Gas-to-liquid, or GTL conversion, refers to technologies that create diesel fuel from a methane-rich feedstock such as natural gas. While offering certain environmental benefits, GTL production is limited by high investment costs and the uncertainty of natural gas prices.
Diversification of supply is a major tenet of the US energy security strategy. A significant share of natural gas is located outside of the Middle East, making GTL an attractive diversification alternative to oil. However, because 45 percent of the natural gas input is used in the conversion process from gas to liquid, the economics of GTL usually only make sense for inexpensive “stranded gas.” Stranded gas refers to gas that is uneconomic to develop due to transport distances or lack of infrastructure. The bulk of the stranded gas resources are also in politically less stable regions, and therefore use of these resources would do little to assuage U.S. energy security concerns.
Even stranded gas costs may not remain low enough to make GTL economically attractive. As the cost of LNG liquefaction terminals continue to decline and demand increases, the opportunity costs of stranded gas will rise. Currently, stranded gas prices remain low enough to make GTL projects possible. Global natural gas production is expected to peak about 15 years after oil does, so there will likely be a period of greater GTL technology deployment, some of which we are beginning to see now in places like Qatar and Malaysia.
A major environmental benefit of GTL fuel is that it is virtually sulfur-free, and has significantly lower emissions of carbon monoxide, hydrocarbons, nitrogen oxide and particulate matter then conventional petroleum products. However, GTL fuel lifecycle greenhouse gas emissions are approximately 25 percent higher than conventional oil. Carbon capture and sequestration (CCS) could be used during the conversion process to capture enough emissions to make GTL emissions less than those of conventional oil, but costs would further increase.
In general, converting natural gas to liquid petroleum products is becoming more competitive with conventional oil production as the conversion process improves and the benefits of clean synthetic diesel are priced into markets. But competition between liquefying natural gas for the power and industrial sectors, and converting it to a petroleum product for the transport sector will remain a key investment decision. For these reasons, the Energy Information Administration forecasts a relatively minor 0.2 million barrels per day of production increase in its “high scenario” for 2030.