Oct. 28 (Bloomberg) -- Nippon GTL, the first gas-to-liquids project in Japan, will use carbon dioxide to produce fuel from natural gas and may win credits for reducing emissions.

“GTL fuel is a very environmentally friendly fuel,” Arata Nakamura, general manager of project planning at Nippon GTL Technology Research Association, said at a conference in London yesterday. “For Japanese people, energy security and stable energy supplies to Japan is very important.”

The 500-barrel-a-day demonstration plant at Niigata on Japan’s west coast produced its first fuel in May. The Nippon GTL process removes the need for “expensive” oxygen generators and carbon dioxide removal by using the gas blamed for global warming in the steam-reforming process. “It’s not new technology,” Nakamura said in a later interview.

Nippon GTL’s six partners are trying to make their technology commercially viable and plan to build a larger plant, producing as much as 20,000 barrels of the clean transport fuel a day from 2015. This may be in the Caspian Sea region, in Africa or southeast Asia, Nakamura said. Gas-to-liquids technology can cut gas flaring at fields where oil production is the main objective, he said.

Gas-to-liquids, or GTL, plants will profit from the widening spread between natural gas and liquid fuel prices. Gasoline futures have doubled in New York this year as investors bet economic recovery will boost fuel demand. In the same period, natural gas dropped 19 percent on increasing supply.

Air Quality

Qatar Airways recently used GTL kerosene in the first commercial airline flight powered by fuel made from natural gas. The innovation will help improve air quality around airports as it contains less sulfur dioxide and fine soot than normal jet fuel, according to Royal Dutch Shell Plc’s James Humfrey, general manager XTL marketing and development at Shell International Petroleum. Humfrey spoke at the conference about Shell’s Pearl GTL project under construction in Qatar.

The Nippon GTL partners are “free to discuss with oil companies and operators of gas fields” once the trial has been completed, said Nakamura.

“The Japanese project and the CO2 use, I think that’s actually an opportunity to get carbon credits, which will be a financial benefit for these projects,” Adrian Nizzola, of counsel at London-based law firm Simmons & Simmons, said at the conference. Projects that reduce emissions of carbon dioxide can earn tradable United Nations credits.

At the moment GTL plants are emitters, Nizzola said. Using CO2 as part of the technology may be “very attractive and helpful” in raising finance, he added.

The growth in natural-gas production in North America may motivate the U.S. to begin GTL production.

Reducing Imports

“The U.S. has always been paranoid about importing oil from the Middle East,” said Alex Forbes, an independent consultant and director of Forbes Communications Ltd.

Forbes pointed to a recent speech by Tony Hayward, BP Plc’s chief executive officer, who said “unconventional” gas reserves from shale deposits, coal beds and other sources may amount to 4,000 trillion cubic feet, adding about 60 percent to global proved gas reserves.

“Perhaps over time people will put two and two together,” said Forbes. “We don’t want to be too dependent on external sources of oil. We have all this gas. We could use this technology to produce oil products. It’s going to take time for people to get their heads around the implications of unconventional gas.”

Nippon GTL’s partners are Inpex Corp., Nippon Oil Corp., Cosmo Oil Co., Japan Petroleum Exploration Co., Nippon Steel Engineering Co. and Chiyoda Corp.

To contact the reporter on this story: Ben Farey in London at bfarey@bloomberg.net

Last Updated: October 28, 2009 05:15 EDT