SPE 128342
Economic Viability of Gas-to-Liquids in Nigeria
O. M. Balogun SPE, Laser Engineering and Resources Consultants Ltd. and M.O.
Onyekonwu, PTDF Gas Chair, University of Port Harcourt.
Copyright 2009, Society of Petroleum Engineers Inc.
This paper was prepared for presentation at the 33rd Annual SPE International
Technical Conference and Exhibition in Abuja, Nigeria, August 3-5, 2009.
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Abstract
With recent oil price escalation, declining oil
reserves and global warming, interest has been
shown world-wide in the production of clean liquid
fuels through Fischer-Tropsch (FT) Synthesis. FT
Synthesis is a proven technology but development
of commercial GTL has been very slow. For
resource holders, the major challenge is economics
thus, the economic viability of GTL calls for critical
analysis.
This paper reviewed FT process and investigated
its economics with principal interest in the
production of Syncrude, DME and Methanol in
Nigeria. A sound appraisal technique was later
used to measure and rank GTL proposals with the
LNG in Nigeria.
The results show that GTL–Diesel would be
economically feasible when applied to a typical
offshore Niger Delta resource at oil prices of above
US$35/bbl and feedstock gas price in range of
US$0.25-1.5/mmBtu. GTL-DME economics looks
encouraging and could be introduced at a price
lower than that of LPG. However GTL-Methanol will
only be viable at a distress gas price of US$0.25-
0.5/mmBtu and in a condition of preferential tax
treatment. LNG and GTL-Syncude have the same
value at discount rate of 16.84% with LNG giving
higher profits if the cost of capital is less than
16.84%. The profitability of LNG and GTL
(Syncrude and DME) is very close, with GTL having
a potential superior return at high oil prices and
preferable under conditions of limited capital. In
Nigeria, GTL-Syncrude could be used to monetize
“leftover” gas that doesn’t merit a standalone new
LNG train and provide the country an opportunity to
enjoy direct exposure to oil price upsides
Introduction
The world’s proved natural gas reserves currently
exceeding 5,000 Tcf, have grown at a faster rate
than proved oil reserves. Consequently this era has
been called the “gas age". However, over 75% of
the world’s proved natural gas reserves are not
currently accessible by pipeline and majority of
those reserves exist in remote location where laying
pipelines cannot be economically justified. While
LNG on the other hand can be used on much
smaller gas fields, the high capital costs involve and
long term agreement required to make it profitable
has been a major concern. These are some of the
reasons for the relatively slow uptake of gas.
However, because of the commercial value of
natural gas, ways are being sought to bring
stranded gas to market.
Natural Gas Hydrate (NGH) and Compressed
natural gas (CNG) technologies provide attractive
options to solve the stranded gas problem in the oil
industry. Technically these technologies are easy to
deploy with less requirements for facilities and
infrastructure. However, they are beyond the scope
of this paper.
Another alternative currently receiving world’s
attention is Gas – to – Liquids Technology. The
chemical conversion of natural gas into
hydrocarbon liquids has been a technological goal
for many years. This process was developed by two
Germans: Franz Fischer and Hans Tropsch in
1923. Germany successfully used gas derived from
coal to feed Fischer-Tropsch plant to produce
gasoil for its armies during World War II.
GTL products include liquid fuels such as methanol,
Di-Methyl Ether (DME), gasoil, normal paraffin,
naphtha and other petroleum refinery type distillate
fuels. DME can be used as a substitute for LPG
and introduction of certain volume of DME is
expected to play its role as a deterrent force to ever
– increasing LPG contract price. Though methanol
has uncompetitive prices and some legislative
constraints, the development of fuel cells for
2 O.M. Balogun
distributed-type power generators or fuel cells for
automotive use holds the key to successful
introduction of methanol. F-T diesel is highly
valuable as a blending stock for petroleum-based
diesel fuel, because it has a high cetane number
and low aromatic content. It is spotlighted as a
clean fuel for next-generation diesel engine.
Even though FT Synthesis has long been a
technically proven technology; the development of
commercial GTL technology has been piecemeal
and slow. The major factors affecting its viability
are:
i. Premium gas resource
ii. Oil and Gas price (and exposure to oil
upside) and Capital Cost
iii. Financial Strength and Freedom to operate
iv. Large project execution skills
v. Global marketing capability
However the Technology is currently gaining a
renewed interest worldwide. This renewed interest
has been driven by:
i. Declining oil reserves as against increasing
demand for energy around the world
ii. Expanding utilization of natural gas.
iii. The recent escalation in oil price and
refining margin
iv. Strengthened restriction measures taken
on gas flaring in each of the oil producing
country
v. Strengthened measures to counter the
issue of automotive emissions to prevent
environmental pollution in most countries of
world
vi. Avenue for portfolio diversification among
the Major Resource Holders
vii. The GTL Technology advances that are
reducing the cost of converting larger
reserves of natural gas, not readily
accessible by pipeline, into high quality
liquid fuel products
A large number of industrial and government
sponsored programmes to develop commercially
viable process options are in various stages of
development.
The Nigerian Government recently announced a
gas reserves base of about 170 tcf, 120 tcf of which
is proven and uncommitted. In addition as much as
90 % of discovered oil reservoirs are estimated to
constitute the oil leg to a gas cap. While this
situation seems to lend itself well to an LNG
exploitation strategy, the logistics of gathering
discovered gas to a central point are almost
SPE 128342
impossible as these reserves are scattered in small
1-3 tcf deposits among hundreds of fields across
Niger Delta. Therefore, with the exception of a few
large concentrations, such as the case for Shell’s
Bonny LNG plant, much of the country’s gas
remains stranded, reinjected or part of the
estimated 2 bcf that is flared daily making Nigeria
the highest gas flaring country in the world. Thus,
effective utilization of natural gas resources being
flared daily is an urgent task to be addressed also
from the environmental protection standpoint.
Nigeria’s push to end flaring before the end of 2010
means that the Major Resource Holders and Oilfield
developers are forced to find outlet for their
produced gas. GTL therefore, could be a viable
alternative route to commercialize this produced
gas. Though LNG and GTL compete for the cheap
gas resource and thus far, LNG has been the
choice of countries looking to monetize their
stranded gas, GTL offers producers an alternative
way to commercialize stranded gas and enjoy direct
exposure to oil price upsides.
However, for resource holders, the major challenge
is economics thus, the economic viability of GTL
calls for critical analysis.
This paper reviewed FT process and investigated
its economics with principal interest in the
production of Syncrude, DME and Methanol in
Nigeria. A sound appraisal technique was later
used to measure and rank GTL proposals with the
LNG in Nigeria.
Gas-to-Liquids Technology
Converting Gas-to-Liquid using the Fischer-Tropsch
method is a multistep and energy-consuming
process. It takes apart molecules of natural gas,
predominantly methane, and reassembles them
into long-chain molecules. The first step requires
input oxygen [O2] separated from air. The oxygen is
blown into reactor to strip hydrogen atoms from the
methane [CH4]. The products are synthetic
hydrogen gas [H2] and carbon monoxide [CO],
sometimes called syngas or synthetic gas. The
second step uses a catalyst to recombine the
hydrogen and carbon monoxide into liquids
hydrocarbons. In the last stage, the liquid
hydrocarbons are converted and fractionated into
products that can be used immediately or blended
with others.
The Fischer-Tropsch product spectrum consists of
a complex multicomponent mixture of linear and
branched hydrocarbons and oxygenated products.
The Main products are linear paraffin and α-olefins.
The overall reactions of the Fischer-Tropsch
Synthesis are summarized in Table 1. The
3 Economic Viability of Gas-to-Liquids in Nigeria
hydrocarbon synthesis is catalyzed by metal such
as iron, cobalt nickel, and ruthenium. Both iron and
cobalt are used commercially these days at a
temperature of 200 to 300 oC and pressure of 10 -
60 bars.
The most well-known product is extremely pure
diesel, sometimes known as gasoil. Diesel from the
Fischer-Tropsch process, unlike diesel derived from
distillation of crude oil, has near-zero sulfur-and
nitrogen-oxides content, contains virtually no
aromatics, burn with little or no particulate
emissions, has high cetane value. Kerosene,
ethanol, and Di-Methyl Ether (DME) can also be
produced. Another product of the reaction is
naphtha that is high in paraffin content. Waxes
derived from Fischer-Tropsch process can be pure
enough to use for food packaging and cosmetics.
Basically GTL Technology involves four (4) process
routes:
• Air Separation/Gas Pretreatment.
• Syngas Production (Gasification).
• Fischer-Tropsch Reaction Synthesis.
• Product Upgrading and Separation.
Air Separation and Natural Gas
Pretreatment
Like LNG projects, it is critically important to have
clean gas feedstock comprised only of methane for
GTL plants. Trace impurities, especially acid gas
and mercury, are detrimental to the process
operation. Typical unit operations required to
produce such a feed summarized as follows:
• The raw gas is passed to a slug catcher,
where condensate is removed
• An acid gas plant removes carbon,
hydrogen sulfide and other sulphur
compounds. The off gas is passed to Claus
plant to recover the sulphur
• Mercury removal is essential to protect the
down stream facility
• The gases are dried to remove moisture
and other trace impurities
• Turbo expansion cools the gas, and then
condensate, LPG and ethane are
progressively removed
Oxygen required for the synthesis gas production is
produced through cryogenic air separation process.
This process has successfully been applied to
support gasification worldwide. It is selected based
on optimization of the capital cost and power
consumption required. The process begins with
filtration and compression of air to about 6 bars.
The compressed air is then cooled to close-to-
SPE 128342
ambient temperature in water/air-cooled heat
exchangers. It may be cooled further in a
mechanical refrigeration system. This improves the
efficiency of impurity removal and minimizes power
consumption. Condensed water is removed from
the air after each stage of compression and
cooling. Water vapor and carbon dioxide are
removed in “reversing exchangers" or "molecular
sieve units".
Further cooling is done in brazed aluminum heat
exchangers to bring the air feed to cryogenic
temperature (about -300oF or 185oC) against waste
gas stream. The exiting waste gas streams are
warmed to close-to-ambient air temperature.
Recovering refrigeration from the gaseous product
streams and waste stream minimizes the amount of
refrigeration that must be produced by the plant,
however additional cooling is needed. The very
cold temperatures needed for cryogenic distillation
are created by a refrigeration process that includes
expansion of one or more elevated pressure
process streams.
The next process step is the use of distillation
columns to separate the air into desired products.
Since oxygen is the desired product, the distillation
system will have both “high” and “low” pressure
columns. Nitrogen leaves the top of each
distillation column; oxygen leaves from the bottom.
Argon has a boiling point similar to that of oxygen
and will preferentially stay with the oxygen product.
If high purity oxygen is required, argon must be
removed from the distillation system at an
intermediate point. Impure oxygen produced in the
initial (higher pressure) column is further purified in
the second, lower pressure column.
Synthesis Gas Production
From the thermodynamic standpoint, it is very
difficult if not impossible in many cases, to directly
convert methane into a more useful product
because of its inertness and stability. Therefore,
methane is first converted into a more reactive
intermediate product called syngas or synthesis gas
(basically H2 and CO gas). The conversion is
controlled to produce an appropriate intermediate
product ratio based on the desired end products.
Unlike methane, synthesis gas is very reactive and
can be converted by a wide range of processes into
a variety of useful chemicals and materials. The
production of synthesis gas is central to
downstream Fischer Tropsch process in production
of clean liquid fuels.
In principal, synthesis gas can be produced from
any carbon source e.g. fossil fuels, biocrops or
other recyclable material (garbage. Most of the
4 O.M. Balogun SPE 128342

