Gas-to-liquids (GTL) technology, which involves turning gas into liquids such as synthetic crude or diesel, is taking off as oil companies, both in emerging markets and in advanced countries, need to reduce gas flaring.
Oil majors such as Shell (RDS.A), Chevron (CVX), ConocoPhilips (COP), BP (BP) or Exxon (XOM) already have their own gas-to-liquids technology, while companies in emerging markets, such as Brazil’s Petrobras (PETR3) or Russia’s Gazprom (GAZP) and Rosneft (ROSN), are looking at the technology to help them make use of the gas associated to oil production.
But the most immediate opportunities are in the US, Roy Lipsky, CEO of Oxford Catalysts, a company specializing in small-scale gas-to-liquids technology, told Emerging Markets in an interview.
His company invested $300 million over 20 years to develop technology that turns associated gas into liquids and, while looking at emerging markets and offshore oil exploration for the medium term, it sees an important opening in the near-term in the US.
“The big opportunity is onshore and the most immediate opportunity is in North America. That’s what I believe is going to lead the small-scale GTL market,” Lipsky said.
“Shale gas is in North America, where business can be transacted fairly quickly. You’re not having to deal with semi-government organizations, you have hundreds, thousands of small, independent, fast-moving oil companies to deal with.”
“In the same way that those companies really ran with and created the shale gas revolution I think they’re going to run with and create the small-scale GTL revolution.” Earlier this week, the OECD said in a report that the US was set to become the world’s largest oil producer soon due to the latest technologies that unlock shale gas and tight oil resources.
Analysts have warned against too much enthusiasm about GTL technology, as capital costs for producing synthetic crude or diesel out of gas are still high and the current situation in which natural gas prices are much lower than crude prices may not last over the long term.
MARKET ‘PERFECTLY ALIGNED’
Taking into account “close substitutes” for crude, such as natural gas liquids and biofuels, total US oil production was 9.3 million barrels per day in October, “not that far short” of Russia’s 10.8 million or Saudi Arabia’s 9.6 million, Capital Economics head of commodities research Julian Jessop wrote in a recent market note.
“I think it’s fair to say that 20 years ago when [Oxford Catalysts’] research was first started, no one could have imagined that it would come together at a time when the market was so ready and perfectly aligned for what we’re doing,” Lipsky said.
“The environment today for small scale gas to liquids is better than it’s been at any time in history.”
The most important factor for this is the “broad-based disconnect” between gas and oil prices, especially in North America, triggered by the development of shale gas reserves.
“The opportunity to move your gas out of gas pricing and into oil pricing is really quite attractive,” he said.
Other factors that work in favor of small-scale GTL technologies are energy security, which has also been an important political issue for the US, the drive to eliminate gas flaring and increasing pressures and regulations for cleaner burning fuels, according to Lipsky.
He said gas-to-liquid technology produces “the ultimate clean fuels” as they are virtually sulphur-free, there are no other contaminants like nitrogen and they contain no aromatics – which cause soot when burning.
The technology also covers the gap between the kind of resources that are available and the needs of the infrastructure and transportation systems.
“Oil exploration generally speaking is becoming harder and harder. Increasingly, we’re having to go offshore, we’re having to extract heavier, dirtier crude... and we’re finding more and more gas. But our transportation infrastructure is predicated on liquid hydrocarbons,” Lipsky said.
His company is in the “early adopter” stage – selling its technology for commercial use to early adopters – and one of its first clients is Brazil’s Petrobras, which is seeking to exploit important offshore oil and gas resources but faces tough regulation on gas flaring and environment protection.
“Petrobras is technologically the most advanced in the offshore market and they have most of the pressing need for this than any other company I know, because they have these huge fields. I think everyone else is going to be waiting to see what Petrobras does,” Lipsky said.
PROJECTS AND AMBITIONS
Petrobras approved the technology of CompactGTL, Oxford Catalysts’ competitor in the offshore small-scale GTL maker, for commercial use at the beginning of this year. Lipsky said the approval for Oxford Catalysts’ technology will follow and that the Brazilian company will likely go ahead with both suppliers.
“I don’t think that companies like Petrobras ever like to be in a sole supplier situation,” he said adding that Petrobras have “a big need for these floating GTL systems.”
His company has projects under engineering in Russia and other countries in the former Soviet Union, in Australia, in South America and in North America.
In Russia, it develops a project for energy giant Rosneft in collaboration with a Russian company to help it reduce gas flaring and another one for a different company whose name Lipsky did not disclose because of confidentiality agreements. “We’re currently in the engineering stage for a much, much bigger plant. It will be a proper, many thousands of barrels a day GTL plant in Russia for dealing with flare gas” and it will probably be completed later than 2014, he said.
“We’re also pursuing opportunities on stranded gas in Brazil in the Amazon. Obviously if shale gas ever takes off in Argentina, there will be lots of opportunities there as well.”
In North America, Oxford Catalysts has a demonstration project with Sierra Energy and, Lipsky said, it finished a demonstration with a client in the Asia-Pacific region whose name it did not disclose because of confidentiality agreements.
Oxford Catalysts is the first in the industry to have been selected for commercial-scale projects, as it is developing projects with British Airways and Calumet Specialty Products, he added.
The company’s advantage is that the technology was designed from the beginning for small scale so “it doesn’t scale but rather numbers up,” which means more modules can be added as needed to make it suit different needs, Lipsky said.
His ambition is to see Oxford Catalysts “the dominant company” in the small-scale gas-to-liquids market over the medium term, but over the long term he believes that “some of tomorrow’s big companies” will emerge from the big transformations happening today in the energy market.
“I think we have an opportunity to build a long-term business here. That is my ambition – to build a business that will outlast me and will outlast my children,” Lipsky said.