The nation is flooded with natural gas. For the last twelve months, the amount of gas available to the market exceeds five-year averages. With more gas than anyone can use, producers are now looking for new consumers. Two new opportunities have emerged and one could disrupt the nation’s economy in some very positive ways.
Less than five years ago it looked like North America’s natural gas market was going to become highly dependent on foreign imports. Anticipating a growing need to offset declining natural resources, investors built eleven liquefied natural gas (LNG) import terminals along the east coast and the Gulf of Mexico. Seven more were approved by federal regulators. But during the last 12 months, very little LNG was imported.
Now, as many in the industry know, the rush is to export LNG.
Today, ConocoPhillips owns the nation’s only LNG export facility. It’s located in Alaska and it is scheduled to retire this year. It is not clear if ConocoPhillips will be able to continue operating this 45-year old facility.
Additional export facilities are planned. First in line is Sabine Pass, an import terminal located in Louisiana, which is owned by Cheniere Energy As of today, Sabine Pass is the only facility approved by the Federal Energy Regulatory Commission (FERC) to export LNG.
Dominion Resources, BP and ExxonMobil are studying opportunities and strategies to export. Some are examining the possibility of converting existing facilities to recover stranded assets. Others are looking at greenfield sites.
Complicating the analysis is the realization that other countries are discovering shale gas. Some of those are also considering exporting LNG. With growing supplies and declining demand, market prices could fall and projects may be shelved.
From LNG to GTL
But the disruptive technology is not LNG. The disruptive technology converts natural gas to gasoline, diesel and jet fuel. Yes, it is possible to make gasoline from natural gas.
The conversion process is called gas-to-liquids (GTL). The technology was proven during WW II and proven again in a $20 billion facility recently built for Qatar and Shell Today, that GTL facility processes 1.6 billion cubic feet of natural gas to deliver 120,000 barrels per day of fuels.
Now South African’s Sasol Limited wants to build GTL facilities in Canada. They are conducting feasibility studies to determine the economic viability of Canadian shale gas to produce gasoline and jet fuel. Given the substantial difference in costs between natural gas and petroleum feedstocks, it appears GTL is economically viable in Canada.
GTL may also work in the United States. Indiana-based Calumet Specialty Products Partners recently announced plans to build a 1,000 barrel per day GTL plant in Karnes City, PA. Calumet’s GTL technology is provided by London-based Oxford Catalysts.
The potential of GTL technologies is substantial. GTL fuels could help the nation achieve energy independence and energy security. Up to now, the single largest sector limiting energy independence has been transportation fuels.
Fueling Up With Natural Gas
Natural gas has always been considered an option to replace petroleum. Many, like T. Boone Pickens, envisioned fleets of natural gas vehicles that would replace conventional buses, trucks and cars.
But having the nation transition to natural gas vehicles will require building all new infrastructure, which would duplicate existing distribution, storage, and gasoline stations. Thousands of compression, liquefaction and storage stations would be needed across the nation.
Some of this build out is already underway. Pickens-backed Clean Energy Fuels is already building LNG/CNG refueling stations for cross-country trucking. Westport Innovations is developing truck engines and fuels systems to use LNG. Honda already offers a natural gas-powered Civic. Many urban buses already use CNG as fuel.
But the capital costs to build national systems to support natural gas vehicles are substantial. Worse, because LNG and CNG’s energy density is relatively low, fuel tanks in automobiles and trucks must be enlarged and ranges shortened. From the consumers’ point of view, it may not be worth it.
Enter GTL. Like the natural gas vehicle strategy, domestic natural gas is used as the feedstock. But no other changes are needed to the nation’s distribution, storage or fuel dispensing systems. Engine modification is limited. To the consumer, the switch is mostly effortless and invisible.
Of course, GTL technologies will require substantial capital investments to build GTL conversion facilities. But some of those expenses are offset by reduced refining costs.
Natural gas has the potential to transform North America. If supplies of natural gas are as plentiful as experts suggest, energy independence is achievable. Not only can the nation become energy independent, it can export surplus natural gas and distillate products to other nations.
At the time of publication, Glenn Williams had no position in any of the stocks mentioned.