Gas power, not just thin air

On Friday there was an article out about scientists that have developed a new way of converting Natural Gas into fuel. The new process has three key breakthroughs in its process. The first is that they can use "Main group" metals like lead in the conversion process instead of the rarer metals currently used, which makes the process cheaper. The second breakthrough is that the process only requires a fraction of the heat, 180 degrees Celsius instead of the current standards of about 1500 degrees Celsius, so again making the process cheaper. Then the last break though is that it requires less steps to transform the Natural Gas, so again making the process cheaper.

How will this new gas technology affect Sasol? The gas market has three main types of technologies when it comes to transforming the gas into a usable resource. Liquid Natural Gas (LNG) is the most common one used. In this process the natural gas is extracted and sent to a processing plant where impurities are removed from the gas (the materials that will freeze at low temperatures). The temperature of the gas is then dropped to -162 degrees Celsius which turns it into liquid and it becomes 1/600 of the size it used to be. The gas is stored under pressure in order to keep the temperature down, and in liquid form it is not flammable. It is only when it is heated and exposed to air that it becomes flammable; making transporting LNG relatively safe. LNG is then transported to where it is needed and either turned back into a gas or remains as a liquid.


The technology that Sasol operates in is the Gas to Liquid (GTL) area. GTL is a very niche sector to be operating in due to large barriers to entry coming from high costs and time of building plants. Sasol's proposed plant at Lake Charles in Louisiana will cost about $15 billion to build and could take up to 4 years to build. GTL takes gas and turns it into a "normal" fuel, in Sasol's case they turn most of their gas into diesel. The advantage of this process is that once it is transformed there is no need to have cryo storage containers like LNG and it can be used in conventional diesel engines. The diesel is more environmentally friendly than normal diesel and it produces more power, so it is a premium product (if you have a diesel car use Sasol). The product is then sold at prices that are determined by oil prices which are significantly higher than natural gas, meaning that the margins made on the GTL fuel are huge! (they would have to be in order to make up for the large initial investment)


The next form where gas reaches the final consumer is as Compressed Natural Gas (CNG). This is where the gas is compressed but is still in gas form unlike LNG. This technology is used in gas powered cars, and according to Wikipedia there were 14.8 million vehicles who ran on gas as at the end of 2011. The biggest drawback for this form is that the gas tanks need to be larger than the tanks used in petrol/diesel cars due to CNG being less dense than conventional fuel. Another disadvantage is that there is limited infrastructure to refill and you either have to buy a CNG vehicle or convert your current. Sasol sells fuels that are used in standard cars, using an already established infrastructure and their input cost, gas, is a fraction of the cost of their competitors.


The impact of the new technology mentioned at the start of this piece will make it more cost effective to use gas for our energy demands and if we (South Africa) get shale gas right we can use it to give cheap energy to the country and give us a competitive advantage. As long as the products that Sasol sell are priced according to the oil price, this new technology won't be a threat to Sasol's margins.


What is the future of gas? Gas currently fuels about 1/4 of Americas energy needs and should fuel a greater amount in the future, due to it being the cleanest burning fuel and it being cheaper than oil. According to the World Bank, the equivalent of about 30% of the EU's current gas consumption is either vented or flared by gas companies, so there is an oversupply and supply will continue to grow as the fracking revolution takes hold. With the oversupply, prices should stay low which will make the natural energy proposition more attractive going forward.