petrochemicals made in its Malaysia GTL plant.

How does it work? A chemistry lesson

“With methane (the most important component of natural gas) the base molecule is CH4, there are one carbon atom and four hydrogen atoms. The methane molecule is split with heat, steam (which is water or H2O) and, using the catalyst, a mixture of carbon monoxide (CO) and hydrogen (H2) is created,” what is known as synthesis gas.

This is sent to a second reactor, where another catalyst is used with an elevated temperature and pressure, and a new, longer-chain, a more complex, carbon molecule is formed, Peterson explained.

This long chain molecule consists of many carbon atoms and twice as many hydrogen atoms. There could be a C150 (150 carbon atoms) H302 (or 302 hydrogen atoms) in the new molecule.

“The long chain molecule forms a hydrocarbon wax at room temperature, which has the physical appearance of a plain wax candle,” Peterson said.

The third, final step of the process is almost identical to a crude oil refinery where in the presence of still another catalyst, and again with elevated temperatures and pressures, the long-chain carbon molecule is split, or “cracked” into many smaller carbon molecules.

“The shorter the molecule chain, the lighter the final material,” Peterson said. For example, gasoline is C5H12 whereas diesel is C12H26.

Advances in catalysts have resulted in improvements to the GTL process over the years, improving its efficiency. “Iron was replaced by cobalt (in catalysts) to extend the life of the catalysts from months to years, while also improving the conversion efficiency,” he said.

An advantage: Fuels are super-clean

One big advantage of the fuel products made though GTL is that they do not contain the harmful compounds, which cause pollution, that are in conventional crude oil and are in the fuels made from conventional crude.

Why are GTLs so clean? “The simple answer,” Peterson explains, “is that the liquids made start out as pure methane with the CH4 molecule. Crude oil also contains carbon and hydrogen but also has contaminates like aromatics, benzenes, sulfur and heavy metals that are difficult if not impossible to economically remove.”

“Since it begins as pure carbon and hydrogen the GTL end product ends as pure carbon and hydrogen, without the contaminates,” he said.

This is a commercial advantage for GTL, although there is as-yet a limited market for ultra-clean fuels. “GTL plants will make incredibly pure products and can command large premiums over petroleum products based on conventional crude oil,” to meet government environmental standards.

“But the market for super-pure products is sometimes limited and will only grow once the supply is shown to be available on a long term basis from several sources,” Peterson said.

“Both the Sasol and Shell GTL plants in Qatar are very profitable because there is a very large market in Europe for very pure transport fuels. However, that doesn’t mean the next GTL plant will be as profitable, because the market may not be able to absorb more super clean fuels,” at least in the near term, Peterson said.

Use of waste heat increases efficiency of process

Peterson said this is so only if the waste heat generated from a GTL plant isn’t used. If the waste heat is used, for example to generate power for off-site use, the efficiency can improve to the same level as an LNG project, he said.

“The F-T process produces enormous amounts of heat, thus a GTL plant can produce large amounts of steam to run the plant and even produce waste heat electric power for use outside of the plant,” he said. On the North Slope large volumes of natural gas are used to generate power. “A large-scale GTL plant could reduce the need for burning natural gas to generate power.”

In other places there are other beneficial products, for example water generated that can be important if the plant is in an arid climate.

“In Qatar, where water is produced from desalination, the water produced through GTL is very valuable. Also, the cost of water for food production and for human needs can be reduced,” Peterson said.

How many GTL plant modules needed?

This is an advantage because the capital investment would not come all at once, unlike the pipeline and LNG project where the entire capital investment must be spent before the project can operate and produce revenue. Because of the huge investment needed at the front end a pipeline and LNG project would have to ramp up quickly to full capacity.

A major question confronting the Alaska LNG Project is whether LNG markets can absorb the large volumes needed to make the project viable. In contrast, a GTL project can grow in increments as the market grows for its products.

However, if the GTL plant makes and sells only synthetic crude oil, at least initially, TAPS has sufficient available capacity to accept large volumes of oil, which would allow a large GTL plant to be built initially. This introduces flexibility into a GTL project because the project could initially make synthetic crude oil and then expand gradually into ultra-clean products like diesel as marts develop.

