Velocys shrinks GTL hardware, offers technology solutions for gas producers

Roy Lipski, CEO, Velocys

Velocys, a leading smaller-scale GTL technology firm and solutions provider to the upstream, midstream and downstream markets, is making quick strides in integrating its smaller-scale reactors in downsized GTL applications. The time is right for a shift in production from site-specific to distributed processing, according to Velocys CEO Roy Lipski. Here, Mr. Lipski discusses with Gas Processing the evolution of small-scale GTL and the company’s role in this journey.

GP. You’ve spoken about an overall shift in manufacturing practices that includes a change in production from site-specific to distributed processing. Do you view this movement as a sea change for gas processing, or as a complement to traditional, large-scale processing operations?

RL. We are entering the age of gas, and with it will come far-reaching changes. The industrial age began with coal; it provided power, lighting and chemicals. Then we moved to oil. Both coal and oil are easy and cheap to transport, which gave birth to the centralized production model. However, gas is harder and more expensive to transport, so it’s forcing a rethink.

The answer is smaller-scale production closer to the source, at gas gathering and processing sites. I see these developing into mini-industrial sites where gas is used to make an array of basic building blocks for society: fuels, fertilizers, chemicals and electricity.

Centralized facilities will persist—there’s too much invested in them—but I envision the future as being about the growth of a distributed network of production. Such a network would be more flexible, robust and adaptable. By definition, these smaller and cheaper facilities are within reach of many more customers—not just the largest corporations.

GP. What has the evolution of smaller-scale GTL allowed the industry to accomplish so far, and how do you see this journey developing into the future?

RL. Six years ago, the mere idea of an economical small-scale petrochemicals facility was almost against the laws of nature. Then, about three years ago, people began to accept that smaller-scale GTL might be possible, but few believed there was any real need for such facilities. Around a year and a half ago, the industry came to realize that this was going to happen.

Beginning at the end of 2013, with cost escalations and delays plaguing more and more large-scale projects, like LNG—and, in some cases, even causing projects to be canceled—it started dawning on people that this may actually be the way to build infrastructure, rather than the large plants. Smaller-scale, standardized, shop-fabricated modular facilities are leading the way, like the 3,000-bpd plant we’re enabling through Pinto Energy in the heart of the Marcellus.

I foresee smaller-scale GTL becoming an integral part of the gas infrastructure, providing locally produced diesel fuel, an alternative and complementary route to market for gas production, and an increasingly significant source of new demand for gas.

GP. Where does Velocys fit into this journey?

RL. Velocys has been at the forefront, pioneering the smaller-scale GTL industry for the production of fuels and chemicals from as little as 15 million standard cubic feet per day (MMscfd) of gas, to as much as 150 MMscfd per facility.

It all began in the 1990s, at one of the US national labs, where they reinvented a chemical reactor so that it could be taken into space, making it small and light. The technology was spun out into a company called Velocys; now, almost 20 years and $300 MM later, we’ve built on these early innovations to produce a complete and cost-effective modularized smaller-scale GTL plant, just as the shale revolution has gotten to the point where what we have can make a big impact. It’s a very exciting time for the industry and for Velocys.

GP. Do you view projects such as your joint venture (JV) with Waste Management, which will convert biogas into GTL, as an answer to the need for achieving energy and environmental sustainability? Will Velocys become involved in similar projects in the future?

RL. This JV is focused on converting biogas (e.g., from landfills) into fuels and chemicals using our smaller-scale GTL technology. To my knowledge, this is the only market-ready approach that can actually produce third-generation alternative fuels cost-competitively with conventional ones.

The first project will be at East Oak, Oklahoma, and the JV aims to roll out several of these plants across the country. Outside of this JV, Velocys sees itself getting increasingly involved in projects with producers, midstream companies and refiners that are seeking a more diversified and profitable approach to the natural gas business.

GP. What are the benefits of smaller-scale GTL to midstream companies and their clients?

