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Sasol/Talisman GTL Project 'Compelling' Given Oil/Gas Price Differential

[Daily News] With oil trading at around 25 times of natural gas and Canadian gas searching for market alternatives, the case for a gas-to-liquids (GTL) project looks compelling, according to an industry analyst.

Sasol - the world's biggest maker of motor fuels from coal - and Talisman Energy Inc. are studying the feasibility of a commercial GTL facility in Western Canada. Talisman would have the option of a 50 per cent stake in the facility.

The companies updated aspects of the planned GTL project during Sasol's investor day held this week, and Ticonderoga Securities analyst John Malone stated in a research note that while the case for the project is compelling, it has the potential to be very costly and is still years away.

Fifty per cent of both Farrell Creek and Cypress A assets in British Columbia can supply a 48,000-barrels-per-day GTL plant, while 100 per cent of both Farrell Creek and Cypress A can supply two plants totaling 96,000 barrels per day, according to Sasol's presentation.

"Canada needs our products," Lean Strauss, group executive for new business and technical with Sasol told an investor session in New York. "Canada is short in terms of diesel, naphta and LPG.

"We can sell all our products in Canada. This is a unique opportunity for us."

The naphtha can be used as a diluent for the oilsands.

The site of the GTL facility could either be in Alberta or in B.C. and selection of a site is part of the scope of the feasibility study, a company spokesperson later told the Daily Oil Bulletin.

Ticonderoga, meanwhile, noted that what matters most with GTL is the ratio between oil and gas prices, adding that it's a rule of thumb in GTL that it takes roughly 10 thousand cubic feet (mcf) of gas to produce one barrel of liquids, so before considering capital spending, a GTL producer needs liquids prices at least 10 times that of gas to break even (the ultra-clean product that GTL plants produce generally sells at a premium to crude).

The Oryx GTL plant in Qatar, of which Sasol owns 49 per cent, was originally budgeted for $950 million and $1 billion and came in at about $1.1 billion. In the presentation, Sasol indicated that were Oryx to be built today, the cost would be closer to $2 billion to $2.5 billion, or about $65,000 per barrel.

In a world with growing demand for clean transport fuels, a price of over $100 per barrel for oil and natural gas under $5 per mcf, GTL "makes eminent sense" but to justify the high capex, that disconnect between oil and gas has to be sustained for decades, the Ticonderoga research note stated, adding that "we await more detail on costs and timing."

Sasol linked up with Talisman in a pair of joint ventures in northeast British Columbia at Farrell Creek and Cypress A Montney (Daily Oil Bulletin March 8, 2011). Sasol's GTL process was featured in the April edition of New Technology Magazine, which can be read by clicking here (subscription required).

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