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Sasol Plans First Gas to Liquids Plant in U.S.

December 3, 2012 by Leave a Comment

The company, Sasol, which is based in Johannesburg, has been a pioneer in a technology that has tantalized energy scientists for decades over its potential to produce liquid fuels without using oil, which has historically cost far more than natural gas.

Having already built smaller plants in South Africa and Qatar, Sasol has designed its new Louisiana plant to produce 96,000 barrels of fuel a day using its “gas to liquids,” or G.T.L., technology. It will be the second-largest plant of its kind in the world, after Royal Dutch Shell’s Pearl plant in Qatar, and will cost $11 billion to $14 billion to build.

“By incorporating G.T.L. technology in the USA’s energy mix,” David Constable, Sasol’s chief executive, said in a statement, “states such as Louisiana will be able to advance the country’s energy independence through a diversification of supply.”

The facility will include a gas processing plant, a chemical plant and a refinery. All are required to perform the alchemy of converting natural gas into diesel, jet fuel and other chemical products.

What makes this southwestern corner of Louisiana attractive to Sasol is its proximity to bountiful shale gas fields just north of here and west in Texas. A boom in shale drilling has reduced the price of natural gas in the United States in the last four years by more than two-thirds, encouraging many energy and chemical companies to build and expand manufacturing plants around the Gulf of Mexico to produce a variety of petrochemicals.

Sasol estimated that the plant would create at least 1,200 permanent jobs and 7,000 construction jobs. Production is scheduled to begin in 2018. The state encouraged the project with more than $2 billion worth of tax credits and other incentives.

The company said it would put off previously announced plans to build a separate gas-to-liquids plant in Canada, giving priority to the Louisiana effort. The track record for the technology, conceived by German scientists in the 1920s, is not encouraging, mainly because of a history of construction cost overruns.

Shell’s new Pearl plant in Qatar, built with Qatar Petroleum for $19 billion, was over budget by a factor of three and has had stubborn maintenance concerns. Many other oil companies have looked at the process and declined to make the huge investments necessary.

Only a handful of gas-to-liquid plants operate commercially in Malaysia, South Africa and Qatar, and they collectively produce a bit more than 200,000 barrels of fuels and lubricants a day — the equivalent of less than 1 percent of global diesel demand.

Nevertheless, Shell is considering building its own G.T.L. plant on the Gulf Coast. Sasol and the Malaysian oil company Petronas are building a plant in Uzbekistan, and Sasol is joining Chevron to build one in Nigeria. Rosneft is planning a pilot project in Russia.

Profits have been elusive for the technology. To make it work, natural gas prices must remain low and prices for oil, diesel and jet fuel must remain high for a prolonged period.

Natural gas and diesel prices have historically been very unpredictable, and if enough companies build gas-to-liquids plants or find other uses for natural gas, demand would rise, putting upward pressure on prices.

In the United States, various companies have plans to build natural gas export terminals and promote more use of compressed natural gas for vehicles, as is done in many countries like Pakistan, Iran and Argentina.

“If you didn’t have cost overruns, and if you didn’t have maintenance unscheduled downtime, if everything worked perfectly, then G.T.L. plants look pretty good on paper,” said Don Hertzmark, an international energy consultant who has worked on gas-to-liquids and other natural gas projects for 30 years. “These plants are only economic with very low gas prices.”

Mr. Hertzmark said that, with modest construction cost overruns, companies could make a decent profit on a gas-to-liquids plant. He said that at today’s price for natural gas in the United States, around $3.60 per thousand cubic feet, a company would need a retail price for diesel fuel of more than $4 a gallon — near the average price today — to make the process profitable.

Article source: http://www.nytimes.com/2012/12/04/business/energy-environment/sasol-plans-first-gas-to-liquids-plant-in-us.html?partner=rss&emc=rss

Filed Under: Business News Tagged With: , ,

DealBook: A Pipeline Merger Meets a Need, and Perhaps Resistance

October 18, 2011 by Leave a Comment

A Kinder Morgan pipeline in Concord, Calif. A combination with El Paso would control 67,000 miles of pipeline across the country.Kinder Morgan, via European Pressphoto AgencyA Kinder Morgan pipeline in Concord, Calif. A combination with El Paso would control 67,000 miles of pipeline across the country.

