Natural Gas to Liquids – Does It Make Sense?

As we become more concerned about the cost of fuels and other products produced from liquid petroleum, we revive the idea of alternative fuels. Many of these alternatives do not make sense economically and can exist only with the market distortion that comes with government subsidies. The chemical conversion of natural gas to liquid fuels is one alternative that can be economic without subsidization.

In the United States, one might question the use of natural gas for transportation fuel, given its high cost. Well, the cost of natural gas in the U.S. is the result of a government decision to encourage electricity generation using natural gas as the fuel for power plants. We would not use commercial domestic gas to make the liquid fuels – rather, we would use remote or stranded gas. Stranded gas is that fraction of natural gas that cannot reach a market because its location is remote from pipelines to transport it. Most estimates consider the volume of stranded gas to be at least equal to the volume of gas in currently produced reservoirs. Thus, we have a vast untapped resource for commercial purposes.

OK, so we just build pipelines from the remote reservoirs to markets, right? Probably not. First, natural gas pipelines are very expensive to construct because they must be large-diameter and high-pressure. Second, remote reservoirs are often very remote, for instance, in the Peruvian jungles east of the Andes. Well then, we can just use liquefied natural gas trains to produce the liquid and then pipeline that product, right? Again, probably not. LNG trains are very expensive, require huge volumes of gas to be economical, and produce a cryogenic product. However, another route exists that can produce hydrocarbon liquids from natural gas – chemical conversion.

Excluding the seabed methane, approximately 5,000 to 10,000 Tcf of stranded gas exists. We need about 10,000 SCF to produce a barrel of liquids by chemical conversion, so this resource represents roughly a trillion barrels of fuels. That is certainly a resource worthy of pursuit.

Two processes exist to change natural gas into liquids by chemical conversion: Fischer-Tropsch (F-T) and SynFuels (SF). F-T technology has existed since the 1920s when Germany needed a means to secure fuels from domestic coal supplies. F-T can use either coal or natural gas as a feedstock. The process essentially combines steam, natural gas, and oxygen to produce a stream of carbon monoxide and hydrogen (syngas). This stream passes through a catalytic reactor that combines the carbon monoxide and hydrogen into hydrocarbons and water. The hydrocarbons contain a wide distribution of chain-lengths ranging from light gases through gasoline and diesel to waxes. The desired products then result from using separation processes to extract the proper “cuts” of the distribution. Often the waxes and other heavy-end molecules must be recycled through the process to enhance production of the desired products and to eliminate the heavies. This is a complicated process that requires many unit operations. It is also expensive, and relies upon economies of scale to provide a product in an acceptable cost range. It appears to be difficult to make an economical plant at less than a few hundred million SCF per day of feed gas, although several companies have projects to attempt this reduction. One company with a unique twist is Syntroleum, which has developed a catalyst that can use air instead of oxygen in the process. However, this feature does introduce into the process large amounts of nitrogen that must be removed. Germany and South Africa have been the primary developers of F-T technology – Germany from the technology’s inception through WWII, and South Africa during apartheid, continuing to the present. Thanks to their efforts over nearly a century, F-T technology is the dominant chemical conversion process available for producing liquids from natural gas. All existing commercial GTL plants use F-T technology. The F-T technology is basically an air plant to produce oxygen, a gasifier to produce syngas, and separation processes to refine products.

Dominant Synfuels

Kenneth R. Hall, the Jack E. & Frances Brown Chair and Professor of Chemical Engineering at Texas A&M University, emphasizes thermodynamics of fluids and gas-to-liquids processing in his research.

As we become more concerned about the cost of fuels and other products produced from liquid petroleum, we revive the idea of alternative fuels. Many of these alternatives do not make sense economically and can exist only with the market distortion that comes with government subsidies. The chemical conversion of natural gas to liquid fuels is one alternative that can be economic without subsidization.