capital investment for a GTL plant is associated I. Low Temperature Fischer Tropsch process
with the syngas-generation step. Six principal (LTFT).
technologies for syngas production from natural gas II. High Temperature Fischer Tropsch
have been commercialized or are at an advanced Process (HTFT).
stage of development.
Depending on the final products required, either
Depending on the source of the feedstock and the LTFT is used to produce a syncrude with a large
method chosen, the raw synthesis gas is produced fraction heavy, waxy hydrocarbons or HTFT is used
over a range of concentrations of carbon monoxide, to produce light syncrude and olefins. In both
carbon dioxide, and hydrogen. The ratio of cases, some oxygenates are produced as well. The
hydrogen to carbon monoxide is known as the two major FT processes, their applicability and
stoichiometric ratio (RS) of the gas. This ratio is applicable FT reactors are summarized in Table 3.
often used to characterize the synthesis gas
produced. The six principal technologies for syngas
production from natural gas and their applicability The Alpha Value
are summarized in Table 2. The FT process produces a hydrocarbon product
distribution that can be described by simple
polymerization theory. The molar ratio of a product
Fischer-Tropsch Synthesis of a given carbon number (CN) to a product of one
The Fischer-Tropsch synthesis section consists of: less carbon number is a constant less than unity.
i. FT Reactor. This constant is generally referred to as the alpha
ii. Recycle and Compression of unconverted value.
synthesis gas. Moles of product with CN = n
iii. Removal of hydrogen and carbon =α
monoxide. Moles of product with CN = n − 1
iv. Reforming of methane produced and
This can be modified to predict the mass fraction
separation of the FT products.
(Wn) of product with carbon number n, as:
Table 1: Major Overall Reactions in the Fischer- log(Wn / n) = n log α + log[(1 − α 2 ) / α ]
Tropsch Synthesis
The alpha value is an important indicator of the
Synthesis Gas Production nature of the products that are formed in the
synthesis. The value of alpha depends on all of the
1. Steam Reforming CH 4 + H 2 O ⇔ CO + 3H 2
2. CO2 Reforming CH + CO 2 → 2 CO + 2 H
independent variables in the synthesis. These
4 2
3. Partial Oxidation CH 4 + 1 2 O 2 → CO + 2 H 2
include the temperature, pressure, stoichiometric
4. Water gas shift reaction CO + H 2 O ⇔ CO +H2 ratio of the synthesis gas, the catalyst type, and the
2

age of the catalyst.

Fischer-Tropsch Synthesis
Main Reactions The alpha value is a good predictor of the
5. Paraffins (2n + 1)H2 + nCO → Cn H2n+1 + nH2O components produced in the range of C5 to about
6. Olefins 2nH 2 + nCO → C n H 2 n + nH 2 O
C30. This is the range of interest for the production
Side Reactions of transport fuels. The amount of methane is more
2nH2 + nCO → Cn H 2n+2 O + (n − 1)H 2 O than that predicted depending on the extent of
7. Alcohols
2 CO → C + CO
8. Boudouard Reaction 2
methanation. Ethane is particularly low, and
propane and butane are reduced from the ideal.
Catalyst Modifications M x O y + yH 2 ⇔ yH 2 O + xM
M x O y + yCO ⇔ yCO + xM
The amount of heavy materials can be reduced by
9. Catalyst
Oxidation/Reduction yC + xM ⇔ M C
cracking reactions. The ideal variation of product
x y
10. Bulk carbide Formation composition is illustrated in Figure 1.

The most important aspects for the development of

commercial Fischer-Tropsch reactors are the high
reaction heats and the large number of products
with varying vapour pressure (gas, liquid, and solid
hydrocarbons).

Basically there are two major commercial Fischer-

Tropsch processes. They are:
5 Economic Viability of Gas-to-Liquids in Nigeria SPE 128342

due to a very low aromaticity and zero sulphur

content. The product stream consists of various fuel
types: LPG, gasoline, diesel fuel, jet fuel. The diesel
fraction has a high cetane number resulting in
superior combustion properties and reduced
emission. The wax fraction in the crude product
may be converted to additional diesel with mild
hydrocracking by use of conventional technologies,
such as those offered for license by Chevron or
UOP. The syngas-generation unit must, therefore,
produce some excess hydrogen beyond FTS
stoichiometric requirements.

Figure 1: Variation of product composition with

Alpha value [1]

Although some systems can operate at lower or

higher alpha values, the typical FT processes of
interest operate in an alpha range of 0.7 to 0.9. As
the value of alpha rises, there is a fall in the
production of gaseous products (methane to
butane) and a concomitant rise in the production of
wax (C25+). Over much of range of alpha, the liquid
products (the sum of naphtha and distillate) remain
essentially constant at about 55% to 60% of the
total products. The principal problem for the
production of naphtha and diesel is to maximize this
liquid yield by secondary processing of the gas and
wax fractions. This greatly complicates the overall
process flowsheet.

The value of alpha can be altered by using

catalysts of different formulations, and to some
extent by changing process parameters particularly
temperature. This is because increasing the
temperature lowers the value of alpha. However, in
practice a specific technology usually operates over
a restricted alpha range. The product from the FT
reaction can best be regarded as a synthetic crude
oil. There is a very high (in some cases almost
100%) concentration of linear paraffins. Such
paraffins make good kerosene and distillate blend
stock, but the naphtha fraction is very poor in
octane number. Before use as gasoline, the
naphtha must be extensively refined. Also produced
are heavy waxes that can be hydrocracked to
lighter transport fuel fractions.

