Throughout 2015, smaller scale gas-to-liquids (GTL) became a reality as construction began at ENVIA Energy’s GTL plant in Oklahoma City. Given the well-publicised debate around the benefits of LNG versus GTL, Neville Hargreaves, Business Development Director at Velocys, explores where smaller scale GTL technology makes sense in today’s market.
We are entering a new age; the age of gas, writes Hargreaves. Natural gas has become a significant global energy resource and the growth in consumption is expected to continue. In 2014, 26.2 trillion ft3 of natural gas was consumed in the US, according to the US Energy Information Administration (EIA), with predictions that this could reach 29.7 trillion ft3 by 2040.
The debate about LNG and GTL shouldn’t be framed as “which is best”. Both have their place as ways of monetising this gas, as do other methods such as CNG, gas pipelines, and gas-to-power. The discussion should be around which method is best in a given location and set of circumstances. The choice of preferable technology depends on the project location, the distance between supply and demand, logistics, the gas price and volume, the size of the local product market and the value of the products produced.
Coal and oil are easy and inexpensive to transport. Our dependence on them from the industrial revolution onwards gave birth to centralised production – and with that the rise of the industrial conglomerate. Mega-scale GTL and LNG plants belong in this age and way of thinking, but as natural gas is relatively difficult and expensive to transport LNG sits uncomfortably there.
The world is waking up to the fact that gas sources are distributed. Shale gas is a “mass produced” phenomenon, with lots of small quick wells being drilled across North America, a trend that looks set to be duplicated across large parts of the globe. Smaller scale LNG will play a part in monetising smaller gas reserves, but so increasingly will smaller scale GTL. The latter allows a higher value alternative - the distributed production of fuels and chemicals.Chemical versus physical
The GTL and LNG processes are very different and it is important to recognise this as part of the discussion of how the two sit in this new age of gas.
GTL is a chemical transformation. Natural gas is reformed into syngas, a mixture of carbon monoxide and hydrogen, which is then converted by the Fischer-Tropsch (FT) process into paraffinic hydrocarbons. The products of the FT process can either be blended with naturally occurring crude oil, or upgraded to produce a wide range of high quality, high value, fungible finished products including ultra-clean diesel for road, rail or marine use, kerosene (jet fuel), naphtha, as well as speciality products such as base oils for synthetic lubricants and waxes.
In contrast, natural gas undergoes no chemical change to make LNG, only a change in physical state from a gas to a liquid. After liquefaction by cooling to around -162ºC, LNG takes up about 1/600th the volume of natural gas in the gaseous state. The increase in energy density makes liquefied natural gas cost efficient to transport at large scale across oceans.Different processes, different advantages
A well-rehearsed argument for LNG is that it has higher process efficiency than GTL; a higher proportion of the gas produced gets into the product. But greenhouse gas emissions are built into the LNG fuel life-cycle in other places – namely the use of considerable amounts of fuel in the shipping of LNG across the world.
Capex for the production of finished product is higher for GTL than LNG. However GTL makes higher value products so returns in terms of US$/million Btu input can be considerably higher for a GTL project, even with its lower process efficiency than LNG. This applies even in the current low oil price environment, particularly if the plant is “tuned” to produce high-value speciality chemicals.
But capex required to use these products does not end at a plant gate. For LNG a significant component of the overall investment required sits with the ongoing value chain including: storage; transfer systems; transportation to market via specially designed LNG carriers or road tankers; regasification and import terminals. In contrast, the products of the GTL process, once converted to syncrude or to finished diesel or jet fuel, use standard petroleum transportation infrastructure.
Including GTL in a portfolio of gas monetisation projects enables the producer to hedge between oil and gas markets. Velocys, for example, is in discussions with more than one National Oil Company that already owns LNG assets that is actively working on feasibility studies for a smaller scale GTL plant.
And smaller scale GTL and LNG are not mutually exclusive. Often seen as rival methods of gas monetisation, there would actually be advantages in co-locating a GTL plant with an LNG export facility in gas-rich, diesel poor regions. In this scenario many of the gas cleaning processes used by LNG could be shared by the GTL plant, reducing capex of the combined facility.
But it is the ability of GTL to act as an attractive alternative for getting natural gas into the mainstream transportation sector that is its biggest advantage over LNG.Fuelling growth
The EIA predicts that between 2011 and 2040 the percentage of the total transportation fuel demand in the US being met by diesel will increase from 22% to 27%. The total demand met by jet fuel will increase from 11% to 13%. However, by 2040 LNG and CNG combined are expected to meet only 4% of transportation fuel demand. GTL makes exactly those liquid fuels the world thirsts for most; diesel and jet fuel.
LNG and CNG have successfully carved out a niche for fuelling long distance trucking fleets across North America and high usage local vehicles around its cities. This trend will undoubtedly continue. Ten percent of UPS’s 16 000-strong fleet of vehicles already uses LNG. The largest impediment to wider adoption of CNG and LNG for transportation is that market demand for the vehicles hinge upon creating a satisfactory refuelling infrastructure, which, in turn, must be justified by market demand. Even if this is overcome we can expect significant switching costs for engines as well as range and weight limitations of LNG vehicles to continue to inhibit mass-market adoption of LNG long term.
In contrast GTL produces “drop-in” fuels that are fully compatible with existing infrastructure and engines. There are no switching costs, making GTL-derived diesel an attractive method of getting gas into non-fleet road vehicles, as well as for marine and rail use.
