Will Oryx breed GTL success for Qatar?

The Oryx gas-to-liquids project currently being commissioned in Qatar is carrying the future of an entire industry on its shoulders, with financiers watching it like a hawk, writes Alex Forbes

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By  Alex Forbes Published  February 7, 2006

GTL|~|GTLPicture200.gif|~||~|Gas-to-liquids (GTL) technology has been so long in getting to commercialisation that many thought it might never arrive. Now, however, in the sprawl of pipes, breakwaters, stacks, cranes and sand that the Qataris like to describe as Ras Laffan Industrial City, engineers are putting the final touches to a potent symbol of this emergent multi-billion-dollar industry.

Within a matter of weeks, when the engineers have completed commissioning work, the Oryx GTL project is due to begin commercial production, converting part of Qatar’s plentiful reserves of natural gas into 34,000 barrels per day (bpd) of ultra-clean liquid products such as diesel and naphtha.

If it all works as planned, attracting finance will become much easier for the proposed projects queuing up to follow in Oryx’s footprints. Of the many “firsts” that it has taken to bring Oryx GTL to realisation, the most impressive was to convince hard-nosed financiers that it was bankable.

Whether Oryx is the world’s first truly commercial GTL plant is a matter of some debate within the industry; Shell likes to claim that its project at Bintulu in Malaysia deserves that accolade, though not everyone agrees. What is not in doubt is that Oryx is the first GTL project to be financed on a limited-recourse basis — a major achievement given the widely-held perception that GTL carries a high degree of technology risk.

Any major problem with the project would set the industry back years in terms of its credibility with the financial community.

Despite the fact that it is some eight decades since two German chemists, Franz Fischer and Hans Tropsch, came up with a viable process for building long hydrocarbon chains (such as middle distillates) out of short ones (such as natural gas), Bintulu is one of only two GTL plants of any size currently operating anywhere in the world. The other is PetroSA’s Mossel Bay plant in South Africa.

Both began production in the early 1990s and both were built for special reasons: the 15,000 barrels per day (bpd) Bintulu project began its life primarily as a research and development facility (though Shell insists it is highly profitable now), while the 22,500 bpd Mossel Bay plant was politically driven — it was primarily a South African response to international sanctions during the era of apartheid.
Since the turn of the millennium, it appears that Fischer-Tropsch technology has at last become a commercial reality — and Oryx GTL, a joint venture between Qatar Petroleum (51%) and South Africa’s Sasol (49%), will be the first big test.

At the recent GTLtec 2005 conference in Doha, O&GME asked the general manager of Oryx GTL, Chris Turner, about the challenges the project has faced during the construction phase.

“The Qatar environment is a very dynamic one,” he replied “and construction activity has peaked not just in Qatar but around the world. So resource availability and commodity availability have been concerns for us throughout the execution of the project.

“It’s been something we’ve been able to manage, but nonetheless there have been some very significant hurdles for us. It’s a very large facility, it’s a very complex facility, and we have a well-managed programme for identifying what our risk profiles are and trying to mitigate those. We’re confident we have a good process in place for tackling the hurdles.”

To give some idea of how large the construction task has been, each of the Fischer-Tropsch reactors at the core of the process weighs over 2,000 tonnes.
Nevertheless, huge though the US $1 billion Oryx plant is, it will be dwarfed by the GTL project next in line for construction in Qatar. Shell’s Pearl GTL project will have four times as much production capacity as Oryx: 140,000 bpd in two 70,000 bpd phases, due on stream around the turn of the decade.
At present, the 250-hectare plot marked out for Pearl at Ras Laffan Industrial City is just barren sand and gravel. But Shell has been very busy over the past year, as the project’s Technical Manager Niels Fabricius explained: “We have completed the front-end engineering design (FEED), both for offshore and onshore. We have submitted the Environmental Impact Assessment to the Supreme Council and have obtained our permit to construct.

“We have appointed a project management contractor (PMC), a consortium between JGC and KBR, who were also the FEED contractor. We have, at this moment, issued all EPC contracts to the market. We have already ordered some of the long lead-time items, such as the Fischer-Tropsch reactors. And we have contracted with the drilling rigs we need for the development drilling.”

Unlike the Oryx GTL plant, which is taking its gas supply from the first phase of the Al Khaleej Gas project (AKG-1) recently completed by QP and ExxonMobil, the Pearl project will be a fully-integrated project — “from reservoir to market,” as Fabricius described it.

