First U.S. Natural Gas-to-Liquids Plant

The U.S. shale boom and the cheap natural gas it has yielded has opened up the possibilities for drillers and producers alike.

The Federal Energy Regulatory Commission is reviewing a number of proposals for liquefied natural gas export facilities. Clean Energy Fuels Corp. (NASDAQ: CLNE) is constructing a network of natural gas fueling stations for trucks along major U.S. highways. Coal-fired power plants have switched over to natural gas as the price remains low.

But the start to the glut came much faster than anyone could anticipate. Infrastructure was severely lacking.

Now it’s starting to pick back up again, as pipeline construction moves the resource from wells to refineries and fueling infrastructure ramps up demand for natural gas-fueled trucks and fleets.

And earlier this fall, South African company Sasol Ltd. (NYSE: SSL) announced it would further this infrastructure expansion by building the nation’s first natural gas-to-liquid fuel plant.

Sasol, based in Johannesburg, is not new to these plants; it owns similar ones in South Africa and Qatar. The U.S. plant, however, is set to be much bigger—the second largest in the world.

The “gas to liquids” (G.T.L.) plant will be constructed in Westlake, Louisiana, close to the Texas shale deposits. It will begin as a chemical plant that will later be expanded to include the gas-to-liquids facility and a refinery.

From the New York Times:

“By incorporating G.T.L. Technology in the USA’s energy mix,” David Constable, Sasol’s chief executive, said in a statement, “states such as Louisiana will be able to advance the country’s energy independence through a diversification of supply.”

The focus will be converting natural gas into diesel, jet fuel, and other chemicals. The plant will have a 96,000 barrel-per-day capacity, and the chemical portion will cost between $5 and $7 billion while the G.T.L. portion will cost an additional $11 billion to $14 billion.

Sasol had initially estimated costs around $8 billion for the project when it was announced in September, but it’s now decided to construct the plant in two phases and upgrade 30% of the liquids to “high value chemicals,” MarketWatch reports.

The company estimates an operational date between 2018 and 2019 considering the new two-phase plan.

It will receive over $2 billion in tax credits and state incentives. Sasol has said the project will create 1,200 permanent jobs and 7,000 at peak construction.

The plant will be second in size only two Royal Dutch Shell’s (NYSE: RDS.A) Pearl plant, built in Qatar in conjunction with Qatar Petroleum. The project ended up costing $19 billion—three times what the companies had estimated—and is fraught with problems.

So though the construction of these types of plants would help boost the low prices and benefit exploration and production companies, they’ve been slow to get off the ground.

From the New York Times:

“If you didn’t have cost overruns, and if you didn’t have maintenance unscheduled downtime, if everything worked perfectly, then G.T.L. plants look pretty good on paper,” said Don Hertzmark, an international energy consultant who has worked on gas-to-liquids and other natural gas projects for 30 years. “These plants are only economic with very low gas prices.”

Prices right now, Hertzmark said—natural gas around $3.60 and diesel over $4—have the potential to make the G.T.L. plant profitable. But it’s only at this level—and with today’s high production levels—that will keep it viable.

Sasol was down 1.30% to $41.80 on Monday afternoon after announcing the increased price tag of the project.

That’s all for now,

Brianna Panzica

@brianna_panzica on Twitter

Energy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.