Last of GTL Pioneers - interview of Prof. Mordkovich
Sep. 12, 2019

Last of GTL Pioneers - interview of Prof. Mordkovich

Vladimir Mordkovich is the Chief Technology Officer of INFRA Technology, one of the most active and, unfortunately, one of the few remaining GTL technology development companies in Russia. Despite the unfavorable market situation, the scientist expresses confidence that GTL as a technology will soon be able to gain a solid place in the domestic market.* In an interview with “Modern Gas Station”, Vladimir Mordkovich explains what needs to be done to make it a reality ...

MGS: Good afternoon, Vladimir! Please tell us which projects INFRA is currently involved in.

Vladimir Mordkovich: Now we are working on more than 40 projects that are at various stages of maturity, from the signing of letters of intent to the more advanced stages of engineering. In particular, we are performing feasibility studies for GTL projects for two Asian companies. In Russia, in addition to designing a GTL plant in the Nenetsk Autonomous Region, we are involved in a project in Eastern Siberia. Also, two projects in the United States are at the contract negotiations stage.

MGS: If we talk about INFRA’s recognition as an advocate of GTL technology in the media, the company has very high visibility. How would you assess the company’s recognition among specialists?

Vladimir Mordkovich: If we talk to specialists in the field of oil refining and fuel production, then they know little about us, because they are more involved in the matters of the oil refining industry, rather than the gas chemical industry. We are not represented in the existing oil refining industry. We are quite famous specifically in the synthetic fuel industry, everyone knows us. Maybe someone may not mention us out of competitive positioning, such things happen. Americans generally don’t like to mention us, typically they list American companies and at the very end they may or may not include INFRA. We have many examples where we are the last company, they called for information on GTL plants.  And if it were not for our demonstration plant in Texas, they would not have approached us at all.

MGS: Talking about the modular transportable plant built by your company in Texas. In previous interviews, you said that the reason you built there was also to attract investors, since Texas is the world's “oil and gas capital”. Has the plant achieved its objectives in this sense?

Vladimir Mordkovich: To a large extent, yes. Perhaps we hoped for more: based on its operations I would have hoped for orders for GTL plants with millions of tons per year in capacity. But this is not so, currently we are receiving orders for the engineering of capacities from 40 thousand to 100 thousand tons per year. However, the plant certainly allowed us to advance the technology commercialization.

MGS: Talking about the capacity of the plants - do you think that in the CIS countries small-scale GTL production is more promising, or can large plants still be efficient?

Vladimir Mordkovich: From the point of view of market entry, of course, everything can start with small-scale plants. At the same time, it is a simple calculation that 20 small-scale plants of 50 thousand tons each have the same effect as installing an average capacity of one million tons, we can conclude that only large plants can have a serious impact on the oil products market. At the same time, there are practically no issues with payback and generally with the economic efficiency of large plants, and, conversely, with a decrease in scale and a decrease in volume, the specific economic efficiency decreases, as in any petrochemical or chemical production.

MGS: Then what is the reason that Russian companies are more interested in small-scale production?

Vladimir Mordkovich: There are two reasons. Firstly, large-capacity production is a large capital investment. It is one thing to provide financing of $100 million, another thing is $1.5-2 billion. This is a big difference. You can observe, for example, the development of the Sasol Petronas GTL project in Uzbekistan: the investments necessary for its implementation amounted to about $ 3-4 billion, and the main problems of this project were precisely the provision of this large capital investment. A small-tonnage project can still be afforded by a smaller oil company.

Secondly, the small-tonnage projects are of a niche nature. For example, they can satisfy local needs with fuel in case of difficulties with its delivery or utilization of gas from a low-pressure remote field, which is difficult or expensive to connect to large gas pipelines.

MGS: Would it be possible to build a large-scale GTL plant in Russia in the future?

Vladimir Mordkovich: This is bound to happen, but, in my opinion, the construction of a large capacity GTL plant is possible after the implementation of several small or medium-scale projects. When exactly this will happen, I cannot predict - it is difficult to guess the psychology of our oil business.

