Making diesel out of natural gas: teaming up for a big change from a little plant.

• Author: Bradner, Mike
• Position: SPECIAL SECTION: Oil & Gas

A new kind of refinery is being planned at Prudhoe Bay on the North Slope. It would manufacture diesel, and possibly other fuel products, from natural gas. The customers will be North Slope field operating companies and contractors.

Alaska Natural Resources-to-Liquids, an Alaska-based company, is teaming up with two Houston-based technology companies, Velocys and Ventech Engineers International, to build a smaller scale gas-to-liquids plant.

Usually, gas-to-liquids plants are huge. Several are operating around the world in South Africa, Qatar, and Malaysia, operated by Shell and Sasol, the South Africa-based energy company. Velocys has been successful in scaling down the technology, however, to the point that one thousand to four thousand barrels-per-day plants are commercially viable.

A four thousand barrels-per-day plant is envisioned for the North Slope, and if it is built, it would allow fuel to be made on the slope, potentially reducing diesel prices by a third at higher diesel prices and by more than 10 percent in today's lower-price environment. Currently operating companies and contractors working there transport their fuel nine hundred miles from refineries in Southcentral Alaska, which is not only costly but hazardous, particularly along the Dalton Highway. A North Slope gas-to-liquids plant, which could cost $250 million to $600 million depending on how much fuel is required, will supply fuel to the local resource holders and eliminate several million road-miles of yearly transport. The plant would easily fit on a 15-acre site with room for storage tanks and a safety flare.

Bigger Not Always Better

In the world of hydrocarbon processing, as in refineries, bigger is usually better. Capital costs are high but with those come more volume and economies of scale, which brings down unit costs on a per-barrel basis to overcome the burden of high capital costs. But big capital investment also means big risk if something goes wrong.

Efforts to scale down the technology have been aimed at making the plants smaller and more compact, with less capital investment and, therefore, less risk. The US Defense Department has been interested in this for years and has been the big driver in research to give the military the ability to manufacture fuel in remote locations. The Defense Department, through the US Department of Energy, provided early research and development funding for technology firms, many of them startups, to work on scaling down the...