The dawn of the gas age has made GTL an interesting prospect for those seeking to profit from the age of expensive oil. Technology Review has a look at a new technique for turning natural gas into liquid fuel - Chasing the Dream of Half-Price Gasoline from Natural Gas.

At a pilot plant in Menlo Park, California, a technician pours white pellets into a steel tube and then taps it with a wrench to make sure they settle together. He closes the tube, and oxygen and methane—the main ingredient of natural gas—flow in. Seconds later, water and ethylene, the world’s largest commodity chemical, flow out. Another simple step converts the ethylene into gasoline.

The white pellets are a catalyst developed by the Silicon Valley startup Siluria, which has raised $63.5 million in venture capital. If the catalysts work as well in a large, commercial scale plant as they do in tests, Siluria says, the company could produce gasoline from natural gas at about half the cost of making it from crude oil—at least at today’s cheap natural-gas prices.

If Siluria really can make cheap gasoline from natural gas it will have achieved something that has eluded the world’s top chemists and oil and gas companies for decades. Indeed, finding an inexpensive and direct way to upgrade natural gas into more valuable and useful chemicals and fuels could finally mean a cheap replacement for petroleum.

Natural gas burns much more cleanly than oil—power plants that burn oil emit 50 percent more carbon dioxide than natural gas ones. It also is between two and six times more abundant than oil, and its price has fallen dramatically now that technologies like fracking and horizontal drilling have led to a surge of production from unconventional sources like the Marcellus Shale. While oil costs around $100 a barrel, natural gas sells in the U.S. for the equivalent of $20 a barrel.

But until now oil has maintained a crucial advantage: natural gas is much more difficult to convert into chemicals such as those used to make plastics. And it is relatively expensive to convert natural gas into liquid fuels such as gasoline. It cost Shell $19 billion to build a massive gas-to-liquids plant in Qatar, where natural gas is almost free. The South African energy and chemicals company Sasol is considering a gas-to-liquids plant in Louisiana that it says will cost between $11 billion and $14 billion. Altogether, such plants produce only about 400,000 barrels of liquid fuels and chemicals a day, which is less than half of 1 percent of the 90 million barrels of oil produced daily around the world.

The WSJ reports that South African coal to liquids company SASOL is looking to build a GTL (gas to liquids) plant in Louisiana, using the (at least currently) cheap supply of shale gas as feedstock - Gas-to-Liquid Site May Hit $10 Billion.

Sasol Ltd., a chemical company long known for squeezing motor fuel out of coal, is now turning its sights on the glut of natural gas in the U.S.

South Africa-based Sasol on Tuesday announced plans to build a plant in Louisiana, at a cost of up to $10 billion, that would convert natural gas into diesel fuel for trucks and other vehicles.

The company's board last week approved an 18-month feasibility study for the project, which would be constructed on land adjacent to Sasol's existing chemical facility in Calcasieu Parish, La.

If given the final go-ahead, the plant would be the first in the U.S. to use "gas-to-liquids" technology. Once seen as futuristic, the technology has gained traction in recent years as discovery of gas supplies have outpaced that of oil.

"The initial numbers look positive," said Ernst Oberholster, Sasol's managing director of new-business development, who stood alongside Louisiana Gov. Bobby Jindal at the company's Louisiana complex when the decision was announced.

What makes the U.S. an attractive location for such a project is the low level of natural-gas prices in the country. Benchmark futures have hovered between $3 and $6 per million British thermal units for two years, well below prices paid by consumers in Europe and Asia.

Sasol would buy the natural gas from suppliers using long-term contracts, convert the gas to liquid fuel and then sell that fuel to blenders, who wouldthen sell it for the open market.

The project is the latest to address what to do with a surplus of natural gas caused by the boom in drilling in shale-rock formations in places like Texas and Pennsylvania. Energy investor T. Boone Pickens and natural-gas producers such as Apache Corp. have promoted the use of natural gas as a road-transportation fuel, one that would be cleaner burning than oil-based alternatives. In addition, some companies have put forward plans to export gas out of the U.S. in cool-liquefied form.

