Thursday, April 26, 2012

Shell is Pushing the GTL Envelope for Massive Profits

When the price of a commodity drops in the middle of a production glut, the smart money will find a way to turn the cheap commodity into something more valuable. That is what Shell is doing globally, with natural gas.
Shell is moving ahead with plans to build plants in the U.S. that could convert dirt cheap natural gas into high-valued diesel fuel, hoping to profit from an almost tenfold mark-up in prices that many analysts say is the biggest prize in the world of energy today.

With U.S. natural gas trading at the equivalent of $12 per barrel of oil, and crude oil at over $100 a barrel, the opportunity for profit is huge, but not without its risks. Building a gas-to-liquids facility would cost billions of dollars and take most of this decade to complete. The U.S. is already littered with money-losing long-term investments that fell victim to unexpected shifts in natural gas supply and demand.

Shell is the world’s leading operator of gas-to-liquids (GTL) facilities, which chemically convert natural gas into premium diesel, lubricants and chemical feedstocks. It operates the world’s largest GTL plant in Qatar and a smaller one in Malaysia.

The profitability of these GTL plants was a major contributor to Shell’s consensus-beating first quarter profits of $7.28 billion.

Similar plants in the U.S. could be potentially very profitable, said Shell’s Chief Financial Officer, Simon Henry. The company is looking at sites in Louisiana and Texas as the possible location for a plant producing at least 70,000 barrels a day of liquids from natural gas. _WSJ

Natural gas prices will not always be this low, but the huge price gap between gas and liquid fuels is likely to remain for at least a decade, and probably longer. The smart money will find a way to take all that cheap gas and turn it into valuable liquid chemicals, polymers, fuels, lubricants, and other materials.



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