GTL Prospects Improve On New Partnership

BMI View : The recent alliance formed between Technip and Sasol in the field of gas-to-liquids (G TL ) , will enhance efficiencies and innovations in the industry, leading to a higher probability proposed Sasol facilities will go ahead. We expect the focus of this partnership will be on North America where increasingly favourable price dynamics and end markets create a strong economic case for the application of the technology.

Technip and Sasol have forged an alliance with regards to the front-end engineering of potential future gas-to-liquids (GTL) projects . The partnership, which builds on prior cooperation, will allow Technip to participate in the execution stages of the projects. The move under lines the growing interest in GTL technology and the increasing likelihood of the applicatio n of the technology in new regions .

Currently, there are only four active GTL facilities located in Malaysia, South Africa and two in Qatar. The next facility due online is the Escravos GTL in Nigeria , which after much delay is now expected to start up before the end of 2013. Other GTL facilities under consideration are located in markets where there is a considerable margin between the cost of oil and the cost of natural gas. These include the US, Canada and Uzbekistan, whil e a project to monetise Mozambic an gas has been mulled.

Current And Proposed Large Scale GTL Facilities
Country Location Name Capacity, b/d Status Start Of Construction Completion Of Construction Main Owner
Source: BMI
Malaysia Sarawak (Bintulu) Bintulu GTL 14,700 Active ~ 1993 Royal Dutch Shell
Qatar Ras Laffan Oryx GTL 34,000 Active 2002 2007 Sasol
Qatar Ras Laffan Pearl GTL 120,000 Active 2003 2011 Royal Dutch Shell
South Africa Mosselbaai (Mossel Bay) Mossgas GTL 45,000 Active ~ 1992 PetroSA
Nigeria Delta State Escravos GTL 33,000 (expansion plans for 120,000) Construction 1998 2013/2014 Chevron
Uzbekistan Kashkardaya Province Oltin Yo'l GTL 30,000 FEED ~ ~ Sasol
US Gulf Coast (Louisiana) Lake Charles GTL 96,000 FEED 2016 (anticipated) 2019 (phase 1)2020 (phase 2) Sasol
Canada Fort Saskatchewan,Alberta Canada GTL Two Phased Trains of 51,950 FEED 2017 (anticipated) 2020 (phase 1)2021 (phase 2) Sasol
US Gulf Coast (Louisiana) Louisiana GTL Two Phased trains of 70,000 Proposed Royal Dutch Shell
Mozambique (Unstated) (Unstated) 40,000 Proposed PetroSA

We believe the partnership between Technip and Sasol will bolster prospects for proposed GTL projects, and provide additional upside to the likelihood of new projects in the US and Canada going ahead. Sasol currently has three GTL projects under evaluation in the US, Canada and Uzbekistan with front-end engineering and design (FEED) underway at all proposed sites.

The Uzbekistan facility, an example of earlier cooperation between Technip and Sasoil, is likely to be less of a priority for the South African company despite being further along in the development process. In fact in June 2013, Sasol announced it intends to reduce its share in the Uzbek project from 44.5% to 22.5%. This leads us to believe Sasol is orienting its focus more to the North American market, where low gas prices and the largest liquid fuels market in the world provide greater incentive to invest. Furthermore Uzbekistan ranks poorly in our Eastern Europe Downstream risk reward ratings, achieving joint 10 th position from 15 countries, while North America is far more attractive.

The key to successful GTL economics is to have a wide enough margin between natural gas prices and oil prices for the economics to overcome the technological cost of the conversion. Sasol appears to have enough confidence in the long term North American pricing dynamics to progress with the development of its projects. Our long term price forecasts for Henry Hub and WTI also reflect the considerable price spread that is expected to remain over the long term. It should be noted that Sasol's GTL plants are designed with an initial 25 year operating period, and with first products not expected from their North American facilities until 2019 at the earliest, the company is banking on a margin that will sustain GTL economics long after our forecast period.

North America Puts On A Handsome Spread For Sasol
Henry Hub Versus West Texas Intermediate 2010-2022, $/barrel

In North America, Sasol is intending to stagger development of its projects by constructing the proposed Louisiana and Alberta facilities in two phases. The company also announced, of the two projects under consideration, the Lake Charles facility will see priority. The Louisiana plant will be able to take advantage of the anticipated low cost gas feedstock on the Gulf coast and targets to sell a range of high-end refined products such as specialty waxes, lubricants and paraffin, as well as diesel. The North American market for diesel is expected to see strong growth in the coming years, a trend backed by our Automotive Team who is seeing major auto manufacturers promoting the use of diesel engine vehicles.

Alberta GTL plant will use gas feedstock from Talisman's shale gas assets at Farrel Creek & Cypress Hill after Sasol signed an agreement with the company. 71% of production from Canada GTL would be diesel for the local market, while the majority of the remainder would be naphtha which could be sold as a diluent to the oil sands industry.

The low gas prices expected in North America, coupled to the excellent market opportunities for GTL products provides strong upside to the progression of the GTL proposals by Sasol in North America. We anticipate a final investment decision on the Louisiana plant in 2014, with a decision on the Alberta facility to come a year later and will play close attention to developments.

This article is tagged to:
Sector: Oil & Gas
Geography: South Africa, Canada, France, United States, Uzbekistan

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