Sasol's idea is one of the most ambitious, because it would essentially put natural gas on par with higher-priced crude oil as a key raw material for transportation fuels. And diesel prices trickle down into the cost of consumer goodseverywhere because the fuel is mainly used in trucking. So far this year, retail diesel prices in the U.S. are up 16%, even as the economy grows more fragile.

Sasol officials estimate that a plant producing 96,000 barrels a day of diesel, and some jet fuel, would cost $10 billion to construct. They say they could opt for a smaller facility, however.

By converting natural gas into a liquid, the fuel could be used without retrofitting vehicles or creating new fueling infrastructure, an issue that would affect motorists using compressed natural gas as Apache and Mr. Pickens have advocated. The proposed site in Louisiana is close to Gulf Coast natural-gas fields and is crisscrossed by pipelines that could be easily linked to a new facility, Mr. Oberholster said.

Bloomberg reports that Shell's gas to liquids plant in Qatar has commenced operation - Shell Aims for ‘New Nigeria’ as Qatari Plant Starts.

Royal Dutch Shell Plc spent $19 billion to build the world’s largest gas-to-liquids project, triple the original estimate. Now, it’s pay-off time and the plant may generate $6 billion a year for the company and Qatar.

Shell needs the plant, known as Pearl, to bolster output, which fell for a seventh year in 2009 in part because rebel violence hampered oil ventures in Nigeria. Qatar, the arid Gulf state that’s become the biggest exporter of gas on ships, may account for 10 percent of the company’s production after Pearl and a liquefied natural gas project start deliveries next year.

Shell’s work in Qatar is “like creating a new Nigeria,” Andrew Brown, the company’s executive vice president for the country, said in an interview in the capital, Doha. Pearl will begin processing gas toward the end of this year and start delivering fuel in early 2011, he said.

Stuart Staniford at Early Warning has a post on the state of play for gas-to-liquids projects around the world - Gas-to-Liquids Production Statistics.

Continuing this little series on production stats for various forms of alternative liquid fuels, this morning I look at Gas-to-Liquids (GTL). This is a process in which:

Gas to liquids is a refinery process to convert natural gas or other gaseous hydrocarbons into longer-chain hydrocarbons such as gasoline or diesel fuel. Methane-rich gases are converted into liquid fuels either via direct conversion or via syngas as an intermediate, for example using the Fischer Tropsch process.

After researching it, there seems little hope of obtaining actual production statistics for this process globally, but we can get pretty close just from research on plant capacity and opening dates. The graph above summarizes the situation. There are three plants globally operating GTL processes at commercial scale, and together they sum to less than 100,000 barrels/day.

The longest standing plant is at Mossel Bay in South Africa, operated by PetroSA since 1987 (I assume this is another legacy of apartheid sanctions) which has a 36kbd output capacity.

In 1993, Shell began operating a small plant in Bintalu, Malaysia, and increased its capacity in 2005 (from 12.5kbd to 14.6kbd).

Most recently, Sasol and Qatar Petroleum brought on stream the Oryx plant in Qatar. This had a difficult start up, but is now apparently operating at the designed 34kbd capacity.

There are also other plants under construction: the 120kbd Pearl GTL plant in Qatar, and the Escravos plant in Nigeria. Both hope for production in 2010, but given the history of difficulties with GTL plant startup we should probably reserve judgement.

There were many more plans for GTL plants around the year 2000, but most went under. A helpful National Petroleum Council study report explains ...

Start also has a post on coal to liquids - Coal-to-Liquids Production Statistics.

So, in today's adventure in much-harder-to-find-than-they-should-be energy statistics, I try to assemble some kind of series for global production of synfuel from coal-to-liquids (CTL). This went even worse than the tar sands. However, I think I have figured out the big picture, and I report my findings here for the benefit of future energy sleuths, or in the hope that someone will point me at better data if it exists.

Firstly, for the sake of readers just getting up to speed, what we are talking about is the possibility to use various kinds of chemical transformations to make a petroleum-like liquid fuel from coal. See the Wiki entry on coal liquefaction for more details of the various possibilities. This was done most famously by the Germans during World War II, and has been done for a long time in South Africa; the South Africans needed to get around economic sanctions during the Apartheid era, and that country has a lot of coal and not much oil. Since there are huge amounts of coal underground around the world, CTL is often cited as a potential substitute for oil in future (generally by folks not worried about climate change).

