IEEJ:November 2001

1

The 370th Regular Meeting for Briefing Research Reports

October 16, 2001

Marketability of GTL from Natural Gas Yuji Morita,

Oil Group-Group Manager

Scope of Study Commissioned by the Japan National Oil Corp., this study Note 1 was conducted to make

an evaluation of the marketability of GTL, which is now being widely spotlighted as it affords

measures toward effective utilization of natural gas.

Growing interest is centering on the technology for manufacturing liquid fuel from natural

gas and using it as a measures of transporting natural gas and/or utilizing it as a non-petroleum al-

ternative fuel. This technology primarily consists of two stages: convert natural gas to synthesis gas

comprising hydrogen and carbon monoxide in the first place and then manufacture liquid fuel from

synthesis gas using the Fischer-Tropsch process and the like in the second step.

Liquid fuels such as Fischer-Tropsch synthetic fuel, methanol, DME Note 2, etc. manufac-

tured by this technology are collectively called GTL (Gas to Liquid) – an environmentally clean fuel,

free of sulfur and aromatics, like LNG. Moreover, since a GTL project based on a relatively

small-sized gas field producing 1-3 Tcf Note 3 of natural gas is economically justifiable, it is believed

to be one of the best measures of promoting a move to obtain alternative liquid fuel by making use

of the most of untapped natural gas resources, and therefore a number of GTL projects have been

either placed on-stream or announced one after another at many locations of the world since the lat-

ter half of the 1990’s.

The objective of this study is to investigate into the type of the market and the form in

which GTL is to be accepted in Japan, by estimating costs of introducing GTL into Japan, which

utilizes natural gas produced in the Southeast Asian region, by examining the marketability of GTL,

as viewed from both producers’ and consumers’ standpoints, and by standing on the basis of the ac-

tual state of things in South Africa where Fischer-Tropsch synthetic fuel is being placed on the mar-

ket for practical use.

1 This report is based on the “Research on Recent Trends of Manufacturing Technology and Marketability of Various GTL Products,” which was commissioned by the Japan National Oil Corp. (JNOC) in FY2000. Permission to make this report public has been granted by JNOC. We have received cooperation from JGC Corp. in technology -related matters. 2 Di-Methyl Ether 3 1 Tcf (trillion cubic feet) = 28.32 billion m3

IEEJ:November 2001

2

Conclusions <Results of Study by Estimating CIF Prices>

1. CIF prices of GTL are estimated and a study is made on the possibility of introducing GTL as a

substitute for petroleum products and/or LNG under the condition that the crude oil price re-

mains at around $20/bbl level. Results of the study have revealed that the most promising

choice in terms of the economic viability is the introduction of DME as a substitute for diesel

fuel and LPG when the feedstock gas price is in a range of $0.5-1.0/MMBtu Note 4.

2. FT diesel, when it is regarded to be of the same quality as petroleum-based diesel fuel, is hardly

viable in economic terms, unless the feedstock gas price is low at around $0.5/MMBtu.

Should a premium on an environmentally clean fuel be assumed at around $10/bbl, however, it

can be judged to be economically well viable even when the feedstock gas price is

$1.5/MMBtu.

<Proposal>

1. FT diesel is the most promising fuel as the quality requirement of diesel fuel is strengthened in

the future, and it is urged to introduce FT diesel at an early date to make the most of its charac-

ter of being environmentally clean, while attempting to secure its demand base and creation of

demand for the product in the future.

2. For this purpose, it is believed to be the best policy measure to introduce the product on an ex-

perimental basis at first as a city diesel fuel primarily for public transportation facilities in

specified areas. This is expected to provide the basic data for the understanding of special

characteristics of automotive emissions and for improvement of automobiles aimed at reducing

air pollution.

3. DME can be introduced at a price lower than that of LPG, but to secure a certain volume of

demand for the product must be the first consideration before a DME project is launched. Po-

tential DME customers are believed to be those currently consuming LPG delivered by lorry

trucks from LPG import terminals and those shifting fuels from petroleum-based ones.

<Major results of this study>

1. Sulfur content of diesel fuel is expected to be reduced to 50 ppm in Japan in 2004, while plans

are now under way to introduce diesel fuel meeting an even more stringent quality requirement

in the U.S. and European countries. There is a strong possibility also in Japan in the future

that diesel fuel having even lower sulfur and aromatics contents will be introduced at the re-

quest of the automotive industry. In this connection, there has been a move that FT diesel is

introduced as a blending stock with petroleum-based diesel fuel, which deserves our attention

as a measure to meet the ever-strengthened quality requirement for diesel fuel.

4 MMBtu stands for Million Btu, 1 Btu (British thermal unit) = 0.252 Kcal = 1.055 * 10-3 MJ

IEEJ:November 2001

3

2. In Europe, a tendency toward reevaluating diesel engines is being noted from the engine effi-

ciency point of view. The dual objectives to make automotive emissions environmentally clean

and to reduce CO2 emissions at the same time can be achieved through the introduction of die-

sel fuel with highly upgraded quality. Fairly satisfactory results are being obtained from pe-

troleum-based low-sulfur city diesel introduced in northern European countries. Expectations

for the introduction of clean FT diesel as a city diesel are growing.

3. Since DME can be used as a substitute for LPG, introduction of a certain volume of DME is

expected to play its role as a deterrent force to ever-increasing LPG contract prices.

4. Because whether DME can practically be a substitute for LPG in terms of its quality must be

confirmed at the same time, it is necessary to conduct demonstration tests such as combustion

tests by using a certain volume of DME.

5. It appears to be difficult to assume that methanol can enjoy remarkably rapid introduction be-

cause of its rather uncompetitive prices, coupled with legislative constraints. By taking full

advantage of its being easily reformed, the outlook for the development of fuel cells for distrib-

uted-type power generators or fuel cells for automotive use holds the key to successful intro-

duction of methanol.

6. FT synthetic fuel, produced from coal and natural gas, is in commercial use in South Africa.

When the oil price falls below $16/bbl, the government provides subsidies. In the current

situation in which crude oil prices remain at high levels, no government subsidies are provided

and the project is getting on its own feet. The price and the product specification of FT syn-

thetic fuel are identical with those of the corresponding petroleum product, with the FT syn-

thetic fuel being mixed with the corresponding petroleum product in the market.

