Oil and Gas:

Sasol's de Ruyter discusses progress on Louisiana gas-to-liquids facility

How could the success of gas to liquids change the state of play on energy in the United States? During today's OnPoint, André de Ruyter, senior group executive at Sasol, a South African energy firm, discusses his company's plans for an integrated gas-to-liquids project and world-scale ethane cracker in Louisiana. He explains the market dynamics behind the project and addresses the regulatory challenges facing gas to liquids.

Transcript

Monica Trauzzi: Hello, and welcome to On Point. I'm Monica Trauzzi. Joining me today is AndrĂ© de Ruyter, senior group executive at Sasol. André, thanks for coming on the show.

André de Ruyter: Very nice to be here.

Monica Trauzzi: André, back in December Sasol announced, alongside Louisiana Governor Bobby Jindal, that it was entering the front end engineering and design phase of an integrated gas to liquids facility. There's also a world scale ethane cracker involved here. There's a lot to talk about here, but first, let's start with the difference between liquefied natural gas and gas to liquids, because there's a big debate here in town on the LNG front.

André de Ruyter: The difference is that with LNG, what you're essentially doing is you are packaging the gas in a very dense format by chilling it down to very low temperatures in order for it to be exported. What we do is we fundamentally alter the chemistry of natural gas. We move from a short chain molecule to a long chain molecule, and we convert the gas from natural gas to diesel and other liquids.

Monica Trauzzi: So in terms of the LNG exports debate, would gas to liquids play any role in exporting, or is this just a fuel that would be used internally in the United States?

André de Ruyter: This is a different way of monetizing natural gas. So we could potentially compete for the same natural gas resources, markets, but we don't see LNG as a competitor to us. It is just a different way of monetizing the resource.

Monica Trauzzi: So the projects are costly. We're talking about between estimated $16 and $21 billion. It's a historical investment in Louisiana. Is the project shovel ready, though?

André de Ruyter: What we're doing at the moment is, as you said, we are still doing a lot of engineering work. We are working very hard to bring the capital down. It is a big number, and we'd obviously like to optimize on that number. But we have a team on the ground in Houston working very hard. We have a site identified. We have got the land acquired. And we're working very hard in Washington with the various regulatory authorities to make sure that we don't drop a catch on any of the permitting procedures.

Monica Trauzzi: Okay. So what are some of the regulatory hurdles that you're looking at right now?

André de Ruyter: Well, they are not really hurdles, because we're not asking for any special treatment. We're not asking for any waivers. We're not asking for anything to be changed for us. We're not asking for any preferential pricing on the product. We intend to compete in the market as it is today. But because this is a big project, it does require EPA approval, it does require involvement of the U.S. Army Corps of Engineers, and we're talking to those agencies.

Monica Trauzzi: Are you confident that there will be approval? I mean, even things like LNG exports are facing a lot of debate, so at what stage in the discussion are you?

André de Ruyter: We are in the very early stages. We're very fortunate that we are working with the Department of Commerce under the Select USA Program, which is intended to coordinate exactly the various regulatory approvals that we have to achieve for a program of this nature, project of this nature. So we're very comfortable with the way forward. We do think, however, that the benefits of the project to Louisiana and to the federal government as well will be very significant. We will be paying just under $1 billion in tax to the federal government, half a billion to the State of Louisiana, per annum. We'll be creating 1,200 new jobs, direct jobs, and during peak construction, we'll be employing about 7,000 people on site.

Monica Trauzzi: All right. But how confident are you that this project could turn a profit?

André de Ruyter: We're very comfortable with the economics of the project. Based on our assessment and the spread between natural gas and oil in the long run, because that's the arbitrage that we essentially play here, we think that we have the technology to bridge that gap, to arbitrage that gap, and the spread is sufficiently wide, and we anticipate that that spread will remain.

Monica Trauzzi: The price of gas, though, is expected to fluctuate in coming years. So at what price - at what gas price is the project no longer economically viable?

André de Ruyter: We can accommodate a difference in gas price multiple of 1 to 16. So if gas prices were to be at $4.00 per MMBtu, we could have an oil price of 16 times that and still be profitable. Today's multiple is of course closer to 37. So we could waive a magic wand and have the plant up and running today, we'd be making a significant profit.

Monica Trauzzi: Does consumer demand exist within the US for gas to liquids, and what are you doing to sort of build that market, so when the fuel does exist, you have somewhere to send it to?

André de Ruyter: Yeah. The US is of course a very substantial consumer of energy, and diesel is one of those components. The US is however also a net exporter of diesel, mainly to Europe. And we've based our economics on the most conservative assumption, which is that the product will be exported. We do, however, foresee that increasingly the US will become more dieselized, so diesel will become more readily accepted as an automotive fuel, and we think that our product, with a very high cetane number, effectively zero sulfur content, and very low particulate emissions, will be a very desirable blend stock also for conventional crude oil refiners to blend away some of the negative characteristics of crude oil derived diesel.

Monica Trauzzi: Shell and some of the other majors have been looking into pursuing similar projects, but they have not yet, so why the eagerness on your company's part, and are some of these major companies sort of missing the ball here?

André de Ruyter: Shell has built a very, very large GTL project in Qatar, quite close to the plant that we operate there, and have operated for the past ten years. And the reason why we at Sasol are confident about this project and this technology is that we've been doing this in some shape or form for the past 60 years. So we think that we have a real leading position in terms of the technology. What we will be doing in Louisiana is exactly a replica, slightly larger, that we've got operating in Qatar. So that's running at full capacity. We're marketing the product into existing markets today. So we feel very confident that we've sorted it out, and that this will be a profitable investment for us.

Monica Trauzzi: So in terms of the Louisiana project, what are the next steps? Are you talking to folks about supply contracts? I mean, where do you go from here?

André de Ruyter: We're engaging with any number of contractors on, first of all, front end engineering and design, the engineering work, project management. We are talking to some of the gas suppliers. We're talking to some of the ethane suppliers. And thus far, the reaction has been very positive. Folk are very excited and interested in this project.

Monica Trauzzi: All right. We will end it right there. Thank you for coming on the show.

André de Ruyter: Thank you very much.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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