Kinder Morgan’s planned $21.1 billion takeover of the El Paso Corporation is seen as a potential catalyst for consolidation in an unheralded but increasingly important part of the energy industry: the companies whose pipes carry the oil and gas.

Kinder Morgan’s deal is based on the belief that natural gas will become an increasingly important fuel for the nation, and that its growth is hampered by a lack of adequate pipeline networks.

“It’s a bet that hydrocarbons are going to be the most significant component of our energy mix for a long, long time,” E. Russell Braziel, a managing director of the consulting firm Bentek Energy, said.

Energy companies have been racing to gain bigger positions in shale formations throughout the country. Beyond oil and natural gas, they are also hoping to tap into vast reservoirs of natural gas liquids like butane and propane, which are in high demand from chemical manufacturers.

But exploration and production players are increasingly constrained by the lack of a national pipeline system that connects those fields to refining centers and, ultimately, cities and other customers.

Made up of companies that send gas and oil through pipes that snake across the continent, the so-called midstream sector has long been known for being extremely fragmented. As recently as a decade ago, the industry was considered staid and hardly a business that could reap significant profits.

Yet today more than 50 pipeline operators are active, with a mishmash of pipes that aren’t necessarily connected to the right locations, according to Rodney L. Waller, a senior vice president for Range Resources, a natural gas exploration company.

Pipeline construction in the Marcellus shale field in Pennsylvania has not kept pace with drilling activity there, limiting the amount of gas that can be sent to the Northeast. In the Bakken field in North Dakota, producers are shipping much of their new oil production by train to Gulf Coast refineries, and excess gas production is being flared — that is, burned off — as waste.

New gas and oil shale fields, meanwhile, are being developed in Ohio, Kansas, Oklahoma, Texas and Colorado.

All of this has led to a glut of oil and natural gas that depresses prices and makes the construction of new pipe almost too expensive. Since late last year, the oil storage depot in Cushing, Okla., has been so stuffed with excess oil that the West Texas Intermediate benchmark price has plummeted $20.

“Low gas prices, the development of new shales, all the pipes being in the wrong place — all of that is kind of moving the whole business topsy-turvy,” Mr. Waller said. “Consolidation is an obvious answer to all that.”

By adding El Paso’s pipes, Kinder Morgan will connect its network to large cities in Florida, New York, West Texas and California. The combined company will own or operate some 67,000 miles of pipe, moving more than a million barrels of fuel a day.

“This deal is definitely going to change the industry,” Fadel Gheit, a senior oil analyst at Oppenheimer Company, said. “We need another Exxon Mobil in the pipeline industry to look and invest long term, and Kinder Morgan is the prime candidate to fill that role. There is a tremendous need to improve infrastructure.”

Few analysts believe that interlopers will emerge, citing the size of the deal and how well El Paso’s pipes mesh with Kinder Morgan’s.

Perhaps the biggest concern weighing over the El Paso deal is also the transaction’s biggest benefit — the sheer size of the network and potential antitrust risk. Kinder Morgan’s chairman and chief executive, Richard D. Kinder, played down such worries, saying that the only meaningful overlap is on the West Coast. He added that he was willing to sell assets to help close the deal.

“We’ll just work with the regulators on that,” he said on a conference call with analysts on Monday. “We don’t think it’s a significant problem.”

At least a few analysts were not as confident. Faisel Khan, an analyst at Citigroup, wrote in a research note on Monday that the Federal Energy Regulatory Commission may take a hard look at a deal of this size and its level of cost savings. The agency may consider imposing restrictions like rate freezes.

Indeed, while El Paso shares jumped 25 percent on Monday, to $24.45, they remained below Kinder Morgan’s $26.87 offer price, suggesting that investors may be wary of roadblocks to completing the deal.

Some oil and gas companies may be unhappy with the prospects of a growing pipeline empire. The chief executive of one gas explorer that depends on a Kinder Morgan pipe said that others in the energy sector might be unhappy should the company gain more control of the country’s pipes.

