Sasol and Cheniere like Louisiana so much they’re coming back for more … and bringing $16 billion with them.
On Sept. 13, South African energy giant Sasol announced that it has selected Calcasieu Parish as the location for a potential gas-to-liquids (GTL) complex that would entail a capital investment of approximately $8 billion to $10 billion and produce direct employment of approximately 850 jobs, with average salaries of about $89,000, not including benefits.
Louisiana Economic Development sees a lot it likes about the project, estimating the creation of approximately 4,000 indirect jobs and the consumption of approximately 305 billion standard cubic feet of natural gas per year, which would represent roughly $1.3 billion to $1.5 billion per year in natural gas purchases at current prices. Thus, said LED, “Sasol’s proposed GTL complex would provide a huge new source of demand for the Haynesville Shale and other natural gas plays in Louisiana.”
Due to new exploration and drilling technologies, the amount of natural gas available for production in the U.S. has soared by 58 percent over the last four years. Sasol says the U.S. has over 2,000 trillion cubic feet of natural gas still underground – “nearly a century’s worth” – due to advances in production technology.
“Without question, the Haynesville Shale and other unconventional natural gas plays are transforming the energy economy in the U.S., and we are positioning Louisiana to be one of the chief beneficiaries of that transformation,” said Louisiana Gov. Bobby Jindal.
“Louisiana has proven to be a place where research and next-generation technologies can thrive and grow,” said Ernst Oberholster, Sasol’s managing director of new business development. “We believe Sasol’s GTL technology can help unlock the potential of Louisiana’s abundant natural gas resources and contribute to an affordable, reliable fuel supply for the United States. We look forward to continuing to work with the people of Louisiana to make a long-term and sustainable contribution to the state.”
Sasol’s GTL complex would be the first of its kind built in the United States, with Sasol converting natural gas into synthetic gas and then converting the synthetic gas into premium diesel fuel and related products. Sasol Ltd., based in Johannesburg, has been an innovator in coal-to-liquids and gas-to-liquids refining methods since the 1950s. Its Sasol North American Inc. subsidiary currently operates the 400-employee Sasol Lake Charles Chemical Complex in Westlake, located next to the city’s ConocoPhillips petroleum refinery.
LED says the state is primed for GTL projects because of such factors as a large industrial construction and petrochemical operations work force; proximity to the Haynesville Shale and other emerging shale plays; highly competitive tax structure and incentive offerings for manufacturers; extensive petrochemical infrastructure; and one of the largest port complexes in the world. LSU recently completed an economic impact analysis commissioned by Sasol that shows that construction alone will generate another $1.73 billion in additional business activity and more than 12,000 new jobs associated with $577 million in personal earnings during the five-year construction period. Once the Sasol GTL complex is fully operational, it would lead to additional economic activity in the state of almost $919 million a year.
Known Quantity, Known Quality
Sasol started working with LED’s Business Expansion and Retention Group in mid-2010, using GIS mapping technology to recommend locations that would optimize a variety of customized site-selection criteria. “The GIS work and partnerships with the Port of Lake Charles to secure land options saved the company months of planning and preparation work,” said LED, “which helped make the Louisiana proposal Sasol’s preferred option. LED is working with Sasol on a customized incentive package for the project.”
George Swift, president and CEO of the Southwest Louisiana Economic Development Alliance, attests to the value of GIS mapping in moving the project along.
“Fortunately our parish government about 20 years ago had begun to invest in that,” he says. “So we had all the GIS data available. LED brought in a consultant, Victor Leotta, who works with GIS, and they were able in a matter of days to go through and rule properties in or out. It was the quickest site selection I’ve ever seen because they could look at multiple properties. Issues were identified such as pipelines and rail. Having that GIS data helped them save six months.”
According to LED, Sasol considered several other states, and it could also still develop a second facility in Canada. A spokesperson says Sasol is not publicly discussing the other locations that were considered. Sasol plans for a design-and-engineering phase for the proposed Calcasieu Parish facility to begin soon, following the company’s completion of an extensive 18-month feasibility study estimated to cost in the tens of millions of dollars.