Product Upgrading and Separation

Conventional refinery processes can be used for
upgrading of Fischer-Tropsch liquid and wax
products. A number of possible processes for FT
products are: wax hydrocracking, distillate
hydrotreating, catalytic reforming, naphtha
hydrotreating, alkylation and isomerization. Fuels
produced with the FT synthesis are of a high quality
6 O.M. Balogun SPE 128342

Table 2: Principal Technologies for Syngas Production From Natural Gas

Technology Operating Catalyst H2/CO Reaction Type Reactor Type Applicability Status
Conditions SR

Steam/Methane 19 – 21 bars Nickel Based 3:1 Endothermic Multitubular/ Methanol Commercialized

o
Reforming (SMR) 800 – 900 C Fixed Bed Production

Autothermal 21 – 22 bars Nickel Based 2:1 Endothermic/Ex Adiabatic Fixed DME/ Commercialized
o
Reforming (ATR) 950 – 1050 C othermic Bed Synfuel

Non Catalytic Partial 25 – 100 bars NIL 2:1 Exothermic Refractory lined Synfuel Commercialized
o
Oxidation (POx) 1050 – 1300 C Pressure Vessel
(Gasification)

o
Catalytic Partial ca 1000 C Rhodium-based 2:1 Exothermic Refractory lined Synfuel Pilot
Oxidation (CPOx) monolithic Pressure Vessel

Heat Exchange Combined both SMR &ATR Methanol Demonstration Run

Reforming (HER)

Compact Reforming Mechanical approach to conventional SMR Synfuel Demonstration Run

Table 3: Major Fischer Tropsch Processes

FT Reactor Catalyst Catalyst Size Operating Capacity *Examples
Process Conditions (bbl/day)

LTFT Multitubular Fixed Iron or Cobalt 1 mm 180 – 250 oC 10 3000-10000 SAP & SMDS
Process Bed based – 45 bars
20 – 100 microns
Slurry Phase 3000-17000 SSPDS

HTFT Circular Fluidized About 340 oC About 6500 SCFB

Process Bed Iron based Fused Catalyst
only
Sasol Advanced
Synthol 25 bars About 2000

* SAP: Sasol Arge Process

SMDS: Shell Middle Distillate Synthesis
SSPDS: Sasol Slurry Phase Distillate Synthesis
SCFB: Sasol Synthol-Circular Fluidized Bed
7 Economic Viability of Gas-to-Liquids in Nigeria
Typical hydrocracking reactor conditions entail
temperatures of 608 to 752oF and pressures of
1,000 to 1,500 psig. The naphtha fraction may be
further upgraded to gasoline with catalytic
reforming.
Table 4: Conventions of Fuel Names and Composition
Name Synonyms
Fuel Gas
LPG
Gasoline
Naphtha
Kerosene Jet Fuel
Diesel Fuel oil
Middle Distillate Light Gas Oil
Soft wax
Medium wax
Hard wax
Properties and Uses of FT Synthetic Fuel
FT synthetic fuel has the following properties:
• Sulphur free.
• Rich in paraffin.
• Extremely low aromatics.
• Excellent solubility and fungibility with
petroleum product.
The naphtha fraction has an octane number as low
as RON40 or below and cannot be used readily as
gasoline (petroleum-based naphtha has an octane
number of around 50), while it is considered to be
suitable as a petrochemical feedstock naphtha for
cell-powered automobiles, as it has low sulphur and
low aromatics contents.
The kerosene fraction has excellent properties such
as low sulphur content and its smoke point is
around 45 mm (compared with around 20 mm for
petroleum based kerosene). There is a good
possibility that FT kerosene will be used as a fuel
for fuel cells for household use in the future.
Moreover, a mixture of FT kerosene and petroleum
based jet fuel on 50/50 basis is being supplied as
an aviation fuel at the Johannesburg Airport in
South Africa.
The diesel fuel fraction is highly valuable as a
blending stock for petroleum-based diesel, because
it has a high cetane number and low aromatics
content. FT diesel produced by Mossgas and Shell
is exported to the U.S. and European countries
either for a diesel fuel or for a blending stock to
reduce aromatics and sulphur contents of
petroleum-based products.
SPE 128342
Alternatively, the naphtha could be used as steam
cracker feedstock for olefins production. The
definitions and conventions for the composition and
names of the different fuel types are obtained from
crude oil refinery process are given in Table 4.
Components
C1 – C2
C3 – C4
C5 – C12
C8 – C12
C11 – C13
C13 – C17
C10 – C10
C19 – C23
C24 – C35
C35+
Furthermore, FT diesel is spotlighted as a clean
fuel for next generation diesel engines. Engine test
results have confirmed that FT diesel is effective in
improving the engine output and reducing
emissions in the exhaust gas.
Meanwhile, FT diesel has some problems such as
poor lubricity and low degree of swelling for seals
due to its low sulphur and aromatics contents.
However, these problems are considered to be
solved by using additives and by changing the
design of seals.
The demand for methanol is currently established
as the feedstock for manufacturing chemicals such
as formaldehyde, acetic acid, MTBE, etc. The
world’s demand for methanol totaled 25.84 million
tons in 1998, including Japan’s demand totaling
1.90 million tons which were totally imported [7].
Methanol as a fuel has a high octane number of
RON 109, but its fuel efficiency in terms of fuel
economy rate per km-run has a tendency of
becoming low due to its low heating value (Net
heating values of 3800 kcal/liter compared with
7900 kcal/liter for gasoline). Moreover, methanol is
not a suitable fuel for diesel powered automobiles
due to its low cetane number of around 3.
Close attention is now being focused on methanol
as a fuel for fuel cell – powered automobiles. As
methanol can be reformed at a lower temperature
than gasoline, the use of methanol for this purpose
is technically closer to its commercialization.
DaimlerChrysler has completed an automobile
using methanol as a fuel, which is reaching the
8 O.M. Balogun SPE 128342

point of its commercialization in the nearest future.
Road tests are been conducted in some countries
[7].
DME is now being produced by methanol
dehydration, and is being used as aerosol
propellant as a substitute for CFC (chlorofluoro
carbon) gas. The world’s total production of DME
stood at 150, 000 tons in 1999, of which Japan
produced around 10,000 tons. DME used in Japan
is produced domestically, with virtually none
imported [7].
DME has low toxicity and has essentially no effect
on living body. It is in a gaseous phase under the
normal temperature and normal atmospheric
pressure, but is easily liquefied when the pressure
is raised to about 6 atmospheric. Being similar to
propane in properties (with DME having a boiling
o o
point of -25.1 C vis-à-vis -42 C for propane),
studies are being made of possibility to introducing
DME as a substitute for LPG.
Because of its low octane number, DME is not
suitable for LPG-powered automobiles, but it can
be used as a promising substitute for diesel fuel,
because it has a high cetane number of 55-60 and
little PM (Particulate Matter) is discharged when
used for diesel engines. It has many technical
problems, however, such as poor lubricity, making it
necessary to use additives for its solution and
hence it will take some times to place it into
commercial use as a substitute for diesel fuel.
GTL Projects Worldwide
Table 5 summarizes the current situation with
respect to existing and proposed future GTL plants.
The current operating plants with product streams
greater than 1000 bpd are located in South Africa,
Malaysia and currently Qatar. Sasol and Mossgas
operate the two facilities in South Africa, while the
facilities in Malaysia and Qatar are operated by
Shell and Sasol respectively.
There are many companies addressing the gas to
liquids technology, including but not limited to
BP/Amoco/Arco, Conoco, ExxonMobil, Mossgas,
Rentech, Sasol/Chevron, Shell and syntroleum.
This list includes the major oil companies and some
niche players who are
developing their own approaches to this
opportunity.
Much of the GTL work to date has been in
developing the technology through research
utilizing small – scale plants, anything from one
barrel per day to two hundred barrels per ay. The
Mossgas plant in South Africa is commercially
producing liquid fuels from natural gas via three,
nine thousand barrel per day trains, while the Sasol
plant, also in South Africa, developed the FT
synthesis application with gas from coal. The Shell
plant at Bintu, Malaysia produces specialty
chemicals and waxes, but could be modified to
produce middle distillates. Sasol recently
commissioned a GTL plant with 34,000 bpd (in two
trains) capacity.
The various players in this developing industry have
many projects at different stages of commitment
around the world. Each player is attempting to
differentiate their technology on the basis of yield,
capital cost size and product. The focus of their
strategies includes monetizing stranded gas and
the development of niche commodity markets for
high value products. In some cases these
strategies are supported by companies entering
alliances with partners having complementary skills.

