GTL technology: innovation vital for Russia Institute for Financial Studies (Moscow)

2 Why do we search for new technologies? Restricted access to Russia’s gas transportation network Restricted access to Russia’s gas transportation network Limited capacity of Russia’s gas transportation network Limited capacity of Russia’s gas transportation network Distant provinces Distant provinces

3 Alternative natural gas technologies Liquefied natural gas (LNG) Liquefied natural gas (LNG) Methanol (methyl alcohol) Methanol (methyl alcohol) Carbon Carbon FT-process based Gas-to-Liquid FT-process based Gas-to-Liquid

4 GTL benefits High quality synthetic petroleum High quality synthetic petroleum High quality synthetic fuel High quality synthetic fuel  Octane level up to 95 units (against 92)  Cetane number – up to 75 (against 55)  Hydrocarbons content – 0.1% (against 6%)  Sulphur content – <1 (against 15)

5 GTL disadvantages Poor research and development Poor research and development Facility launch specifics Facility launch specifics Transportation by railway only Transportation by railway only

6 Impulses for GTL development

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8 Pilot GTL facilities Capacity, tons/day Investment, million dollars ExxonMobil (Baton Rouge)27no data ConocoPhillips (Ponca City)5575 BP (Nikiski)4186 Syntroleum (Tusla) Research and development spending: ExxonMobile – $600 million ConocoPhillips – $400 million Syntroleum – $200 million

9 Operating GTL facilities ProjectMembersLocationTechnology Capacity (thousand tons/day)Project launch Sasol ISasol SasolBurg, South AfricaCTL11955 (1993) Sasol IISasol Secunda, South AfricaCTL (1998) Sasol IIISasol Secunda, South AfricaCTL (1998) MossGasPetro SA Mossel Bay, South AfricaGTL Bintulu Royal Bintulu, MalaysiaGTL Dutch/Shell OryxSasol, QPQatarGTL52006

10 GTL product structure (one ton, average by producer) Diesel fuel 70% Other (naphtha, liquefied hydrocarbon gas, lubricants) 30%

11 Compare market shares of traditional and synthetic diesel fuels (2006 data) Traditional diesel 99.5% Synthetic diesel 0.5%

12 GTL production&sales scheme Conversion block Fischer-Tropsch synthesis block - Bulked cargo railway terminal Synthetic petroleum gasoline Ai Diesel (cetane up to 75) Lubricants Storage tank Tank car Pure methane and water vapor mixture Vapor conversion of methane Synthesis gas compression FT-synthesis block Hydrocracking Rectification block Feedstock purification block Sales Domestic market. Exports. (automotive fuels and lubricants market

13 Expenses Documentation. Inspection Know how Construction 6 Assembly Equipment 79.5

14 Operational expenses Depreciation 10% Workshop and plant expenses 10.7% Catalysts 17% Waste disposal 5.8% Other 17.3% Transport 39%

15 Economic efficiency of the project Discount rate 16% NPV, million rubles157.6 NPV, million rubles4.42 IRR, %16.6 Payback period with discount, years21 Payback period without discount, years8 Discount rate 12%

16 Non-production restrictions Minimum production– 12 billion cubic meters Minimum production– 12 billion cubic meters Intermediary – an engineering company - is required Intermediary – an engineering company - is required High probability of additional terms of cooperation High probability of additional terms of cooperation

17 Conclusions GTL – science-intensive, economically efficient utilization technology GTL market – new market of quality automotive fuels Prospects – provision of remote Far North with fuel and energy

18 State support – industry development Ready to Lower emissions Direct participation in social development of a region Technological development of the industry Basis for GDP growth State Independent producer Х DevelopBuild State supportTax exemptionsTax holidays

19 Negative impacts of underdeveloped processing Higher local emissions Loss of socio-economic profit  Jobs  Tax inflow Loss of energy resources Industry lagging No possibility to form a new ‘growth point’ for the economy

20 Possible solutions Working out a stimulating mechanism through the taxation system. Working out a stimulating mechanism through the taxation system. Searching for possibilities to develop domestic Gas-to-Liquid technology. Patenting and licensing of this technology. Searching for possibilities to develop domestic Gas-to-Liquid technology. Patenting and licensing of this technology.

21 Thank you for attention