There are at present two plants in the world operating coal liquefaction processes at commercial scale. The first is operated by Sasol in South Africa and has been operating for a long time. The second has just been opened last year by Shenhua in China. ...

Overall, the picture seems to be that South African production of CTL synfuel has been roughly flat for many years. There are some fluctuations, but there is certainly not an overall upward trend.

The data situation for the new plant in China is even sketchier. According to this page, the capacity of the plant is 1 million tonnes per year, which is about 1/7 of the output of Sasol in South Africa. It reached full production some time in mid 2009, so there would not have been a full year of production in 2009. Thus, at this time this represents a rather small increase in total global production of coal to liquids - perhaps of the order of 5-10%, with a little more coming in 2010 with, I assume, a full year of operation. Shenhua does have plans to increase the plant capacity to 3Mt in the future, which would give another increase when that occurs.

Amusingly, the CTL plant is located in a place we have already referenced on this blog: Ordos.

Energy Minister Martin Ferguson reports that Linc Energy's coal to liquids (or more accurately UCG - underground coal gasification - then GTL - gas to liquids) demonstration plant has opened in Queensland - Coal-to-liquids demonstration plant opens.

The Minister for Resources and Energy, Martin Ferguson AM MP, has launched the world's first coal-to-liquids demonstration plant to use Underground Coal Gasification (UCG) technology.

Linc Energy's demonstration plant near Chinchilla in Queensland is producing clean synthetic diesel and jet fuel from gas sourced from deep underground coal reserves. First production was achieved on 14 October 2008.|

Minister Ferguson said: " Australia is coal and gas rich, with hundreds of years of reserves. Technologies that convert coal and gas to ultra-clean diesel and jet fuel have the potential to replace Australia's declining oil reserves and make us self-sufficient in liquid transport fuels once again.

"A domestic synthetic fuels industry would reduce - and maybe even one day remove - our growing trade deficit in petroleum products which last year grew to almost $15 billion."

Minister Ferguson said: "This technology unlocks energy from Australia's significant stranded and uneconomic coal reserves and has the potential to dramatically reduce Australia's dependence upon imported oil and refined products." ...

Minister Ferguson said: " Australia has enormous potential as a coal-to-liquids producer and an economically viable and environmentally sustainable coal-to-liquids industry would not only increase Australia's energy security, but also provide jobs, exports, revenue and economic growth, particularly in regional communities.

"Similarly, gas-to-liquids could open up new opportunities for development of Australia's vast northwest gas resources and east coast coal seam methane resources, complementing the potential of Australia's well-established LNG industry."

With coal seam gas being all the rage up north I was unsurprised to see an ABC report today saying that a company is planning to build a (coal seam) gas to liquids plant (not a rebranded coal to liquids project like Linc's) - Big diesel plant earmarked for southern Qld.

Pacific GTL has announced plans to build a major diesel manufacturing plant in southern Queensland. Construction of the Sunstate project, between Chinchilla and Miles, could begin as early as next year, employing up to 1000 people.

Mayor Ray Brown says it will produce 17,000 barrels of diesel a day from coal seam methane gas. "It's a substantial industry to our region and the first of the value adding type industries," he says. "Their idea is to utilise that diesel within about a 200-kilometre radius of Miles and I think that's very good news."

The Australian somewhat misleadingly reports that Linc Energy's UCG plant has started producing fuel, using what it calls a GTL (gas to liquids) process instead of the CTL (coal to liquids) process that it actually is - Linc shares spike on GTL news.

LINC Energy has started producing fuel at its gas-to-liquids project in Queensland, a world first according to the company. The project at Chinchilla involves the introduction of underground coal gasification (UCG) synthesis gas into a reactor that then produces high quality synthetic fuel.

Chief executive Peter Bond said his team had been working towards the gas-to-liquids (GTL) goal for the past two years. “Linc Energy has now proven that it can produce liquid fuels from UCG gas. This process provides the potential for billions of tonnes of stranded coal resources to be converted into transport fuels in an environmentally acceptable way,” he said. “And when you think that each tonne of coal equates to approximately 1.5 barrels of fuel, the potential of what Linc Energy has achieved today is simply enormous.” ...