Table 5: Summary of Current and Proposed Commercial GTL Plants

Year Operator Location Size (bpd) Products
1955 Sasol South Africa 124,000 Light Olefins & gasoline
1991 Mossgas South Africa 22,000 Gasoline & Diesel
1993 Shell Malaysia 12,500 Waxes, Chemicals, Diesel
2006 Sasol Qatar 34,000 Liquid Fuels
Proposed
Rentech USA 1,200 High grade waxes & liquid fuel
Syntroleum Australia 10,000 High margin products
Shell Indonesia 70,000 Liquid Fuels
ExxonMobil Qatar 100,000 Liquid Fuels
Sasol/Chevron Nigeria 34,000 Liquid Fuels
EB, BP, ANGTL Alaska 100,000 Liquid Fuels
Sicor Ethiopia 20,000 Liquid Fuels
Sasol/Chevron Australia 30,000 Liquid Fuels
PDVSA Venezuela 15,000 Liquid Fuels
9 Economic Viability of Gas-to-Liquids in Nigeria
GTL Economics Analysis and Project
Evaluation
An investment in a manufacturing process can only
earn more than the cost capital if the plant design
can present a process that is capable of operating
under conditions, which yield profit. In the final
analysis, the answer to the question “will we realize
a profit from this venture?” almost always
determines the true value of any project.
In order to ascertain the profit making power of any
project for its owner, the cost of the project is
estimated and the realizable revenue from
product(s) sales are determined, and the values
then weighed against the investment cost. The final
difference is a measure of the profitability of any
project.
Methodology
The hypothetical GTL Technology shall be for
chemical conversion of natural gas into readily
transportable liquid fuels – FT synthetic fuel,
Methanol and DME. Assuming that the plants are
built in Nigeria using the natural gas produced in
the Niger Delta region as a feedstock, and that
these GTL products are exported to Europe, USA
or consuming locally. The various project
assumptions and estimates for hypothetical GTL
(Diesel, DME and Methanol) are presented in the
proceeding sections.
Three steps which include estimation of Cash flows,
required rate of return and an application of
investment decision rules shall be employed in the
evaluation of each investment proposal. These
investment decision rules may be referred to as
capital budgeting techniques, or investment criteria.
A sound appraisal technique shall be used to
measure the economic worth of each investment
project – GTL Diesel, DME and Methanol. The
essential property of a sound technique is that it
should maximize the investor’s wealth. The
following characteristics should also be possessed
by a sound investment evaluation criterion:
i) It should consider all cash flows to determine
the true profitability of the projects.
ii) It should provide for an objective and
unambiguous way of separating good
projects from bad projects.
iii) It should help in ranking projects according to
their profitability
iv) It should recognize that bigger cash flows are
preferable to smaller ones and early cash
flows are preferable to later ones
SPE 128342
v) It should help to choose among mutually
exclusive projects that which maximizes the
shareholder’s wealth
vi) It should be a criterion which is applicable to
any conceivable investment project
independent of other
GTL - FT Syncrude
The proposed Sasol/Chevron GTL project in
Escravos, Nigeria (EGTL 1) with production
capacity of 34,000bbl/day shall be the basis for all
economic estimates. The summary of the
preconditions of economic evaluations used in this
work is presented in Table 6.
In recent years, developments have enabled the
unit capital cost of the GTL projects to be
significantly reduced. The identified costs
associated with the proposed plants have been
collated from recent industry publications and
various GTL vendors. From this research the
capital investment estimated for GTL – syncrude is
1,028.42 MMUS$ (a unit cost of 30,248 US$/BBL)
as shown in Table 6 This compares favourably with
the published total investment of 997 MMUS$
(29,000US$/BBL) for Sasol Oryx 1 in Qatar [4].
However, considering inflation, other logistics and
the so called “Nigerian factor” the estimated
CAPEX is escalated by 30% to give a total capital
investment of 1,336.94 MMUS$ (39,322 US$/BBL).
It is important to appreciate that for so many years,
there was no new GTL plant constructed until June
2006 when Sasol Oryx 1 in Qatar was
commissioned. Until a number of new GTL plants
have been constructed, uncertainty in the level of
capital cost will remain. The ratio of capital
investment for the first, second and third year of
25%, 35% and 40% respectively shall be applied
and the plant construction period shall be 3 years.
The load factor for first, second and third year of
90%, 95% and 100% would be applied.
The same $6.0/bbl non-feedstock operating cost of
Sasol’s Oryx 1 is assumed. This includes cost of
raw material basically catalyst, utility cost (only for
process since for electricity and cooling water in
GTL plant are self supported), owner costs,
chemical cost, maintenance cost, operating labour,
laboratory cost, supervision, plant overhead, capital
charges, product transportation cost, insurance,
local taxes and royalties. However the most
significant component of a plant’s overall operating
cost appears to be the cost of the natural gas
feedstock to the facility. In this study, the profitability
index and other economic indices are estimated
10
based on different gas prices ranging from 0.5 –
1.5US$/MMBtu.
Double declining balance depreciation method,
been the most widely used in the industry, is used
in this project to calculate depreciation. Because
there is no production in the first and second year,
the CAPEX of the first and second year are carried
forward until production commences before the
depreciation is calculated. Book value at the
beginning of the first year of depreciation is the total
CAPEX of the asset. Since declining balance
depreciation doesn’t consider salvage value in
determining the annual depreciation, the asset is
depreciated till the end of its useful life and the
book value at the end of asset’s useful life is taken
to be the asset’s scrap value in this project.
The two main types of money – Money of the Day
(MOD) and Real Terms money are considered.
Money of the Day referred to as nominal money
represented by actual notes and coins that its
nominal value may remain constant but purchasing
power is likely to vary with inflation. Real Term
money is an artificial unit, which has constant
purchasing power. Therefore a constant inflation
rate of 5% per annum is assumed.
The same royalty of 10% of gross on exported oil
(onshore) under section 10 of PPT Act for
convectional crude oil shall be applied and 40%
fiscal regime would be used.
Base on the above conditions, a cash flow
projection over the economic lifetime of project is
estimated from which NPVs, IRRs and Pay-Out
Periods are estimated with gas price ranging from
$0.5/MMBTU to $1.5/MMBTU at $50/bbl. Another
major determinant factor for GTL project value is
the price of crude oil, which has been escalating
lately. Therefore its impact on the GTL project
profitability is investigated using $20/bbl, $35/bbl,
$50/bbl, $65/bbl and $80/bbl of crude oil.
GTL – Di Methyl Ether (DME)
DME has similar properties with LPG and
consequently would be an innovative clean fuel for
various fields; residential, transportation, power
generation etc. Nowadays, DME is used mainly as
a propellant for spraying cans. Approximately
150,000 tons/year are produced worldwide by a
hydration reaction of methanol. In order to use DME
as a fuel, it must be produced at low cost in large
quantity. The hypothetical GTL-DME plant capacity
would be 5000 tons/day and the profitability index
and other economic indices are estimated based on
different gas prices ranging from 0.5 –
1.5US$/MMBtu and plant distances to the market
O.M. Balogun SPE 128342
ranging from 5000 – 12000km. The economic
preconditions are summarized in Table 7.
GTL – Methanol
Today, world methanol consumption for chemical
uses is about 30 million tons per year, using gas at
the rate of 1 tcf per year or nearly 3 bscf/day. In a
country such as Nigeria, if a world-scale methanol
plant were built, it would probably be at least 5000
tons per day in order to take advantage of the well-
known effect of scale in lowering capital cost per
unit of output. Such a plant would require a gas
reserve of roughly 1.37 TCF for 25 years of
economic life. In a country like ours with ample and
inexpensive gas, capital charges on large plants, as
with LNG, dominate the required selling price of the
product. The other important item in selling price is
shipping cost to reach the market. This alone may
be as much as plant operating and maintenance
costs, excluding the raw material purchase.
Obviously, such plant would be financed very
favorably to produce methanol at a cost roughly
competitive with the cost of imported methanol and
located closer to its market in order to enjoy some
freight savings. In this study, the profitability index
and other economic indices are estimated based on
different gas prices ranging from 0.5 –
1.5US$/MMBtu and plant distances to the market
ranging from 5000 – 12000km. The economic
preconditions are summarized in Table 8.
Liquefied Natural Gas
One of the main objectives of this project work is to
compare the profitability of GTL (Syncrude, DME
and Methanol) with that of LNG, an existing gas
monetization technology in Nigeria. It is therefore
imperative to investigate the profitability of LNG
separately also before comparing it with that of
GTL. NLNG project in Bonny with the production
capacity of 5.9 million ton per annum and
condensate of 4225bbl/day based on 5bbl/mmscf,
typical liquid content with train T1 and T2 shall be
the basis for all project assumptions and economic
analysis. The same project economic lifetime of 25
years is assumed. Furthermore the plant would be
in operation for 340 days annually.
CAPEX is estimated based on upstream and
onshore components. The Upstream component of
the project comprises of wells, platform, and
pipeline to onshore. Since the project economic
lifetime of 25 years, a gas resource of 7.2 Tcf is to
be produced and piped to NLNG facility onshore
over a 25 year timeframe. Therefore the same
Upstream CAPEX of US$1.3 billion published by J.
P. Morgan [4] for LNG shall be applied. The same
NLNG Onshore CAPEX of US$3.6 billion for base
11 Economic Viability of Gas-to-Liquids in Nigeria
train T1/T2, which includes Turn-key cost and
contingency, cost of four (4) LNG vessels, initial
charge of coolants, subtotal plant cost, start up,
technical service, insurance, pre-operation
expenses, contingency of owner’s cost and initial
working capital amongst other things shall be
applied. The ratio of capital investment for the first,
second and third year of 25%, 35% and 40%
respectively shall be applied and the plant
construction period shall be 3 years.
OPEX is estimated based on offshore and onshore
operating expenditure. Offshore OPEX
NLNG executed Sales & Purchase Agreements
with five buyers located in Europe and Turkey for
the Base Project volumes: Enel of Italy, Gas Natural
of Spain, Botas of Turkey, Gaz de France of
France, and Transgas of Portugal. Presently NLNG
T1/T2 receiving facilities are Montoir de Bretagne
(ENEL),
Bilbao/Huelva/Cartagena/Barcelona/Sagunto (GAS
SPE 128342
NATURAL), Huelva/Sines/Cartagena
(TRANSGAS), Montoir Terminal (GAZ DE FRANCE
and Marmara Terminal (BOTAS) and therefore an
average product transport cost of US$0.4/mmBtu
shall be applied.
The same type of LNG pricing as for Woodside’s
Pluto LNG sales into Morth Asian, which is
estimated to be US$5.4/mmBtu at an oil price of
US$50/bbl shall be applied as the base price. The
major determinant factor for LNG project value is
the price of LNP product, which has not necessarily
been stable. Thus its impact on the LNG project
profitability is investigated using US$4.4/mmBtu (at
$25/bbl of oil), US$4.8/mmBtu (at $35/bbl of oil),
US$5.4/mmBtu (at $50/bbl of oil), and US$6.1 (at
$70/bbl of oil).
All other economic conditions shall be same with
those used in GTL-Syncrude. The preconditions of
economic evaluations of LNG is presented in Table
9.
12 O.M. Balogun SPE 128342