“They take advantage of everything they can,” the executive said, requesting anonymity since he depends on Kinder for his business. “They negotiate very hard on every transaction. They are arrogant and litigious. They are never fun.”

Article source: http://feeds.nytimes.com/click.phdo?i=26ae7605f351b852545e844206e7c9fa

Filed Under: Business News Tagged With: , ,

Special Report: Energy: In Uncertain Times, a Need for Stability

October 11, 2011 by Leave a Comment

This year’s outlook has also been complicated by the tsunami in Japan and the ensuing Fukushima nuclear crisis. We don’t know what will happen to the share of nuclear power in the global energy mix. But it is clear that its future expansion is now in question.

In contrast to all this, last year’s energy map was rather uncomplicated. Toward the end of the year, the energy markets were relatively tranquil, the energy mix was expanding and the oil and gas industries faced promising scenarios.

This year, however, there is an entirely new world. Reading today’s energy map thus requires great care — and the understanding that it could change unexpectedly.

Widespread instability across the Middle East and Africa region has raised important questions about the long-term impact on upstream investments, oil and gas production and hydrocarbon exports in the region.

If the unrest continues, production and exports could continue to be affected. The temporary loss of Libya’s crude oil production, for example, put significant pressure on world oil markets. But other OPEC countries have been able to help stabilize the markets by increasing their production.

Responding to events like these — in order to ensure market balance — is precisely what the Organization of the Petroleum Exporting Countries continually strives to do. It is why OPEC remains committed to maintaining spare capacity: to provide ample supply levels during times of constraint.

There has also been a significant shift in the global economic environment. This has brought new risks for the energy industry, in general, and for oil, in particular.

Just a few months ago, at the time of OPEC’s last ministerial meeting, the global economic outlook suggested growth, as well as an increase in oil demand and a modest rise in crude prices. At the time, OPEC was thinking that the market would need 1.5 million barrels per day in extra production. But ongoing problems in the world’s largest economies have required revisions to this outlook.

Despite generous stimulus packages, the recovery in the U.S. has not turned out as expected. Continuing unemployment — and the historic downgrading of America’s debt rating — have posed significant challenges to policy makers. And in the European Union, there is a sovereign debt crisis in some countries which now threatens the stability of the world’s financial system.

All this has prompted OPEC to revise its forecasts for world economic growth. In its September Monthly Oil Market Report, expectations for global growth were revised down to 3.6 percent from 3.7 percent in 2011, and to 3.9 percent from 4 percent in 2012.

On the other hand, developing countries seem to be growing rapidly and steadily. In fact, OPEC sees the majority of global G.D.P. growth in 2011 coming from developing countries.

China, in particular, continues to grow robustly, despite some manufacturing weakness. Recent OPEC figures put its G.D.P. growth at 9 percent or more in 2011 and 8.5 percent in 2012. This translates into a growing appetite for energy.

In fact, while the outlook for the global economy is uncertain, overall energy demand — and oil, in particular — is set to increase. OPEC sees global energy demand increasing around 50 percent from 2010 to 2035, even if significant efficiency gains are assumed. Fossil fuels will continue to play a central role.

Fossil fuels offer the best prospects for meeting the world’s energy needs. They offer distinct advantages over alternative energies, due to the relative affordability of their projects and existing infrastructure. Over the next 20 years, they are seen contributing more than 83 percent to the energy mix.

Additionally, even with oil’s share seen as falling to around 30 percent from 35 percent of the global energy mix by 2030, trends suggest that its overall share will remain very strong.

The supply outlook also indicates that there is more than enough to meet demand well into the future. Estimates suggest total world crude oil and natural gas liquids resources of around 3.5 trillion barrels: 1.4 trillion in non-OPEC countries and 2.1 trillion in OPEC ones.

Production in OPEC member countries is still strong, despite recent instability in some regions, and supply levels continue to provide significant forward cover. Currently, more than 40 percent of the world’s crude oil production comes from OPEC countries — and there is still enough collective spare capacity to address market needs.

Article source: http://www.nytimes.com/2011/10/11/business/energy-environment/in-uncertain-times-a-need-for-stability.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,