IRAN - Clean Fuels From Natural Gas Project.

The following are excerpts from a presentation made at the 14th Annual APS Conference, Middle East Strategy To The Year 2013, held in Nicosia on Oct. 9-11, by Dr. Narsi Ghorban, Managing Director of Tehran-based NarKangan Gas To Liquid International Co. Dr. Ghorban outlined his company's project for a gas-to-liquids (GTL) plant to be built in Iran.

"Iran, with the world's second largest gas reserves, cannot be indifferent to the developments in gas technology and markets. The country's current emphasis is to replace rapidly growing domestic demand for petroleum products with gas and speed up the gas injection in the oil fields in order to enhance oil recovery. Gas export projects are also gaining momentum... The construction of a gas pipeline to Turkey, in accordance with a 1997 agreement, has been completed on the Iranian section early this year. But gas exports would begin in the summer of 2001 due to construction delays on the Turkish side. A projects for gas exports to Pakistan and India has been on the drawing board for the past ten years mainly due to political tension between Pakistan and India. Last month agreement with British Gas for the development of Iran's first LNG plant was considered a turning point in Iran's vision for gas exports to the international markets.

"The National Iranian Oil Company (NIOC) and the National Petrochemical Company (NPC) have been following progress in GTL technology for some time and it is now believed that the extraction of high-quality petroleum products from natural gas provides one of the best alternatives for monetizing Iranian natural gas resources. The Petroleum Minister Mr. Bijan Namdar Zanganeh has also voiced interest in the GTL process on several occasions indicating that it will allow Iran to direct its huge gas reserves to the global market for high quality petroleum products. GTL could also help Iran to divert valuable crude oil, which currently has to be refined for domestic consumption, to the international markets. Last month NIOC and NPC signed a memorandum of understanding with Royal Dutch Shell for a GTL project. In this MoU the parties agreed to study the gas development of one phase of the South Pars gas field and its utilization in a 70,000 b/d GTL plant in Iran (five times larger than the Shell's existing GTL plant in Malaysia).(

"The economics of gas to liquids, based on proven technologies and efficient process, depends on: (1) availability and the price of gas, (2) capital and operating cost, (3) price of the premium petroleum products, and (4) the fiscal regime and local infrastructure.

"Availability of large gas reserves is one of the essential parameters in consideration of GTL plants. The amount of gas needed for a 35,000 b/d GTL plant over 25 years would be around 2.75 trillion cubic feet (TCF) of gas, nearly four times the commercial size methanol or MTBE plant, which requires 0.7 TCF. The gas requirement for a 100,000 b/d GTL plant over 25 years would be around 8.2 TCF, which is less than 1% of Iran's current gas reserve estimate of 900 TCF.

"The price of gas is another important factor in the economics of GTL projects. If 8,500-9,500 cubic feet of gas were used to produce a barrel of product, the feedstock cost would be between US$6.0-7.6 per barrel at a gas price of 70-80 cents per million BTU. At the current oil prices of $25-30 per barrel, this would represent around 20-25% of the cost of high quality fuels produced.

"The capital costs associated with the building of a GTL plant has been reduced considerably in the past decade. The cost of the Shell Middle Distillates Synthesis Process (SMDS) has been reduced from $50,000 per barrel per day capacity (50,000/bpd) in 1987 for the 12,000 b/d SMDS plant in Bintulu to today's $20,000/bpd for the second generation technology based on a 70,000 b/d improved design plant. Similar to LNG, the enhanced technology and more efficient catalyst have reduced GTL costs drastically in a relatively short time. Sasol's Slurry Phase Distillate Process costs have also been reduced from $35,000/bpd to less than $24,000 per daily barrel of diesel and naphtha produced on two trains of 30,000 b/d units. The capital cost associated with the development of a GTL process by Syntroleum Corporation has been put at $23,000/bpd. Operating costs are estimated to be between $3-5 per barrel depending on the location of the plant. Operating costs in Iran are expected to be around $3.0/barrel by using available Iranian qualified technicians, engineers, managers and the country's low cost of living compared to other Middle Eastern countries.

"Trends in Environmental regulations will instigate a growing demand for low-sulfur and no-sulfur fuels and feedstocks. By 2005, there will be a demand for several hundred thousand barrels per day of sulfur-free fuels. GTL products are perhaps the only candidates to supply this market.

"Products that can be produced with relatively high degree of flexibility in a GTL plant are: naphtha/kerosene, gasoil, base oils, and chemicals. These quality products, given the current price of $25-30/b for the Brent crude oil, would fetch an average of $35-40/b. In general, GTL products are of superior quality and are expected to fetch 30-40% premium over the price of crude oil. The price of these quality products would ultimately depend on the world economic growth and the future standards for the products in the industrialised countries, which would constitute high demand for cleaner petroleum products.

"The fiscal regime and local infrastructure are very important factors in the economics of GTL plant. Iran has suggested the Special Energy Economic Zone of Assaluyeh for the first GTL project. The government would provide all the required infrastructure such as water, power and port facilities for local and international companies eager to invest in energy-related projects in this area. The Special Energy Economic Zone of Assaluyeh would provide 8-12 years of tax holiday and exemption from import of all relevant equipment and services for the GTL project.