Table 6: Preconditions of economic evaluations of GTL Technology – FT Synthetic Fuel

S/N Item Description Estimates Source
3
1 Product Specific gravity (T/M ) 0.75
Quality Heating Value HHV (MMBtu/T) 43.9 [7]
2 Plant Scale of plant (BBL/D) 34 000 (2 Trains)
3
Plant Economic life (yrs) 5406 M /D (equiv) EGTL 1
Plant Location 25 [4, 6]
Niger Delta
3 Feedstock Natural Gas consumption (MMBtu/T) 73.83
(Natural Gas) Heat Content (Btu/SCF) 1050
Total Gas volume required (MMSCF/D) 286 [7]
Require Scale of Gas Field (TCF) 2.43
Natural Gas Price (US$/MMBtu) 0.5/0.75/1.0/1.5
4 Total Capital Turn-key Cost (MMUS$) 886.86
Investment Contingency of above (MMUS$) 44.34 [2, 4, 7]
Initial Charge of Catalyst (MMUS$) 27.06
Start-up (MMUS$) 6.8
Technical Service (MMUS$) 4.7
Insurance (MMUS$) 1.0
Pre-operation expenses (MMUS$) 21.9
Contingency of owner’s cost (MMUS$) 5.5
Initial working capital (MMUS$) 30.26
Expenses related to fund procurement N/A
Interest during construction period N/A
Total Capital Investment (MMUS$) 1,028.42
30% Escalation for inflation and other logistics
(MMUS$) 1,336.94

Plant Cost ASU & Gas Pretreatment Unit 35%

Breakdown Gasification Unit 25%
(estimate Fischer Tropsch Unit 30% [2,4,6,7]
only) Product Upgrade 10%
5 Capital Net worth ratio (%) 100
st
Investment Ratio of capital investment 1 year (%) 25 [2, 3, 7]
nd
Ratio of capital investment 2 year (%) 35
rd
Ratio of capital investment 3 year (%) 40

6 Plant EPC Period 3 [2, 3, 7]

Construction
7 Operations Plant operation in a year (Days/Year) 340
st
Load Factor 1 year (%) 90
nd
Load Factor 2 year (%) 95
rd
Load Factor 3 year (%) 100
Utility cost (electricity) Self-support [4, 7]
Utility cost (cooling water) Self support
Other Cost [Utility(process) &
Chemicals] US$/bbl-product 6.00
Total utility cost US$/bbl-product 6.00
(excluding Feedstock cost)
8 Depreciation Double Declining Balance
Royalties on
9 10% of gross Under section 10 of PPT Act
Export
Fiscal
10 40% of Taxable income
Regime
13 Economic Viability of Gas-to-Liquids in Nigeria SPE 128342

Table 7: Preconditions of economic evaluations of GTL - DME

S/N Item Estimates Source
3
1 Product Quality Specific gravity (T/M ) 0.74 [1, 7, 21]
Heating Value HHV (MMBtu/T) 29.9
2 Scale of plant (T/D) 5000
Plant Plant Economic life (yrs) 25
Plant Location Niger Delta
3 Natural Gas consumption (MMBtu/T) 43.49
Feedstock Heat Content (Btu/SCF) 1050 [1,7]
(Natural Gas) Total Gas volume required (MMSCF/D) 207
Require Scale of Gas Field (TCF) 1.4
Natural Gas Price (US$/MMBtu) 0.5/0.75/1.0/1.5
4 Turn-key Cost (MMUS$) 489.5
Contingency of above (MMUS$) 24.5
Initial Charge of Catalyst (MMUS$) 22.0
Start-up (MMUS$) 9.0
Total Capital Technical Service (MMUS$) 6.3
Investment Insurance (MMUS$) 1.0 [7, 21]
Pre-operation expenses (MMUS$) 12.6
Contingency of owner’s cost (MMUS$) 5.1
Initial working capital (MMUS$) 16
Expenses related to fund procurement N/A
Interest during construction period N/A
Total Capital Investment (MMUS$) 586
30% Escalation for inflation and other logistics 738.4
5 Net worth ratio (%) 100
st
Capital Investment Ratio of capital investment 1 year (%) 25 [2, 3, 7]
nd
Ratio of capital investment 2 year (%) 35
rd
Ratio of capital investment 3 year (%) 40

6 Plant Construction EPC Period 3 [2, 3, 7]

7 Plant operation in a year (Days/Year) 340
st
Load Factor 1 year (%) 90
nd
Load Factor 2 year (%) 95 [7, 21]
rd
Operations Load Factor 3 year (%) 100
Utility cost (electricity) US$/ton-product 2 (0.028US$/KWh)
Utility cost (cooling water) US$/ton-product 4.24
Utility cost (process) US$/ton-product (0.028US$/KWh)
Chemicals US$/ton-product 0.04(0.028US$/KWh
Total utility cost US$/ton-product )
1.94
8.22
8 Depreciation Double Declining Balance
9 Royalties on Export 10% of gross Under section 10 of PPT Act
10 Fiscal Regime 40% of Taxable income
11 Freight Cost 2.5US$/1000km/ton (0.0836US$/1000km/MMBtu)
12 Distance 5000km (base case)
14 O.M. Balogun SPE 128342

Table 8: Preconditions of economic evaluations of GTL - Methanol

S/N Item Estimates Source
3
1 Product Quality Specific gravity (T/M ) 0.79 [1, 7]
Heating Value HHV (MMBtu/T) 21.5
2 Scale of plant (T/D) 5000
Plant Plant Economic life (yrs) 25
Plant Location Niger Delta
3 Natural Gas consumption (MMBtu/T) 33.89
Feedstock Heat Content (Btu/SCF) 1050
(Natural Gas) Total Gas volume required (MMSCF/D) 162 [1, 7]
Require Scale of Gas Field (TCF) 1.37
Natural Gas Price (US$/MMBtu) 0.5/0.75/1.0/1.5
4 Turn-key Cost (MMUS$) 423
Contingency of above (MMUS$) 21.2
Total Capital Investment Initial Charge of Catalyst (MMUS$) 4.4
Start-up (MMUS$) 6.3
Technical Service (MMUS$) 6.3 [1, 7]
Insurance (MMUS$) 1.0
Pre-operation expenses (MMUS$) 12.3
Contingency of owner’s cost (MMUS$) 3.0
Initial working capital (MMUS$) 20
Expenses related to fund procurement N/A
Interest during construction period N/A
Total Capital Investment (MMUS$) 498.2
30% Escalation for inflation and other logistics
647.66
5 Net worth ratio (%) 100
Capital Investment Ratio of capital investment 1st year (%) 25 [2, 3, 7]
Ratio of capital investment 2nd year (%) 35
Ratio of capital investment 3rd year (%) 40

