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The economic viability of gas-to-liquids technology and the crude oil–natural gas price relationship

Author

Listed:
  • Ramberg, David J.
  • Henry Chen, Y.H.
  • Paltsev, Sergey
  • Parsons, John E.

Abstract

This paper explores the viability of a gas-to-liquids (GTL) technology and examines how GTL penetration could shape the evolution of the crude oil–natural gas price ratio. Much research has established the cointegrated relationship between crude oil and natural gas prices in the U.S. The persistently low U.S. natural gas prices in recent years seem to mark a shift in this relationship, and have led some in industry to begin considering investments in GTL capacity in the US. In order to look forward over decades when the underlying economic drivers may be outside of historical experience, we use a computable general equilibrium model of the global economy to evaluate the economic viability of GTL and its impact on the evolution of the crude oil–natural gas price ratio. Our results are negative for the potential role of GTL. In order to produce any meaningful penetration of GTL, we find it necessary to evaluate scenarios that seem extreme. With any carbon cap GTL is not viable. Moreover, even without a carbon cap of any kind, extremely optimistic assumptions about (i) the cost and efficiency of GTL technology and about (ii) the available resource base of natural gas and the cost of extraction, before the technology penetrates and it impacts the evolution of the crude oil–natural gas price ratio.

Suggested Citation

  • Ramberg, David J. & Henry Chen, Y.H. & Paltsev, Sergey & Parsons, John E., 2017. "The economic viability of gas-to-liquids technology and the crude oil–natural gas price relationship," Energy Economics, Elsevier, vol. 63(C), pages 13-21.
    • Handle: RePEc:eee:eneeco:v:63:y:2017:i:c:p:13-21
    DOI: 10.1016/j.eneco.2017.01.017
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    References listed on IDEAS

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    Cited by:

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    3. Saad A. Al-Sobhi & Ali Elkamel & Fatih S. Erenay & Munawar A. Shaik, 2018. "Simulation-Optimization Framework for Synthesis and Design of Natural Gas Downstream Utilization Networks," Energies, MDPI, vol. 11(2), pages 1-19, February.
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    More about this item

    Keywords

    Gas-to-liquids technology; Natural gas price; Oil price; General equilibrium model;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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