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Environmental concerns could impact ability to flare natural gas

LONDON -- Environmentally-motivated restrictions on flaring off unwanted gas at oil wells are gathering strength and have the potential to stop new projects in their tracks, but a solution may be at hand.

Flaring at sites worldwide burns enough gas to satisfy a quarter of U.S. demand and puts 400 million tons of CO2 -- 1.2 percent of emissions -- into the atmosphere every year, according to the World Bank-funded Global Gas Flaring Reduction partnership.

Oil companies are coming under increasing pressure from governments and environmentalists to end the practice and World Bank resistance to flaring and venting -- the release of unburned gas into the atmosphere -- is particularly effective in new discovery hotspot Africa, where developers need its backing.

Now engineers believe they have succeeded in miniaturizing the process that changes gas to liquid, marking a major leap forward in a technology whose economics have so far depended on massive scale.

Royal Dutch/Shell's Pearl GTL plant in Qatar occupies a site the size of London's Hyde Park to make gas into diesel and other refined products, but a miniature GTL converter would sit on a drillship and turn so-called associated gas into synthetic crude to be mixed with naturally occurring oil.

Privately-owned CompactGTL took a step this week towards getting the first functioning offshore mini-GTL plant onto a working drillship.

Its prototype module, parked on a Brazilian beach, has been operating for 20 months using gas supplied by Petrobras.

It operates without flames, does not require an oxygen supply, and uses only small volumes of fluids in a shipping container-sized device designed to work aboard the floating production storage and offtake (FPSO) vessels that are widely used in modern offshore oil projects.

SBM Offshore, the world's biggest supplier of leased FPSOs, on Wednesday announced a tie-up with CompactGTL.

"This agreement opens the door for the world's first, fully integrated, offshore modular GTL solution for the upstream industry," Netherlands-based SBM said in a statement.

CompactGTL's director of business development, Iain Baxter, said he has six potential customers signed up for feasibility studies, all household names in the international oil industry.

Petrobras and Gazprom are the only two he will name.

The extra output is a bonus, but it is not the main aim and would not cover the cost of installation by itself. The GTL facility pays for itself by making sure so-called 'associated gas' does not become a barrier to the costly process of the main prize -- finding oil.

"The economics are all in the de-risking," Baxter told Reuters on the sidelines of the Gastech conference in London. "For now, it's all about freeing up oil production."

CompactGTL, controlled by private equity investor Coller Capital, has engineering development partnerships with Johnson Matthey, Fluor Corp and Kawasaki Heavy Industries.

It was originally an offshoot of the UK Atomic Energy Authority and was incorporated in 2006.

The company is not alone in the industry, but its main competitor, Japan-based Toyo Engineering Corp., which is also developing a prototype for Petrobras, is aiming further down the technology chain with a view to making its GTL plants economically viable in their own right.