6 Plant Construction EPC Period 3 [2, 3, 7]

7 Plant operation in a year (Days/Year) 340
Load Factor 1st year (%) 90
Load Factor 2nd year (%) 95 [1, 7]
Operations Load Factor 3rd year (%) 100
Utility cost (electricity) US$/ton-product 3.65 (0.028US$/KWh)
Utility cost (cooling water) US$/ton-product 2.12 (0.028US$/KWh)
Utility cost (process) US$/ton-product 0.03(0.028US$/KWh)
Chemicals US$/ton-product 1.41
Total utility cost US$/ton-product 7.21
8 Depreciation Double Declining Balance
9 Royalties on Export 10% of gross Under section 10 of PPT Act
10 Fiscal Regime 40% of Taxable income
11 Freight Cost 3.914US$/1000km/ton (0.182US$/1000km/MMBtu)
12 Distance 5000km (base case)
15 Economic Viability of Gas-to-Liquids in Nigeria SPE 128342

Table 9: Preconditions of economic evaluations of LNG

S/N Item Estimates Source
1 Product Quality Heating Content (Btu/scf) 1050 [1, 4]
Carbon Efficiency 92%
Conversion Factor 1 mt/a~48.699bcf
Product Price LNG 5.4US$/MMBTU [4]
Condensate 50US$/BBL
2 Scale of plant
Plant LNG (MT/A) 5.9 (Train T1/T2)
Condensate (BBL/D) 4225 (5bbl/mmscf) NLNG
Plant Economic life (yrs) 25
Plant Location Niger Delta
3 Natural Gas consumption (scf/T) 142.86
Feedstock Heat Content (Btu/SCF) 1050
(Natural Gas) Total Gas volume required (MMSCF/D) 850
Require Scale of Gas Field (TCF) 7.2
4 CAPEX
Upstream Capex U$1.3b
Downstream Capex U$3.6b NLNG
5 Net worth ratio (%) 100
Capital Investment Ratio of capital investment 1st year (%) 25 [2, 3, 7]
nd
Ratio of capital investment 2 year (%) 35
Ratio of capital investment 3rd year (%) 40
OPEX [4]
Offshore Opex US$0.2/MMBTU
Onshore Opex US$0.2/MMBTU
Operation operation in a year (Days/Year) 340
st
Load Factor 1 year (%) 90 [2, 3, 7]
Load Factor 2nd year (%) 95
Load Factor 3rd year (%) 100

6 Plant Construction EPC Period 3 [2, 3, 7]

7
8 Depreciation Double Declining Balance Double Declining Balance
9 Royalties on Export 10% of gross Under section 10 of PPT Act
10 Fiscal Regime 40% of Taxable income
11 Transportation Freight Cost U$0.4/MMBTU [1, 4]
16 O.M. Balogun SPE 128342

Results and Discussion

10000
GTL Syncrude

Cum Casflow (M M US $)
8000
GTL-Syncrude cash flow projection was prepared 6000
with the economic conditions in Table 6 on a 4000
spread sheet assuming an average price of 2000
US$50/bbl for Diesel, Kerosene, and Naphtha as 0
the base price. -2000
1 3 5 7 9 11 13 15 17 19 21 23 25
Years
The GTL-Syncrude project annual real term cash RT Cum Cashflow MOD Cum Cashflow
flow is shown in Figure 2. Investor’s cumulative
Figure 3: GTL- Syncrude Investor’s Undiscounted Cash flow
cash flow both in real terms and money of the day Surplus
is shown in Figure 3 with undiscounted real term
cash surplus of US$4.19 billion. GTL-Syncrude
investor’s NPV is US$7.18 million, discounted at 5000

10% as shown in Figure 4. The Real Terms Earning 4000

Cum. Cashflow (MMU$ RT)

Power of the project at the base price is 18.33% as 3000

can be seen in Figure 5, which exceeds that of a 2000

1000
risky exploration project of about 15% [9].
0

-1000

-2000
500 1 3 5 7 9 11 13 15 17 19 21 23 25
400
Years
Cashflow (MM U$ RT)

300
200 Cum NPV @ 10% Discount Rate Undiscounted Cash Surplus
100
0 Figure 4: GTL-Syncrude Investor’s Cumulative Real Terms
-100
-200
Cashflow @ US$50/bbl of Oil
-300
-400
-500
1 3 5 7 9 11 13 15 17 19 21 23 25
Years 4500
Cummulative Cashflow (MMUS$ RT)

4000
Government Annual Cashflow Investor's Annual Cashflow
3500
3000

Figure 2: GTL- Syncrude Project Annual Real Terms Cash 2500

2000
flow @ US$50/bbl of Oil 1500
1000
500

Table 10 shows the estimated DPIR at various 0

-500 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4

discount rates. It expresses the GTL – Syncrude -1000

Discount Rates
investment efficiency at various discount rates. The
implication is that an investment proposal is
rejected at any discount rate that gives negative Figure 5: GTL-Syncrude Investor’s NPVs @ various Discount
Rates
DPIR. Thus GTL- Syncrude investment proposal
shall be rejected at about 20% discount rate.
Table 11 shows project benefits (investor and
Table 10: GTL –Syncrude Profitability Indicators @ government’s shares) and expenditures (CAPEX
US$50/bbl of Oil and OPEX) on percentage basis of project revenue
at various discount rates. This gives a slightly
different view and may give further insight into the
Discount
Rate 0 10% 15% 20% project economics particularly when a constant oil
NPV MMUS$ 13207.3 4180.2 2742.0 1929.2 price is used. It is clear that the main impediment to
Revenue RT 0 2 9 6
MMUS$ 2032.9 1054.0 high earning powers is the CAPEX which takes the
NPV Project RT 8537.46 8 3 529.45 greater proportion at high discount rates. As the
NPV MMUS$ 1341.5
Government RT 4413.66 4 864.38 598.95 government take remains pretty constant
NPV
Investor
MMUS$
RT 4123.80 691.44 189.65 -69.50
(averaging 32.44% of project revenue at the
MMUS$ 1054.8 discount rates shown), the difference is largely
NPV OPEX RT 3332.90 9 691.97 486.86
MMUS$ 1092.3
balanced by the investor’s share, which reduces
NPV CAPEX RT 1336.94 5 996.08 912.96 accordingly.
MMUS$
DPIR RT 3.08 0.63 0.19 -0.08
17 Economic Viability of Gas-to-Liquids in Nigeria SPE 128342

Table 13: GTL - Syncrude Profitability Indicators based on

Table 11: GTL - Syncrude Profitability Indicators – on % Gas Price of 0.75U$/MMBTU @ various prices of Crude Oil
basis
PAY Max
Discount Crude OUT Exposure
Rate 0 5% 10% 15% Oil TIME NPV @ ($ mm
NPV US$/bbl RTEP IRR (YRS) (MMUS$ RT) MOD)
Government % 33.42 32.74 32.09 31.52
NPV 20 No Break Even -662.956 -1328.89
Investor % 31.22 24.81 16.54 6.92
35 10.19 15.70 9.46 14.24 -1235.98
NPV OPEX % 25.24 25.24 25.24 25.24
50 18.33 24.24 7.31 691.437 -1143.07
NPV CAPEX % 10.12 17.22 26.13 36.33

Total % 100.00 100.00 100.00 100.00 65 25.66 31.95 4.10 1368.633 -1050.15

80 32.65 39.29 2.90 2045.829 -957.24

It should be noted that the high royalty and tax rate
applied in this project produce a significant boost to Table 14: GTL – Syncrude Profitability Indicators based on
the government cash flow – even in the first year of Oil Price of 50U$/MMBTU @ various prices of Natural Gas
production when the investor’s cash flow is still Max
heavily negative. This suggests that the economic Gas PAY NPV @ Exposur
Price OUT 10% e
result for the investor will be very strongly US$/M TIME (MMUS$ (MMUS$
MBTU RTEP IRR (YRS) RT)
dependent also on the level of the royalty and other MOD)

fiscal terms put in place by the host government as 0.25 20.78 26.82 5.26 912.7426 -1112.70
shown in Table 12. Although oil price invariably has 0.50 19.56 25.54 7.00 802.09 -1127.88
an over riding effect because it controls the project 0.75 18.33 24.24 7.31 691.437 -1143.07
economics. However sensitivity to fiscal terms
1.00 17.07 22.93 7.64 580.7837 -1158.25
depends on the relative levels of royalty and tax
rate. 1.50 14.49 20.21 8.49 359.4778 -1188.61

Table 12: GTL – Syncrude Profitability Indicators based on

Oil Price of 50U$/MMBTU and gas price of US$0.75/MMBTU Though high maximum exposure (money at risk if
at various Fiscal Regime the project were to be abandoned at the pay – as –
PAY NPV @ you – go time) and long pay out time may be
Fiscal
Regim
OUT
TIME
10%
(MMUS$ Max Exposure
discouraging. The potential return of GTL –
e% RTEP IRR (YRS) RT) (MMUS$ MOD) Syncrude at higher oil prices, say US$40/bbl and
40 18.33 24.24 7.31 691.44 -1143.07 above is too large to ignore.
35 19.56 25.53 7.02 806.84 -1130.65

