Understanding the impact of small and medium scale GTL

October 2019

Trinidad and Tobago is set to join a very exclusive group of gas-producing countries in the second quarter of 2020, when it becomes a production centre for high performance, low emissions, GTL paraffinic diesel and other energy products. Gas to Liquids (GTL) is a proven technology, with a commercial production history going back over twenty years, but NiQuan’s plant will be the first commercial GTL plant in the western hemisphere.

Commercial Gas to Liquids production started with Shell’s Bintulu plant in Malaysia in the 1990s and further plants followed in Qatar and Nigeria. There is another plant currently under construction in Uzbekistan and global GTL production is in the region of a quarter of a million barrels per day. The existing plants range in size from around 14,500 barrels per day (Bintulu) to the massive 140,000 barrels per day of Shell’s Pearl GTL plant in Qatar. In contrast, NiQuan’s GTL plant at Pointe a Pierre is a modest 2,640 barrels per day. However, though undoubtedly the smallest commercial scale GTL project to date, the NiQuan plant has a significance that belies its size.

Construction of the majority of global GTL capacity began during the period 2003-2006 and it looked as though GTL as a gas monetisation option had come of age and was set to rival LNG. Qatar alone had plans for five mega-plants of between 130,000 and 150,000 barrels per day and multiple gas producers, including Australia, Russia and Algeria, carried out studies which reached varying degrees of maturity. Suddenly, all this activity stopped and the GTL industry stalled. Shell and Sasol attempted to get plants developed on the US Gulf Coast but these plans came to nothing and the only significant GTL development that made it past Engineering, Procurement and Construction (EPC) award post-2006 was OLTIN YO’L GTL in Uzbekistan.

Though the reversal in GTL’s fortunes was sudden, the factors which under-pinned the change were quickly and easily understood. 

The majority of plants under consideration were 30,000 barrel per day facilities or greater. With a conversion rate of approximately 10,000 standard cubic feet (scf) per daily barrel and an operating life of 25 years, these plants very quickly found themselves in competition with LNG for gas feedstock and it was not a competition which GTL was equipped to win. LNG was the more mainstream technology with a lower perceived risk and the majority of the companies involved in the GTL space had very active, successful and well-established LNG divisions. In addition, GTL was trapped in competition with LNG because GTL plant-size was largely driven by the need to achieve economies of scale to make the overall project economics work.

Plant size caused further difficulties since it inevitably meant very high Capex and thus a formidable entry cost. The unprecedented market opportunity presented by creating a whole new market for natural gas in the transport sector and away from power generation was well understood and there was no shortage of companies looking to exploit it. Ultimately, however, the price tag made it prohibitive to all but the largest players who owned their own technology, and this made for a very small group.

Though all the plants now in operation have proved their worth, the cheapest of them, ORYX GTL in Qatar, owned and operated jointly by Qatar Petroleum and Sasol, carried a widely reported price tag of US$1 billion in 2003. Constructed under a Lump Sum Turn Key (LSTK) contract by Technip, ORYX GTL was able to control costs and bring it in on budget (NiQuan has adopted the same contracting approach for the same reason). By contrast, EGTL in Nigeria (originally Chevron, Sasol and the Nigerian National Petroleum Corporation) and Pearl in Qatar (Shell), both of whom awarded EPC in 2005, got caught by the overheated construction market and suffered massive cost over-runs which added up to many billions more than the original estimates. This did not pass un-noticed by the wider industry.

Between the Scylla of competition with LNG and the Charybdis of very high entry costs (by this point, the cost of a new ORYX was estimated by some industry experts to be at least US$3 billion) that challenged the willingness of financiers to lend and thus were well beyond the reach of smaller entrepreneurial technology adopters, GTL found itself in the middle of a perfect storm from which it is only now beginning to emerge. 

The two key factors which are making the difference, and which will continue to make the difference for the foreseeable future, are the environmentally-driven dynamics of the fuel market worldwide, most notably regulatory and consumer demand for ever cleaner products, and the commercial development of small to medium-scale GTL, of which NiQuan’s plant is the global pioneer. 

Small and medium-scale GTL removes the need to compete with LNG for feedstock and it offers a lucrative and premium gas monetisation option for the owners of smaller fields, particularly remote fields without easy access to market. At small to medium-scale, GTL is a practical and affordable associated gas solution for the development of oil reserves and the reduction, or even elimination, of flaring. 

Bringing GTL into the US$100 million plus range rather than the $3 billion plus range, enables and activates entrepreneurial technology adopters and project developers, like NiQuan, by creating a step change in affordability and making the plants financeable by the international money markets. It also makes an LSTK contracting strategy acceptable and manageable to all those involved in the project. This allows project developers to reduce overall project risk which further incentivises lenders, not least because it is a highly practical demonstration of confidence in the project by the EPC contractor. By stimulating activity at the small to medium scale, GTL will also accrue additional advantages as, in line with the historical performance of other energy industry technologies, the increase in the number of players and plants drives down technology and other related Capex costs. 

The demands of GTL project economics in the first part of the twenty first century were essentially captured by a philosophy of go large, sometimes very large indeed, or go home. The reality for the GTL industry has been that big might be beautiful, and the sector has some quite remarkable technical and engineering achievements to its credit, but it has not been generally affordable for the overwhelming majority of the energy sector. 

The sweet spot for GTL is smaller plants requiring an affordable and acceptable capital outlay producing premium products to meet environmentally-informed demand. This sweet spot allows for the effective management and mitigation of project risk and guarantees premium market returns. There is no secret about the very high value which a successful GTL project unlocks, which is why so many organisations have tried long and hard to find the key without success. That key has finally been found at NiQuan’s plant at Pointe a Pierre in Trinidad and Tobago. 

The NiQuan plant will lead the small to medium-scale GTL revolution. It is the first. It will most certainly not be the last.