Linc will continue to operate its GTL demonstration facility and use the experience gained to assist with finalising the engineering scope for the company’s proposed 20,000 barrel per day commercial facility, which is planned for commencement of construction in the next 12 months.

The company’s quest to spread its UCG technology around the world has also gained momentum. Vietnam's largest coal producer, Vinacomin, has signed a business cooperation contract with the Queensland gas-to-liquids hopeful and Japan's Marubeni Corp to extract gas from Vietnam's Red River Delta Basin The companies will start gas production on a trial basis from early 2009 using Linc Energy’s UCG process.

Tyler Hamilton has an article in Technology Review looking at a new, efficient gas to liquids (GTL) process - Natural Gas to Gasoline. What does this mean from a peak oil point of view ? Most likely that we have a higher "total liquids" peak but that it occurs sooner than it otherwise would.

A Texas company says that it has developed a cheaper and cleaner way to convert natural gas into gasoline and other liquid fuels, making it economical to tap natural-gas reserves that in the past have been too small or remote to develop.

The company behind the technology, Dallas-based Synfuels International, says that the process uses fewer steps and is far more efficient than more established techniques based on the Fischer-Tropsch process. This process converts natural gas into syngas, a mixture of hydrogen and carbon monoxide; a catalyst then causes the carbon and hydrogen to reconnect in new compounds, such as alcohols and fuels. Nazi Germany used the Fischer-Tropsch process to convert coal and coal-bed methane into diesel during World War II.

A Synfuels gas-to-liquids (GTL) refinery goes through several steps to convert natural gas into gasoline but claims to do so with better overall efficiency. First, natural gas is broken down, or "cracked," under high temperatures into acetylene, a simpler hydrocarbon. A separate liquid-phase step involving a proprietary catalyst then converts 98 percent of the acetylene into ethylene, a more complex hydrocarbon. This ethylene can then easily be converted into a number of fuel products, including high-octane gasoline, diesel, and jet fuel. And the end product is free of sulfur.

"We're able to produce a barrel of gasoline for much cheaper than Fischer-Tropsch can," says Kenneth Hall, coinventor of the process and former head of Texas A&M University's department of chemical engineering. Hall says that a Fischer-Tropsch plant is lucky to produce a barrel of gasoline for $35 but that a much smaller Synfuels refinery could produce the same barrel for $25. Under current fuel prices, such a plant could pay for itself in as little as four years, the company says.

David Strahan has an excellent post on alternative fuels for the airline industry, highlighting the scale of the problem and pointing to some interesting fuel from algae experiments underway - Green fuel for the airline industry ? (hat tip Carbonsink).

If airlines are to have any chance of staying aloft in a post-peak, carbon-rationed world, they must quickly find an alternative fuel with low emissions that also matches the stiff technical standards of jet kerosene. Because planes have to lift their fuel into the sky and carry it for the entire journey, this fuel has to be energy dense. Because they fly at high altitude, it needs to remain fluid at -50 °C. Because they fly long distances, chemically identical supplies must be available all over the world. And because airliners have long lives, the new fuel must be compatible with the existing fleet. What’s needed, in other words, is an exact replica of old-fashioned jet kerosene – a so-called “drop-in” replacement – that also emits substantially less CO2 per unit of energy. “Meeting all these conflicting demands is a very tall order,” says Mike Farmery, global fuel technical and quality manager at Shell Aviation. “There are lots of exciting ideas, but it will be hard to achieve quickly.” So what are our alternatives?

Until recently it was widely thought that using biofuels like bioethanol or biodiesel in aviation was a non-starter. Scientists have known since the 1940s how to turn vegetable oil into biodiesel using a process called transesterification, in which the oil is processed using alcohol and an acid catalyst. This produces fuels that work well on the ground but not at altitude: the natural freezing point of such oils is too high, so they would congeal at 33,000 feet. They also contain too much oxygen, which adds weight but not energy content.

