South African based energy and chemicals company Sasol announced last week that they are considering the feasibility of building a natural gas to liquid (GTL) plant in southwestern Louisiana. If built, it would be the first GTL plant in the western hemisphere. What a GTL plant gets you is the ability to use natural gas (of which the U.S. has plenty), and turn it into the same transportation fuel that’s currently made from oil (the U.S. imports more than half of the oil it currently uses). While not intended to replace gasoline, the output from a GTL plant could be used for diesel and jet fuel.
Up to now, most of the transportation use of natural gas has been in the form of Compressed Natural Gas (CNG). Converting vehicles to use CNG is expensive, and you need a large tank to hold CNG, which reduces carrying capacity. In addition, if you drive a CNG vehicle, you need to make sure you’re in range of a station that sells CNG, and there just aren’t that many of them out there. So using natural gas to create diesel fuel, which then can be used by any vehicle that currently uses diesel fuel, has enormous economic, political, and environmental benefits for the US. In the Sasol and Royal Dutch Shell GTL plants already operating, the diesel and jet fuel produced from natural gas have less contaminants than the fuels produced from oil – and they also burn cleaner.
According to the Zacks analyst covering the announcement, the financial numbers look promising. Diesel fuel’s current price is about $88.20 per barrel. Natural gas has been in the range of $4 per thousand cubic feet. If those numbers stay at those levels, that would let Sasol’s gross margins be around $44 per barrel of diesel fuel.