And aeroplanes can’t use gas as a fuel source. The energy density of LNG is only around 65% of that of jet fuel so LNG is not viable as a way of getting gas into the aviation industry.
In recent years, a number of airlines have signed off-take contacts with project developers that plan to use FT technology to make alternative sources of jet fuel. For example British Airways has committed to purchase the jet fuel produced by the GreenSky London project under development by Solena Fuels for 10 years (at market rates) – worth over £300 million.
In the US, Southwest Airlines has signed a contract to offtake three million gallons per year of aviation fuel from the RedRock Biofuels plant under development in Oregon that will incorporate Velocys technology.A commercial reality
GTL at large scale has been a reality for many years, with Shell and Sasol both operating plants. The commercial roll out of smaller scale GTL technology is now under way. May 2015 saw the ground-breaking ceremony take place for ENVIA Energy’s GTL plant in Oklahoma City that will be located adjacent to Waste Management’s East Oak landfill site.
The project is being financed by a joint venture between two Fortune 500 companies: Waste Management and NRG Energy, together with Velocys and Ventech. The venture will develop GTL plants producing renewable, ultra-clean fuels and chemicals using a combination of renewable biogas and natural gas. ENVIA Energy has entered into the main contacts for the project, procurement of all major equipment has been completed, and fabrication of the FT reactors and plant modules are under way. The plant is expected to enter commercial operation in the first half of 2016. See the case study for more on ENVIA Energy.
Smaller scale GTL is opening up more options for more players in more locations, faster, than the world-scale GTL plants that readers will be more familiar with. Indeed decisions by Shell and Sasol in recent years to shelve their proposed large-scale GTL plants on the Gulf Coast call into question the continuing economic and practical viability of large-scale projects. Such projects have huge capex and resource demands, seven-year construction timelines, and significant complexity and risk.
Building and operating plants at isolated locations where many stranded gas fields are located comes with challenges; ones that smaller scale GTL is well suited to. The modules of smaller scale GTL plants are constructed in an environmentally-controlled fabrication shop where production can continue around the clock, whatever the weather, before shipping for final integration on site.
Opportunities for smaller scale GTL
Completed Fischer-Tropsch reactor cores at the production line at Shiloh Industries, Ohio.
Opportunities remain attractive for smaller scale GTL, even with the current oil price and narrowing of oil and gas prices at the major hubs. Immediate opportunities are typically projects that utilise economically-priced gas or other low-cost feedstocks, serve a market where a premium can be realised, or supply isolated regions.
ENVIA Energy’s plant is a good example of where low cost feedstock is a key driver for a project. Other examples are the use of zero cost, currently flared associated gas, or small reserves of stranded gas located inland and far from gas pipelines.
Smaller scale LNG may be deployed in such instances but the LNG could only be used as a finished product locally if there is a sufficiently large local population centre or industrial complex. If there isn’t the local market for the LNG fuel in order to take the gas to market, a developer may need to set up a whole value chain (from production to regasification). In contrast, a developer considering a smaller scale GTL plant could concentrate solely on production and rely on local petroleum infrastructure to transport the product to market.
One project that will take advantage of a premium market is the 4800 bpd Ashtabula GTL plant. It is seeking to provide a supply of high-value speciality products to the industrial heartland of the US, made from abundant low-cost gas from the Marcellus shale region.
Further opportunities for smaller scale GTL projects lie in those regions that are gas rich but oil (or diesel) poor, and where a plant could provide a valuable source of diesel for isolated, remote communities or drilling sites, where importation costs of liquid fuels are very high. Examples of this are the huge mining sites in outback Australia. Another such case is the North Slope of Alaska, where diesel has to be trucked 900 miles from the south of the state at considerable cost and risk.
Options worth having
Fischer-Tropsch commercial reactor nearing completion.
GTL makes enormous sense in the new gas-rich world. As a solution for monetising gas, it will play an increasing role alongside pipelines and LNG as a way of getting gas to market; from stranded gas reserves in remote Arctic regions of Russia, to shale gas opportunities in North America or unlocking oil production that is currently constrained by legislation limiting flaring of associated gas. Smaller scale GTL is not the answer to every gas monetisation problem. Neither is LNG. But asset owners should consider both as weapons in their armoury.
Case study: ENVIA Energy
The ENVIA Energy Oklahoma City project will provide a commercial reference plant for the use of Velocys’ technology and Ventech’s modularisation with a combination of landfill gas/natural gas as feedstock and will deploy a number of Velocys’ full scale FT reactors.
The project will utilise Waste Management’s pioneering landfill gas recovery and clean-up techniques. With an established track record in the management of landfills, Waste Management is well positioned to use its expertise to identify and develop opportunities for the supply of landfill gas to potential projects. This supply will initially be at Waste Management landfills but in the future may include projects developed at municipal and other landfills.
Ventech, a company with extensive experience in the modular construction of process plants, will design and build the projects and Velocys will provide the FT reactors and catalyst. Its highly efficient microchannel technology and super-active catalyst are the plant components that enable GTL to be economical at the smaller scales being considered.
NRG will provide its extensive experience in the development, construction management and operation of complex energy projects, including cogeneration and clean energy as well as the acquisition and ongoing supply of commodities.
Module fabrication for the ENVIA Energy Oklahoma City project at Ventech (early 2015).
Written by Neville Hargreaves, Business Development Director at Velocys.
Edited by Angharad Lock
Read the article online at: https://www.lngindustry.com/special-reports/04122015/where-smaller-scale-gtl-makes-sense-1740/