Possibility of GTL Introduction for Each Estimated Import Price (CIF Basis)

(Note) In the table above, the mark indicates that it can be introduced without any difficulty when crude oil

price is $20/bbl; the mark indicates that its introduction is barely profitable, standing on the border-line between loss and profit; the mark indicates that its introduction is economically feasible when crude oil price is $25/bbl or higher, but not feasible when crude oil price falls to $20/bbl. The column “Diesel Fuel (Premium)” shows the profitability when a premium of $10/bbl is offered to FT diesel .

Natural Gas Price Import CIF Price

US$/BBL Diesel

US$/Ton (Premium)

0.5 25.1

0.75 27.2

1.0 29.4

1.5 34.0

0.5 100.6

0.75 108.8

1.0 117.6

1.5 134.6

0.5 109.4

0.75 120.2

1.0 131.6

1.5 153.1

DME

Naphtha Gasoline KeroseneUS$/MMBTU

Candidate Fuel

FT Synfuel

Methanol

Diesel LPG LNG

IEEJ:November 2001

4

Explanation

1. Properties and Uses of GTL 1.1 Properties and uses of FT synthetic fuel

FT synthetic fuel has the following properties: sulfur free, rich in paraffins, and extremely

low aromatics. It is in commercial production in South Africa (Sasol and Mossgas) and Malaysia

(Shell). It has excellent solubility and fungibility with petroleum products. In South Africa, FT

synthetic fuel and petroleum products are quite equally treated (to be described later).

Looking at FT synthetic fuel by fraction: The naphtha fraction (FT naphtha) has an octane

number as low as RON40 or below and cannot be used readily as gasoline (petroleum-based naphtha

has an octane number of around 50), while it is considered to be suitable as a petrochemical feed-

stock naphtha for ethylene production, as it is rich in paraffins. Moreover, it is regarded as a promis-

ing fuel for fuel cell-powered automobiles, as it has low sulfur and low aromatics contents.

The kerosene fraction (FT kerosene) has excellent properties such as a low sulfur content

and its smoke point is around 45 mm (compared with around 20 mm for petroleum-based kerosene).

There is a good possibility that FT kerosene will be used as a fuel for fuel cells for household use in

the future. Moreover, a mixture of FT kerosene and petroleum-based jet fuel on a 50:50 basis is

being supplied as an aviation fuel at the Johannesburg Airport in South Africa.

The diesel fuel fraction (FT diesel) is highly valuable as a blending stock for petro-

leum-based diesel fuel, because it has a high cetane number and a low aromatics content. FT diesel

produced by Mossgas and Shell is exported to the U.S. and European countries either for a diesel

fuel or for a blending stock to reduce aromatics and sulfur contents of petroleum-based products.

Furthermore, FT diesel is spotlighted as a clean fuel for next-generation diesel engines.

Engine test results have confirmed that FT diesel is effective in improving the engine output and

reducing emissions in the exhaust gas.

Meanwhile, FT diesel has some problems such as poor lubricity and low degree of swell-

ing for seals due to its low sulfur and aromatics contents. However, these problems are considered

to be solved by using additives and by changing the design of seals.

IEEJ:November 2001

5

Table 1-1 Representative Properties of FT Diesel

(Source) Prepared on the basis of the following materials, Gary Grimes, Proceedings of Gas-To-Liquids Processing 99, May 17-19, 1999 I.T. van Herwijnen, Proceedings of the Gastech 94, Oct. (1994) P. W. Schaberg et. al., Sasol Oil (Pty) Ltd,

TSUKSAKI, Yukihiro, “Jidosha Gijutsu” (Automotive Technology) Vol. 55, No.5, 2001 pp67-72

1.2 Properties and uses of DME

DME is now being produced by dehydrating methanol, and is being used as an aerosol

propellant as a substitute for CFC (chlorofluoro carbon) gas. The world’s total production of DME

stood at 150,000 tons in 1999, of which Japan produced around 10,000 tons. DME used in Japan is

produced domestically, with virtually none imported.

DME has low toxicity and has essentially no effect on living body. It is in a gaseous

phase under the normal temperature and the normal atmospheric pressure, but is easily liquefied

when the pressure is raised to around 6 atmospheric pressure. Being similar to propane in properties

(with DME having a boiling point of –25.1°C vis-à-vis –42.0°C for propane), studies are being made

of the possibility of introducing DME as a substitute for LPG Note 5. Although its degree of swelling

for piping materials such as seals and hoses is questionable, it can be used as a substitute for LPG,

when small remodeling such as a change in materials is made. However, it has a lower heating

value than propane. Note 6

Because of its low octane number, DME is not suitable for LPG-powered automobiles, but

it can be used as a promising substitute for diesel fuel, because it has a high cetane number of 55-60

and little PM (Particulate Matter) is discharged when used for diesel engines. It has many technical

problems, however, such as poor lubricity, making it necessary to use additives for its solution, and

5 Massive production is imperative for its use as fuels. Accordingly, currently under examination are two manufac-turing processes: direct manufacturing from synthetic gas and indirect manufacturing (dehydration) from methanol. 6 Net heating values, 14,200 Kcal/Nm3 for DME, 21,800 Kcal/Nm3 for propane

MossgasExport Diesel

ShellSMDS Diesel

SasolSSPD Diesel

Diesel FuelJIS K2204-No.2

Density 15 C g/cm3 0.806 0.78 0.7769 0.833

40 C cSt 2.7 2.8 2.4330 C cSt 3.50

Flash Point 93 88 71 73

Sulfur ppm 4 <3 10 350

Aromatics Vol% 8 <0.1 2.68 26.7

Cetane Number 52 80 >73 56

Distillation IBP C 201 189 174

5% 219 209

50% 271 256 277

90% 340 353 331 333

EP 362 358 356 360

KinematicViscosity

IEEJ:November 2001

6

hence it will take some time to place it into commercial use as a substitute for diesel fuel.

1.3 Properties and uses of methanol

Demand for methanol is currently established as the feedstock for manufacturing chemi-

cals such as formaldehyde, acetic acid, MTBE, etc. The world’s demand for methanol totaled 25.84

million tons in 1998, including Japan’s demand totaling 1.90 million tons which were totally im-

ported.

Methanol as a fuel has a high octane number of RON 109, but its fuel efficiency in terms

of fuel economy rate per km-run has a tendency of becoming low due to its low heating value Note 7.

Moreover, methanol is not a suitable fuel for diesel powered automobiles due to its low cetane num-

ber of around 3.

Although methanol-powered automobiles are classified as low-pollution automobiles, the

population of these automobiles has been limited to date because the handling of methanol in Japan

is controlled by the Poisonous and Hazardous Substances Control Law Note 8 and also due to a tech-

nical problem of methanol-powered automobiles discharging aldehyde during cold startupNote 9 .

