Pearl, the GTL joint development between Qatar Petroleum and Shell in Qatar, is expected to begin making and shipping base stocks as early as August. Discerning exactly how and when those base stocks will influence the market is difficult since the owners remained tight-lipped about the project as this issue went to press. Even so, industry observers said there is little doubt that the project will have a significant effect on base stock prices. It also appears likely, they said, to contribute toward advances in lubricant quality.

Big Splash

First announced in 2003, the overall Pearl project is designed to be the largest GTL refinery in the world. The project uses offshore wells to extract natural gas from Qatars enormous North Field then pipes the gas 60 kilometers to Ras Laffan Industrial City where it is processed into fuel and a variety of other petroleum products. According to Shell, the project is wrapping up with a price tag between U.S. $18 billion and $19 billion. Originally, Shell expected the plant to cost $5 billion and to open by 2009.

Earlier this year the partners announced the start-up of several phases – including natural gas flow in March and the first sold shipment (gasoil) in June. Shell said previously that the base stock plant would begin operating this year, but the company has recently refused to narrow the timeline. In the spring, however, Shell issued a request for bids to ship Pearl base stocks beginning 1 August.

Its clear that this signals the start-up of production and beyond that that commercial production is beginning, said one base oil trader, who asked not to be identified. This timing also makes sense given what weve seen about the start-up of other [Pearl] units.

Shell and Qatar Petroleum declined to answer questions for this article.

Whether Pearl represents an industry first depends on ones definition of what constitutes a base oil plant and what constitutes commercial scale. Shell has long emphasized that it already operated a GTL base oil plant – a facility that opened in Bintulu, Malaysia in 1993. Bintulu is a small refinery, with capacity to make just 14,700 barrels per day of oil petroleum products. Among those products are waxy raffinates, some of which are further processed into base stocks, although that processing takes place at other refineries.

Its not clear whether the industry has access to those base stocks, which Shell refers to as Extra High Viscosity Index, or XHVI stocks. Industry sources contacted for this article said they believe Shell uses virtually all of those fluids in the blending of its own lubricants.

The Pearl base oil plant, in contrast, is designed to be the worlds third largest, ranking behind only Motivas 2.1 million-ton-per-year plant in Port Arthur, Texas, United States, and S-Oils 1.6 million-ton plant in Onsan, South Korea. The Pearl plant has two equally sized production trains with combined capacity of 1.3 million t/y. Shell says the second train will open next year.

The plant will produce three different viscosity grades – 3, 4, and 8 centiStoke. The lightest grade falls into the category of API Group II oils, while the other grades are Group III. Shell, which has provided all of the funding for the project, has responsibility for disposing of the base stocks.

Destination Unknown

So at the very least, Pearl is the first commercial scale GTL plant to make finished base stocks. It also appears that the industry is more likely to get access to these oils. Shell has remained tight-lipped about its plans for them, leading to much speculation about whether the company will keep them in-house or sell them on the open market. Its a question of whether the company wants to focus on its base oil business or its finished lubricants.

On one hand, Shells request for bids suggests the company is positioning itself to sell at least some of the base stocks. It states that the company needs a shipping company that can transport between 5,000 and 40,000 tons per month to each of three regions – East Asia, the Americas and Northwest Europe. It goes on to identify seven specific destinations: Hamburg, Germany; Hong Kong; Singapore; Port Klang, Malaysia; Houston; Freeport, Bahamas; and Rotterdam and Antwerp, Netherlands. Shell has lubricant blending facilities in most of those locations, but Antwerp and Rotterdam have extensive terminals and are popular base oil distribution sites.

On the other hand, several sources said they have seen no signs of Shell giving samples of GTL base stocks to lube blenders. This is normally a prerequisite for outside sales since potential customers prefer to test formulations before deciding whether to purchase.

We are hearing that [Shell] will be using most of the material from the first train in house, except perhaps some light grades which may be marketed. said Daniel Iannuzzi, of Feedco S.A., a base oil and chemicals trader based in Geneva, Switzerland. Many blenders who we know are awaiting samples, but so far they have not been provided.

If Shell is inclined to keep the new base stocks in house, it will not be able to do so once the second production train opens, observers said.