“If all proceeds as planned, construction is expected to start in 2013, and the complex would be built in two phases that upon completion in 2018 would process approximately 4 million tons of products per year, with a maximum capacity of 96,000 barrels per day,” said LED. Sasol’s press release said the study “will consider two options of a 2 million tons per annum and a 4 million tons per annum facility.” According to Sasol, the project would create thousands of construction jobs at an average salary of $75,000.
Sasol was formed in 1950 in Sasolburg and celebrated 60 years of operations in 2010. The company converts gas and coal into liquid fuels, fuel components and chemicals through its proprietary Fischer-Tropsch processes. It also mines coal in South Africa, produces gas in Mozambique and oil in Gabon, and has chemical manufacturing and marketing operations in South Africa, Europe, Asia and the United States. The company’s first GTL plant started up in Qatar in 2007. It’s also looking to develop a new GTL plant in Uzbekistan, for which Sasol and partners Uzbekneftegaz and PETRONAS signed an investment agreement with the Uzbekistan government earlier this week, on Sept. 19.
But Louisiana has received its share of attention from the company in recent years. In 2004, Sasol moved its North American R&D headquarters from Austin, Texas, to Westlake with a significant capital investment that yielded 50 new positions for research scientists, chemists and engineers. Sasol’s R&D facility has since partnered with Louisiana universities on some programs. In December 2010, Sasol announced plans to build the world’s first commercial ethylene tetramerization plant in Westlake with a $175-million investment. Ethylene is one of the building blocks of the petrochemical industry and the foundation for polyethylene, the most common plastic used in everyday consumer and industrial applications.
What’s the LCA for GTL?
Gas-to-liquids (GTL) technology converts natural gas into liquid products including GTL diesel, kerosene for jet fuel blending, naphtha, liquefied petroleum gas (LPG), and other chemical feedstocks. Among its several advantages, GTL diesel burns cleaner, has a higher cetane number (a standard gauge of combustion quality for diesel) and a lower emissions profile.
As for producing such fuels, Sasol says, “A report by Five Winds International that reviewed several LCAs [life cycle assessments] of GTL, found that GHG emissions resulting from GTL fuel production and use are comparable to the GHG emissions associated with fuel refined from petroleum. In 2005, PricewaterhouseCoopers conducted a LCA of a number of transportation fuel processes, including a modern petroleum refinery and a GTL plant. The study showed that GTL offers substantial air quality benefits compared to an oil refinery due to its lower sulfur dioxide, nitrogen oxide and hydrocarbon emissions.”
A study commissioned by ConocoPhillips found that greenhouse gas production “can be significantly reduced (by more than 10 percent) when GTL fuel is produced from associated gas (natural gas produced as a by-product of oil production) which would otherwise be flared.” And Sasol says the smog formation potential of a GTL system (arising from the emission of volatile organic compounds and nitrogen oxides) “is significantly lower (from 30 to 70 percent less) than that of a refinery system.”
Cheniere Looks to Move Gas Both Ways
In its GTL literature, Sasol takes pains to explain how GTL-derived fuels differ from liquefied natural gas (LNG) or, for transportation purposes, compressed natural gas (CNG), pointing out that LNG is used mainly for power generation, and CNG would require “an entirely new fuel distribution infrastructure and vehicle fleet.”
LNG, however, continues to drive Southwest Louisiana’s economy, with pipeline and terminal projects from such companies as Sabine Pass LNG, Cheniere Energy and Trunkline LNG. Now, though, an idea that might have been unthinkable a decade ago when new LNG import terminals were in the news is coming to fruition: a liquefaction complex for exporting LNG.
In July, Gov. Jindal joined Cheniere Energy Chairman and CEO Charif Souki to announce that one of the first natural gas liquefaction facilities in North America will be constructed at Cheniere’s Sabine Pass terminal in Cameron Parish, at the Texas state line, with an investment of $6.5 billion, the creation of 148 new jobs and the retention of 77 existing jobs, with a total compensation and benefits package that will exceed an annual average of $100,000. Cheniere is expected to utilize the Quality Jobs and Louisiana FastStart programs, as well as the Industrial Tax Exemption Program, to support the expansion project.
