Methane feedstock projects imperiled by products linked to crude markets

By Ben DuBose
Online Editor

HOUSTON -- The economics of global gas monetization projects are stressed since the market value of products are significantly affected by global oil prices, according to Ron Sills, director of the XTL & DME Institute.

The institute was founded in 2010 as an educational service about all aspects of the XTL and DME value chains, namely the conversion of gas, coal and biomass to fuels and chemicals through processes such as gas-to-liquids (GTL).

"GTL projects need either technological innovations to significantly lower costs, or to solve a problem such as reducing flared gas," said Sills, who delivered the keynote address at the Monetizing C1 Methane Feedstocks 2015 conference, held this week in Houston.

$65/bbl the "new normal" for oil prices

Sills says he believes the "new normal" for crude oil prices is roughly $65/bbl, based on the breakeven cost estimates for shale oil and given current oil supply cost curves. For example, roughly 80% of US production would be at or above their breakeven point at $70/bbl oil, while only 20% of production would break even at $60/bbl.

As such, most oil companies are basing their guidance on oil priced near the $65/bbl midpoint, Sills said.

How product values are affected by oil prices

While gas-based projects might appear separated from crude markets, Sills notes that a key economic driver of every gas monetization pathway is the spread between natural gas feedstock and the product value.

For example, in LNG, the market value in Asia and Europe is directly linked to oil prices. Similarly, many European ammonia producers are gas-based, and European gas prices are linked to oil prices.

In the methanol markets, 40% of global demand is in the fuels and olefins market, such as gasoline blending, DME and biodiesel. And with newer methanol-to-olefins processes, many olefins producers are cracking naphtha.

Finally, in GTL processes, the yields of gasoline, diesel and naphtha all have values directly related to oil prices.

Impact on economics

Based on those links to oil, a significant reduction in capital expenditures (CAPEX) is necessary for GTL processes to break even with conventional fuels at $60/bbl oil.

In a case study, Sills showed that reducing CAPEX from $100,000/bpd to $50,000/bpd helped lower finished product costs from $115/bbl ($2.74/gal) to $76/bbl ($1.80/gal). That would make the product competitive with conventional diesel, which is linked to current oil prices.

Right now, the projected DME cost is equivalent to $2.18/gal of diesel, which is 16% more than the diesel price of $1.88/gal projected with oil at $60/bbl. However, if GTL producers can innovate with new technologies to solve industry problems such as gas flaring, they can present a better business case based on these economics.

"There are innovative low-cost conversion technologies producing valuable products," said Sills. "But awareness of the global crude oil supply and demand balance is key."

The Monetizing C1 Methane Feedstocks 2015 conference continues through Thursday at the Westin Galleria in Houston.

The Author

Related News

From the Archive

Comments

Comments

{{ error }}
{{ comment.comment.Name }} • {{ comment.timeAgo }}
{{ comment.comment.Text }}