Sasol Hones In On US Natural Gas As Road Fuel
September 14 , 2011
Sasol Ltd. (SOL.JO, SSL), 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, at a cost of as much as $10 billion, that would convert natural gas into diesel.
Sasol'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 Louisiana.
If given the final go-ahead, the plant would be the first in the U.S. to use so-called gas-to-liquids technology. Once seen as far-fetched and futuristic, the technology has gained traction in recent years as the discovery of gas supplies has 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 are the low natural-gas prices here. Benchmark futures have hovered between $3 and $6 a million British thermal units for two years, well below prices paid by consumers in Europe and Asia.
Sasol's project is the latest to address what to do with a surplus of supply 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. (APA) have been pushing 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 even 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 crude oil as a key raw material for transportation fuels. Diesel prices trickle down into the cost of goods everywhere 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.
Company officials estimate that a plant producing 96,000 barrels a day of diesel, and some jet fuel, would cost $10 billion. They say they could opt for a smaller facility, however.
A big appeal of gas-to-liquids technology over others is that it wouldn't require retrofitting cars with different engines or building a new network for fueling stations. 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, Oberholster said.
Based in Johannesburg, Sasol is the world's biggest producer of motor fuels from coal, a business begun in 1950 after apartheid-era embargoes barred the selling of crude to South Africa.
Gas-to-liquids technology hasn't yet gone mainstream, and past projects have a spotty record. There are many obstacles to the Louisiana project, including getting environmental permits and financing the sheer cost.
The company joined with Qatar Petroleum to open the 34,000 barrel-a-day Oryx GTL plant in 2006. However, it has had more trouble with another project in February developed jointly with Chevron Corp. (CVX) and the state oil company in Nigeria after cost overruns there were disclosed.
But if natural-gas prices remain at current levels, and U.S. crude oil continues its climb to $100 a barrel, the odds that some sort of natural-gas fueling technology catching on will improve, said Sander Cohan, principal at energy analysis firm ESAI Inc.
"With high crude prices, the economics of gas-to-liquid fuel have started to look much better," Cohan said.
Source: Dow Jones Newswires
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