South Africa Investing Up To $14B In U.S. Gas-To-Liquids Energy

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Written by Dana Sanchez

Despite what critics call “shaky economics,” South African energy company Sasol is determined to stick with its plans to invest up to $14 billion building the first U.S.-based commercial plant turning natural gas into liquid fuels, according to a CNN report.

Betting the once-shunned technology in the U.S. will pay off, Sasol and its investment are being hailed as one of the biggest from a non-U.S. company in American history, the report said.

Johannesburg-based energy giant Sasol announced plans in late 2012 to build the mega-project in Louisiana. The project also includes a separate $5 to $7 billion ethane cracker and derivatives plant. Sasol chose the U.S. for its gas-to-liquids facility because the U.S. has abundant shale gas, released through the controversial drilling process of hydraulic fracturing, or fracking.

The process chemically converts gas into transport fuels, lubricants and other products.

The U.S. has an estimated 100 year-plus supply of natural gas. Sasol, which has been producing synthetic fuels for decades, says it will not be fracking directly, instead tapping into the U.S. natural gas market through the existing infrastructure.

“The price of the natural gas in the U.S. is about the lowest in the world and the markets are also in the U.S.,” said Mike Thomas, Sasol’s vice president of U.S. operations. “If you look within the U.S., particularly on the U.S. Gulf Coast where we are … there is no better infrastructure for the petrochemical industry in the U.S., and probably in the world.”

Although gas-to-liquids is only now gearing for its commercial U.S. debut, the process dates back to the 1920s. By the 1950s, the conversion technology was largely abandoned due to high production costs and the emergence of cheaper products made from refined crude oil. The high correlation between natural gas and crude oil markets meant there wasn’t a significant difference between the two prices, therefore no opportunity for companies to exploit margins, the report said.

The only country where the technology gained wide traction was coal-rich South Africa where international embargoes during the apartheid years made oil hard to come by.

Today, only Sasol and Royal Dutch Shell are converting gas into liquid vehicle fuel on a commercial level.

Experts say the current price difference between natural gas and oil, courtesy of the recent shale gas boom, coupled with long-term global transport trends favoring low-emission fuels, have helped turn gas-to-liquids into a particularly appealing proposition in places like North America. It means less reliance on Middle East oil.

“We’re taking Sasol’s technology, which was developed here in South Africa for the past 63 years, and helping the U.S. be more energy independent and have a security of supply,” said Sasol CEO David Constable.

Sasol, which already operates smaller gas-to-liquids plants in South Africa and Qatar, expects its Louisiana facility to produce at least 96,000 barrels per day and create 1,200 jobs. It says gas-to-liquids diesel burns cleaner and can be used in existing vehicles and fuel delivery infrastructure without any modifications.

Critics say the technology is precarious business.

“The economics can be a bit shaky,” says Craig Brown, downstream oil and petrochemicals analyst at PFC Energy. “The whole process is extremely energy intensive and tends to be more costly than crude distillation.”

The biggest danger is that if the cost of gas rises to the price of oil, the technology will lose its commercial appeal, the report said.

“With that amount of capital expenditure, they need to have a degree of certainty that the gas prices are going to stay at a certain price for a long period of time to make it an economically viable project long-term,” Brown said.

Sasol is determined to go ahead with its plans.

Its investments were well-reviewed and thoroughly scrutinized to make sure that these are good sound projects that will open up new economic opportunities, Sasol said.

“We’ve looked at it in many different ways,” Constable said. “We’ve proven it here in South Africa, we’ve proven it up in Qatar. It’s a sought-after product, it’s a sought-after technology. If you look at those dynamics as macroeconomics over the long term, we see our projects as being very, very viable.”