MGS: Regarding the psychology of big oil business. We can often see news in the media about the interest of Russian oil and gas companies in the development of GTL, but that’s all. Why do you think big companies never bring GTL projects to implementation?

Vladimir Mordkovich: The logic of our oil business is that at least the first plant build, the first version of any technology, needs to be built in the form of a licensed copy of large Western manufacturers. And large Western suppliers of GTL technology, in turn, do not have universal cost effective solutions. This is because today's industry leaders have third-generation synthetic fuel technology that is niche even on a large scale. If you look at where large GTL production is currently concentrated, you will see that it is South Africa and Qatar - in both cases the motivation for building GTL plants there was not purely economic. This is especially true of Qatar, for which natural gas is almost the only energy resource. Therefore, the government of this country has sought and seeks to diversify its gas monetization methods. The main way to monetize there is liquefied natural gas, and GTL is an alternative way. A similar story is true in South Africa.

If you are trying to construct  a plant built in the above conditions in a normal market environment, then the enterprise is either on the verge of profitability or absolutely unprofitable - and this is primarily due to too much capital investment. An example is Shell's Louisiana plant project - a replica of the Qatari Pearl project. The decision to build was made during the peak of oil prices, when profitability seemed to be positive. But subsequently, the project  was canceled when the oil price fell, and it became clear that the project was not economically viable.

In our country, I do not know the places where a niche large-capacity plant is possible. Small tonnage, as many as you like, including in the North and in Eastern Siberia. But when our oil companies begin to consider a large-capacity project, they see that to produce a ton of oil products, it is necessary to build either a refinery with specific investments of $1-1.5 thousand dollars per ton of annual capacity, or a third generation GTL, the construction costs of which will begin from $3 thousand dollars per ton. If the choice of the company is dictated by purely economic circumstances, it turns out that the refinery is superior to the third generation GTL.

Another example of a niche implementation of GTL is Uzbekistan. In Uzbekistan, a large amount of gas, a shortage of oil products, a desire to get rid of dependence on imports from neighboring countries.  There is the obvious motivation to build a GTL plant in Uzbekistan. There is no such natural motivation in Russia, so the large-capacity GTL plant must be such that it pays off in a normal market environment. And this is possible only with the help of fourth-generation technologies, in particular INFRA technology.

MGS: Is INFRA the only representative of fourth-generation technology?

Vladimir Mordkovich: Let me put it this way: we are the most advanced. In fact, we have introduced this terminology. Subsequently, a significant part of our rhetoric was adopted by other companies that are trying to develop and promote the fourth generation of GTL technology.

MGS: Will the conclusion be true that  GTL technologies are economically viable only in specific conditions?

Vladimir Mordkovich: Of course, GTL is very attractive as a technology that works under niche conditions, in particular, in the processing of associated petroleum gas. In the case of the fourth generation, this also happens because it is possible to significantly reduce the minimum cost-effective capacity of the enterprise. For example, for third-generation refineries, it is believed that an enterprise is unprofitable under if it does not produce at least 500 thousand tons of oil products per year. For fourth-generation plants, this border drops to about 40 thousand tons, and using associated gas as a raw material, even down to 10 thousand tons, because the gas  is essentially free. This does not mean that the construction of a GTL plant is advisable only in these conditions. However, having a large number of such scenarios - both with remote fields and associated petroleum gas - it would be foolish not to start with them and therefore market demand is grouped around such niche projects.

In general, the economic efficiency of GTL is based on the fact that one kilocalorie of liquid fuel is 2.5-3 times more expensive than one kilocalorie of gas. This is due to the fact that liquid fuel is easier to use, handle, transport and store. This difference should be enough to cover the depreciation of capital investments and operating expenses for the operation of technologies. Accordingly, the higher the price of oil, the greater the margin.

