Gas To Oil: A Gusher For The Millennium?

Chemical sorcery could provide the world with enough oil for almost 30 years

In a cluttered Tulsa laboratory, Kenneth L. Agee is practicing oil-patch alchemy. Since 1988, the lanky chemical engineer has worked to transform dirt-cheap natural gas into a new kind of black gold. Last year, he finally pulled it off, conjuring up an affordable way to transform natural gas--which can be so worthless that it's sometimes flared off, or burned at the well head--into a liquid that yields superclean gasoline, diesel fuel, or any other product derived from crude oil.

Agee's tiny Syntroleum Corp. has already sold licenses to ARCO, Texaco, and usx's Marathon Oil. Meanwhile, Exxon and Amoco are racing to pull gas-to-oil tricks out of their hats--and Sasol Ltd. already has. Now, the U.S. Energy Dept. is planning a $70 million kick-start for the technology. Energy is in the process of picking an oil company for a joint rush effort to turn the conversion schemes into engineering designs for commercial plants. Says Agee: "The interest in the whole industry has been stirred."

GERMAN ROOTS. That's because the world's fuel reserves would mushroom by an astronomical figure if natural gas can be exploited. Since 1970, worldwide gas reserves have increased nearly 6% a year, but consumption has risen just 3.1% annually. The result is a "bubble" of 4.6 quadrillion cubic feet of gas in known reserves, according to Geneva-based Petroconsultants. That represents 770 billion barrels of oil equivalent--enough to slake the world's thirst for oil for 29 years.

The basis for this sorcery was brought to light in 1923 by German chemists Franz Fischer and Hans Tropsch. Their recipe calls for high temperatures to break the chemical bonds in gas molecules. Then, a cobalt or iron catalyst works its magic and helps stitch carbon and hydrogen atoms back together into hydrocarbon chains. These molecules range from short-chain kerosenes to long-chain waxes. Refining this waxy soup into fuels, such as gasoline and diesel, is fairly simple, because the mix contains no sulfur or metals, unlike ordinary crude oil.

Until recently, though, the Fischer-Tropsch process was costly and inefficient. Natural gas had to be combined with pure oxygen to create the necessary chemical building blocks, or synthetic gas, and producing the pure oxygen required costly air-separation units. In addition, the catalysts were so inefficient that the "syngas" had to make several passes through the reactor. So the cost of a barrel of Fischer-Tropsch crude was $35 or more.

The new techniques promise to slash costs, synthesizing oil for $20 a barrel, perhaps $15. The first thing researchers tossed out was the big cryogenic machines that wring oxygen from the air. In their place, scientists at Amoco Corp. and the Argonne National Laboratory developed a one-way ceramic membrane. It sifts oxygen from the air without allowing synthetic gas to escape. According to Energy's estimates, eliminating just the oxygen-separation step can cut capital equipment costs by 25%.

Agee adds a little magical "eye of newt"--a proprietary catalyst that spins out only short-chain hydrocarbons such as naphtha and kerosene. Avoiding the wax "pudding" means the light crude will readily flow in oil pipelines. Although the light products are less valuable, the process could be just the ticket for sites such as Alaska's North Slope, where pipelines already exist. Such plants may cost as little as $14,000 per barrel of daily production, or half the investment for supercooling the gas into liquefied natural gas (LNG).

Sasol, a Johannesburg oil company, began using the Fischer-Tropsch chemistry to convert gasified coal after oil shipments to South Africa were embargoed by the West in the mid-1980s. Since then, its catalytic technology has steadily improved, and today a single pass through a reactor fully converts the syngas into long hydrocarbons.

Exxon Corp., which has quietly invested more than $100 million in its so-called agc-21 process over the past decade, has also developed vastly more efficient and proprietary catalysts. As a result, it is focusing on large-scale plants that could spew out up to 100,000 barrels of synthetic crude daily. Such plants would require so much gas, says Exxon CEO Lee R. Raymond, that only "a half dozen or so places" could support them. Qatar is one. Last October, Exxon revealed it is negotiating with Qatar General Petroleum Corp. (QGPC) to build a $1.2 billion conversion refinery with an initial capacity on the upside of 50,000 barrels a day. "If you weren't paying attention [to conversion technology] before Exxon's announcement, you were then," says Ralph A. Avellanet, manager of Energy's gas-processing program.

What began as a trickle of interest after Syntroleum's breakthrough last July is now a gusher. Commercial refineries may appear as early as next year--and the first ones could head down to the sea. In April, Sasol teamed up with Statoil, Norway's state oil company, to design conversion plants for seaborne production rigs. Brown & Root Inc., a subsidiary of Dallas-based Halliburton Co., is working on both barge-mounted plants that could be towed to offshore gas wells and on onshore designs.

Even companies with big stakes in the LNG business, including Phillips Petroleum Co., see the technology as a way to exploit smaller gas finds. "If there's gas, you've got to have enough for an LNG project or a new pipeline," both of which are multibillion-dollar investments, notes Phillips CEO W. Wayne Allen. "But if you come up with a way to get those btus into a liquid form that can be loaded on a tanker," he adds, that's a whole different game. "We are going to be working on this." Soon there may be a pack of sorcerer's apprentices plying gas-to-liquid magic.

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