30 20.75 26.79 6.77 922.32 -1118.23

Based on this analysis, Gas – to – Liquids
25 21.93 28.03 6.55 1037.76 -1105.81
Technology (Syncrude) would be economically
feasible when applied to typical offshore of Nigerian
20 23.09 29.24 6.35 1153.20 -1093.39
large gas resources at Oil price above US$35/bbl.
GTL fuels used for transport should attract in theory
However, the main determinants of project value a premium price as they have been shown to
are the oil and gas prices. Therefore, Tables 13 and reduce vehicle exhaust emissions [4]. The extent of
14 show the profitability indicators derived based on that premium will be dependent on the outlook of
different oil and gas prices range from US$20/bbl to environmental legislation in key markets.
US$80/bbl and US$0.25/MMBTU to
US$1.5/MMBTU respectively. GTL – DME
The major determining factors for economic
The economics of GTL – Syncrude improve as the feasibility of GTL-DME are the present and future
oil price and refining margin increase as shown in prices of Natural Gas and DME or LPG, which is
Table 13. When the oil price is US$35/bbl, GTL the alternative fuel to DME. The investor’s NPV at
becomes economical with positive NPV and 10% is US$281.89 million and the estimated real
relatively high earning power. terms earning power based on the base prices of
DME and Feedstock is 16.26%. This implies that
GTL – DME is viable at the cost of capital less than
16.26% discount rate. This is also favourably
compared with that of a risky oil exploration of
about 15%.
18 O.M. Balogun SPE 128342

The GTL – DME investment efficiency is expressed It would be a good substitute for LPG when the
in the estimated DPIR at different discount rates feedstock gas price is in a range of US$0.25 to
shown in Table 13. The implication of this is that US$1.5/mmBtu and could be used as a new clean
GTL-DME viability becomes uncertain at discount fuel for various fields; residential, transportation,
rate of 20% and should be rejected. From Table 14, power generation, etc as LPG. This may be a
it is evident that the fiscal policy of the host deterrent force to ever increasing LPG contract
government plays a vital role in the viability of GTL prices. However, the possibility of DME to
project as her takes is relatively constant at various practically substitute LPG in term of quality must be
discount rates. confirmed probably through combustion tests
before its introduction into the market.
Table 13: GTL-DME Productivity Indicators at DME Price of
US$6/MMBTU GTL-Methanol
Discount
Rate 0 10% 15% 20% The economic feasibility is estimated based on the
NPV MMUS$ 6968.8 2205.6 1446.8 1017.9
Revenue RT 0 8 6 7
present and future selling price of natural gas in
MMUS$ 4156.1 British thermal units – 0.5, 0.75, 1, 1.25 and
NPV Project RT 5 945.85 466.06 210.74
NPV MMUS$ 2194.4
1.5US$/MMBtu. What is important in the final
Government RT 9 663.97 426.91 295.28 analysis is the Btu cost delivered to the customer.
NPV MMUS$ 1961.6
Investor RT 6 281.89 39.15 -84.53
The RTEP is 10.53% and the cumulative cash flow
MMUS$ 2074.2 discounted at 10% is US$19.45 million.
NPV OPEX RT 5 656.52 430.65 303.00
MMUS$
NPV CAPEX RT 738.40 603.31 550.14 504.23 From the estimated DPIR at various discount rates
DPIR 2.657 0.467 0.071 -0.168 and Methanol base price of US$6/MMBTU as
shown in Table 16, GTL-Methanol investment
Table 14: GTL-DME Profitability Indicator on percentage proposal should be rejected at 15% discount rate.
basis Table 17 shows GTL-Methanol benefits and
Discount Rate 0% 5% 10% 15% expenditure on percentage basis of project revenue
31.4 30.7 at various discount rates.
NPV Government % 9 8 30.10 29.51
28.1 21.4
NPV Investor % 5 3 12.78 2.71
Table 16: GTL-Methanol Productivity Indicator @
29.7 29.7 0.75US$/MMBtu of Natural Gas
NPV OPEX % 6 6 29.76 29.76 Discount
10.6 18.0 Rate 0 10% 15% 20%
NPV CAPEX % 0 2 27.35 38.02 NPV MMUS$ 5011.0 1586.0 731.9
Revenue RT 1 3 1040.38 9
Total 100 100 100 100 MMUS$ 2335.7
NPV Project RT 6 415.11 136.88 -6.46
NPV MMUS$ 1334.8 172.8
From the LPG price sensitivity analysis, GTL- DME Government RT 8 395.65 251.97 1
-
becomes economically viable when LPG price is NPV MMUS$ 1000.8 179.2
US$5/MMBTU and above at gas based price of Investor RT 9 19.45 -115.09 8
MMUS$ 2027.5 296.1
US$0.75/MMBTU as shown in Tables 15. NPV OPEX RT 8 641.75 420.96 8
MMUS$ 442.2
NPV CAPEX RT 647.66 529.17 482.54 7
From this analysis GTL – DME looks promising in
term of economic viability and could be introduced DPIR 1.545 0.037 -0.239 -0.405

at price lower than that of LPG and even much

Table 17: GTL-Methanol Productivity Indicators on
lower if Government takes (in terms of royalty and
percentage basis
taxes) can be reduced.
Discount Rate 0% 5% 10% 15%
NPV
Government % 26.64 25.77 24.95 24.22
Table 15: GTL-DME Profitability Indicator at various prices of
NPV Investor % 19.97 11.78 1.23 -11.06
Natural Gas
PAY Max NPV OPEX % 40.46 40.46 40.46 40.46
OUT NPV @ Exposur
Natural Gas TIME 10% ($ e NPV CAPEX % 12.92 21.98 33.36 46.38
Price (YRS mm ($ mm 100.0
(US$/MMBtu) RTEP IRR ) RT) MOD) Total 100 0 100.00 100.00
0.50 17.92 23.82 7.41 362.09 -634.04

0.75 16.26 22.08 7.89 281.89 -645.04 The profitability indicators derived based on
1.00 14.56 20.29 8.47 201.68 -656.05
different gas prices ranging from 0.5 – 1.5
US$/MMBtu are shown in Tables 18. At a very low
1.25 12.81 18.44 9.18 121.48 -667.05
gas price of 0.5US$/MMBtu, GTL-Methanol is
1.50 10.98 16.52 10.08 41.27 -678.05 highly economical with earning power of 12.17%
and NPV discounted at 10% of US$81.96 million.
19 Economic Viability of Gas-to-Liquids in Nigeria SPE 128342

However as the price of gas improved, the Table 19 summarizes economic comparison
economic feasibility of GTL-Methanol becomes between LNG project and various GTL projects.
uncertain. When the gas price exceeds LNG has a net profit of US$13.95 billion at zero
1US$/MMBtu, the Btu cost of Methanol must discounted rate, a discounted profit to investment
exceed 6.5US$/MMBtu to be economical. ratio of 2.85 and an investor’s real terms earning
power of 17.21%. By comparison, GTL Syncrude,
Table 18: GTL-Methanol Profitability Indicator @ various DME and Methanol has net profit of US$4.12 billion,
prices of Natural Gas US$1.96 billion and US$1.00 billion, a discounted
Natural
Gas PAY Max profit to investment ratio of 3.08, 2.66 and 1.55 and
Price OUT NPV @ Exposure
(US$/MM TIME 10% ($ ($ mm an investor’s real terms earning power of 18.33%,
Btu) RTEP IRR (YRS) mm RT) MOD) 16.28% and 10.53% respectively.
17.7
0.50 12.17 8 9.47 81.96 -588.45

0.75 10.53
16.0
5 10.34 19.45 -597.03
Using investor’s real terms earning power criteria,
14.2 GTL-Syncrude is the best investment proposal
1.00 8.80 4 11.46 -43.05 -605.60
12.3 closely followed by LNG and GTL-DME. GTL-
1.25 6.96 1 12.96 -105.56 -614.18 Methanol is the least economical investment
10.2
1.50 4.98 3 15.10 -168.07 -622.75 proposal.

