Royal Dutch Shell Plc, Europe’s largest oil company, said a $19 billion investment in Qatar may prove that abundant natural gas coaxed from shale rocks across the U.S. could be converted into diesel and jet fuel.
Shell, which is completing the world’s largest gas-to-liquids plant in Qatar, could use the technology on a smaller scale in the U.S. if capital costs can be reduced, Marvin Odum, head of Shell in the Americas, said in an interview in London. The technology uses catalysts to turn natural gas into jet fuel, diesel and other liquids.
The development of shale fields made the U.S. the world’s largest gas producer in 2009 and caused a slump in prices. Today’s price of $4.18 is equivalent to about $24 a barrel of crude. Oil is trading at about $100 a barrel in New York.
“It’s an important thing for the U.S. that they found this huge shale gas resource” to reduce dependence on oil imports, said Hannes Loacker, an analyst with Raiffeisen Bank AG in Vienna. “The longer gas prices will stay at such a low level, the more will happen” because producers will look for ways to gain from mispricing.
Oil, Gas Arbitrage
U.S. gas producers are examining different ways to benefit from the arbitrage between oil and gas prices. In the nearer term, compressed and liquefied gas is likely to play a greater role as a transportation fuel, Odum said. Exports of liquefied natural gas by ship are possible from North America, more likely from Canada than the U.S., where there are political obstacles to exports, he said.
Shell expects to produce the equivalent of 400,000 barrels of gas in the Americas in 2015, double the figure in 2009, as it invests $40 billion in the region, The Hague-based company said last year.
Shale gas may account for 47 percent of total U.S. production in 2035, up from 16 percent in 2009, according to the Energy Information Administration.
Shell’s Pearl GTL plant in Qatar will start production this year and make enough diesel to fuel 160,000 cars a day when it reaches full output. It will also make kerosene and base oils.
BG Group Plc, a U.K.-based producer that has U.S. shale fields, agrees that gas-to-liquids may have a future in North America.
BG expects producers to find ways to benefit from “the huge differential between the cost of oil and the cost of gas,” Chief Executive Officer Frank Chapman said last week. That may help to reduce petroleum imports to the nation with the help of “middle distillate synthesis from gas.”
The U.S. government is examining at least nine proposals to allow exports of LNG produced from domestic gas. BG and Southern Union Co. were the latest to seek permission from the Department of Energy. Companies would like to supply the fuel to Asia or Europe where prices are higher.
“There are many other proponents talking about not only exporting gas, but finding other uses for it in the U.S.,” such as chemicals and fertilizers, Chapman said. The gap between oil and gas prices will narrow over time and it “will be good for owners of substantial gas reserves.”