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Is it Prime Time for GTL Conversion in the Shale Patch?

High oil prices have lifted producer interest in liquids-rich natural gas plays; they've also pulled up the economic attractiveness of converting gas to liquid fuels and other products.

Analysts at Credit Suisse took note of the recent announcement by Calgary-based Talisman Energy Inc. and South Africa-based Sasol Ltd. that the latter would acquire a stake in Talisman's Montney Shale assets and could develop a gas-to-liquids (GTL) plant in the region (see Shale Daily, Dec. 21).

While "the relative breakeven price for converting natural gas to liquid fuels has risen...the rise has been much lower than the relative increase in [the] value of oil relative to natural gas in North America," the Credit Suisse analysts said in a recent note.

"Until this year, GTL was considered by some market participants a 'wannabe' process, which would never really emerge fully. But North American shale is breathing new life into the process, so GTL may literally only now be coming of age."

About 15 years ago some GTL advocates were predicting that the process to convert natural gas to gasoil, liquid propane gas and lube oil could work in the marketplace at oil prices as low as $15/bbl, Credit Suisse noted. It turns out that $50/bbl is closer to the magic number, the firm's analysts said, "in line with the costs of deepwater and most Canadian oilsands projects."

Products of the GTL process include GTL base oils, which are an alternative starting point for the manufacture of finished lubricants, according to Royal Dutch Shell. "GTL Gasoil is an alternative and economic diesel-type fuel that will contribute to the diversification of diesel fuel supply," the oil and gas major claims on its website. "GTL Kerosene can be used for heating and lighting but its main use will most likely be for aviation, helping to diversify the aviation fuel supply." Additional normal paraffin derived from the GTL process can be used to make detergents, and GTL naphtha is an alternative feedstock for chemical manufacturers.

According to Credit Suisse, there will be 300,000 b/d of GTL capacity in operation once the first phase of the Pearl GTL project, a venture of Shell and Qatar Petroleum, is completed in Qatar. South Africa leads in capacity, followed by Qatar and Malaysia.

"When it comes to lube oils, given the more limited size of the global lube oil market, one large GTL plant with a 100,000 b/d capacity should be able to produce up to 25,000 b/d of lube oil, with a major impact on that market," Credit Suisse said.

For its part, Sasol is far from committing to a GTL project in the Montney. "It is envisaged that the [GTL] feasibility study will commence during the first half of 2011 and would take more than 12 months to complete," a spokesperson told NGI's Shale Daily. "The potential site for a GTL facility in North America is yet to be defined, but certain locations within the Alberta province have been identified as potential locations for a GTL facility."

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