However, it now seems those technical problems have been cracked. Finnish oil company Neste has devised a way to produce an oxygen-free biodiesel called NExBTL, which could in theory be used to make jet fuel. Neste already has two plants manufacturing NExBTL and has another two in the pipeline.
Meanwhile in February 2008, airline Virgin Atlantic conducted a test flight using a biofuel made from coconut and babassu oil produced by Imperium Renewables, a Seattle-based company that has developed a patented method of reducing the freezing point. A second test flight with an Air New Zealand plane is planned later this year.

The problem with so-called first-generation biofuels – made using conventional fermentation and distillation procedures from wheat, say – remains the amount of feedstock and land required. During Virgin’s test flight from London to Amsterdam, the Boeing 747 consumed 22 tonnes of fuel, of which only 5 per cent was neat biofuel. Producing even that much required the equivalent of 150,000 coconuts, says Brian Young, Imperium’s director of international business development. Had this single flight been run entirely on biofuel, it would have consumed 3 million coconuts – an astronomical number that highlights the scale of the problem. However, Virgin and its partners Boeing and GE stressed that the flight was simply a “proof of concept”, and accepted that producing useful amounts of fuel would require “next generation” feedstocks: those made from non-food crops, waste biomass or by converting existing fuels to liquid form.

One option, which Virgin’s Richard Branson suggested at the launch of his airline’s test flight, would be to produce fuel from the nuts of Jatropha curcas. This hardy bush grows in the tropics on relatively poor land with little water or fertiliser, so it needn’t displace food production. However, the amount of land required to fuel the world’s jet planes would still be prodigious

Aviation currently consumes around 5 million barrels of jet fuel per day, or 238 million tonnes per year. On current Jatropha yields – 1.7 tonnes of oil per hectare – replacing that would take 1.4 million square kilometres, well over twice the size of France. To put this in context, D1 Oils, the British company pioneering biofuel from Jatropha in countries such as India, Zambia and Indonesia, plans to plant 10,000 km2 over the next four years.

If vegetable oil looks likely to remain in short supply, another approach would be to make jet fuel from plant material using the Fischer-Tropsch chemical process developed in Germany in the 1920s. Originally designed to produce synthetic diesel from coal, the Fischer-Tropsch process also works with a wide range of organic matter. The feedstock is heated without oxygen to create a synthetic gas that is then converted to high-quality liquid fuels using high temperatures and iron-based catalysts. This makes it possible to create a synthetic jet fuel that is indistinguishable from conventional kerosene. Depending on the feedstock, the fuel could in principle have very low carbon emissions and not compete with food production. Unfortunately, though, all the feedstocks have significant drawbacks.

For example, Fischer-Tropsch jet fuel is already produced from coal by Sasol in South Africa, and planes refuelling in Johannesburg get a half-and-half blend of kerosene and coal-to-liquids (CTL) fuel. The problem with CTL is that life-cycle emissions are roughly double those of kerosene, making CTL-powered aviation even more damaging to the climate.

The Fischer-Tropsch process also works with natural gas. Gas-to-liquids (GTL) jet fuel was tested by Airbus and Shell earlier this year. Well-to-wing emissions are lower than CTL, yet no better than conventional kerosene, because the Fischer Tropsch process itself consumes so much energy. According to Airbus’s rival Boeing, GTL jet fuel emits 1.5 times as much CO2 as kerosene.

The only realistic hope of producing Fischer-Tropsch jet fuel with substantially lower emissions is to use some form of plant material such as wood or straw as the feedstock – so-called biomass-to-liquids, or BTL – as championed by the German company Choren, which plans to start full-scale production by 2012. The company boldly proclaims a vision of “potentially infinite production of renewable energy”, but a closer look at the numbers suggests the real outlook will be more modest.

In a presentation at the World Future Energy Summit in Abu Dhabi in January, Choren CEO Tom Blades said the company’s BTL fuel could reduce greenhouse gas emissions by up to 91 per cent, and insisted it would not compete with food production. One reason for this is that a large proportion of the feedstock will come from waste construction timber and existing forestry – initially. However, Blades acknowledged that further BTL expansion would require increasing amounts of specially grown “energy crops” such as willow or miscanthus. Supplies of waste timber aren’t expected to grow, so within 10 years, more than half of Choren’s feedstock will need to come from energy crops, again raising the issue of land use.

