And the Winner is?

There are essentially two methods for replacing “oil-derived” diesel fuel in the United States.

The first is to use natural gas in either a compressed form (CNG) or in a liquefied form (LNG).

The second is to convert natural gas to a liquid diesel-type fuel in a process known as gas to liquids (GTL).

The GTL process changes the structure of natural gas so it becomes a new liquid product akin to diesel fuel. LNG is natural gas that has been cooled until it is in a liquid rather than gaseous state.

SASOL recently announced plans to build a GTL plant in Louisiana. The plant would cost around $10 billion and produce 93,000 barrels of diesel fuel each day.

Whether this investment has strategic implications will depend on whether the plant can succeed economically by earning a profit with an acceptable rate of return. SASOL has built a similar plant in Qatar that seems to be an economic success, but the natural gas in Qatar is virtually free. In Qatar, there are very few alternatives for using its huge natural gas reserves, so converting natural gas to diesel fuel is worthwhile at any cost below the market price of oil. (Qatar also has a large LNG capability.)

The cost of natural gas in the U.S. is currently around $4 per million BTU and that will affect the viability of the SASOL plant.

Assuming it is economically viable, it’s still questionable whether GTL would replace the use of “oil-derived” diesel fuel in the U.S. Replacing the 3 million barrels per day of diesel fuel used in the U.S. would require building over 30 GTL pants with an investment of over $300 billion.

The GTL derived fuel has two important advantages over LNG.

  • First, it can utilize the existing infrastructure for transporting and delivering the fuel.
  • Second, it doesn’t require modifications to existing diesel engines.

The two disadvantages of LNG are:

  • First, LNG requires building new fueling stations with equipment for producing LNG from natural gas.
  • Second, existing diesel engines will need to be modified or new engines installed on new trucks.

Earlier articles provide more detailed information on LNG and CNG. See Natural Gas for Transportation Part I

The cost of building LNG stations at 4,000 truck stops around the U.S. would be around $16 billion.

Trucks will incur an additional cost of around $70,000 to enable them to use LNG. The ROI for the added cost is around five years for heavy-duty trucks and around two years for fleets of over 100 vehicles. See Natural Gas for Transportation Part II

The Catch-22 for LNG is that truck owners won’t invest in LNG-capable trucks until there are LNG fueling stations along their truck routes, and station owners are hesitant to build LNG fueling stations until there are trucks available to buy the fuel.

We have two contestants for displacing “oil-derived” diesel fuel in the U.S.

On one hand, there is GTL that requires a very large initial investment but can use the existing infrastructure, while on the other hand, there is LNG that requires a smaller infrastructure investment but higher operating investments, i.e., higher truck costs.

CNG is not part of this competition since it would primarily be used to power light vehicles, i.e., cars and SUVs.

If SASOL goes ahead with its plans to build the GTL plant in Louisiana, the competition will begin. Both GTL and LNG have the potential to reduce oil imports, but these alternatives may not replace diesel fuel derived from oil because of the high investment and other costs of GTL and LNG.

The outcome will be of great interest.

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4 Replies to “And the Winner is?”

  1. Dear sir,

    Interesting article. We are a Dutch company promoting bio-lng, the first biofuel which is of better and more constant quality than its fossil counterpart. From a sustainable point of view , we think that GTL production destroys too much energy. The production process of small scale LNG has improved considerably and even Shell decided to build a LNG plant for transportation this month. We agree that infrastructure is not ready yet, but we see that in China 20 LCNG stations are built every month. What might be of interest is the fact that from (bio) LNG you can supply all cars driving on CNG. (via LCNG). We are planing small scale bio-lng carriers, a bio-lng bunkering terminal and many bio-LNG fuelling stations. in the Netherlands. In our opinion bio-lng will beat both LNG and GTL in future. Everything that can rot ,can produce biomethane (bacteria do the work) which can be converted into bio-lng. Bio-lng certainly will beat bioethanol and biodiesel, being much cheaper and not having competition with food, See do not only concentrate upon fossil fuels.

    Regards Peter van der Gaag
    Director of Holland Innovation Team
    see new blog

    • There are vast unused resources of natural gas, shale gas, gas resources of small fields, the resources of flared gas in the world. These resources are not available because of the remoteness of the deposits of gas markets to marketing, the lack of gas pipelines and other conditions under which the supply of gas is economically inefficient. The only way to deliver such gas resources to the consumer – to process them directly in the field in liquid synthetic products, transport which more cheaper gas transportation and the cost of the global market in times more expensive.
      Today, such technology for the processing of gas – GTL technology (international designation «Gas to Liquids»), multinational companies «SHELL», «SHEVRON», «SASOL» used on large existing plants, gas processing, synthetic products, including synthetic diesel Euro-5 standard. The company «Shell» expects soon to increase the share of synthetic diesel motor fuel market to 15 percent. Today, however, GTL technology available to most oil and gas companies, as well as provide for the construction of large plants with high cost and long payback periods.

      BMC GTL can process gas directly in the fields, as well as sea and river waters by installing BMC GTL on floating platforms. In addition to liquid transportable products, BMC GTL can receive additional electric and thermal energy for their own needs and the mining company to ensure that the surrounding areas. “Synthetic Oil”, resulting from processing, may be mixed with natural oil transported through existing oil pipelines and oil loading transport. Processing of “synthetic oil” directly on the field or a floating platform produces synthetic diesel Euro-5 standard, to provide high-quality fuel land and sea transport. Providing consumers with low-cost energy produced from local raw materials, especially important for remote areas and the development of new mineral deposits.
      In fact, it is about creating a new field of high technology chemical engineering-oriented sources of hydrocarbon gas, which has a low flow rate, duration of operation of individual wells and their distance from the consumer and low commodity prices. The use of BMC GTL processing of unused gas resources allow to fill the projected reduction in production of natural oil, to preserve its resources for future generations, and at the same time increase the efficiency and flexibility of the transportation of energy resources to world markets. Serial production of BMP GTL, services related to the operation and maintenance of equipment, will help create new jobs, transport infrastructure and the development of remote regions. Entering the global market, where the modular equipment using technologies are impossible, delivery BMC GTL in countries with unused gas, creates unique opportunities for the export of engineering products.

  2. I’m not familiar with the proposed bio-fuel; however, so long as market forces determine the future of the fuel, I’m for it.

  3. Vladimr:
    GTL may have limited use in the United States because of its cost. It is well suited to areas where there is abundant natural gas that’s essentially stranded. Europe needs diesel from GTL, but may refuse to use it because of CO2 emissions. Elsewhere, there is a question as to whether GTL or LNG will be most market friendly.
    Thanks for your comment,