QNB: Global interest in GTL expected to grow

Updated 20 January 2013
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QNB: Global interest in GTL expected to grow

Last week Doha hosted the first World Gas-to-Liquids (GTL) Congress. The event comes at a time of heightened interest in the industry, according to QNB Group. Recent landmark developments include the commissioning of the second train of Pearl GTL in Qatar, moves by Qatar Airways to utilize GTL as jet fuel and plans for new GTL plants in the US and elsewhere.
The GTL process converts natural gas into refined liquid fuels, such as kerosene and diesel. These can be more easily transported to relevant markets than gas, and have a higher sales value than raw gas. The GTL process is a chemical transformation, in contrast to purely physical methods of reducing the volume of gas for transportation by increasing pressure, producing compressed natural gas (CNG), or reducing temperature, producing liquefied natural gas (LNG). Unlike CNG and LNG methods, GTL products do not require any special equipment to transport or use, as they are similar to fuels derived from crude oil. Moreover, the purity and quality of the GTL-produced fuels also means that they are considered suitable for high-value applications, such as jet fuel.
The chemical process underlying GTL was developed nearly a century ago. However, high capital development costs limited its application except in situations where countries lacking oil reserves needed security of fuel supplies. This was the case for Germany during the Second World War and for South Africa under sanctions during the Apartheid era. Both countries used coal rather than natural gas as the feedstock for the process.
Sasol, a South African firm, brought the technology to Qatar to build the 34,000 barrels per day (bpd) Oryx GTL plant in partnership with Qatar Petroleum (QP). At its launch in 2006 it was the world’s largest GTL plant, but has since been surpassed by Pearl GTL, a joint-venture of Shell and QP. Its first train was commissioned in 2011 and the second last summer. The entire plant is currently operating at around 85 percent of its nameplate capacity of 140,000 bpd of GTL. This capacity is equivalent to more than half of global GTL production. The huge $19 billion project utilized twice the concrete of the Burj Khalifa, 40 times the steel of the Eiffel tower and involved 52,000 construction workers at its peak. The other commercial facilities are much smaller and in South Africa and Malaysia, operated by PetroSA and Shell respectively.
Interest in GTL has come in three waves, according to QNB Group. The first was in the early 1990s, when the South African and Malaysian plants were launched. The second wave was in the early 2000s, when the current plants in Qatar were envisaged, as well as a 33,000 bpd project by Chevron and Sasol in Nigeria, due to be commissioned this year.
However, some other GTL projects, envisaged during the second wave were subsequently canceled. This happened largely because the LNG market looked like it offered a better rate of return on capital. Qatar backed Oryx and Pearl GTL, alongside its even larger LNG projects, in order to diversify its options for monetising gas.
It is too early to judge which technology — GTL or LNG — will offer better returns on investment in the long-term. This will depend on the average premium of liquid fuels over LNG prices over the lifetime of the projects, compared to the difference in capital and operational costs. Currently, GTL capital costs are about $100k-200k per bpd, about 2-4 times those of LNG, affected by several factors such plant size and the potentially volatile prices of construction materials. The GTL conversion process also consumes some of the gas feedstock. Depending on the particular plant and local cost of gas, GTL is considered to break even at about $40-$80 per barrel. Refined oil prices are currently well above this level, providing strong profit margins.
One place where a significant premium has opened up between oil and gas prices is in the US. The US shale gas revolution there has driven down local gas prices at a time of high oil prices, thereby boosting the appeal of GTL. The US government’s Energy Information Agency (EIA) forecasts that the ratio of domestic oil to gas prices will be twice as high in the period until 2030 than it was in the previous two decades. This is why Sasol announced plans last month for a 96,000 bpd GTL plant in Louisiana, to start operations in 2018. This is part of a third wave of interest in GTL. Sasol also has plans for a 38,000 bpd plant in Uzbekistan, with a final investment decision due this year, and is also investigating a 48,000 bpd plant in Canada. PetroSA is in discussions on a 40,000 bpd plant in Mozambique, which has recently discovered sizeable reserves of offshore gas. Finally, Shell is also considering a plant in the US.
Although Sasol and Shell hold most of the expertise and patents for large-scale GTL plants, new firms are entering the sector. Oxford Catalysts, a spinoff from the university science department, is developing smaller-scale modular GTL technology, suitable for production ranging from a few hundred to a few thousand bpd. This could help capture “stranded” associated gas from oilfields which would otherwise be flared because the volume and/or location means that it is not economical to market by pipeline or LNG. Petrobras, for example, is considering this technology to utilise the associated gas in Brazil’s offshore oilfields. Waste biomass can also be used as a feedstock for small-scale GTL.
GTL-derived fuel has less environmental impact than conventional jet fuel as it has a higher energy density and cleaner emissions. Coal-derived GTL jet fuel has been used in South Africa for over a decade, and British Airways is planning on using some biomass-derived GTL jet fuel. Qatar Airways is leading the way in usage of natural gas-derived GTL jet fuel, and began commercial flights this month utilising up to 50 percent GTL kerosene.
QNB Group concludes that the future of GTL will depend on whether capital costs can be kept under control and on long-term expectations for the price premium of oil over gas/LNG.
If the major GTL plants under discussion go ahead, then global production capacity could more than double by the end of the decade to nearly 0.5 million bpd.
The new capacity would not significantly compete with existing GTL because it would still be well under 1% of global oil consumption. Small scale GTL is a new development that has yet to be commercialised, but its prospects look promising. An optimistic case envisages that it has the potential to produce perhaps 3 million bpd of GTL from currently flared gas, although the installation of this capacity could take decades. Coal and biomass based GTL capacity is also likely to grow, driven by energy security and sustainability considerations, respectively.