The upstream development will produce 1.6 billion cubic feet per day of gas which will be processed onshore to yield 100,000 bpd of condensate and NGLs, while the methane-rich gas will be converted into GTL products — not just fuels but also speciality products such as n-paraffins and base oils.
At the time the project was first proposed, back in 2002, its estimated cost was $4-5 billion. In recent months, with the tightness of the EPC contractor market and the hike in prices of commodities such as steel, estimates of $6 billion have been reported. But these too could end up on the low side.
O&GME asked Fabricius for his view of the investment that might now be required. He replied that with the various EPC contracts out in the market “we are not releasing any cost figures at this moment”.

Shell has, however, come up with a strategy to cope in an environment characterised by “extremely stretched EPC contractor capacity, high commodity prices and long lead times.” At one time Shell had planned to award a single contract for the entire onshore work.

“That strategy,” said Fabricius, “has been abandoned and instead the scope has been split up to increase competition and allow a larger number of contractors to take part.

Offshore will remain as had always been intended: a separate EPC for platforms and pipelines. But in the onshore, six areas have been separated out: the air separation units, gas treatment, effluent water treatment, the refinery liquid processing units, the tankage and the buildings.”

The remainder — the core GTL and utility areas — will be handled as an EPC contract by the project management contractor, which will also manage all interfaces and integration. Shell expects to take a final investment decision on the project this year.

It is not surprising that Sasol and Shell are the frontrunners in Qatar. In late 2004, I visited the Oryx construction site when work was in full swing and spoke to some of the engineers working on the project.

Training Officer Henry Austin, a South African on secondment to Oryx, said there was little about the technology that Sasol had not already had “significant or considerable experience” with. He added, “It’s impressive to see how quickly the equipment is going up.”

What Austin was getting at is that much of the technology being used at Oryx was developed by Sasol for large coal-to-liquids facilities in South Africa and, indeed, for the Mossel Bay plant.

Shell, meanwhile, has learnt an enormous amount from operating Bintulu, and that body of experience underpins the technology that will be used in Pearl.

All this, however, does leave question marks over the third GTL project likely to be constructed in Qatar: a 154,000 bpd integrated project proposed by ExxonMobil. Technology-wise the ExxonMobil proposal is a difficult call.

At GTLtec, Jim Spry, manager of process research, said that ExxonMobil’s proprietary GTL process — known as Advanced Gas Conversion for the 21st Century, or AGC-21 for short — was ready for “cost-effective, world-scale commercialisation,” adding that the company has “3,500 issued and pending GTL patents.”

But ExxonMobil appears not to have scaled up the technology to anything like the level that Shell and Sasol have with theirs. On the plus side, ExxonMobil has a good track record of successful technical innovation — not least with the technology it has helped develop for Qatar’s fast-expanding LNG industry. It will be interesting to see how the financial community reacts when ExxonMobil and QP go out to get financial backing for that proposal.

The only other GTL project likely to go ahead in Qatar in the near-term is a proposed expansion of Oryx GTL to 100,000 bpd, but that will depend on identifying a supply of gas. Three other major projects — proposed by ConocoPhillips, Marathon and SasolChevron — are on hold, following a moratorium on further projects utilising NorthField gas imposed by Qatar Petroleum in April last year.

At GTLtec, O&GME asked the Qatari Energy Minister Abdullah bin Hamad Al Attiyah when the moratorium might be reviewed. He replied that the situation was likely to become clearer around the middle of 2007, and that Qatar would then consider what its next steps should be.

Meanwhile, the industry’s attention is likely to focus on Algeria, where Sonatrach has decided to diversify its gas monetisation options by constructing GTL and methanol facilities. It recently proposed an integrated GTL project to utilise gas from the Tinrhert area by constructing a GTL plant at Arzew with capacity of around 36,000 bpd.

At GTLtec, Dr Mohammad Taleb presented a paper in which he said that three consortia had shown interest in bidding for the project. Two of these have already declared their interest: a consortium made up of Statoil, BHP Billiton and PetroSA; and SasolChevron, which has already reached FID on the Escravos GTL project in Nigeria, which will use the same technology as Oryx.

The third contender, yet to declare its interest publicly, is Shell, which may bid jointly with a company based in the United Arab Emirates.

Bids are due to be submitted to Sonatrach in June, and Dr. Taleb told O&GME that a decision would be made “soon after.”
By then, it is likely that Oryx GTL will have weeks, perhaps months, of operating history behind it. Even in an industry as jealous of its secrets and as competitive as the GTL business can be, all the players must be wishing this namesake of Qatar’s long-horned antelope the best of luck.||**||

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