On the other hand, the price of gas as a market pipeline product is very dependent on the distance from the field. Say, somewhere in Germany GTL technology is unlikely to ever be profitable. According to our calculations, the construction of a plant in this country could only be recouped at an oil price of at least $ 150 per barrel. If GTL is sold in areas not too distant from gas production - in Russia this is near to the west around the Middle Volga region and the Moscow region, then it is quite cost-effective, and for the fourth generation in terms of specific investment it is better than oil refineries. However,, I have met financial analysts who can prove the unprofitability of anything, anytime, at any price.

MGS: Is it possible to profitably sell the resulting product when building a plant in a remote field?

Vladimir Mordkovich: Yes, but there are two options. If the project is tied to associated gas from oil production, the most obvious solution is to pump the resulting synthetic oil product into the same pipeline through which the main crude oil flows. We conducted independent studies on the miscibility of our synthetic and natural oils, and it was proved that they combine perfectly. I believe this is the main method. Also, in this case it is not possible to get a premium for the higher quality of our synthetic oil but then you do not need to spend additional funds on transportation logistics.

Another option is to satisfy local needs for diesel fuel and, to a lesser extent, for jet fuel. Since it is possible to easily obtain Arctic diesel fuel from our synthetic oil, it is a good idea to produce it locally in these remote regions and remove the cost of transport.

MGS: The INFRA technology also allows the production of liquid fuels from any carbon-containing raw material - not only from gas, but also from coal and biomass. Why is it mainly gas?

Vladimir Mordkovich: Processing of any carbon-containing raw material begins with the fact that it is converted into synthesis gas. Syngas is the easiest and cheapest to obtain from natural gas. Processing any other resources, including biomass, coal, and even biogas, is more complicated and expensive. This more expensive processing into synthesis gas can be offset by external economic or non-economic circumstances. Let's say the need to dispose of a large amount of biological waste. For example, in the USA and the European Union there is a system of subsidies. Taking these into account, the cost of raw materials goes almost negative. Therefore, if our company was located somewhere in Austria, then we would not be engaged in any natural gas conversion, but we would be engaged exclusively in biomass to liquids production. Such subsidies may be in the future in Russia as well, but today we deal primarily with associated gas, as the most attractive source material from an economic point of view.

MGS: Does GTL compete with other natural gas processing methods - LNG, methanol?

Vladimir Mordkovich: Each of these three areas has significant differences. Much as GTL is the conversion of a gas resource into liquid fuel, then LNG is also only a way to liquify and transport natural gas. Methanol is the production of a valuable chemical intermediate. They can compete only if there is a need to monetize the resource as profitably as possible. In the case of Qatar, which has practically nothing except gas, they convert gas to all three liquids since all these technologies are important in their own way.

It is worth adding that methanol production is limited by its own market, which is many times smaller than the fuel market. The methanol production capacities in the world are currently working below capacity due to limited demand.

MGS: How do you assess the medium-term prospects of GTL in Russia and the world?

Vladimir Mordkovich: I believe that in the first place these prospects depend on the short-term successes of companies such as ours. If it is possible to break through the barriers, build and launch at least 4-5 GTL plants of the fourth generation in the world, the prospect will become quite obvious. At the moment, this is hampered by the fact that the oil and gas world is not up to technology change outside typically manufactured parts. Everyone is busy with the price war. There are no countries like pre-war Germany or post-war South Africa, which had nowhere else to go to produce or import fuel. Therefore, without a military imperative , no one is building a GTL plant. It remains only for us and our potential rival colleagues that we can make our way through the inertia of large business’ occupied with other problems.

MGS: Is your company the only working GTL company in Russia at the moment?

Vladimir Mordkovich: The market declined significantly after 2008, after the drop in oil prices. Now, however, prices are at a level that fully ensures GTL’s competitiveness. But there is no certainty in the industry about the near future, which creates a unfavorable situation. As a result, today we are almost alone in Russia, and in America, existing GTL companies are few and far between.

* Read the article “Gas for the Future and into Liquid: GTL Technology and Its Prospects” in the previous issue of Modern Gas Station, No. 07 (208) 2019