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London — * Investors see economic conditions for small-scale GTL
* Kazakhstan, Turkmenistan advancing diesel, gasoline projects

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Former Soviet Central Asia is emerging as a focus for developers of the next generation of small-scale gas-to-liquids projects, as hopes of a North American GTL boom fade.

The past few weeks have seen two new projects advance, with UK company Compact GTL, chaired by ex-BP chief Tony Hayward, unveiling plans for a plant in Kazakhstan's northwestern region of Aktobe, and an agreement on a project in Turkmenistan involving South Korea's Hyundai Engineering and Construction and LG International.

The announcements follow another GTL project already under development in Turkmenistan that brings together Japan's Kawasaki Heavy Industries, Turkish building company Ronesans and Danish engineering and petrochemical company Haldor Topsoe.

In addition, South Africa's Sasol remains formally committed to a larger, 38,000 b/d GTL project in Uzbekistan, although progress has been slow.

The projects are advancements on GTL technology first developed in 1920s Germany and taken up in the post-war period by Apartheid-era South Africa.

Until recently a number of companies were talking about using cheap shale gas to build the next generation of GTL projects in North America.

Shell was enthused by its 140,000 b/d Pearl GTL project in Qatar, which reached full production in late-2012, but in January 2014 dropped plans for another such plant on the US Gulf Coast.

It cited high costs and uncertainty about gas prices in the long term.

Sasol said this January it was delaying a proposed 96,000 b/d GTL plant planned in Louisiana due to the collapse in oil prices.

Compact GTL chief executive Edmund Buckley says the fall in North American transport fuel prices has added to doubts about GTL projects there.

By contrast in Kazakhstan, a vast, resource-rich country with a weak refining and fuel distribution system, conditions are right for small-scale plants that meet local needs, he says.

Central Asia may not score highly in rankings of places to do business, but in certain contexts gas can be obtained almost for free.

With world oil prices as low as $50/b, "you have to get gas for free," Buckley said, describing US GTL projects, at least outside Alaska, as "a fool's game." Despite being a major crude exporter, Kazakhstan "imports significant amounts of diesel," he added."They have short refining capacity, their refining capacity is old -- there's definitely a market."

Compact GTL has already built a miniature demonstration plant in Brazil.

Its proposed plant in Kazakhstan, with capacity of just 2,500 b/d, is far smaller than those in Qatar or those proposed for North America.

It is a joint project with China's Sinopec, which produces oil and gas in Aktobe region, and state-owned KazMunaiGaz, and will be a showcase for potential small-scale projects elsewhere that convert gas to diesel, Buckley says.

He highlights the fuel quality issues that persist in Kazakhstan and says that despite the government's efforts to keep down prices, real prices in the country's fragmented local markets are competitive. About 30% of fuel on the Kazakh market is imported from Azerbaijan or Russia, the company estimates.

Buckley expects to achieve retail prices of around 95 US cents/liter for the company's synthetic diesel.

The project is not just based on low-cost gas, but will enable Sinopec to avoid $60 million/year in penalties for flaring associated gas, he says.

Project engineering has advanced and the plant should be operational in 2018, the company says.

It estimates project costs at $100,000/b of capacity, implying a $250 million price tag, while operating costs will be $15-$20/b of diesel produced, making the process cheaper than gas-to-gasoline projects, Buckley says.

Diversifying economies

Central Asia is not the only part of the world with GTL projects underway. Chevron's 33,000 b/d synthetic diesel project in Nigeria -- another resource-rich country lacking refining capacity -- is being started up following long delays.

However the Central Asian projects reflect a desire on the part of post-Soviet governments around the Caspian to add value to their resource-dependent economies and reduce reliance on export pipelines.

Azerbaijan, to the west of the Caspian Sea, is also advancing plans for a vast refining and petrochemicals complex to offset declining crude production.

Gas-rich Turkmenistan is keen to diversify beyond China as the main market for its gas, while it hesitates over a long-discussed plan for an export pipeline across the Caspian to Azerbaijan and western markets.

The latest Turkmen GTL project, to be built by Hyundai Engineering & Construction and LG International, is expected to convert 3.5 Bcm/year of natural gas into gasoil, kerosene and naphtha -- the quantities have still to be decided.

However Turkmenistan's other GTL project, involving Kawasaki Heavy Industries and Haldor Topsoe, is already under construction, and reflects the idea that starting small may be best.

It will produce just 15,500 b/d of synthetic gasoline, serving mainly the modest needs of the capital city, Ashgabat.

--Nick Coleman,
--Edited by Jonathan Dart,