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GTL stakes its claim

WITH CONSTRUCTION under way on Qatar's expanding portfolio of world-class gas-to-liquids (GTL) projects, GTL has left the realm of technology of the future. Within a few years, GTL could be challenging traditional refined products on the marketplace and, by the end of the decade, hundreds of thousands of barrels of the clean fuel will be produced from a variety of locations.

Shell predicts 10 large-scale GTL plants will be in operation by 2020, yet this would account for only an estimated 2.5% of world diesel demand. Herein lies GTL's base economic case. Relative to its market size, GTL will be a drop in the ocean and worries of supply gluts do not arise. Even if GTL production reaches the more optimistic industry projections of 2m barrels a day by 2020, this would still only represent some 5% of total world diesel demand.

And, unlike liquefied natural gas producers, GTL sponsors are unburdened by the need to line up secure long-term off-take agreements.

But GTLs still have to find their market niche. Of the middle distillates, Fischer-Tropsch (FT) diesel looks set to make the most of the running. Naphtha will be targeted at existing ethylene-cracking markets, but will remain relatively small in that market. FT Diesel is expected to win greater market share, particularly with conventionally produced diesels under legislative pressure to cut down on sulphur levels. Most of the leading quality markets—North America, Europe and Japan—are driving down towards the 10 parts per million level in diesel, but GTL diesel is already there, with near-zero sulphur levels.

Trials of GTL diesel have already been carried out on buses and cars, but initial demand for FT diesel will probably be as a drop-in additive for blended fuel. Shell's trial of a blended GTL/conventional diesel in Thailand may be a pointer for future market uptake. The economics look appealing, particularly with refiners under strain on the yield front to produce low-sulphur, high-grade diesel fuels.

Owners of shiny 4x4s may be persuaded to pay a premium for a higher-performance diesel—particularly in the US, where diesel has traditionally struggled to make headway in the face of long-standing performance concerns.

Rising global demand for diesel will remain the key driver for GTL production over the next decade, aided and abetted by the rising tide of environmental regulation. Metropolitan authorities from Indonesia to Hong Kong are testing ultra-low-sulphur diesel for public-transport projects.

GTL's big advantage is that the fuelling infrastructure remains the same—unlike liquefied petroleum gas, another low-emissions fuel on trial in some countries. Also, the products can be used in existing vehicle engines as a drop-in replacement, delivering immediate benefits.

GTL producers look set to remain focused on blend value for the next 10 years, but perhaps the technology's best hope of breaking out of its niche is on the performance front. Oil firms are perhaps rightly doubtful of motorists' willingness to switch to high-premium fuels for their environmental friendliness. But if GTL diesel can prove the performance argument, more GTL projects will find their way on to the drawing board.

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