Feasibility of Using Small-Scale GTL Plants To Mitigate Flaring in North Dakota Evaluated
Booming shale gas production in the United States has created excess capacity, which has caused natural gas prices to plummet and significant percentages of production to be flared. On the other hand, the country’s imports of crude oil and its production of diesel, gasoline, and other products is increasing. Mitigating this situation depends on finding practical, economical, and efficient ways of making natural gas marketable. A potential solution is small-scale gas-to-liquids (GTL) plants. The complete paper describes a Monte Carlo simulation approach and field analysis showing that a small-scale GTL plant in North Dakota could be a profitable solution to mitigating the state’s current flaring rate of 35% of the natural gas produced.
The shale gas revolution has negatively affected natural gas prices. According to the US Energy Information Administration, dry natural gas production in the US will increase through 2050 by 59%, from 73.6 Bcf/D in 2017 to 118 Bcf/D in 2050, and the price of natural gas will remain lower than $6.00/MMBtu throughout the same period, causing producers to vent and flare excessive gas. In 2017 alone, the total natural gas flared in the US was approximately 335 Bcf, according to the World Bank-led Global Gas Flaring Reduction Partnership.
Most intense natural gas flaring occurs in fields that are far from consumers and transportation infrastructures such as interstate pipelines. Some of the heaviest flaring comes from the Bakken Field in North Dakota. While most of the natural gas consumers in the US are located along the East coast, the Bakken’s distance from the seaboard makes transportation of the produced natural gas difficult.
Natural gas production in North Dakota reached a record high of 1.94 Bcf/D in August 2017, and as a result of the lack of infrastructure to collect, gather, and transport it, more than 35% of the gross withdrawals were flared rather than marketed. By October 2018, production had increased to 2.04 Bcf/D, with 20%, or 527 MMcf/D, flared. According to the North Dakota Pipeline Authority, 80% of the flared gas came from the wells that connected to pipelines, but where capacity was insufficient to capture all of the production. The other 20% was from the wells that were not connected to a pipeline.
North Dakota’s Industrial Commission has established a target to limit natural gas flaring to 10% by 2020. The fundamental problem is not the technical aspect of natural gas production, but determining a way to market natural gas that is practical, economically feasible, and efficient. One option for marketability would be to convert natural gas into hydrocarbon liquid through a GTL processing plant.
GTL plants convert natural gas to a higher chain of carbon through a chemical reaction, as is done to produce the gasoline and middle distillate range in an oil refinery. The resulting products include diesel, gasoline, kerosene, lubricants, naphtha, waxes, ammonia, and methanol for chemical plants, all of which contain zero sulfur.
GTL would not only increase the percentage of natural gas presence in the transportation sector, but also the industrial sector through feed stock. Another advantage of GTL plants is that they are easier and require less time to construct because of modularization. Most parts of the GTL plant are prefabricated and assembled on site.
To evaluate the economic feasibility of the GTL projects, a sensitivity analysis was performed using six different variables: capital expenditure (CAPEX), operational expenditure (OPEX), plant capacity, technology efficiency, feed-gas price, and gasoline price. Each of these variables was defined for low-, base-, and high-case scenarios (Table 1). Along with these scenarios, the analysis was based on the following assumptions:
- The feed-gas price is hedge (the price does not change throughout the life of the project).
- The power-sizing coefficient is constant at 1.1, based on previous projects.
- Project life is 20 years.
- The operation is 350 days/year.
- The discount rate is 10%.
- The inflation rate is negligible.
- The tax rate is constant at 35% as an external control parameter.
Monte Carlo Simulation
The sensitivity analysis was used to determine the most-influential variables to run in a Monte Carlo simulation for net present value (NPV), internal rate of return (IRR), and cost-to-profit (C/P) ratio to assess the success of GTL technology at each given business case. Of the six variables considered in the sensitivity analysis, only four—product price, CAPEX, capacity, and OPEX—contributed to changes in NPV, IRR, and C/P. This sensitivity analysis can be applied to the selection and evaluation of other GTLs by knowing which parameters mainly affect the economics. The range of parameters such as product price and CAPEX was significant, while others did not change as much.
The sensitivity analysis showed that the combination of these varying parameters into the economic evaluation could result in a potentially large uncertainty. Therefore, a Monte Carlo approach was conducted with 10,000 iterations for NPV, IRR, and C/P. The complete paper presents a detailed discussion of the sensitivity analysis and the Monte Carlo simulation and includes tables, histograms, and tornado charts.
A field analysis was performed for North Dakota. The Monte Carlo simulation was repeated using the same parameters as before, except for plant capacity. For this case, the plant capacity used was 1,000±500 B/D. Different case scenarios and the Monte Carlo simulations showed that the GTL plant project would be profitable.
On the basis of the field analysis, there is an opportunity to build a GTL plant in North Dakota with plant capacity ranging from 500 to 1,000 B/D, with only plant capacity, CAPEX, OPEX, and product price affecting the economic analysis. The NPV, IRR, and C/P evaluations were reached by assuming constant feed-gas price at $5.00/MMcf, efficiency at 65%, discount rate at 10%, and tax rate at 35%. The inflation rate for this project evaluation was assumed to have no effect because the inflation would influence both cost and revenue.
Table 2 summarizes the three different case scenarios by using the four major parameters. The best-case scenario would be low CAPEX and high product price. Additionally, lower plant capacity gives higher IRR than high plant capacity as a result of the power-sizing effect.
- Small-scale GTL plants can use excess natural gas in a way that is practical, economical, and efficient.
- Four important parameters are plant capacity, CAPEX, OPEX, and product price.
- Plant capacity under 1,000 B/D has a higher profit potential than higher plant capacity because of power sizing.
- A conjunction of low plant capacity, CAPEX, OPEX, and high product price will ensure high NPV, IRR, and C/P.
- For the base-case scenario, the payback period is approximately 2½ years.
This article, written by JPT Technology Editor Judy Feder, contains highlights of paper SPE 195209, “Evaluation of Small-Scale Gas-to-Liquid Economic Feasibility To Mitigate North Dakota Flaring Issues,” by Pascoela da Silva Sequeira and Rouzbeh Ghanbarnezhad Moghanloo, SPE, University of Oklahoma, prepared for the 2019 SPE Oklahoma City Oil and Gas Symposium, 9–10 April, Oklahoma City, Oklahoma, USA. The paper has not been peer reviewed.