Sputtering breakthrough for Shell’s new superclean fuel

Carl Mortished: World business briefing

Two cheers for Royal Dutch Shell, which has solved the emissions problem with a novel fuel that is superclean. Next year, in a giant refining complex in the Gulf, the oil company will begin producing a colourless, odourless diesel with almost zero atmospheric pollutants.
It solves every emissions problem except the one that begins with the letter “C”. Shell’s fuel, a liquid synthesised from natural gas, will make the air cleaner, but it will not save the world from climate change. On a well-to-wheels basis, GTL from Pearl, Shell’s fuel factory in Qatar, emits as much carbon dioxide as conventional diesel, the company admits. Some critics claim that GTL emits even more carbon than the stuff sold at garages today.
This is no marketing stunt; it is an enormous financial gamble. Shell will have spent almost $19 billion (£11.4 billion) when the first cargo of posh diesel is shipped out of Qatar late next year. Originally budgeted in 2002 at about $5 billion, Pearl has ballooned into a whale of a project, the world’s largest construction site, employing 48,000 workers. Its operations room, launched last week, has 179 computer servers using 5,850km of cables to handle the data from the plant.
It is a colossal effort to produce a product for solving “yesterday’s problem”. A product that climate activists would argue is redundant even before the first drops emerge at the end of a pipe in Qatar.
If that were true, Shell would have stopped signing cheques in Qatar years ago; Pearl’s output of 120,000 barrels a day of synthetic diesel will be marketed as an additive, a quick way of lowering the sulphur and particulate content of ordinary diesel, jet fuel or marine bunker fuel. If the environmental story that dominates the news is climate change, the other story — atmospheric pollution — has not gone away and is a more pressing problem, particularly in developing countries. The World Health Organisation estimates that more than 600,000 people die every year in China from disease triggered by high levels of sulphur dioxide and nitrogen dioxide. Acidic rainfall from SO2 damages forests, lakes and rivers.
Shell’s gambit is to spike ordinary diesel with GTL, just as ethanol is added to petrol to make it cleaner. There have been test flights on Qatar airways with GTL replacing kerosene, but Pearl’s product is probably too expensive to use on its own. According to Wood Mackenzie, the consultant, GTL needs an oil price of $45 a barrel to make economic sense, and the process is hugely energy-intensive.
Pearl’s jungle of pipes and pots will suck in 1.4 billion cu ft a day of gas from Qatar’s vast offshore North field, the equivalent of 240,000 barrels of crude oil, to produce its product. Of that huge daily gas feed, as much as 40 per cent is lost in the energy demand of the plant, according to Deutsche Bank analysts. Compare that with the energy loss of 11 per cent in the process of liquefying gas for transport in ships as LNG and the 4 per cent energy loss in a refinery that makes conventional diesel.
Were it not for a dramatic fall in the price of natural gas, GTL would probably make little sense, even at today’s high oil price. In Qatar, Shell is sitting on one of the world’s largest gas resources but, thanks to recession, there is weak demand for the fuel. By converting natural gas into diesel, Shell more than doubles its worth, given today’s crude oil price. But if GTL can turn useless gas into liquid money, it is no solution to carbon emissions and could even at the margin increase CO2 emissions. Shell argues that its plant is configured to capture its CO2 for storage at some future date. However, if carbon-capture were economically feasible, one could assume that the oil company would have launched the plant with the equipment already in place.
But consider the equipment that Shell has installed in Qatar — a 2 million tonne, gas-guzzling, state-of-the-art chemistry set. The steel forest in a sandpit is the end of a scientific journey that began in the 1920s when Franz Fischer and Hans Tropsch, the German scientists, discovered how to make synthetic fuel using catalysts to combine carbon monoxide and hydrogen. The technology was used to turn coal into fuel for the Wehrmacht during the Second World War and by South Africa during apartheid, both regimes being unable to secure oil.
Coal-to-liquids worked only in a siege economy, but Shell’s scientists looked again at the technology during the Arab oil boycotts and found a better catalyst. A pilot plant built in Malaysia to make diesel from natural gas struggled with high costs during low oil prices, but the economics have turned and the cashflow from GTL looks good.
But Pearl has cost a mint and the near-century-long development time of GTL technology tells a cautionary tale for those who carp at oil companies for their failure to cut carbon from fuel. The climate change lobby wants carbon captured from every power station, car and home, with punitive fines and levies for malefactors.
Instead of the usual earnest platitudes, big oil should get tough in Copenhagen. They should shout about prices, construction costs, ask bankrupt governments for credit references. It took almost 100 years to make a pint of clean diesel fuel, and now we want it carbon-free.