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Sasol moves forward with Canadian GTL

Sasol expects to detail ambitious plans for what would be Canada’s first natural gas-to-liquids (GTL) project later this year

According to Mike Nel, the company’s Canadian development manager, the South African giant is proceeding with front-end engineering and design (feed) on a proposed 96,000 barrel a day (b/d) facility, which would be one of the biggest in the company’s portfolio; only the 160,000 b/d Secunda facility in South Africa would be larger, but it uses coal-to-liquids.

Sasol is proposing to convert 1 billion cubic feet per day (cf/d) of unconventional gas from Canada’s Montney shale play into products like diesel and naphtha. A feasibility study into an initial 48,000 b/d first phase for the facility will be released in the second half of this year.

But already Nel is brimming with confidence. “Do we believe in the economics of GTL in Canada? Without a doubt. We can see the value of GTL in Canada today – we think the window of opportunity is there from the supply perspective.”

GTL is based on Fischer-Tropsch technology first developed in Germany during the Second World War. In the 1980s Sasol adapted it to South Africa to lessen the blow from Apartheid-era sanctions and became one of only two companies in the world – the other is Shell – to implement it on a commercial scale.

Now GTL is being touted as a downstream solution to North America’s gas glut and an opportunity for vertical integration. In late 2010 and 2011, Sasol paid Calgary’s Talisman Energy C$2.08 billion ($2.02 billion) to acquire 50% stakes in its Farrell Creek and Cypress fields in northeast British Columbia.

Canadian producers like Talisman have been punished by low natural gas prices even as they’ve enjoyed success in developing reserves that only five years ago were too expensive to extract. As low as Henry Hub prices are, Canadian gas prices are even lower: on 5 June, Alberta’s spot price closed at the equivalent to C$1.82 ($1.77) per million British thermal units (Btu) compared with $2.42 per million Btu for Henry Hub.

Cheaper Canadian gas provides an even greater economic incentive to press ahead with GTL and move higher up the value chain. “Canada needs a commercialisation option”, said Nel.

The problem is that nobody knows how much it will cost, because it’s never been tried in North America.

In an interview with PEU, Nel declined to discuss capital costs ahead of the release of the study, which will provide firm estimates and timelines for construction. But it’s safe to assume it will be a multi-billion dollar effort requiring more than 7,000 workers.

In 2006, Sasol completed its first GTL refinery outside of South Africa -- the 36,000 b/d Oryx facility in Qatar -- at a cost of $950 million. The Qatar project is considered a commercial “pioneer” but uses considerably smaller reactor vessels than those proposed for newer projects; Sasol’s latest generation GTL vessels process about 24,000 b/d each, compared with 15,000 b/d for the earlier units.

Nel cautioned against extrapolating Qatar’s experience to proposed GTL projects in North America after accounting for variables such as materials and labour, in addition to the larger capacity of the processing units.

Sasol is proposing similar projects in the US and Uzbekistan, but Canada is the only country to have an upstream component. Nel said the company’s share of Talisman’s production would act as a “hedge” against price volatility and fits with the company’s integrated strategy.

At a petrochemicals conference in the Rocky Mountain retreat of Kananaskis, Nel said a site had been selected, but teased delegates as to the exact location.

More than likely, it will be located close to Alberta’s capital city of Edmonton, which is already a refining hub and the operational heart of the country’s service and supply sector.

The region has experienced seasonal shortages of diesel fuel as activity ramps up in its oil-sands regions, and is a natural market for synthetic fuels. Sasol would supply a high cetane fuel, with no sulphur or aromatics, meeting the EU’s Euro 5 specification. Byproducts like naphtha are used as diluent agents for heavy crude oil that is shipped to the pipeline hub at Hardisty, 200 kilometres southeast of Edmonton.

Despite the pressing immediate need, Nel said Sasol was committed to building a permanent presence that allows it to capitalise on the North American gas boom. “This is not about making a quick buck, this is about a long-term strategy.”

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