Close attention is now being focused on methanol as a fuel for fuel cell-powered automo-

biles. As methanol can be reformed at a lower temperature than gasoline, the use of methanol for this

purpose is technically closer to its commercializ ation. DaimlerChrysler has completed an automobile

using methanol as a fuel, which is reaching the point of its commercialization in the near future, and

road tests are being conducted in some countries. However, the Toyota-GM group is considering the

use of gasoline and the project is favorably supported by the Ministry of Economy, Trade and Indus-

try (METI) and other parties.

2. Manufacturing of GTL Fig. 2-1 shows a block flow diagram for FT synthesis, DME synthesis and methanol syn-

thesis processes. In the gasification process, desulfurized natural gas is reformed and synthesis gas

comprised of hydrogen (H2) and carbon monoxide (CO) is manufactured.

Synthesis gas is then sent to the synthesis process, in which synthesis gas (adjusted for

composition) undergoes synthesis reaction in a reactor filled with catalyst under respective operating

conditions (such as the composition of gas, temperature, pressure, catalyst, etc.) for conversion to

respective synthesis liquid.

Finally, crude synthesis liquid is sent to the fractionation and refining process to obtain

7 Net heating values: 3,800 Kcal/liter for methanol, 7,900 Kcal/liter for gasoline 8 Methanol is specified as a “hazardous substance” in the law, obligating the designation of the person in charge of handling the hazardous substance and the taking custody of records of delivery for the five-year period. 9 There were 224 methanol-powered automobiles and ten methanol-filling stations, while there were 5,252 CNG-powered automobiles and 70 CNG-filling stations in Japan as of the end of March 2000.

IEEJ:November 2001

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finished products. In the FT synthesis process, synthesis gas once becomes waxy synthetic liquid

in the synthesis reactor, which undergoes hydrocracking/isomerization reactions with hydrogen sup-

plied from a hydrogen manufacturing unit to be cracked into hydrocarbon groups having targeted

qualities, followed by separation in a fractionation column to finished products.

Fig. 2-1 Comparison of GTL Processes in Broad Sense

In DME synthesis and methanol synthesis processes, synthesis gases are directly synthe-

sized to crude DME and crude methanol in the reactor, which will be sent to a fractionation column

to obtain finished products.

3. Background of Study (Reasons why GTL is attracting attention today) 3.1 Expanding utilization of natural gas

Great expectations for expanding utilization of natural gas are being held by the world’s

energy market from the standpoint of addressing the global environmental problems. Since natural

gas is in gaseous phase under normal conditions, however, it is difficult for natural gas to directly

replace petroleum in the transportation area where energy is utilized primarily in liquid phase. To

convert natural gas into energy in liquid state, therefore, is thought to be one of the best ways of

having natural gas compete with petroleum.

Moreover, while the rapid progress in technological developments in the 1990s, accompa-

nied by great improvement in its economic viability, can be cited as one of the reasons why the

world’s attention is being focused on natural gas-based liquid fuel (GTL), we should not ignore tak-

ing a side view that GTL is being highlighted in its contrast with LNG as the transportability of

natural gas.

H2O H2

O2 H2/CO = 2

H2O

Crude DME

O2 H2/CO = 2

H2O

Crude Methanol

O2 H2/CO = 2-3

DesulfurizationSynthesis Gas Production(Autothermal Reforming)

(Partial Oxidation)

FT Synthesis(Waxy

Syncrude)

Prpduct Work-up(Hydrocracking)(Isomerization)

Distillation

Naphtha

Kerosene

Diesel

DesulfurizationSynthesis Gas Production(Autothermal Reforming)

DMESynthesis

Distillation DME

DesulfurizationSynthesis Gas Production(Autothermal Reforming)

(Steam Reforming)

MethanolSynthesis Distillation Methanole

IEEJ:November 2001

8

In the case of GTL in a broad sense, including methanol, DME and FT synthetic fuel, it

has a number of advantages over LNG as listed below, besides being easy for ocean and inland

transportation.

• The scale of natural gas fields can be smaller than in the case of LNG (1-3 Tcf for GTL

vis-à-vis 6-8 Tcf for LNG).

• Like LNG, GTL is an environmentally clean fuel, as they do not contain sulfur and aromatics.

• Ocean transportation/import receiving terminals are more simplified and less expensive than

in the case of LNG.

• Unlike LNG, no long-term purchase contracts are needed.

• Like LNG, the consumers’ market already exists (except DME, for which no established mar-

ket as a fuel exists)

• Capital expenditures for one chain of liquefaction facilities are far smaller than in the case of

LNG to such an extent that any one business firm can complete a whole project.

Furthermore, GT L is being watched with keen interest also from the standpoint of eco-

nomically effective utilization of natural gas resources. The flaring or releasing into the air of

natural gas accompanying the exploitation of crude oil totaled 100.2 billion m3 (3.5 Tcf) in 1999.

Though this volume is declining due to the strengthened restriction measures taken in each

oil-producing country, it is still 1.4 times as much as Japan’s annual consumption of natural gas in

1999 (71 billion m3, 2.5 Tcf).

Above all, Nigeria and Iran flared or released into the air 18.9 billion m3 (0.67 Tcf) and

10.5 billion m3 (0.37 Tcf) of natural gas, respectively, accounting for 61.4 percent and 11.1 percent

of natural gas production in 1999. Natural gas, flared or released into the air, of these two countries

alone accounted for around 30 percent of the world’s total.

Effective utilization of natural gas resources thus flared or released into the air, therefore,

is an urgent task to be addressed also from the environmental protection standpoint. In Nigeria,

Sasol of South Africa and Chevron jointly launched a 30,000 B/D GTL project in an effort to effec-

tively utilize natural gas which would otherwise have been wasted.

3.2 Strengthening of quality regulations of transportation fuel

Each country in the world, including Japan, has announced plans to further strengthen

measures to counter the issue of automotive emissions to prevent environmental pollution. Since

sulfur contained in diesel fuel tends to increase the quantity of PM Note 10 in the automotive emis-

sions, plans are under way to strengthen the quality regulation of diesel fuel not only in Japan but

also in the U.S. and European countries. Meanwhile, the automotive industries in Japan, the U.S.

10 Particulate Matter comprises soot produced from burning fuel, sulfate produced from oxidized sulfur contained in fuel, unburned fuel, and lubricating oil.