In the United States, one might question the use of natural gas for transportation fuel, given its high cost. Well, the cost of natural gas in the U.S. is the result of a government decision to encourage electricity generation using natural gas as the fuel for power plants. We would not use commercial domestic gas to make the liquid fuels – rather, we would use remote or stranded gas. Stranded gas is that fraction of natural gas that cannot reach a market because its location is remote from pipelines to transport it. Most estimates consider the volume of stranded gas to be at least equal to the volume of gas in currently produced reservoirs. Thus, we have a vast untapped resource for commercial purposes.

OK, so we just build pipelines from the remote reservoirs to markets, right? Probably not. First, natural gas pipelines are very expensive to construct because they must be large-diameter and high-pressure. Second, remote reservoirs are often very remote, for instance, in the Peruvian jungles east of the Andes. Well then, we can just use liquefied natural gas trains to produce the liquid and then pipeline that product, right? Again, probably not. LNG trains are very expensive, require huge volumes of gas to be economical, and produce a cryogenic product. However, another route exists that can produce hydrocarbon liquids from natural gas – chemical conversion.

Excluding the seabed methane, approximately 5,000 to 10,000 Tcf of stranded gas exists. We need about 10,000 SCF to produce a barrel of liquids by chemical conversion, so this resource represents roughly a trillion barrels of fuels. That is certainly a resource worthy of pursuit.

Two processes exist to change natural gas into liquids by chemical conversion: Fischer-Tropsch (F-T) and SynFuels (SF). F-T technology has existed since the 1920s when Germany needed a means to secure fuels from domestic coal supplies. F-T can use either coal or natural gas as a feedstock. The process essentially combines steam, natural gas, and oxygen to produce a stream of carbon monoxide and hydrogen (syngas). This stream passes through a catalytic reactor that combines the carbon monoxide and hydrogen into hydrocarbons and water. The hydrocarbons contain a wide distribution of chain-lengths ranging from light gases through gasoline and diesel to waxes. The desired products then result from using separation processes to extract the proper “cuts” of the distribution. Often the waxes and other heavy-end molecules must be recycled through the process to enhance production of the desired products and to eliminate the heavies. This is a complicated process that requires many unit operations. It is also expensive, and relies upon economies of scale to provide a product in an acceptable cost range. It appears to be difficult to make an economical plant at less than a few hundred million SCF per day of feed gas, although several companies have projects to attempt this reduction. One company with a unique twist is Syntroleum, which has developed a catalyst that can use air instead of oxygen in the process. However, this feature does introduce into the process large amounts of nitrogen that must be removed. Germany and South Africa have been the primary developers of F-T technology – Germany from the technology’s inception through WWII, and South Africa during apartheid, continuing to the present. Thanks to their efforts over nearly a century, F-T technology is the dominant chemical conversion process available for producing liquids from natural gas. All existing commercial GTL plants use F-T technology. The F-T technology is basically an air plant to produce oxygen, a gasifier to produce syngas, and separation processes to refine products.

Dominant Synfuels

SynFuels International has introduced a new technology to chemically convert natural gas to liquids. This technology also uses oxygen and requires an air plant, but it cracks the natural gas thermally in a high-temperature reactor. This operation produces acetylene and hydrogen, which then pass through a hydrogenation unit to produce ethylene. (SynFuels has developed a liquid-phase hydrogenation process that makes the overall process more efficient and less costly.) The ethylene then flows to an oligimerization reactor that produces a distribution of products, ranging from light gases to about C14 hydrocarbons when the process operates at nearly atmospheric pressure. The average molecular size is C8, and the compounds are about 50 percent aromatics, 30 percent isoalkanes, and 20 percent cycloalkanes. Operation at higher pressures would shift the distribution towards higher molecular-weight compounds. The distribution of products is much tighter than that from F-T technology. SF technology has been under development for about a decade, and currently no commercial installations exist. SF plants are considerably simpler than F-T plants, and they can be economical at feed rates from 10 million SCF per day up to any size. SF technology is also an attractive example of the concept of methane activation, because it uses the methane as well as the heavier components of natural gas to produce other chemicals (in this case fuels and aromatics).