Keeping the output from both trains in-house may prove a formidable task, said Stephen B. Ames, principle of SBA Consulting in Pepperpike, Ohio, U.S. There is likely to be more 3 cSt than currently fits in Shells product portfolio. There could also be problems using all of the 4 cSt base oil in their formulations; there may be too much viscosity index to meet the viscosity limits of their product sales profile.

Big Volume, Big Impact

Even if Shell does wait until next year to release barrels onto the market, the plant will make a significant impact on the market as soon as it ramps up production. Lubricant production is growing slowly if at all worldwide, which means that base oil demand is relatively flat.

If Shell uses that oil itself, that means it wont go out and buy from other sources, so that will free some volume for other buyers, said Olivier Couturier, a lube industry consultant in Paris. He added, however, that the global base stock market is tight at the moment, especially availability of Group III oils. This could not happen at a better time for the market, because there is a strong shortage of Group III right now. The market needs new volume.

Many expect that Pearls effects will go beyond the volume it adds to the industry. Based on Shells statements, the quality of the stocks will also be impressive. The 4 and 8 cSt oils will all have exceptionally high viscosity indices of 135 or more – higher than most Group IIIs currently on the market and approaching polyalphaolefins. High VI contributes to longer service life for automotive and industrial lubricants. Shell says Pearl base stocks will also have exceptional low-temperature characteristics, helpful for lubricants that are exposed to extreme cold.

A surfeit of quality should ultimately enable original equipment manufacturers and advantaged marketers to raise the bar on specifications, Ames said. For an example, he cited GMs latest engine oil specification – Dexos, which represented significant upgrades from its predecessor spec. Certainly GM [made such improvements] with Dexos, and Shell took advantage by securing the initial fill business.

The unknown was the only caveat that sources cited about the quality of Pearl base oils. Several said they were not aware of any third-party trials having been performed.

I think everyone expects that they will be very high quality, Couturier said. But I dont know how the additive companies are reacting to them, or even if they have had a chance to try out formulations.

Experts knowledgeable about the technology have said that GTL plants have low cost basis compared to conventional base oil refineries. Theoretically that means Shell could sell Pearl base stocks at prices that compete with Group II oils. Sources who commented for this article said that in all likelihood the company will charge as much as it can. Under current market conditions, they said, that probably means prices that are comparable or above Group III prices. They could also offer lower-priced competition for PAOs in some applications.

Long Time Coming

The lubricants industry has waited a long time for significant volumes of GTL base stocks. The ability to process natural gas into liquids was first developed in the 1920s by German scientists Franz Fischer and Hans Tropsch. Their method, which became known as Fischer-Tropsch, consisted of a series of reactions that turned gaseous carbon monoxide and hydrogen into liquid hydrocarbons and water.

For the next several decades, the technology was used only rarely – mostly by countries that had scarce oil resources but which were rich in natural gas or coal and which had difficulty importing fuel. Germany used it during the Nazi era, and South Africa when it faced international sanctions over apartheid.

In the early 2000s, it appeared that GTLs time was approaching. Industry analysts said the technology was becoming more economically viable as oil prices rose and as stranded natural gas reserves grew. The trend toward cleaner diesel fuel also helped since it was expensive to make clean diesel from conventional refineries. By the middle of the decade, Shell, ExxonMobil, Sasol-Chevron, ConocoPhilipps and Marathon all had plans to build GTL refineries in Qatar – which has among the worlds biggest natural gas reserves – and several of those projects included base stock plants.

Within a few years, however, all but the Shell project were dropped, partly because Qatar became cautious about over-committing its gas resources. In addition developments in the production of liquid natural gas improved the attractiveness of going that route to harvest natural gas rather than GTL.

Industry insiders are divided about the probability of more GTL base stock plants coming to market. Some find it likely, given the growing drive to harvest natural gas reserves; as the number of gas projects rises, so do the chances that some of them will use GTL technology and that some GTL projects will include base stocks. Amy Claxton, principal of MyEnergy consultancy in Hummelstown, Pennsylvania, U.S., predicts a future rash of coal-to-liquids projects and says that these could produce base stocks equivalent to GTL plants.

Others say the energy industry has passed by GTL due to developments in liquid natural gas. They say the Pearl base stock plant could end up being one of a kind.

In either case, observers expect Pearl to make its mark on the lubricant industry, even if the exact nature of that mark is not yet evident.