IEEJ:November 2001

9

and European countries are reques ting to reduce the sulfur content of diesel fuel to 10 ppm or less

(World –Wide Fuel Charter, Dec. 1998) so as to counter the issue of automotive emissions.

Table 3-1 Sulfur Regulation of Diesel Fuel in Future

EU Germany U.S.A. Japan

Sulfur Regulation 50 ppm or less 50 ppm or less 10 ppm or less 15 ppm or less 50 ppm or less

Year of enforcement 2005 Nov. 2001 Jan. 2003 Sept. 2006 end Dec.2004

Although the automotive industries in Japan, the U.S. and European countries are also re-

questing that the aromatics content in diesel fuel should be 15 percent or less, the product specific a-

tion for diesel fuel in Japan does not include the regulation for aromatics content at present. Diesel

fuel in Japan is assumed to contain around 30 percent of aromatics now and a considerable amount

of capital investment is believed necessary to newly construct processing facilities to reduce the

aromatics content. As one of the measures to achieve this target, studies are under way to use FT

diesel as a blending stock.

On the other hand, apart from EU regulations, in countries primarily in northern Europe, a

move is being witnessed to introduce diesel fuel having an even more stringent quality (city diesel)

in a bid to reduce environmental pollution in urban area due to diesel-powered automobiles. Sw e-

den has already introduced diesel fuel having a sulfur content of 10 ppm or less in 1991, with

Finland, Denmark, Norway and the U.K. having introduced diesel fuel with a sulfur content of 50

ppm. It is believed to be useful to use FT diesel as such, having no sulfur and very low aromatics

and policyclic aromatics contents, as city diesel.

3.3 Expectations for deterrent force to LPG contract prices as a result of introduction of DME

Japan relies on the Middle East for more than 80 percent of its LPG imports, especially on

Saudi Arabia for more than 40 percent Note 11. Saudi Arabia’s LPG export prices (Contract Prices)

rose to a level nearly 140 percent (the equivalent of heat capacity) of the price of Arabian light crude

in December 2000. As LPG supply sources are limited, contract prices are left unchecked in actual-

ity.

As demand for LPG is projected to increase in the future in Southeast Asian countries,

including China and India, a further increase in LPG contract prices will be unavoidable. Because

demand for DME is still low at present, a new pricing structure is likely to be built up when use of

DME enters a commercialization stage. When DME is introduced as a substitute for LPG, it is ex-

pected to produce an effect in such a manner that an gas-producing country’s one-sided determina-

11 Japan’s LPG imports in FY2000 totaled 14.85 million tons, of which imports from the Middle East totaled 12.47 million tons (83.9 percent) and imports from Saudi Arabia totaled 6.01 million tons (42.5 percent).

IEEJ:November 2001

10

tion of LPG prices comes under pressure to exercise more discretion.

Under such circumstances, a number of GTL projects have been announced one after an-

other in many areas of the world since the latter half of the 1990’s. As for FT synthetic fuel,

with its experience in Malaysia, Shell is planning to launch GTL projects by itself, while Sasol and

Chevron are jointly planning to promote projects in Nigeria, Qatar, etc. ExxonMobil is developing

its own technology. As for DME, BP is studying the possibility of launching a project in India, while

Japan DME is planning to construct a plant in Australia.

When promoting a GTL project, it should be remembered that it would be difficult to

judge whether the project in question will materialize or not, unless investigations are carried out in

advance into the type of the market and in what form GTL is to be accepted in that market.

Fig.3-1 Movement in Saudi Arabia’s Contract Prices

(Source) Prepared on the basis of prices shown on the September 10, 2001 issue of the “Weekly Oil and Gas Data”

Keeping this in mind, a fact-finding survey was made in South Africa where GTL (FT

synthetic fuel) has been in commercial use for many years, GTL import costs were estimated, and

the marketability of GTL was studied on the basis of interviews with GTL producers and GTL con-

sumers.

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

1996

/1

1996

/4

1996

/7

1996

/1019

97/1

1997

/4

1997

/7

1997

/1019

98/1

1998

/4

1998

/7

1998

/1019

99/1

1999

/4

1999

/7

1999

/1020

00/1

2000

/4

2000

/7

2000

/1020

01/1

2001

/4

2001

/7

US$/Ton

0.0

50.0

100.0

150.0

200.0

250.0

Propane CP Price

vs AL Price Ratio

Ratio %

Propane CP Price

Propane vs. Arabian Light Crude Oil Price Ratio

IEEJ:November 2001

11

Fig.3-2 FT Synthetic Oil Projects in the World

4. Current Status of GTL (FT synthetic fuel) in South Africa In South Afric a, Sasol and Mossgas are producing FT synthetic fuel from coal and natural

gas, respectively. Their production capacities are 150,000 B/D in terms of crude oil processing ca-

pacity (or approximately 100,000 B/D in terms of FT synthetic fuel -- finished product – production

capacity) for Sasol, and 45,000 B/D (approximately 30,000 B/D) for Mossgas.

Table 4-1 Refinery Capacity in South Africa (1998)

Name Location Shareholder/

% Share of Equity Interest

Capacity

(B/D)

Enref Durban Engen 105,000

Sapref Durban Shell 50/BP 50 180,000

Calref Cape Town Caltex 100 100,000

Natref Sasolburg Sasol 63/Total 37 86,000

Refining Total 471,000

Sasol II•III Secunda Sasol 100 150,000

Mossgas Mossel Bay Government 100 45,000

Synthetic Oil Total 195,000

Total 666,000

(Note) Production capacity of synthetic oil is shown in terms of crude oil processing capacity, i.e. calculated by

dividing the total volume of white oil (gasoline, kerosene, diesel fuel, LPG) by 70 percent, assuming a 70 percent yield of these products on crude.

(Source) Prepared on the basis of data shown in “SAPIA Millennium Report.”