Under any scenario several production plants would be needed, and those could be built in increments. “The size of each plant would depend upon whose technology is used,” Peterson said. “Shell’s process, for example, would efficiently produce 75,000 barrels per day of product per production module. Sasol’s process would most efficiently produce 35,000 barrels of products per day per module.”

For the North Slope, “I would assume that a project could be sized to produce somewhere from 100,000 bbl/day to 140,000 bbl/day with an ultimate goal of expanding to 200,000 bbl/day to 240,000 bbl/day,” Peterson said, which would require a supply of about 2 billion cubic feet of gas per day.

“At 2 billion cubic feet of gas per day you would run the program for about 45 to 50 years, assuming no new gas is developed,” Peterson said. This still leaves an ample supply of gas on the Slope to support a conventional gas pipeline that could be built when LNG markets improve.

This is important because the proven reserves of North Slope gas may not be as extensive as thought if they must support a large gas pipeline and LNG project. Although the companies are confident more gas will be found they have not found it yet.

“If there is only 35 Tcf of proven gas reserves between the Prudhoe Bay Unit and Point Thomson, then at 3.5 billion cubic feet per day the volumes produced and sold to the LNG project would deplete these fields in 27 years,” Peterson said.

However, the two fields cannot sustain this level of gas deliverability until the last day, so the available gas volume will drop off with time. “Also, if the PBU needs 600 million cubic feet of gas per day just to operate then really you only have a reserve life of 23 years,” Peterson said.

Can GTL products be ‘batched’ through oil pipeline?

Shipping synthetic crude oil, of course, requires no batching because it can simply be blended with conventional oil produced on the Slope. This has the added advantage of improving the overall quality of the crude oil moved through TAPS. Peterson thinks this could amount to as much as $1 billion per year.

However, if a North Slope GTL plant were to make final products, like diesel, gasoline or naphtha, the batching could occur in two ways: One is to use “pigs,” or mechanical devices that are run through TAPS ahead and behind the liquids to be separated. Pigs are now routinely run through TAPS for maintenance and inspection so this idea is not difficult mechanically.

“Much of the cost to be able to batch in the pipeline, such as the pig ‘launchers’ and ‘receivers’ has been spent already, as TAPS has been pigging for years,” Peterson said. There would be additional storage tanks needed on the North Slope but probably not at Valdez, since some of the four 500,000-barrel crude oil storage tanks at the Valdez terminal might be converted to store products.

Additional investments will still be needed in TAPS to do mechanical batching - Peterson thinks it might be $750 million to $1 billion - but the higher values for the products shipped compared with that of crude oil would offset this, Peterson said.

There are also ways the GTL products could be separated and shipped without mechanical batching. In the late 1990s ExxonMobil investigated the “phasing” of liquids in a study of a GTL project on the Slope.

In phase, “You mix the two liquids (crude oil and GTL fuel) at the interface,” Peterson explained. “How far back the mixing occurs to separate the liquids is hard to say, especially in TAPS where there several locations with steep slope and ‘slack flow’ from the top of slopes, where there will be tremendous mixing.”

“If you can reduce these slack flow areas (shipping higher volumes through TAPS will do this) the mixing will be minimized, but it will still occur,” he said.

Why isn’t GTL being done now on Slope?

After shale gas producers sent Lower 48 prices tumbling the producers, at the state of Alaska’s encouragement, switched to a gas pipeline and LNG export project in 2012. Subsequently, LNG prices in the Pacific, the intended market, have plummeted as many large LNG projects came on line.

Given this change, the producer companies have now backed away from supporting a pipeline and LNG project but are willing to support, for now, Gov. Bill Walker’s continued pursuit of the LNG project.

However, at some point alternatives like GTL and even exotic ideas like a floating LNG ship project pioneered by Shell or ice-class LNG tankers pioneered in Russia, on the North Slope will have to be considered. The major producers, who keep their planning confidential, may be evaluating some of these ideas already.