Technically, both F-T and SF are successful. However, both are significantly more expensive than refining liquid petroleum to fuel. They depend upon the lower feedstock cost of natural gas to attract use. This again brings the stranded gas into play. In many cases, the cost of producing the stranded gas is about $1 per thousand cubic feet. In other cases, the gas is associated with an oil reservoir and represents a cost to remove. Because SF technology can be economical at relatively small feed rates, it can be considered for flare reduction as well as for monetization of stranded gas.

Kenneth R. Hall, the Jack E. & Frances Brown Chair and Professor of Chemical Engineering at Texas A&M University, emphasizes thermodynamics of fluids and gas-to-liquids processing in his research.

As we become more concerned about the cost of fuels and other products produced from liquid petroleum, we revive the idea of alternative fuels. Many of these alternatives do not make sense economically and can exist only with the market distortion that comes with government subsidies. The chemical conversion of natural gas to liquid fuels is one alternative that can be economic without subsidization.

In the United States, one might question the use of natural gas for transportation fuel, given its high cost. Well, the cost of natural gas in the U.S. is the result of a government decision to encourage electricity generation using natural gas as the fuel for power plants. We would not use commercial domestic gas to make the liquid fuels – rather, we would use remote or stranded gas. Stranded gas is that fraction of natural gas that cannot reach a market because its location is remote from pipelines to transport it. Most estimates consider the volume of stranded gas to be at least equal to the volume of gas in currently produced reservoirs. Thus, we have a vast untapped resource for commercial purposes.

OK, so we just build pipelines from the remote reservoirs to markets, right? Probably not. First, natural gas pipelines are very expensive to construct because they must be large-diameter and high-pressure. Second, remote reservoirs are often very remote, for instance, in the Peruvian jungles east of the Andes. Well then, we can just use liquefied natural gas trains to produce the liquid and then pipeline that product, right? Again, probably not. LNG trains are very expensive, require huge volumes of gas to be economical, and produce a cryogenic product. However, another route exists that can produce hydrocarbon liquids from natural gas – chemical conversion.

Excluding the seabed methane, approximately 5,000 to 10,000 Tcf of stranded gas exists. We need about 10,000 SCF to produce a barrel of liquids by chemical conversion, so this resource represents roughly a trillion barrels of fuels. That is certainly a resource worthy of pursuit.

Two processes exist to change natural gas into liquids by chemical conversion: Fischer-Tropsch (F-T) and SynFuels (SF). F-T technology has existed since the 1920s when Germany needed a means to secure fuels from domestic coal supplies. F-T can use either coal or natural gas as a feedstock. The process essentially combines steam, natural gas, and oxygen to produce a stream of carbon monoxide and hydrogen (syngas). This stream passes through a catalytic reactor that combines the carbon monoxide and hydrogen into hydrocarbons and water. The hydrocarbons contain a wide distribution of chain-lengths ranging from light gases through gasoline and diesel to waxes. The desired products then result from using separation processes to extract the proper “cuts” of the distribution. Often the waxes and other heavy-end molecules must be recycled through the process to enhance production of the desired products and to eliminate the heavies. This is a complicated process that requires many unit operations. It is also expensive, and relies upon economies of scale to provide a product in an acceptable cost range. It appears to be difficult to make an economical plant at less than a few hundred million SCF per day of feed gas, although several companies have projects to attempt this reduction. One company with a unique twist is Syntroleum, which has developed a catalyst that can use air instead of oxygen in the process. However, this feature does introduce into the process large amounts of nitrogen that must be removed. Germany and South Africa have been the primary developers of F-T technology – Germany from the technology’s inception through WWII, and South Africa during apartheid, continuing to the present. Thanks to their efforts over nearly a century, F-T technology is the dominant chemical conversion process available for producing liquids from natural gas. All existing commercial GTL plants use F-T technology. The F-T technology is basically an air plant to produce oxygen, a gasifier to produce syngas, and separation processes to refine products.

