Research of unconventional resources, 2005

A Pre-feasibility Study for GTL Project

(Technology Sector)

Due to the instability of the supply balance in the world energy requirements by the reduction of the oil resources and limits of the production facilities, the oil price has been sharply recently rising. It is expected that the oil price will stay high for a long term period. As the tremendous natural disasters have occurred by the climate change resulting from the global warming, the usage of conventional fuel is faced with the stringent environmental specifications restriction. This presents new paradigm in energy development of Korea National Oil Corporation for ensuring national energy security and requires us to join early the development of gas well as an alternative energy of oil and "GTL(Gas to Liquids) technology development and project "converting natural gas into clean fuel" like world oil majors.

The GTL technology making oil products(diesel, naphtha, lube base oils) with natural gas feedstock is comprised of three major consecutive process, that is, Synthesis Gas Generation Process by which hydrogen and carbon monoxide are produced from natural gas, FT(Fischer-Tropsch) Synthesis Process converting synthesis gas  into linear paraffin hydrocarbon and Product Upgrading Process by which oil products like naphtha, diesel and waxes are produced from FT synthesis oil. The products contain a small amount of sulfur and nitrogen compounds and lower percentage of aromatic compounds than conventional fuel, so it is clean fuel which produces less harmful chemicals in combustion. And it has a good point of easy transportation and high stability compared to LNG project liquefying natural gas at a low temperature.

Nowadays, GTL technologies are divided into the pioneering companies of Sasol and Shell which are proceeding the commercial projects with capacity of more than 30,000 b/d, and the developing companies of BP, ExxonMobil, ConocoPhillps, Syntroleum and  Rentech having their own semi-commercialized plant. In case of the former companies, we have evaluated their core GTL technology indirectly with presentation materials and papers due to the closed technical security by the technology preoccupation, and in case of the later companies, BP and Syntroleum, we have evaluated their GTL technology in active way of visiting their semi-commercialized plant in person.

First of all, Sasol constitutes joint-venture company with countries holding gas field and technology companies which hold the latest technology to control the risk management despite its own sixty-year-old unique GTL technology. Sasol secures economical efficiency by the usage of low-priced feedstock and application of large-scale equipment and maps out the project strategy like prior occupation of the market through product selling.

Also, Shell seeks the maximum profit by investing its own capital in overall project from large-scale gas field project to GTL plant project. As per these points, two GTL technologies should be considered as a commercialized technology preferentially, but the project participation with them was difficult without specific business plan including its own gas field. On the other hand, BP and Syntroleum have a plan to proceed small and midium GTL projects using their own technologies like 50,000 b/d and 10,000~20,000 b/d respectively. Since we do not possess GTL original technology, we need to cooperate actively with technology companies that are in the stage of commercialized plant design in addition to the retention of gas well. From this, it is possible to conduct more efficient verification and feasibility study for the GTL technology and real GTL project.

Besides, it is one of the important factor in proceeding GTL project successfully to secure low-priced natural gas. There is a tendency that  large-scale gas field with a great deal of reserves and high productivity or oil field with abundant associated gas is in good circumstance for preceeding GTL project first of all.

Economical efficiency, stability of GTL project and security of the product market are secured by establishing a strongholds in the Middle East nation with large-scale oil reserves and supplying oil majors with a large capacity of natural gas at less than a price of $ 0.5 to $ 0.8 per MMBTU. On the other hand, commercialization of the GTL project should be cautious because dangerous factors are immanent in  GTL project utilizing the stranded gas due to the owner's investment risk and enormous early investment cost for new infrastructure establishment.

In conclusion, for the national energy security as long-term basis, government and companies concerned must be willing to invest in the development of GTL technologies and involvement of  commercialized projects to be expected.

By the recent sharp increase in the development of gas field, oil majors expand their business to GTL projects as well as LNG projects with large-scale gas supplier.