Exxon Mobil 50,000 bpd North Slope,Alaska

Alaska Natural Gas To Liquids Co. 50,000 bpdPrudhoe Bay, Alaska

Syntroleum10,000 bpdBurrup Peninsula,Australia

Rentech and BC PropdBrazil

Exxon Mobil50,000 bpdAngola

Shell and Pertamina70,000 bpdIndonesia

PDVSA15,000 and 50,000 bpdVenezuela

Reema InternationalInternational10,000 bpdTrinidad

MOSSGAS30,200 bpdMossel Bay,South Africa

Forest Oil South Africa

Sasol Beira, Mozambique

Chevron and Sasol30,000 bpdNigeria

Rentech2,000 bpdCommerce City,USA

Shell SMDS12,500-15,000 bpdBintulu,Malaysia

QP and ExxonMobil 100,000 bpd Qatar

Shell70,000 bpdEgypt

Shell70,000 bpdIran

QP and Sasol 30,000 bpd Qatar

Shell70,000 bpdTrinidad

Rentech and Pertamina15,000 bpdIndonesia

Sasol105,000 bpdSecunda,South Africa

Shell70,000 bpdArgentina

Existing plants

Business plan

Name of relatedcompanyScale ofproductionLocation

Feasibility studyunder way

2000 2008200620042002 2010

Shell 4 projectsSasol Date of beginning operations Nigeria, QatarSyntroleum Date of beginning operations

Shell70,000 bpdSabah, Malaysia

IEEJ:November 2001

12

Of the seven refining companies, six companies (excluding Mossgas) are also wholesale

companies. Besides these companies, there are three exclusively wholesale companies: Exel,

Tepco and Afric Oil. These wholesale companies lift refined products from the refining companies

and market them under their respective brands. The type of business of these wholesale companies

is quite similar to that of “motouri” (marketing and primary distribution) companies in Japan.

The wholesale companies are obligated to purchase FT synthetic fuel, produced by Sasol

and Mossgas, in accordance with their respective shares on the domestic market. FT synthetic fuel

is then mixed with petroleum products at oil terminals or in the market, meaning that FT synthetic

fuel is treated in exactly the same way as petroleum products with respect to product qualities.

Of the petroleum products, gasoline, kerosene and diesel fuel are sold at unified prices –

called IBLC (In-Bond-Landed-Cost) -- to wholesale companies Note 12. IBLC is calculated by add-

ing freight, insurance and port charges to the ex-refinery gate product prices shipped from the

benchmark refineries in Singapore and Bahrain. It is a landed price that would be arrived at when

the product is assumed to be imported from overseas.

Fig. 4-1 Location of Refineries in South Africa

(Source) Extracted from Shell SA’s material.

IBLC is determined by the government and in the eyes of wholesale companies it is the

price, which is basically the same as the imported product price and at which they can lift products

from any refinery. FT synthetic fuel, produced by Sasol and Mossgas, is also traded at IBLC,

meaning that FT synthetic fuel is not treated discriminately pric ewise from petroleum products.

12 In South Africa, wholesale prices of gasoline, kerosene and diesel fuel are also determined by the government. Moreover, retail prices of gasoline sold at service stations are also determined by the government with a view to pro-tecting the retailers. As for gasoline, discounts of retail prices, credit sales and sales on credit cards, etc. are not authorized.

IEEJ:November 2001

13

In an effort to protect the FT synthetic fuel industry, the government adopted a system,

under which the lowest limit of the reference crude oil price -- called the Floor Price – is set and

when the actual crude oil price falls below that limit, the government provides subsidies to Sasol and

Mossgas based on the differential.

As the floor price has been set at $16.00/bbl since July of 1999, while actual crude oil

prices have always been at higher levels since the latter half of the 1990’s except for some specific

period, no subsidies have been provided by the government. The government is planning to abolish

this system in the future.

No regulations on automotive exhaust gas emissions have been in force in South Africa.

Although unleaded gasoline was introduced in February 1996, the bulk of gasoline currently on the

market is leaded, with unleaded gasoline’s share of the gasoline market remaining low at only

around 15 percent.

The existing product quality specifications call for a 0.55 percent (5,500 ppm) sulfur con-

tent for diesel fuel and a 0.15 percent (1,500 ppm) sulfur content for gasoline – quite high levels –

and hence it can be said that the predominance of clean FT synthetic fuel is not taken advantage of.

Taking advantage of FT diesel’s predominant quality in terms of zero sulfur content and

low aromatics content as noted above, Mossgas is making vigorous efforts to export the product to

the U.S. and European countries where extremely stringent environmental regulations are in force.

Since FT diesel is being exported at premium prices in sharp contrast to the business on the domestic

market, this is bringing a handsome profit to Mossgas.

IEEJ:November 2001

14

Fig. 4-2 Petroleum Industry in South Africa

(Source) Prepared on the basis of various materials and interviews in the field trip.

5. Study of GTL Introduction Costs Assuming that plants for manufacturing FT synthetic fuel, methanol and DME are built in

the Southeast Asian region, using natural gas produced in the region as a feedstock, and that these

GTL products are imported into Japan, CIF Japan costs are estimated below. Other assumptions in-

clude: plant capacities --19,000 B/D for FT synthetic fuel, 5,000 tons/D each for methanol and

DME; the project’s ROI Note 13 at 10 percent on an after-tax basis ; and GTL transportation over a

distance of 5,000 km for each.

13 ROI = Return on Investment

Engen Caltex BP Shell Total Sasol Mossgas

RefineryEnref

105×103B/D

Calref100×10

3B/D

Sapref180×10

3B/D

Natref86×10

3B/D

Secunda150×10

3B/D

Mossel Bay

45×103B/D

100 100 5050 100 1006337

Crude Oil NaturalGasCoal

Distribution

Feedstock

Engen Caltex BP Shell Total Sasol

Exel Tepco Afric Oil Wholesaler(Black

Ownership)

Refining &Marketing

Gas Stations

Consumers

IBLC Price

Retail Price

Wholesale Price

RefiningCompanies

Retailers

Wholesalers

Industries

WholesaleRetail

IEEJ:November 2001

15

Table 5-1 Estimated Total Investment, Annual Production Volume, etc. FT Synfuel Methanol DME

19,000 B/D 5,000 Ton/D 5,000 Ton/D

Total Investment Million US$ 581.9 498.2 586.0

Feedstock (Daily) MMSCF/D 159 162 207

(20 years) TCF 1.1 1.2 1.4

1,027 ×103KL 1,700×10

3Ton 1,700×10

3Ton

Naphtha 154 ×103KL (Diesel Equivalent 971 ×10

3KL) (Diesel Equivalent 1,396 ×10

3KL)

Kerosene　257×103KL (LNG Equivalent 680×10

3Ton) (LNG Equivalent 980×10

3Ton)

Diesel 616×103KL (LPG Equivalent 1,070×10

3Ton)

US$/MMBTU 0.39 0.91 0.42

US$/Ton 17.12 19.57 12.56

US$/BBL 2.04 2.46 -

US$/Ton 210.5-284.7 100.6-134.6 109.4-153.1

US$/BBL 25.1-34.0 12.6-16.9 -

Heating Value (HHV) MMBTU/Ton 43.9 21.5 29.9

Density Ton/m3 0.75 0.79 0.74

Production Capacity

Freight Cost (5,000km)