RL. Without alternative opportunities to monetize gas, such as smaller-scale GTL, midstream companies and their customers can find themselves locked into gas pricing (at offtake levels), which can both negatively impact the volume of gas being processed, as well as the underlying margins.

Colocating a smaller-scale GTL plant at, for example, a gas processing facility would enable midstream companies to provide an attractive new service to their customers while realizing their ultimate goal of processing more gas. Customers will be able to diversify from gas pricing into oil, moving more gas to market without impacting gas prices, while capturing greater margins and supporting higher fees.

GTL gets gas into vehicles without the high switching costs of CNG and LNG. It is also a way of moving gas to market where no gas pipelines exist, or where potential production exceeds available infrastructure.

Finally, since GTL plants can be configured to operate on NGL as well as on dry gas, they provide the luxury of feedstock flexibility by allowing the lowest-valued BTU at any particular time to be directed to the GTL facility, leaving the higher-valued molecules to access the market through more conventional, but likely capacity-limited, infrastructure.

GP. How is Velocys’ strategy evolving?

RL. In the past, Velocys has been viewed as a technology provider, but really we are an enabler of an exciting new economic proposition to gas producers, midstream companies and downstream players alike. As pioneers of smaller-scale GTL as a means of distributed production, our business has been evolving toward facilitating access to the benefits of smaller-scale GTL for a broad range of companies, by minimizing the risks and barriers to deployment. We are partnering with industry leaders to provide to our customers all the necessary components of a GTL project, from opportunity identification to final plant delivery and operation.

For example, we recently announced the acquisition of Pinto Energy, one of North America’s leading developers of smaller-scale GTL projects. We’re now able to help with the practicalities of developing a project to completion for those customers that don’t want to do it themselves.

Another example is our JV with Waste Management, NRG Energy and Ventech, where, in addition to providing technology, we are also participating as equity investors in the actual projects.

GP. How is Velocys applying best practice?

RL. In addition to its cutting-edge technology, Velocys is partnering with leading technology and service providers, who, along with us, are committed to continually improving our smaller-scale GTL solutions.

For example, developing a relationship with Ventech Engineers was an obvious choice; several of the benefits of smaller-scale GTL arise from the use of modular plant construction methods that are enabled by our smaller reactors. Ventech is an established leader in the design and construction of modular refineries, and together we’re bringing this expertise to modular GTL.

Another, possibly less obvious example, is our relationship with Shiloh Industries. Shiloh is a leading supplier of engineered metal products and lightweight solutions to the automotive industry. With Shiloh, we’ve developed mass-manufacturing capabilities for the production of our reactors (Fig. 1) that harness state-of-the-art manufacturing technology and quality systems from the automotive industry—capabilities that, to date, have rarely been applied in the oil and gas industry. This will allow us to meet strict quality control standards, access economies of volume, ensure short-term and long-term cost competitiveness, and rapidly increase manufacturing capacity to satisfy anticipated demand growth.

Fig. 1. This Velocys Fischer-Tropsch reactor is considerably smaller than the reactors used in large-scale GTL plants.

GP. How do you see the GTL landscape changing over the next few decades, particularly with regard to economics?

RL. I think where we are today is like the cellular phone of the 1980s—a big brick in the hand; but, for its time, it was revolutionary and opened up a whole new market. It was also the beginning of a voyage that ultimately led to the smartphones of today.

The journey we’re on will continue to reduce the size required for economic facilities and bring the means of production into the hands of the many—one day producing only what we need, where we need it, and when we need it. GP

Roy Lipski has been heading fast-growing technology companies for more than 17 years. He has pioneered modular GTL since 2005, when he helped found Oxford Catalysts, leading it through an initial public offering and the subsequent acquisition of Velocys Inc. Velocys, a world leader in microchannel process technology, has raised over $130 MM from institutional investors. Mr. Lipski holds an honors degree in biochemistry from the University of Cambridge in Cambridge, UK. He began his career working at Goldman Sachs in London, UK.