According to this current, it is strongly requested that the national cooperation system with KNOC leading the domestic GTL business is strategically required for taking the core GTL technologies and maintaining the cheap and stable natural gas supply. Furthermore, the early participation of the GTL project through the international cooperation with oil majors are needed by KNOC.

(Business Sector)

To evaluate the market potentials of the GTL products, we examined the domestic gasoline and light oil markets of five Southeast Asian countries: Thailand, Malaysia, Vietnam, Singapore, and Indonesia. We concluded that the before-tax price level is the key factor to take into consideration for the analysis of the GTL market potentials besides three other important factors: demand and supply balance, quality standard, and system of import and distribution. In addition, it was estimated that the price level of gasoline and light oil in each Southeast Asian country is not based on the individual price resulted from each country's market situations, but on the price in Singapore spot market in regarding to the evaluation of market potentials for the GTL products. The reason is that each country basically considers the Singapore market price as the base for pricing their domestic products, while the consumer prices of the products are under government control. Such a Singapore-based pricing system is similarly used in our domestic markets where oil companies fix the sales price for gas stations of products like gasoline and diesel in consideration of the fluctuation rates of price in Singapore spot market.

To enter the market, especially down-stream sector, we recommend that GTL business managers should strategically cooperate with the state oil enterprises and enlarge market and distribution shares step by step because it seems almost impossible to enter the market without the joint. In our domestic markets it is also desirable to establish the phased domestic sales strategy through the strategic cooperation with state oil enterprises.

The analysis of the economic efficiency of the GTL investment business shows that the use of Non-FT method developed by Synfuel Technology is not economically efficient. On the contrary, the use of the process SDMS from FT method turned out economically efficient from the viewpoint of IRR. According to the survey, especially in the case of GTL business with FT method at least 10% of IRR would be guaranteed on condition that crude oil price should keep USD 35 even if the purchase price of fuel gas may be over USD 2 per Mcf. However, in case that GTL business should be carried out in combination with the development of upstream sector of natural gas (hereafter DUSNG), we come to the conclusion that each economic efficiency of DUSNG and GTL business should be individually considered. However, since there also exists a compensating effect between two business projects, it is necessary to carry out the joint-project of GTL with DUSNG. The reason is that the joint-project can guarantee the generation of value-added or profits by building up a market for natural gas. Concretely, it is desirable to combinate the economically inefficient DUSNG with the economically efficient GTL or combinate the economically efficient DUSNG which, however, is unaccessible to markets with GTL products business for the supply security of natural gas, although the economic efficiency may become lower.

The result of a collective investment feasibility study for Thailand, Malaysia, Vietnam and Indonesia showed that Malaysia and Thailand were preferable for the GTL investment, while country risk of Vietnam and Indonesia appears to be high. We used availability of oil and natural gas, country risk, and country competitiveness as indexes for evaluation. In case of GTL plant investment, Malaysia was evaluated as the best county for investment. The second best was Thailand. Thailand, however, had limited availability in terms of oil and natural gas reserve. On the other hand, Indonesia ranked the third in that it was considered highly risky in relation to country risk and competitiveness despite its advantage in oil and natural gas availability. Vietnam ranked the last in relation to its country risk and competitiveness because of lack of various institutional establishment, although it was engaged in vigorous resource exploration and production.

Although Korea does not hold GTL technology yet, KNOC must actively participate in GTL project to meet the request of the nation for next generation energy resource development and to secure stable supply sources of petroleum products on the national strategic dimension. First, we recommend KNOC to ensure GTL technology by means of strategic coalition with foreign company which has the technology and to actively engage in securing human resources and foreign market through GTL plant construction and management and operation. In its early stages the process might be carried out by the interpretation in a broad sense of “the project of petroleum exploration and production and incidental business” according to the established relevant laws and the laws of KNOC. But in future both the amendments of relevant laws and the clear statement of “GTL business” in the lists of business field for petroleum development entitled by the laws of KNOC would be necessary for the more active industrialization and financial support.