Import CIF Price

Annual Production

(Notes) The figures for annual output were converted in terms of net calorific values: DME 6,900 Kcal/kg,

methanol 4,800 Kcal/kg, LNG 12,000 Kcal/kg, LPG 11,000 Kcal/kg, and diesel 8,400 Kcal/liter. The CIF import prices were calculated with the feedstock gas price assumed at $0.5 – 1.5/MMBTU. 1 BTU = 0.252 Kcal = 1.055 X 10-3MJ; 1 MMSCF (million cubic feet) = 28,300m3

Annual production volumes are 1.03 million kl for FT synthetic fuel and 1.70 million tons

each for DME and methanol. Furthermore, the plant is in operation for 340 days; FT synthetic fuel

is composed of 15 percent of naphtha, 25 percent of kerosene and 60 percent of diesel fuel. Total

volume of natural gas required is in a 1.1-1.4 Tcf range. The total capital requirement is estimated to

be around $500 million for methanol and $580-590 million each for FT synthetic fuel and DME.

As a method of estimating the cost of GTL, it is assumed that CIF prices of imported pe-

troleum products or LNG are more or less related to CIF prices of crude oil imported into Japan.

Assuming that the crude oil price is to be around $20/bbl, CIF prices of imported petroleum products

or LNG are estimated, and it is judged whether or not the CIF price of GTL with a 10 percent

ROI guaranteed can be competitive with those of imported petroleum products/LNG and can be

imported as a substitute for them.

Table 5-2 CIF Prices of Candidate Fuels (Estimated)

Results of the study are summarized in Table 5-3. In reference to the table, the mark

indicates that it is judged to have a strong feasibility of introducing GTL when the crude oil price is

$20/bbl, and the mark indicates that introduction of GTL is barely profit-making and is on the

Naphtha Gasoline Kerosene Diesel LPG LNG

20 $/BBL 22.8 27.5 28.1 28.4 243.0 190.4

25 $/BBL 27.4 32.1 34.3 34.8 295.7 220.4Crude Oil Price

Candidate Fuel

US$/BBL US$/Ton

IEEJ:November 2001

16

borderline between profit and loss, whereas the mark indicates that the introduction of GTL is

profitable when the crude oil price is $25/bbl or higher, but it becomes unprofitable when the crude

oil price falls to $20/bbl.

Table 5-3 Feasibility of GTL Introduction in terms of CIF Prices (Summary)

Although it may not be advisable to make a judgment simply from the results shown in the

table, given below are general conclusions obtained under the assumption that the crude oil price

remains at the level of $20/bbl.

• When the feedstock gas price is in a $0.5-1.0/MM Btu range, the most probable choice as

judged from the profitability standpoint is DME as a substitute for petroleum-based diesel fuel

and LPG. Since LPG prices are determined as contract prices without any reference to the

crude oil prices, however, further studies are necessary.

• As for FT synthetic fuel, gasoline and kerosene are highly profitable. Since the cost estima-

tion presupposes production of naphtha, however, its quality in terms of the octane number is

thought to be poor and it is necessary to add upgrading costs if the FT synthetic naphtha is to

be used as gasoline.

• As for FT diesel, when its quality is regarded to be the same as petroleum-based diesel fuel, it

is difficult to place it on a profitable basis unless the feedstock gas price is at around

$0.5/MMBtu.

• Nevertheless, some local governments like the Tokyo Metropolitan government provide

¥10-15/liter subsidies, when introducing diesel fuel having a sulfur content of 50 ppm or less,

and in case a premium of around $10/bbl (around ¥7.5/liter) of approximately the same level is

offered to a clean fuel, the profitability of introducing FT diesel is fully assured even when the

feedstock gas price is as high as $1.5/MMBtu.

Natural Gas Price Import CIF PriceUS$/BBL Diesel

US$/Ton (Premium)0.5 25.10.75 27.2

1.0 29.41.5 34.0

0.5 100.60.75 108.8

1.0 117.61.5 134.60.5 109.4

0.75 120.21.0 131.6

1.5 153.1

DME

Naphtha Gasoline KeroseneUS$/MMBTU

Candidate Fuel

FT Synfuel

Methanol

Diesel LPG LNG

IEEJ:November 2001

17

(Reference data) Preconditions of Economic Calculations

G Construction relations EPC period year 3 3 3

Operating period year 20 20 20

Number of days of plant operationin a year

day/year 340 340 340

Load factor (first year) % 90 90 90

Load factor (second year) % 95 95 95

Load factor (third year) % 100 100 100

Utility cost (electricity) US$/ton-product Self-support 3.65 2 0.028 US$/KWh

Utility cost (cooling water) US$/ton-product Self-support 2.12 4.24 0.019 US$/T

Utility cost (process) US$/ton-product 0.63 0.03 0.04 0.7 US$/T

Chemicals US$/ton-product 6.02 1.41 1.94

Total utility cost US$/ton-product 6.65 7.21 8.22

Tax Holiday year 0 0 0

Corporate Tax Rate % 35 35 35

Import tariffs % 0 0 0

Residual value % 0 0 0

Depreciation (plant) Year/depreciationmethod

10 years/fixedinstallment

10 years/fixedinstallment

10 years/fixedinstallment

Depreciation (initial catalyst) Year/depreciationmethod

10 years/fixedinstallment

10 years/fixedinstallment

10 years/fixedinstallment

Depreciation (owner’s cost) Year/depreciationmethod

10 years/fixedinstallment

10 years/fixedinstallment

10 years/fixedinstallment

J Commodity pricefluctuations

Inflation %/year 0 0 0

H Operations relations

I Tax relations

No. Item Unit GTL Methanol DME Remarks

Method of economic calculations DCF DCF DCF

ROI (after-tax basis) % 10 10 10

Product prices US$/MMBtu Calculation result Calculation result Calculation result

Specific gravity of Products T/M3 0.75 0.79 0.74

Heating Value of Products (HHVbasis)

MMBtu/T 43.9 21.5 29.9 HHV basis

Scale of plants (base case) BPSD 19,000 - -

Scale of plants (base case) TPSD - 5,000 5,000

Planned Site for PlantConstruction

Southeast Asia Southeast Asia Southeast Asia

Natural gas prices US$/MMBtu 0.5/0.75/1.0/1.5 0.5/0.75/1.0/1.5 0.5/0.75/1.0/1.5 HHV basis

