Sasol Ltd (SOLJ.J: Quote) is a step closer to building Canada's first multibillion-dollar plant to convert cheap natural gas to diesel and other fuels after the South African company signed an option on an industrial property near Edmonton, Alberta.
Sasol, a new entrant into the Canadian energy sector, has secured a site in Fort Saskatchewan, Alberta, drawn by the region's extensive infrastructure for both natural gas and refined products, Rudi Heydenrich, president of new business development for Sasol Canada, said on Thursday.
Total SA (TOTF.PA: Quote) had previously planned to build an oil sands upgrader on the property, which is in a region known as the Industrial Heartland.
The gas-to-liquids operation, which would ultimately have a capacity of 96,000 barrels a day, would be a welcome and sizable new customer for Canadian gas producers whose finances are under pressure from weak North American prices due to booming shale supplies that have flooded the continent.
Such a plant would use about 1 billion cubic feet a day of gas, about 8 percent of Alberta's current gas output.
Analysts have pegged the cost of a plant as high as C$10 billion ($10.3 billion), though Heydenrich said Sasol has not yet advanced the plan to the point where it could estimate costs.
It has just completed the feasibility study and is now beginning front-end engineering design for the plant, which would likely have an initial capacity of 48,000 bpd. Following that, the company would make a go-ahead decision and the facility could be in service around the end of the decade.
Profitability for a GTL operation is based on a wide spread between crude oil and natural gas prices, rather than a ceiling price for gas, Heydenrich said.
"One of the big advantages in North America is what we perceive to be structural disconnect between gas and oil (prices), and we sell our products, which are oil-related," he said.
Sasol entered Canada in 2011 by buying a 50 percent working interest in Talisman Energy Inc's (TLM.TO: Quote) gas-rich Montney shale holdings in northeastern British Columbia for $2 billion.
The companies had studied the GTL idea together before Talisman opted out of the planning in June. They remain partners in Montney exploration and production.
Talisman has said it may now develop its gas assets with a view to ship supplies to Canada's West Coast, where several companies are planning liquefied natural gas plants aimed at exports to Asia.