October 28, 2012
Companies Plan Natural Gas To Diesel Plant
Oxford Catalysts and Chesapeake Energy Corporation are betting on a long term high ratio of oil to natural gas prices by planning to build natural gas-to-liquid plants.
Oxford Catalysts can produce a barrel of premium diesel for $66, or $1.57 a gallon, using gas at $4 per thousand standard cubic feet ($3.89 per mmBtu) at plants with a capacity of just 1,500 barrels a day. The unprofitable technology developer said a plant that size can be built for about $150 million and would last for 20 years.
The article also surveys efforts by other firms to convert natural gas to liquids (GTL). Some firms are focusing on ways to do GTL on site at small natural gas fields. This would make more natural gas fields economically viable since natural gas transportation from small fields often costs too mujch.
Historically, the cost of a million BTU (mmBTU) of energy from oil has always been higher than the same mmBTU from natural gas because oil, due to its liquid form, is much more useful, especially in transportation. The price ratio has been close to 2. However, due to technological advances in shale natural gas extraction in the United States starting in 2009 the ratio of of the cost of a mmBTU of oil to a mmBTU of natural gas exploded to around 10. If investors become convinced high price ratios will be sustained for a long period then it makes economic sense to build expensive plants to convert natural gas into liquids that can be used in transportation. However, those plants can not pay back their costs if the high price ratio between oil and natural gas turns out to be relatively short lived.
Conversion of cheap US and Canadian natural gas to diesel and other liquid fuels competes with cooling natural gas into liquified natural gas (LNG) for export on big refrigerated LNG ships. Given that Asian natural gas prices are over 5 times higher than American natural gas prices we can expect more natural gas exports as well.
Randall Parker, 2012 October 28 10:20 AM
My last stub for royalties had MCFs (thousand cubic feet of gas) from $2.29 to $2.83.
Many new methods are being developed to make the conversion of natural gas more economical. Another advantage is that this would completely cancel the oil component of the annual trade deficit. Canceling the trade deficit (at least the oil component of it) would be a tremendous advantage because the necessary government deficit spending would then be reduced by that amount, or more precisely, the benefits of the government deficit spending would increase by the amount the trade deficit is reduced. Right now more than half the government deficit spending is for compensating for the trade deficit. This would also reduce the unemployment significantly inside the US.
Here is a website with a a sub-page that is exclusively for the newest technologies to convert natural gas to liquid fuel. You should bookmark that page because you will find many news there:
And from the same webpage, there is another sub-page that lists the latest developments to convert coal to liquid fuels. There is progress also for converting coal to liquid fuels, and the US has enough coal for hundreds of years:
Here in Australia we a large porton of our car miles are powered by LPG. While LPG is more energy dense than compressed natural gas, a highly efficient engine or hybrid engine system would go a long way towards reducing the size of a compressed gas tank. Gas to liquid might find it hard to compete with straight gas cars. On the other hand, I expect natural gas to stay cheap for a fair while as PV takes a bite out of natural gas use, as it has started to do in Australia.
I'll point out that I was talking about a natural gas car above, not a gasoline powered car. Gas means natural gas down here. Natural gas is mostly methane, but we're lucky enough to have a lot of propane and butane in ours, hence the many LPG powered cars. One drawback to compressed natural gas cars is the leakage of methane into the atmosphere that is bound to occur. While good engineering can minimize this, it will still happen to an extent.
Robert Rapier has been over the economics of xTL (where x is gas, coal, biomass...) and shows that it's fraught with risk. Natural gas has been well over $10/mmBTU in the USA before, and the LNG semi-trucks will still be rolling when the gas-to-diesel plant goes broke and shuts down. As Ronald notes, when a vehicle can burn the diesel feedstock instead, diesel isn't a viable product from that feedstock.
The price premium for propane over methane in the US puts LPG too close to the price of gasoline. So it hasn't made a lot of in-roads as a transportation fuel. Compressed Natural Gas (CNG) has better prospects IMO.
In the United States at least people are going to go to hybrids and cars made from more expensive lighter materials before they go to CNG, at least for passenger cars. Hybrids are a much easier step. Though, yes, LNG for heavy trucks could become a big deal. The trucks burn the fuel fast enough to make the gradual warming of the LNG easier manage.
What's your take on how long shale natural gas production will keep prices low?
Also, what's your take on oil prices? How high do you think oil prices will go in inflation-adjusted dollars?
I have no expertise on oil prices, and we've already seen that short-term issues of economic shifts and debt crises can double or halve the price almost overnight.
I have no idea how long gas prices will stay low either. Analysts at The Oil Drum have noted that the rig count is already falling, because companies can't finance operations at the recent rate on the returns they're getting. Gas prices are rising, but still not into profitable territory for pure-gas plays. The other element is the demand side, particularly new markets like heavy trucks. Even at $8/mmBTU, natural gas is far cheaper than ULSD (retailing over $28/mmBTU on the corner here). Throw in a cold winter... you get the idea.
There are points at which prices should plateau. When NG gets more expensive than coal, electric generation will shift back to coal and limit NG demand. That will continue until the shift back is complete or coal demand cannot be met (mines may have gone out of business in the mean time).
BTW, the price premium of natural-gas liquids (LPG and pentanes-plus) over NG is part of why NG is so cheap; the profit is in the liquids and the gas would be flared if it couldn't be sold.