Consumption of natural gas perunit of product

MMBtu/T 73.83 33.89 43.49 HHV basis

Heat content per unit volume ofgas

Btu/SCF 1,050 1,050 1,050 HHV basis

Total gas volume required MMSCFD 159 162 207 HHV basis

Required scale of gas field TCF 1.1 1.2 1.4 HHV basis

Turn-key cost MMUS$ 495.6 423.0 489.5

Contingency of above MMUS$ 24.8 21.2 24.5

Initial charge of catalyst MMUS$ 15.2 4.4 22.0

Subtotal plant cost MMUS$ 535.6 449.3 536.0

Start-up MMUS$ 6.8 6.3 9.0

Technical service MMUS$ 4.7 6.3 6.3

Insurance MMUS$ 1.0 1.0 1.0

Pre-operation expenses MMUS$ 12.3 12.3 12.6

Contingency of owner’s cost MMUS$ 4.0 3.0 5.1

Subtotal owner’s cost MMUS$ 28.8 24.8 34.0

Initial working capital MMUS$ 17.5 20.0 16.0

Expenses related to fundprocurement

Not applicable Not applicable Not applicable

Interest during constructionperiod

Not applicable Not applicable Not applicable

Total capital investment MMUS$ 581.9 498.2 586.0

Net worth ratio % 100 100 100

Ratio of capital investment (firstyear)

% 25 25 25

Ratio of capital investment(second year)

% 35 35 35

Ratio of capital investment (thirdyear)

% 40 40 40

A Economic calculations

B Finished products

C Plant

D Natural gas

E Total capital investment

F Capital investment

IEEJ:November 2001

18

6. Consumer Side’s and Supplier Side’s Views on GTL When judging the marketability of GTL, potential consumers such as electric utilities and

city gas companies and potential suppliers such as chemical companies were interviewed for their

views on GTL.

(1)Consumer side’s views on GTL

• Electric utility industry:

- It remains to be seen whether the cost of DME, including the cost of remodeling existing LPG

facilities, is competitive.

- Methanol cannot be used because of its low calorific value and high transportation cost.

Countermeasures are necessary when methanol leaks.

• City gas industry:

- DME as a feedstock for SNG must be competitive cost-wise with LPG and naphtha. Also, it

remains to be seen whether the stability of supply is guaranteed.

- Introduction of DME for container gas business depends on its cost competitiveness vis-à-vis

LPG. Countermeasures for seals are also necessary.

• Automotive industry

- The exhaust emissions treatment technology must be fully utilized for making automotive ex-

haust gas cleaner, while sulfur contained in fuel is a bottleneck. Reduction in sulfur content

of diesel fuel to 50 ppm is not enough and its further reduction is necessary.

- FT diesel, because of its excellent combustibility and low PM emissions, is expected to reduce

the emissions treatment equipment and thus improves the output of engines.

- DME has a high cetane number and discharges little PM. It helps the automotive industry cope

with NOx regulations. Like LPG, DME can be stored on board in liquid phase and hence

automobiles can run over a longer distance than CNG which is stored in gaseous phase.

• Organizations set up for promoting the use of low-emission automobiles

- Use of methanol-powered automobiles are not expected to spread further, while fuel

cell-powered automobiles are expected to become popular.

(2)Supplier side’s views on GTL

• Chemical industry:

- Pricing of methanol for chemical use is well established, therefore new pricing of methanol for

fuel use is difficult.

- As demand for DME is low at present, pricing anew of DME for fuel use is possible.

• Petroleum industry

- Introduction of FT synthetic fuel depends on its prices vis-à-vis prices of competitive petro-

leum products. A quality premium is hoped for, but its projection is difficult. It is necessary

to enter the market first.

IEEJ:November 2001

19

- FT naphtha is rich in paraffins and hence does not directly qualify as gasoline. Its reforming

is necessary. Its use for fuel cells has some prospects.

- The kerosene market for home heating use is almost saturated with petroleum-based kerosene.

FT kerosene for jet fuel use is expected to have a future.

• Oil exploration industry

- Expectations for GTL technologies are running high as a way of developing a number of me-

dium- and small-sized natural gas fields located in the Southeast Asian region.

- A natural gas field which is too big to find a market and associated gas which is currently be-

ing burned in flare stacks can also be promising resources for GTL projects.

• LPG industry

- DME has properties quite similar to LPG. As LPG prices are determined by gas-producing

countries as contract prices and LPG supply is projected to continue being tight due to brisk

demand in India and China, DME is expected to play its role as a deterrent force to an increase

in LPG prices and to provide supply stability.

- DME has a high possibility for its being introduced as a fuel for diesel engines even when the

price is high because it does not discharge PM. However, many technological challenges re-

main.

7. Study of Potential Market for GTL Introduction The following conclusions are obtained from comprehensive and overall assessments of

GTL as outlined above.

Table 7-1 Market for GTL Introduction

Market (1998) FT Synfuel Methanol DME

DME 10,000 TonMethanol 2 Million TonLPG 2.42 Million Ton

Naphtha 47 Million KL(existing) (existing) (existing)

Gasoline 55.78 Million KL × ×

Diesel 43.91 Million KL ×

LPG (for Vehicle Use)1.79 Million Ton

- ×

- - -

Public Utilities × -

Auto Producers ×

- -

A C Fuel Oil 49.03 Million KLLPG 7.3 Million Ton

×

LPG 4.6 Million Ton -

Synthesized Naturl Gas -

For Heating Value Adjustment ×

Town Gas LPG 0.45 Million Ton -

LPG 2.15 Million TonNaphtha 165 Thousand KL

Industry & Commercial

Town Gas

LPG Substitute for Residential Use

Raw Material forTown Gas

Thermal Power PlantsGenerating Facilities

LNG 35.03 Million TonC Fuel Oil 13.13 Million KL

LPG 480 Thousand TonCoal 46 Million Ton

Fuel for Fuel Cell Power Plants

Chemical Feedstock

Automotive Fuel

Gasoline Substitute

Diesel Substitute

LP Gas Substitute

Fuel for Fuel Cell Vehicle

IEEJ:November 2001

20

(1) FT diesel is most promising and is expected to be spotlighted in the future as the quality re-

quirement for diesel fuel is strengthened further. To put its properties as a clean fuel to practical

use, it is urged to introduce it as city diesel at an early date in the way it is introduced in urban

areas in the U.S. and European countries for the purpose of protecting the environment. FT

naphtha and FT kerosene can also be introduced as substitutes for petroleum-based naphtha and

kerosene, depending on price levels.

