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U.S. Seen as Frontier For Small-Scale GTL Technology

United Kingdom-based Velocys plc views the United States as a proving ground for its nascent small-scale gas-to-liquids (GTL) technology, with the country's abundant shale natural gas expected to give the process a boost and make it the midstream sector's next major segment.

The company, along with its joint venture (JV) partners Waste Management Inc., NRG Energy Inc. and Ventech Engineers International LLC, plans to break ground Friday on the world's first commercial small-scale GTL plant. Located at Waste Management's East Oak Landfill in Oklahoma City, the facility would use landfill gas to produce clean diesel fuel, synthetic waxes and naphtha. Construction is expected to be complete by the end of the year, and the plant is expected to come online in the first half of 2016.

The joint venture was formed last year to pursue the development of GTL plants across the country, in Canada, the UK and China (see Daily GPI, March 25, 2014).  Velocys also recently acquired Pinto Energy LLC and is expected to make a final investment decision later this year on a small-scale 4,900 b/d GTL Plant in northeast Ohio (see Shale Daily, June 25, 2014). In an interview with NGI, Velocys CEO Roy Lipski said the company is exploring a number of other potential sites for its technology in the Appalachian, Williston and Denver-Julesburg basins, among others.

"We've been quite clear, we think this technology will initially be adopted in the United States. We think this is where the world is going to see this happen first," Lipski said. "Anywhere they're flaring gas or they have stranded gas, we believe, for a lot of reasons, that the U.S. is really going to lead the way. We are very focused in this region."

Velocys develops, licenses and supplies small-scale GTL technology. Traded on the London Stock Exchange's AIM (alternative investment market) for smaller growing companies, the company holds more than 900 patents worldwide and has the largest patent-portfolio in its space. It was established in 2001. One of its first major projects was a pilot program sponsored by BP plc, Chevron Corp. and the former Phillips Petroleum Co.

The company's technology utilizes Fischer-Tropsch (FT) synthesis, a process that's nearly a century old. FT involves two main operations: the conversion of methane into a mixture of carbon monoxide and hydrogen known as synthesis gas that is then transformed into hydrocarbons that can be upgraded to produce a wide-range of products, including diesel fuel, jet fuel, and synthetic lubricants and waxes.

Is Smaller Better?

But Velocys technology uses a microchannel reactor and super-active catalysts. It is more advanced than conventional GTL technology. In layman's terms, its equipment is significantly smaller and more efficient. This enables smaller modular plants to be deployed cost-effectively in remote regions that wouldn't otherwise be able to accommodate larger refinery-sized GTL facilities that have been built on coastlines overseas.

"Our mission is to bring GTL to the mainstream of the industry," Lipski said. "We want to bring this capability to a whole host of companies, not just the world's largest oil majors. So while we are making the technology available to everyone, we do not plan to operate these facilities, but rather to help customers get those facilities up and running."

Today, just a handful of larger, conventional GTL plants are operating globally, with capacities ranging from 2,700 b/d to 140,000 b/d of product. Royal Dutch Shell plc operates two in Malaysia and one in Qatar, while Sasol Ltd. operates one in South Africa and has another plant in development with Chevron Corp. in Qatar.

According to Lipski, the breakthrough with small-scale GTL comes with its size. Smaller facilities with a capacity of 1,500 b/d to 15,000 b/d would use between 15 MMcf/d to 150 MMcf/d of natural gas. Less feedstock means more gas fields can accommodate the smaller plants.

"As I see it, it allows you to take the plant to the opportunity, which is not possible with the very large plant approach," Lipski said. "The amount of gas you need comes down, which means you've actually found more locations you can do this at. There's very few locations on the planet where you can get 1 Bcf/d for larger facilities."

Although FT synthesis has been around for decades, interest in the technology has grown in recent years because of the spread between the high value of petroleum products and the low-cost of natural gas. In 2013, however, Shell cancelled plans to build a large-scale GTL facility in Louisiana because of the capital costs associated with it (see Daily GPI,Dec. 5, 2013).

Sasol recently put similar plans on hold in the state citing depressed commodity prices (see Daily GPI,Jan. 29). But large and small facilities are capable of making specialty waxes for use in packaging, groceries, candles and adhesives. They also make various grades of lubricants, some of which are only imported in the U.S. and in high demand along with specialty waxes.

Gaining Traction

As a result, the Energy Information Administration (EIA) recently said smaller-scale GTL facilities could gain a foothold in the U.S. and elsewhere over the cost-prohibitive larger plants. Last year, the EIA projected that no large-scale GTL plants would be built in the U.S. until at least 2040.

Larger plants, Lipski said, can cost billions of dollars to construct and take more than five years to bring online. A smaller-scale facility, which requires roughly ten acres or more, and houses modular units that can be transported on any standard U.S. road, takes up to two years to construct and is estimated to cost about $100 million.

High value products and the cost-benefits of smaller GTL facilities also make them more economical during commodity downturns, Lipski said.

"The price of oil will bounce back, there's no question about it," Lipski said. "You will see it bounce back, potentially to previous levels. The question is when and how long will it take to come back up. But for the time being, conventional GTL on the coast, where gas is more expensive, is simply economically strained in the current environment.

"This is actually the best thing that's ever happened to small-scale GTL because I think small-scale GTL will now get established while large-scale will stall," he added. "And once it gets established, I don't think anyone will build larger plants again."

‘An Age of Gas’

That's one reason why Waste Management is moving forward with the JV plant in Oklahoma City this week. The company said even with lower commodity prices, the facility would be economic. Spokeswoman Greta Calvery said Waste Management began operating a small GTL unit at the East Oak Landfill in 2007. A pilot scale facility later began operations in 2010.

She said once the pilot was developed "to see if it would really work, then we looked for partners to commercialize it," which eventually led to the JV.

Calvery said Waste Management is considering building similar plants at several other landfills across the country, but added that she couldn't disclose those locations.

The East Oak plant is being built by Ventech, while NRG will operate it. The facility will use Velocys technology. Velocys, however, does not operate the plants and merely provides technical assistance during their start-up.

Plants built outside of the JV, Velocys Commercial Director Jeff McDaniel said, would likely be operated by larger engineering and construction firms like AECOM Technology Corp. Ultimately, Lipski believes companies that are currently processing natural gas in the country's leading basins, such as Williams Partners LP and MarkWest Energy Partners LP, could eventually be operators.

But several midstream companies, including Williams and MarkWest, either didn't have comment or didn't respond to inquiries when asked if they were considering the technology as an eventual part of their services.

Crystal Myers, a spokeswoman for the Gas Processors Association (GPA), said her organization was not aware of any members that might be considering incorporating small-scale GTL into their business models. Officials at GPA didn't rule-out the possibility that larger midstream companies could operate such plants in the future, but said it could be so early in the technology's development that it's not a priority for the sector at this point.

Lipski agreed with McDaniel and said engineering firms would likely operate the facilities for the time being. Early on, those who fund the plants, such as private equity firms, would likely choose an operator, Lipski said. But he added that he expects the midstream sector to begin rolling-out small-scale GTL facilities within five years.

"The world's entering an age of gas. We are going to have to make more and more things that society needs from gas, as opposed to oil or coal," he added. "In that context, gas products are really a key to the future because gas is different than oil and coal. You can't transport it as easily. So, instead of having these big centralized facilities in the age of gas, you need smaller distributed facilities."

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