JERSEY CITY, N.J. – Close to 80,000 barrels per day of high quality gas-to-liquids derived base stocks may come to market in 2010 as originally announced, or may be delayed until 2015, two consultants said, and every base stock buyer and seller needs two business plans to cope with the sharp differences between those scenarios.
Speaking at the ICIS Pan-American Base Oils & Lubricants Conference here on Dec. 1, Amy Claxton, principal of My Energy, Hummelstown, Pa., and William Downey Jr., vice president of the petroleum and energy practice at Kline & Co., Little Falls, N.J., gave a joint presentation on the outlook for GTL base stocks.
According to Kline and My Energy, Claxton said, there are some things we are certain about. GTL plants will be built in Qatar and likely elsewhere, so there is no need for a no GTL plants scenario. And GTL plants in Qatar will have lube plants, so there is no need for a no GTL lubes scenario.
Other grassroots lube plants are under construction in Asia, she continued, so there will be a period of base oil oversupply. But the near future could bring that massive new supply of GTL stocks by 2010, or the largest plants could be delayed to around 2015, and the lube industry needs to be prepared for either scenario.
Claxton highlighted changes in the GTL base stock world in the past year. The first thing that has changed, she said, is Qatar Petroleum is limiting who can play in the GTL sandbox.
With 910 trillion cubic feet of natural gas reserves, Qatar is third only to Russia (with 1,688 tcf) and Iran (970 tcf). The companies to which Qatar Petroleum gives access to its gas reserves provide 100 percent of the capital, but are allowed to book the reserves. Qatars two gas companies are QatarGas, an agreement among Qatar Petroleum, Total, ExxonMobil, Shell and others, and RasGas, a Qatar Petroleum and ExxonMobil venture.
From 2000 to 2004, Claxton said, six GTL projects were announced with Qatar Petroleum: Sasol Oryx, Sasol Chevron, Shell Pearl, ConocoPhillips, ExxonMobil and Marathon. But the feed requirements of these six plants exceeded 8 billion cubic feet per day, or two thirds of Qatars current production. In other words, said Claxton, gas reserves were over-committed between GTL, liquefied natural gas [LNG] and pipeline projects.
As a result, Qatar deferred three of the GTL projects in 2005, leaving just Sasol Oryx, Shell Pearl and ExxonMobil to move forward.
The second thing that has changed in the GTL world is the cost and complexity of GTL versus other options for monetizing Qatars gas reserves, Claxton said. Costs are massive and rising for all projects, but GTL plants started later and are the hardest hit with new contract terms. In addition, it takes three times as much gas to get a barrel of liquid using GTL technology compared to liquefied natural gas. GTL takes more gas, and product values are linked to crude prices, so a high gas price relative to crude makes GTL less attractive.
Finally, the cost of intellectual property and technology licensing for GTL is high and growing, Claxton said. For example, in the past year Syntroleum and ExxonMobil got into patent issues; Syntroleum is now paying ExxonMobil for technology. And in the patent courts theres a slug-fest now between ExxonMobil and Shell over GTL patents.
There are two possibilities in the GTL world, Claxton concluded. The three announced Qatar plants could be built on schedule: two 8,000 barrel per day base stock plants, Oryx I and II, added to the Sasol plant next year; Shell Pearls announced 30,000 b/d base stock plant in 2009; and ExxonMobils 30,000 b/d base stock plant in 2011. That would add 70,000 to 80,000 b/d of GTL lubes to the worlds supply by 2010 to 2011.
The other thing that could happen is the three plants are built, same plants and same volumes, but Shell and/or ExxonMobil are delayed, Claxton said.
Klines Bill Downey described the different impacts of the GTL plants coming on in 2010 vs. 2015. If significant production of GTL base stocks is delayed to 2015, he noted, one major difference is that more API Group III plants will be built. Kline expects that about 50,000 b/d of new Group II/III capacity will be added before 2010, including GS Caltex with 15,000 b/d and Neste-BAPCO with 7,700 b/d in 2007; SK-Pertamina (7,300 b/d) and Petronas (6,500 b/d) in 2008; and Indian and other projects coming on from 2008 to 2010.
Refinery investment strategies, particularly for the majors, is another difference, Downey said. Noting that 60 percent of North Americas paraffinic base oil capacity is plants that are more than 20 years old, and estimating five years of maintenance on one old plant at $60 million to $80 million, Downey said some refiners will be faced with the choice between shutting down or upgrading.
The arrival of GTL in 2015 will postpone the likely use of GTL for brand positioning by top-tier lubricant brands such as ExxonMobils Mobil 1, Shells Helix and others. Given that two of the companies with global top-tier brands also have equity positions in GTL plants, we expect there would be brand positions that emerge based on GTL, Downey said.
GTL in 2015 could also slow the advancement of specifications in the light-duty and heavy-duty engine oil markets. We find that OEMs take a very pragmatic approach with lubricant product specifications, Downey explained. We think OEMs see GTL as another advance in what is practical, that is, possible in a cost effective manner, that will allow them to speed up product introduction and specification development when it is introduced.
On the other hand, if significant volumes of GTL base stocks arrive in 2010, there will be less demand, and specifically less high-performance demand, for it to satisfy. Kline projects global base stock demand to grow by nearly 60,000 b/d between 2010 and 2015. The early arrival of GTL will also mean shorter lives for Group I and Group III plants, and shifts in regional balances and regional export patterns, with the Middle East becoming a more important supply point.
Given what we know about the GTL world, all base stock buyers and sellers need two business plans, Downey concluded. The plan focused on GTL in 2010 must address far less demand, both in terms of barrels and performance; reformulation by the majors sooner; shorter lives for Group I and III plants; and the growing importance of supply from the Middle East.
The other plan focused on GTL in 2015 must address more Group III plants built in Asia; a different rate of specification changes from the OEMs, looking at what can be done with Group III rather than GTL; and your own and competitors positioning of brands. And, Downey added, if you have a Group I plant, what to do about five years of maintenance investment?