(2) DME is expected to expedite a shift from LPG because of its lower prices and a shift from pe-

troleum-based fuels because of its characteristics of providing clean combustion. DME also has

an excellent quality as a diesel fuel and great expectations are being held for technological de-

velopment of diesel engines.

(3) Methanol is not likely to enjoy rapid introduction because of its low competitive power vis-à-vis

other fuels, coupled with its legislative constraints. Taking advantage of its characteristics of

being easily reformed, it can be used for fuel cells for distributed power and/or fuel cells for

automobiles, depending on the technological development in this area as a key factor.

8. Scheme for GTL Introduction Our study outlined above has shown that FT diesel is promising in the diesel fuel market,

while DME is promising in the industrial fuels market. For practical introduction of these GTL

products, however, the question is how a certain volume of demand can be developed. In this con-

nection, we wish to propose the following schemes to develop a market for GTL.

(1)FT diesel

- There have been cases in which FT diesel was used in the U.S. and European countries, but

none in Japan. In order to attempt to introduce it smoothly in Japan, the predominance of FT

diesel fuel’s quality over others must be confirmed and it is necessary to secure the base of

demand and create demand for the future.

- In a local autonomous body such as the Tokyo Metropolis, where the air pollution is becoming

a serious problem, plans are under way to procure diesel fuel having a sulfur content of 50

ppm for use in public transportation facilities such as buses and to undertake road tests in an

effort to reduce the air pollution. Note 14

- As FT diesel contains little sulfur and its aromatics content is low, it should be introduced on

an experimental basis primarily as a fuel for public transportation facilities in a specific area

such as this, while the various data thus obtained from road tests are utilized as the basis for

making improvements aimed at realizing low-emission automobiles.

14 In an interim report, titled “Design for the Basic Environmental Plan for the Tokyo Metropolis,” published by the Environmental Council of the Tokyo Metropolitan government, it is pointed out that “it is necessary to evaluate as soon as possible the role that sulfur-free GTL plays in reducing the particulate matter and to confirm the possibility of utilizing GTL and the necessity of using extra-low sulfur diesel fuel in order to make a takeoff.”

IEEJ:November 2001

21

- Concurrently, evaluation of FT diesel should be undertaken, using actual automobiles, in col-

laboration with the automotive industry. This evaluation also includes studies of special

characters of exhaust emissions from a mixture of 50 ppm petroleum-based diesel fuel and FT

diesel, taking into account strengthened regulations on aromatics content and further strength-

ened regulations on sulfur content of diesel fuel antic ipated in the future.

- Since FT diesel supply sources for Japan are not founded yet, imports from Shell Malaysia or

Mossgas, Sasol are considered for the moment. As the supply capacity of these companies

appears to be limited, supply of this FT diesel will be restricted to specified.

- As costs for introducing FT diesel at the experimental stage are expected to be high due to

various factors involved, it is hoped that the central as well as the local governments will pro-

vide incentives corresponding to FT diesel import costs. Note 15

- After actual results are obtained from the experimental introduction of FT diesel as referred to

above, studies should be made to secure natural gas resources overseas and to construct GTL

plants so as to meet an increase in demand for city diesel antic ipated in the future. Note 16

(2)DME

- Since DME has no predominant quality like that of FT diesel which can be taken advantage of,

priority should be given to secure a certain volume of demand, presupposing a consumers’

shift from LPG to DME. Demand for LPG from industrial facilities located within a radius

from import terminals where LPG can be delivered by lorry trucks is estimated to be around

3.50 million tons in DME equivalent, from which real demand for DME must be established.

- Since Japan lacks experience of having introduced DME in large volumes, it is necessary to

use a certain volume of DME to confirm whether it can really be a substitute for LPG. First,

combustion tests should be undertaken, using the actual boiler, to confirm whether DME has

the same combustibility as LPG and also various technical problems associated with DME

distribution facilities, including the durability of seals and packings, should be studied

- Concurrently, natural gas resources overseas corresponding to DME demand should be se-

cured and studies should be made for introducing DME plants. When the reverse of the

above is in the case, with the start-up of a DME plant coming first, it is necessary to plan

measures, taking into account Indian and Chinese markets.

- Given the excellent characteristics of the exhaust gas emissions from DME-powered diesel

15 The annually required volume of FT diesel in the case of the Tokyo Metropolis is estimated to total 165,000 kl (approximately 2,800 B/D) for 1,300 buses operated by the Tokyo Metropolitan government and 2,200 privately op-erated buses. Subsidies at a rate of ¥10/liter will be provided to oil companies supplying 50ppm diesel fuel. 16 By way of reference, Japan’s diesel fuel sales by area totaled 41.05 million kl in FY2000, of which the sales in the Tokyo Metropolitan area (Tokyo Metropolis and three prefectures of Chiba, Saitama and Kanagawa) totaled 8.75 million kl, which are increased to 16.56 million kl, including large city areas in the Chubu and Kansai regions, ac-counting for around 40 percent of the total. When these markets are taken as the city diesel fuel market, total vol-ume required will be very large.

IEEJ:November 2001

22

engines, technological development aimed at using DME for diesel-powered automobiles in

the future should be promoted in collaboration with the automotive industry. Simultaneously,

local autonomous bodies within the urban areas are approached for studying the possibility of

constructing DME-filling stations adjacent to the existing LPG-filling stations for automo-

biles.

- For future considerations, an increase in DME demand is anticipated, taking into account the

introduction of DME as a substitute for LPG in newly installed container gas supply equip-

ment. Simultaneously, utmost efforts are made for development of stationary fuel cells using

DME as a fuel.

(3)Methanol

- As methanol is used as a fuel for fuel cell-powered automobiles, the current status of techno-

logical developments in this field must be watched closely. Taking into account a case in

which methanol is introduced on a full scale as a fuel for fuel cell-powered automobiles, it is

necessary to explore problems to be encountered when introducing methanol, including tech-

nical problems related to its distribution.

- While there are ten methanol-supplying stations now in operation across the country, only

around 200 methanol-powered automobiles are registered as such, leaving those stations idle.

- Making the most of these methanol-supplying infrastructure, fleet tests of fuel cell-powered

automobiles should be conducted to confirm their performance, while exploring various prob-

lems encountered in the distribution system and studying measures to solve them.

- When conducting these fleet tests, the central as well as local governments are expected to

provide incentives for introducing methanol, given the very little operating profit of these sta-

tions.

End