NMC Health’s $450 million bond to boost Saudi expansion

Updated 39 min 39 sec ago
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NMC Health’s $450 million bond to boost Saudi expansion

  • The new capital structure — which will feature a mixture of unsecured bank and bond financing — will aid the company’s continued growth into Saudi Arabia.
  • The company first secured a foothold in the Kingdom in 2016 after acquiring a 70 percent stake in As Salama Hospital in Al-Khobar.

LONDON: The UAE-based private health care operator NMC Health has launched a $450 million senior unsecured guaranteed bond to help pay off an existing $1 billion bridge facility and support its expansion plans into Saudi Arabia.

The earlier bridging loan was part of the $2 billion capital structure refinancing put in place at the start of the year, the company said.

The bond is due in 2025 and is convertible into ordinary shares. JP Morgan is the sole bookrunner on the issuance. Bonds will have a fixed coupon rate of 1.875 percent, paid semi-annually.

The new capital structure — which will feature a mixture of unsecured bank and bond financing — will aid the company’s continued growth into Saudi Arabia, with NMC having been one of the first private health care providers to capitalize on the Saudi government’s health care privatization plans.

The company first secured a foothold in the Kingdom in 2016 after acquiring a 70 percent stake in As Salama Hospital in Al-Khobar.

Since then, NMC won regulatory approval last September for a new long-term care facility, the Chronic Care Specialty Medical Center, in Jeddah. It is though to be the first greenfield medical facility in the Kingdom to be set up by a non-Saudi company.

Earlier this year, NMC said it acquired an 80 percent stake in the Riyadh-based Al-Salam Medical Group.

NMC’s acquisition-led expansion strategy aims to ensure the company retains its recently-won place on London’s FTSE 100 index. It was one of the first Middle Eastern companies to join the index when it qualified last September. It first listed on the London Stock Exchange in 2012.

The company posted strong growth in the last year, reporting $209.3 million in net profit for 2017, an increase of 38.2 percent on the previous year. The company paid out a total of $641 million in acquisitions last year.

“2017 proved to be a year of tremendous achievements for NMC,” said the firm’s chief executive Prasanth Manghat, in a statement in March.

NMC also secured secured its first public ratings of BB+ with a stable outlook from S&P on April 20, while Moody’s gave the firm rating of Ba1 with a stable outlook on April 20, 2018. The bonds are not expected to be rated.

“The company continues to strive to meet self-imposed standards that are higher when compared to what is expected of it by various regulators. This approach supports in turn its resilient business model, loyal customer base, strong brand recognition and market leading position,” according to a statement from Moody’s Investors Service.

Investors are so far reacting favorably to NMC’s strategy, with the company closing at a record high on April 20, according to Bloomberg reports, with a market value of $10.8 billion.

The company is now one of 24 equities in the region to have achieved a market capitalization of more than $10 billion, the report said.

Healthcare is seen as a lucrative sector in the Gulf due to its relatively wealthy population becoming increasingly at risk of problems related to obesity and diseases such as type 2 diabetes.