Dominant Synfuels

SynFuels International has introduced a new technology to chemically convert natural gas to liquids. This technology also uses oxygen and requires an air plant, but it cracks the natural gas thermally in a high-temperature reactor. This operation produces acetylene and hydrogen, which then pass through a hydrogenation unit to produce ethylene. (SynFuels has developed a liquid-phase hydrogenation process that makes the overall process more efficient and less costly.) The ethylene then flows to an oligimerization reactor that produces a distribution of products, ranging from light gases to about C14 hydrocarbons when the process operates at nearly atmospheric pressure. The average molecular size is C8, and the compounds are about 50 percent aromatics, 30 percent isoalkanes, and 20 percent cycloalkanes. Operation at higher pressures would shift the distribution towards higher molecular-weight compounds. The distribution of products is much tighter than that from F-T technology. SF technology has been under development for about a decade, and currently no commercial installations exist. SF plants are considerably simpler than F-T plants, and they can be economical at feed rates from 10 million SCF per day up to any size. SF technology is also an attractive example of the concept of methane activation, because it uses the methane as well as the heavier components of natural gas to produce other chemicals (in this case fuels and aromatics).

Technically, both F-T and SF are successful. However, both are significantly more expensive than refining liquid petroleum to fuel. They depend upon the lower feedstock cost of natural gas to attract use. This again brings the stranded gas into play. In many cases, the cost of producing the stranded gas is about $1 per thousand cubic feet. In other cases, the gas is associated with an oil reservoir and represents a cost to remove. Because SF technology can be economical at relatively small feed rates, it can be considered for flare reduction as well as for monetization of stranded gas.

What is the major obstacle to using chemical conversion technology to produce liquid fuels from natural gas? Capital! Both F-T and SF are viable technically; however, plants using either technology are expensive. The major F-T projects envisioned for Qatar range from $5 to $15 billion per plant. While plants using SF technology should be less expensive because of the simpler process, one-half or even one-third the cost of an F-T plant is a daunting number. Another consideration, which is just a different manifestation of capital, is the availability of the steel and concrete necessary to produce these plants. The rapidly expanding economies of many nations have put a strain on these resources that we take for granted. Of course, the law of supply and demand dictates increasing costs for them as a result. Two or three years ago, the cost of a GTL plant was about $25,000 to $35,000 per barrel of product per day. Now, those costs are closer to $50,000 per barrel. The figures are similar for F-T and SF plants because F-T plants produce more barrels of product for a given feed rate while SF plants cost significantly less.

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So, let us return to the question: does GTL make sense? In my opinion, yes. GTL can make a significant contribution to the overall supply of liquid fuels as we search for alternative sources that make sense (which I define as requiring no subsidies). In addition, the ability of GTL to monetize stranded gas is a significant benefit. Moreover, SF processes have another benefit because they can reduce flaring of natural gas, an environmental as well as economic disaster. Compared to most of the currently popular ideas for alternative approaches to liquid fuels, GTL offers an economical approach (as long as oil prices remain above $25 per barrel) that can produce a significant amount of liquids anywhere in the world. Regardless, GTL must be a serious part of any attempt to bridge the time until we can fully refrain from using a precious resource like petroleum for transportation fuel. We should keep liquid petroleum and marketable natural gas for feedstock to the chemical industry, and use the stranded gas for transportation fuel.

Kenneth R. Hall, the Jack E. & Frances Brown Chair and Professor of Chemical Engineering at Texas A&M University, emphasizes thermodynamics of fluids and gas-to-liquids processing in his research.

© 2013 Energy Tribune