Talisman kicks gas-to-liquids scheme to the curb
'Better ways' to allocate capital, company CEO says
For the past two years, North America producers have been expending a lot of brain power searching for ways to drive up demand (and, hence, the price) for natural gas.
Liquefied natural gas export projects, using more natural gas in power generation, and getting more trucks and cars running on natural gas have all been touted as ways to drive up demand for the cleanest burning fossil in North America and break a supply glut that has the commodity trading at rock bottom prices.
Turning gas into liquid fuels such as diesel has also been bandied about as a potential solution. But you can cross Calgary-based Talisman Energy Inc. off the list of firms pursuing the idea. Today, Talisman announced that after taking part in a feasibility study with South Africa’s Sasol Ltd. for a gas-to-liquids (GTL) facility that would have been built in Alberta, it was dropping out of the project.
“After careful consideration, we have concluded that there are better ways to allocate capital in support of our strategy,” John Manzoni, Talisman’s president and CEO, says in a Thursday press release. “Talisman’s immediate focus is to accelerate investment in near-term liquids opportunities, with the goal of increasing liquids and oil-linked gas production to 300,000 barrels a day by 2015. We wish Sasol every success as they evaluate the next phase of this project, and we look forward to continuing a positive relationship in the joint development of our Montney assets.”
I’m not sure how positive Sasol is feeling today in light of Talisman’s decision. In 2011, Talisman signed two separate deals worth $1.05 billion each with Sasol that gave the South African firm a 50 per cent interest in two natural gas assets in the aforementioned Montney play in northeastern British Columbia’s. Presumably, the gas from the Montney assets would have provided the feedstock for the 96,000 barrel per day GTL facility Sasol proposes to build in Alberta.
Sasol is a world leader in GTL technology and has built similar plants in South Africa and Qatar, so it’s fair to wonder what they stand to gain from their joint venture now that its partner wants no part of a GTL facility.
But this project seemed like a long shot all along. GTL facilities are expensive to build. In a research note this morning, CIBC World Markets analyst Andrew Potter said it had estimated the plant would cost between $8-$10 billion to build. Talisman’s announcement “comes as no surprise,” Potter told clients in this morning’s note.
Perhaps just as unsurprising is what Potter thinks Talisman will do next. He throws out the possibility that Talisman could have ambitions to (wait for it) export LNG.
We believe the company will continue to evaluate LNG opportunities off the Canadian west coast and in the U.S. We would not be surprised to see the company announce some sort of participation either by bringing in an experienced partner to pursue its own facility or joining forces with an existing project to fast track participation.