A project isn't a good idea until investors feel comfortable funding it.

The project economics of gas-to-liquids (GTL) are finally offering competitive value in the marketplace, but it's important for companies planning projects to know what financial institutions are looking for prior to lending their financial support to get these proposed GTL projects off the board and into construction.
Hart's E&P posed questions to several leading bankers, including Claude Devillers, head of natural resources, Americas, ANZ Investment Bank (ANZ); Ayumu Yoshie, representative, Japan Bank for International Cooperation (JBIC); Andrew Fairbanks, vice president and senior equity analyst, Merrill Lynch; and Ed Feo, managing partner, Milbank Tweed Hadley & McCloy LLP, a project finance law firm.

Hart's E&P: How and when did your firm become aware of GTL technology?
Devillers: ANZ is an Australian bank with an international network. It is a well-known adviser/arranger of project finance, including the oil and gas industry, with a significant track record in liquefied natural gas (LNG) and specialized ships financing. We finance the development of the gas industry in Australia and have explored various ways to support the valorization of stranded gas assets, most notably in Western Australia.
GTL is one of the earmarked technologies with potential application on the Burrup peninsula (Sweetwater). ANZ has also developed a client franchise, including most of the major oil and gas companies, and has entered into discussion on that topic with interested parties.
Yoshie: JBIC got information and knowledge about GTL technology from potential project sponsors - both foreign and Japanese - as well as through Japanese buyers.
Fairbanks: We have been interested in the emerging GTL technology for some time. We believe that GTL is at the same point that the LNG industry was 30 years ago - that is to say, at the threshold of adoption and rapid growth.
Feo: Milbank has applied project financing in numerous industries, including power, petrochemical, natural resources, telecommunications and others. GTL is a good fit for project finance as a capital-intensive industry producing commodity products with a strong linkage between the input costs and specialized products.

E&P: Do you think declining oil and gas prices in the United States will reduce interest in GTL as an emerging technology to monetize stranded gas reserves?
Devillers: GTL can be utilized for niche products such as specialized lubes or for mass products such as ultraclean diesel. The first category is not as sensitive to pricing of feedstock as the second one.
The utilization of the second category of products is favored in environments where either there is a strong environmental pull or large tax imposed on refined products. Therefore, the United States is not the primary target of the second category at present. In those target markets, current levels of gas pricing do not preclude the expansion of GTL due to environmental motivation and tax absorption capacity.
Yoshie: JBIC understands that GTL projects will widen natural gas usages and bring about environmentally friendly fuels. We do not see any significance of GTL projects from the viewpoint of the long-term energy demand structure, especially in Japan.
Fairbanks: Actually, we believe that interest in GTL will only continue to build from here. As an opportunity to monetize stranded natural gas reserves and produce ultraclean fuels, we think major oil companies needing to enhance their upstream production growth rates and satisfy tightening global environmental regulations for fuels will increasingly use GTL.
The price of natural gas in the United States has little to do with GTL's prospects, as remote sources of stranded gas outside the United States will be the most likely feedstock for these projects. From the oil perspective, we estimate that GTL projects are economic down to (US) $15/bbl to $18/bbl (West Texas Intermediate) oil prices.
Feo: It is possible, although one has to approach these projects with a long-term perspective. From what we see, the numbers will still work in the current environment.

Hart's E&P: What are the primary considerations your firm must investigate to determine the potential of financing a GTL project?
Devillers: Sponsor strength, strategic relevance of project to sponsor, proven technology, gas supply and markets.
Yoshie: Among the various considerations we need to take into account before financing are project cost analysis, project risk analysis and marketing of products.
Feo: Does the technology work? Are the economics sufficiently robust to be viable on a long-term basis? Do the sponsors have the ability and resources to finish the job?
Hart's E&P: Some have viewed ExxonMobil's plans for a potential 75,000-b/d to 90,000-b/d GTL plant in Qatar as the bullet shot from a starter's pistol in the race to build more commercial-scale GTL plants. Do you agree?
Yoshie: JBIC recognizes that GTL projects in Qatar stand in a good position to be commercialized among various projects in other countries.
Fairbanks: I think Exxon's efforts are another important signal that GTL is coming, but the industry has not yet begun a wholesale race to develop commercial GTL plants. We would argue that the athletes are still warming up, with potential projects from Shell, SasolChevron and Syntroleum being explored and developed.

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