Blades cites the EU’s Biomass Action Plan report of December 2005, which suggests that Europe has the potential to produce around 100 million tonnes of energy crops annually by 2030, and that total available biomass, including waste and forestry contributions, could amount to 315 million tonnes. Since Choren’s BTL process takes 5 tonnes of dry biomass to produce a tonne of fuel, this would produce just over 60 million tonnes of fuel per year. That sounds a lot until you remember that in 2006 the EU consumed more than 700 million tonnes of crude. “We’re not replacing oil,” Blades admits, “just making it last a little bit longer.”

In the context of global aviation, the numbers are even more daunting. Meeting today’s global demand for jet fuel from BTL would require – assuming the average crop yields 10 tonnes of biomass per hectare – nearly 1.2 million km2. That’s well over three times the size of Germany, and makes no allowance for the predicted rapid growth in aviation. On the same assumptions, replacing all current transport fuel with BTL would require more than 10 million km2 – an area bigger than China. This demolishes any claim that second-generation biofuels wouldn’t have to compete with food production.

The one remaining alternative for low-emission jet fuel that doesn’t compete with agriculture are algae, which can be grown in ponds of seawater built on non-productive land. Given the right conditions, some species multiply quickly and produce oil, which can then be extracted and refined. It is widely agreed that such a system could take up less space and deliver much higher yields than oil crops such as palm or Jatropha – although quite how much higher is still controversial.

The technology itself is not new. Ami Ben-Amotz, a senior scientist at Israel’s National Institute of Oceanography in Haifa, has been farming algae commercially for more than 20 years to produce beta-carotene food supplements for the Japanese market. In 2004 he founded a new company, Seambiotic, to produce algae for biofuel at a coal-fired power station on the coast at Ashkelon.

It is an undeniably neat arrangement. Warm water from the power station’s cooling system is diverted through the ponds before returning to the sea. Meanwhile flue gas from the station’s chimney supplies CO2 to feed the algae, and energy for pumping and harvesting is available at minimal cost. The harvested algae are then reduced to a concentrated paste and mixed with solvents to separate the oil, which can be turned into biofuel by transesterification. Seambiotic is delighted with the results and aims to complete a larger, 50,000-square-metre pond on the site by the end of the year. Ben-Amotz says that refineries could offer similar opportunities.

Algae have stirred up huge excitement, not only because they have the potential to help mop up CO2 emissions, but also because of the sheer amount of fuel they might produce. Shell, which is building a pilot facility in Hawaii, claims algae could be 15 times as productive as traditional biofuel crops. Boeing believes algae could produce 85 to 170 tonnes per hectare per year (10,000 to 20,000 US gallons per acre per year), yielding all the world’s jet fuel in an area the size of Belgium. Yet the scientists who have done most research into algae production look askance at such claims.

The fundamental problem, explains Al Darzins, who coordinates alga research at the US National Renewable Energy Laboratory in Golden, Colorado, is that although algae grow very quickly, most of their biomass is usually carbohydrate. To trigger a higher proportion of oil, you have to stress the algae in some way – starve them of nutrients such as nitrogen, say – which in turn limits their growth rate. As a result, Darzins thinks 42 tonnes per hectare is a more realistic target.

Chevron Australia has been in the news this week after announcing plans to develop a new LNG plant on the WA mainland to process gas from its Wheatstone discovery on the north west shelf. Interestingly, as well as feeding gas into the domestic network, they are considering developing a gas-to-liquids facility as part of the plant - which may slightly reassure those who look at both our trade deficit (in which imported liquid fuels are a major factor) and the possible impacts implied by the export land model.

Gas To Liquids

GTL projects have frequently been discussed over the years but there don't seem to be a lot of concrete examples, outside of some pioneering plants in South Africa and Malaysia and some large projects being developed by Shell and Sasol/Chevron in Qatar (which Qantas is apparently considering as a source of jet fuel). The Energy Blog has a good description of the GTL process and the players in the industry, for those interested in the technical details, and Robert Rapier has previously at TOD on the "Promise and the peril of GTL", quoting an estimate from Syntroleum that there is enough stranded natural gas to produce 300 billion barrels of fuel.

