LNG versus GTL: The Impact of Unconventional Gas

Introduction LNG vs GTL: The Impact of Unconventional Gas Gas-to-liquids (GTL) overview Introduction to GTL process technology Gas monetisation options How LNG and GTL fit in the marketplace Drivers for GTL What factors may promote GTL over LNG and other options Impact of unconventional gas Unconventional gas influences on relative appeal of GTL 1

GTL Overview 2

Gas to Liquids Overview GTL flowscheme Syngas generation Fischer-Tropsch (F-T) synthesis Syncrude refining 3

GTL Flowscheme Air separation Gas clean-up Synthesis gas generation F-T synthesis Refining 4

Syngas Generation Synthesis gas generation Conversion of clean feed gas into a mixture of mostly CO and H 2 using a process of reforming or partial oxidation Air separation unit Oxygen is required for syngas generation and is normally supplied by a cryogenic air separation unit Use of steam methane reforming allows the necessary oxygen to be obtained from steam but results in excess hydrogen Use of air instead of oxygen results in a high levels of inerts and larger equipment sizes 5

FT Synthesis F-T synthesis Conversion of synthesis gas into long-chain hydrocarbons (syncrude). Conversion occurs in the presence of a catalyst; most commonly cobalt-based. 6

Syncrude Refining Product slate from a typical GTL facility: LPG Naphtha Diesel (Kerosene) (Base oils) (Paraffins) F-T- derived liquid products command a premium compared with conventional refinery products due to enhanced characteristics: Higher cetane number Lower sulphur levels Lower exhaust particulates Lower NO x and SO x emissions Lower toxicity Biodegradable 7

Gas Monetisation Options 8

Gas Monetisation Options Gas monetisation options Transportation versus transformation Monetisation options matrix 9

Transportation versus Transformation Compression Pipeline / CNG Fuel (heat/power) Transportation Liquefaction LNG / FLNG Fuel (heat/power) Power Generation Electricity Grid Electric Power Natural Gas DME LPG / Diesel Substiute Methanol MTO Ethylene Propylene Polymers Transformation MTG Gasoline Syngas Generation Syngas Hydrogen CO H 2 Acetic Acid VAM / Esters Hydrogen Ammonia Fertilisers FT GTL Transport Fuels 10

Monetisation Option Matrix 500 Production rate [Bcf/year] 400 300 200 Pipeline CNG LNG GTL + Chemicals LNG + GTL 100 0 Electricity (HVDC) Associated GTL + Chemicals 0 1000 2000 3000 4000 5000 Distance to market [km] 11

GTL Drivers 13

GTL Drivers Economic drivers Product slate Location Composition Other drivers Fuel supply security Portfolio diversification Environmental pressures 14

Economic Drivers Several economic factors can favour GTL over LNG: a) Product Slate Crude derivatives which are more valuable than gas. b) Location The world is not a level playing field: consider Ras Laffan and Louisiana! Factors include feed and product prices, construction and product export logistics and labour costs. 15

Economic Drivers c) Gas composition Gas composition impacts the relative appeal of GTL and LNG: C2+ Low levels of C2+ may directionally favour GTL Sulphur Sweet gas may directionally favour GTL CO 2 Higher CO 2 levels may directionally favour GTL 16

Other Drivers Fuel supply security Political motivation to reduce reliance on imported fuels Land, sea and air transport still heavily reliant on diesel and kerosene Portfolio diversification Risk associated with putting all eggs in one basket GTL is an option for reducing portfolio risk Environmental Issues Co-product displacement method work (by Sasol) suggests lower well-to-wheel carbon footprint for GTL diesel than conventional diesel Increasing environmental emission controls increase value of GTL products as blendstocks 17

Impact of Unconventional Gas 18

Impact of Unconventional Gas Economic drivers Product slate: little impact (naphtha as solvent for tar sands) Location: spread of unconventional gas exploitation Composition: some leverage here Other drivers Fuel supply security: greater opportunities Portfolio diversification: larger portfolios Environmental pressures: stranded associated gas? 19

Impact of Unconventional Gas Economics Gas market is regional Unconventional gas can shift local market conditions USA and Canada Future oil: gas price ratio is hard to predict: Economic downturn Environmental issues (Carbon tax, fracking perception) Drilling / fracking advances Growth of LNG market Gas production in 2035 by type (main producers) WEO2011 OECD/IEA, 2011 20

Impact of Unconventional Gas Location Export of fracking and horizontal drilling technology World Shale Gas Resources OECD/IEA, 2011 21

Impact of Unconventional Gas Composition Coal-bed methane: generally sweet, low C2+, potentially high CO 2 Shale gas: wide composition envelope but relatively sweet Tight gas: similar composition envelope to conventional gas 22

Summary 23

Summary Delta between LNG and GTL is transportation versus transformation GTL products access crude derivatives markets GTL products have high value relative to crude-derived products Unconventional gas drives local delta between oil and gas price Some unconventional gas composition factors may favour GTL Look at Shell and Sasol interests in Louisiana! 24