In a country like ours with ample and inexpensive
gas, a distress gas price of 0.25US$/MMBtu may
be applied. This would reduce the delivered Btu
level for methanol to as low as 5.0US$/MMBtu. Also
the effect of the royalty and tax rate applied here on
the project is too huge to be ignored. For a large
plant such as this, if we assume no financing by
World Bank but commercial financing rate of 70%
debt payable over ten years at 8% and 20% before
tax on equity where there are no taxes for 10 years
as plant depreciation shelters book profit, the
proposed GTL-Methanol project could compete with
gasoline for transport fuel or with kerosene when
used for domestic fuel. The respective retail price
levels for gasoline and kerosene markets are
7.0US$/MMBtu and 7.5 – 11US$/MMBtu. Even at
gas price of 0.75US$/MMBtu, GTL-Methanol would
The present value and Discounted Profit-to-
Investment Ratio profiles prepared from Table 19
are shown in Figures 6a&b and 7 respectively.
From the present value profiles shown in Figure 6a,
LNG has the highest investor net present value of
US$458 million at 15% discount rate. However,
bringing the present value profile of LNG and GTL-
Syncrude closely as shown in Figure 6b, the two
projects have the same investor’s net present value
at discount rate of 16.84%. This implies that LNG
would give higher profit if the cost of capital is less
than 16.84%, while GTL-Syncrude would be a
better investment proposal if the cost of capital is
higher than 16.84%.
14000.00
Investor's NPVs (MMUS$ RT)

still be able to stay in business at about

11000.00
6.0US$/MMBtu delivered to terminal or push
consistently below it. 8000.00

5000.00

In Nigeria, where kerosene market has a less 2000.00

efficient distribution system, methanol stove could -1000.00

0 5 10 15 20 25
be introduced and from the analysis above, Discount Rate (%)

methanol could be available as alternative to LNG GTL- Syncrude GTL- DME GTL - Methanol
kerosene for domestic fuel within the range of 0.4 to
0.7US$/gallon (N54/gallon). It should be noted that Figure 6a: Present Value Profiles for LNG and
distributor can take methanol from a low cost GTL Projects
terminal with a gasoline truck and consumer can
take it away in a jerry can. Methanol been an
economical energy carrier, it could also be an 600.00
Investor's NPVs (MMUS$ RT)

500.00
excellent choice for distributing power generation 400.00
out to the rural population. Therefore the 300.00
opportunity for methanol as a fuel is apparent, 200.00

especially when it is considered that methanol, for 100.00

0.00
certain uses, has premium properties justifying a -100.00 15 16 17 18 19 20 21
higher Btu cost. -200.00
Discount Rates

Economics of LNG versus GTL LNG GTL-Syncrude

 20 O.M. Balogun SPE 128342

Figure 6b: Present Value Profiles for LNG and order while GTL-Methanol is the least profitable
GTL-Syncrude investment proposal.

3.50

D isco u n ted P ro fit-to -In vestm en t

3.00

The Discounted Profit-to-Investment Ratio profile 2.50

2.00
(DPIR) shown in Figure 7 gives whole picture of the 1.50

R atio
investment efficiency of LNG and 1.00

GTL investment proposals. The DPIR is a 0.50

0.00
modification of NPV that is used to select projects -0.50 0 5 10 15 20 25
under conditions of limited capital. It includes all -1.00
advantages of NPV in addition to providing a Discount Rate (%)

measure of profitability per dollar invested. Unlike LNG GTL - Syncrude GTL - DME GTL - Methanol
profit-to-investment criterion, DPIR reflects the time
rate pattern of income from the project and thus Figure 7: Discounted Profit-to-Investment Ratio
ranks projects properly to assure maximization of Profiles for LNG & GTL
profits. The decision is to maximize DPIR.
Therefore using this important profitability criterion
shown in Figure 7, GTL-Syncrude could be ranked
first closely followed by LNG and GTL-DME in that

LNG GTL-Syncrude GTL-DME GTL-Methanol

Investor's Investor's Investor's Investor's
Discoun NPVs NPVs NPVs NPVs
t Rate (MMUS$ (MMUS$ (MMUS$ (MMUS$
(%) RT) DPIR RT) DPIR RT) DPIR RT) DPIR
0 13954.74 2.85 4123.80 3.08 1961.66 2.66 1000.89 1.55
5 5751.78 1.30 1736.08 1.44 791.44 1.19 312.85 0.54
10 2171.32 0.54 691.44 0.63 281.89 0.47 19.45 0.04
15 458.54 0.13 189.65 0.19 39.15 0.07 -115.09 -0.24
20 -420.09 -0.13 -69.5 -0.08 -84.53 -0.17 -179.28 -0.41
RTEP 17.21 18.33 16.28 10.53
IRR 23.07 24.24 22.08 16.05
POT 7.6 7.31 7.89 10.34

Table 19: The Economics of LNG versus GTL

21 Economic Viability of Gas-to-Liquids in Nigeria
Conclusions
The interest in GTL technology is increasing in the
light of the growing concern on strong spot of oil
prices, global warming and resulting climate
change. One of the most promising routes to
produce clean fuels is the Fischer Tropsch
synthesis, wherein natural gas is chemically
converted into important liquid fuels. Though there
has been a great deal of interest and activity in the
GTL technology, commercial development has
been piecemeal and slow. The major draw back of
the technology is the higher capital costs of
processing plants relative to conventional fuels.
Nowadays, the most common approach involves
the use of slurry reactors to produce a waxy
product that is then hydrocracked to form diesel.
This approach gives the highest carbon efficiency
(typically about 75%). However,
the overall energy efficiency remains low (typically
60% to 65%).
From the economic analysis of Gas – to –Liquids
carried out in this project work, the following
conclusions could be drawn:
i. Gas – to – Liquids technology with the
principal interest in the production of diesel
would be economically feasible when
applied to a typical offshore Niger Delta
large resource at oil prices of above
US$35/bbl and feedstock gas price in the
range of US$0.25-1.5/mmBtu.
ii. Gas – to – Liquids technology economics
improve as the oil price and refining margin
iii. increase. Also the government takes in
form of taxes and royalty applied in the
analysis is too
iv. big (about 34% cost of product) to be
ignored. This implies that GTL investment
proposal looks more promising if a
preferential tax treatment could be applied.
v. GTL-DME economics looks encouraging
and could be introduced at a price lower
than that of LPG, but to secure a certain
volume of demand for the product must be
the first consideration before a DME project
is launched. Potential DME customers are
believed to be those currently consuming
LPG delivered by lorry trucks from LPG
import terminals and those shifting fuels
from petroleum based ones.
vi. GTL-Methanol is hardly viable in economic
terms except in the situation of low
feedstock gas price of US$0.25-0.5/mmBtu
and preferential tax treatment.
SPE 128342
vii. LNG requires greater capex for a similar
gas reserve size and has a longer payback
period. However LNG would give higher
profit if the cost of capital is less than
16.84%.
viii. GTL-Syncrude with principal interest in
diesel production would be a better
investment proposal if the cost of capital is
between 16.84% and 18.33%. At higher oil
prices, say US$40/bbl and above, the
potential superior return of GTL over LNG is
too large to ignore.
Therefore, from overall assessment of GTL
Technology, the profitability of LNG and GTL
(Syncrude and DME) is very close, with GTL having
a potential superior return at high oil prices and
preferable under conditions of limited capital
Technological wise, GTL is more technologically
complex and far mature than LNG and therefore
carries greater technological and operational risk.
However it is no accident that most companies with
GTL plans all have LNG expertise. Since LNG and
GTL draw from the same pool of contractors and
vendors, companies with LNG experience can
leverage their existing relationships when building
GTL facilities.
From environmental standpoint, FT diesel becomes
the most promising fuel and expected to be
spotlighted in the future as the quality requirement
for diesel fuel and automotive emission are
strengthened further.
GTL and LNG are compatible and in a country of
ours where LNG production already exists, GTL
could be used as an adjunct to LNG to monetize
“leftover” gas that doesn’t merit a standalone new
LNG train. Also GTL and LNG serve two completely
separate market; in a country like ours where there
is ample gas resource, GTL would not only
complement the already existing LNG in monetizing
about 2bcf of gas been flared daily and 120 tcf
proven and uncommitted gas reserves but also
provide the country an opportunity to enjoy direct
exposure to oil price upsides.
Recommendations
This project work has shown that FT diesel is
promising in the diesel market, while DME is
promising in the industrial fuels market. For
practical introduction of these GTL products,
however, the question is how a certain volume of
demand can be developed. In the light of this, the
followings are recommended for the smooth uptake
of GTL Technology in Nigeria:
22 O.M. Balogun
i. Gas reserves that can effectively serve
GTL plants through out their economic life
should be secured
ii. Improving the gasification and gas cleaning
technologies to achieve higher energy
efficiencies would certainly reduce the
costs. Pressurized gasification can result in
large cost reductions, as higher
throughputs are possible with same scale
installations, and because compression of
syngas from atmospheric pressure to FT
synthesis pressure is extremely energy
intensive.
iii. Reduction of the synthesis gas costs could
be accomplished by a decrease of
steam/carbon and oxygen/carbon ratios in
the feedstock.
iv. Preferential Tax treatment in GTL
investment would encourage investors in
Oil and Gas industry to embark on the
establishment of GTL Technology in
Nigeria.
v. A distress gas price in the range of 0.25-
0.5US$/MMBTU would also encourage
investors
vi. GTL-Diesel is been used in South Africa,
U.S. and Europe but none in Nigeria. Thus
it is imperative to confirm its quality
superiority over the conventional diesel,
secure the base of demand and create
demand for the future before GTL-Diesel
introduction in Nigeria.
vii. A certain volume of demand for the DME
product must be secured first before a DME
project is launched.
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