“The construction of Cheniere’s liquefaction project in Cameron Parish will provide key support to Louisiana’s economy and natural gas industry, which has been transformed by the development of the Haynesville Shale,” said Souki. “In only two years, Louisiana’s natural gas production has doubled as the Haynesville has grown into one of the most prolific shale plays in the world. Our liquefaction project will provide thousands of jobs in Southwest Louisiana while connecting the state’s natural gas industry to global markets, making Louisiana the world’s first dual importer and supplier of LNG.”
An August corporate presentation from Cheniere makes clear that the Haynesville Shale is but one of several primary gas sources for the liquefaction complex. Others include the Bossier formation in Louisiana, and the Barnett and Eagle Ford formations in Texas.
The announcement came two months after Cheniere received an order from the U.S. Dept. of Energy with authorization to export domestically produced natural gas from the Sabine Pass terminal “to any country that has, or in the future develops, the capacity to import LNG and with which trade is permissible.”
Under the order, Sabine Liquefaction received long-term, multi-contract authority to export on its own behalf, or as agent for others, up to the equivalent of 803 Bcf per year (approximately 16 million metric tons per annum, or mtpa) of domestically produced natural gas as LNG. The authorization commences the earlier of the first export or five years from the date of issuance of the authorization. Still to come is final authorization from the Federal Energy Regulatory Commission, anticipated in early 2012.
Once that is secured, Cheniere anticipates construction will begin, with hiring of the new permanent jobs beginning in 2014. The company will commence operations at the liquefaction facility in 2015, and the second phase of the project is expected to be completed by the end of 2018.
“Our terminal, designed with substantial operating flexibility and strategically located on the Gulf of Mexico, will provide customers the option to purchase or sell LNG from and to U.S. markets,” said Souki in May. “This is possible only because of the unique depth of the markets in the Gulf Coast, both on the production and consumption side; with approximately 30 Bcf/d of fully integrated physical supply, pipeline infrastructure, storage, and market delivery capability. With the unprecedented growth in unconventional reserves, supply of natural gas continues to outpace demand dramatically. There are currently an estimated 3,500 wells that have been drilled but not completed with the potential to continue to boost production. The U.S. has an opportunity to become a significant supplier in the global energy markets.”
As currently contemplated, the Sabine Pass liquefaction project would be designed and permitted for up to four modular LNG trains, each with a nominal capacity of approximately 4.0 mtpa. “We anticipate LNG export from the Sabine Pass LNG terminal could commence as early as 2015,” says the company, “and may be constructed in phases, with each LNG train commencing operations approximately six to nine months after the previous train.” Estimated construction time is approximately 36-42 months per train.
The Advantages of a Brownfield Location
The original Cheniere LNG import and regasification terminal, after an investment of $1.6 billion and with a send-out capacity of 4.0 Bcf/d, became operational in 2008, the same year the Creole Trail Pipeline it feeds into also became operational. The receiving terminal is the largest in terms of capacity among 12 in North America either existing or under construction, says the company.
The site in Cameron Parish encompasses 853 acres (345 hectares) and features a 40-ft.-deep (12-m.) shipping channel a few miles from the coast. The site currently features two berths and five LNG storage tanks. The liquefaction expansion will feature six gas turbine-driven refrigerant compressors per train, and modifications to the Creole Trail pipeline.
The company says the range of liquefaction project costs can run from $200 to $2,000 per ton, and that the Sabine Pass project is estimated to cost approximately $400 per ton. Cheniere has engaged Bechtel Corp. to complete front end engineering and design (“FEED”) work and negotiate a fixed price, lump-sum, turnkey EPC contract for the liquefaction project and interconnection with Sabine Pass’s existing facilities. Cheniere points out that project teams are in place with the same key people who delivered the terminal project on time and on budget.
The corporate presentation also notes “very strong local support” from Cameron Parish officials, Louisiana state and federal congressional delegations, and parish state agencies, as well as from most gas-producing states.
“We expect to see even more massive capital investment projects associated with the Haynesville Shale announced in Louisiana over the next few years,” said Louisiana Economic Development Secretary Stephen Moret in July. “The economic benefits of historically low, stable natural gas prices in Louisiana have only begun to be realized.”