Wheatstone

The Wheatstone gas field is about 85 kilometres southwest of the Goodwyn platform of the North West Shelf project (180km offshore), with the two permits it encompasses containing an estimated 4.5 trillion cubic feet of natural gas. Chevron is talking about a single LNG production train producing five million tonnes of LNG per year (around a third of the size of Woodside's production at the nearby North West Shelf project) but has not given any indication of the volumes under consideration for the GTL option.

Nigel Wilson at The Australian has the most in-depth report on the development (and a shorter follow up article) - noting that while there has been speculation since 2004 that Wheatstone would be used for a gas-to-liquids plant, helping to offset Australia's ever-increasing dependence on imports, "few in the oil and gas sector believe Chevron will actually build an LNG plant based on Wheatstone".

The article goes on to speculate that it might make more economic sense to process Wheatstone gas at the North West Shelf facility as part of the development of Woodside's Pluto project, which would make a GTL facility highly unlikely, but that Chevron could be more interested in developing a standalone GTL plant than a small new LNG plant or sending the gas to the new Pluto LNG trains.

Chevron's LNG interests in Australia were seen as being its 50 per cent stake in the Gorgon project, which for more than a decade has been trying to commercialise Australia's biggest gas fields on the North West Shelf. In presentations to both the federal and West Australian governments recently, Chevron has been short on detail on what it wants to do with Wheatstone even though it has resolutely argued the reservoir will not be part of the supply for Woodside's $12 billion Pluto LNG development now under construction. ...

Chevron and its Gorgon partners, ExxonMobil and Shell, are in a bind. They want to commercialise some of Australia's best gas assets - ExxonMobil's contribution is the Jansz field, reputedly Australia's largest with an estimated 22 trillion cubic feet of gas - but the costs of the Gorgon LNG proposal are out of all scale to potential returns.

Gorgon is in the WA Government's books at $11 billion but that's a figure from several years ago. Now substitute a figure three times that for a plant that has a production licence for 10 million tonnes a year and the economics look more than a little shaky. Admittedly, Chevron has said it wants to know what environmental approval hoops it will have to go through to lift Gorgon from two trains to three and output up to 15 million tonnes a year, yet there seems little urgency in presenting the formal request to the WA Government.

And that's probably part of the problem concerning Wheatstone. For several years Chevron has talked expansively of its plans and has yet to deliver. That's why few in the oil and gas sector believe Chevron will actually build an LNG plant based on Wheatstone, even though that's what it is telling government it plans to do.

Wheatstone is about 85km southwest of the Goodwyn platform of the NW Shelf project but more than double that distance from the coast. As such, it looks logical that it should be tied into the gas reserves for the Shelf project, of which Chevron is one of the six joint venture partners, or tied to Pluto, which is only slightly further to the west.

For some years it has been reported that the gas available to the Shelf partners has been exhausted by their success in rolling over contracts with foundation customers in Japan, the $25 billion Guangdong deal in China and smaller commitments to Korea. This claim does not appear to take account of a number of small gas fields that are currently stranded on the Shelf. Having said that, any further expansion of the NW Shelf project would appear to be more commercially attractive than investing in a greenfield LNG operation virtually next door.

A similar argument evolves for Pluto where Wheatstone is regarded within the gas industry, if not within Chevron, as a possible supplier to the Pluto 2 plan, which Woodside's Don Voelte says is well into the planning stage. Pluto 2 would be located on the same site as Pluto 1 which Woodside is promoting as the Burrup LNG Park that Woodside says is being designed to process gas from Pluto as well as other regional fields.

There is also the view, not a million miles from Chevron's Perth headquarters, that that company does have to get some operational runs on the board. But why not gas to liquids or even domestic gas rather than the problematic returns from a small, stand-alone LNG plant?

At this point it is difficult to determine how much (if any) liquid fuel we could see flowing from Australia's offshore gas reserves, but the surge in LNG developments does raise the question, how long will Australia's gas reserves last and where will the gas go ? I hope to have a post up on this shortly.