It's not that it can't be done. German scientists figured out how to convert natural gas to liquid petroleum products back in the mid-1920s.
Such products, particularly diesel fuel and synthetic engine oil, can be used in today's cars, trucks and jet planes today with virtually no modifications - a huge advantage over other natural gas fuel alternatives, such as compressed natural gas (CNG).
But the natural gas-to-liquid (GTL) process is expensive and requires large and costly facilities. Relatively cheap oil throughout the 20th century made GTL uneconomical for decades.
However, as the price of oil has risen in recent years, and as vast new reserves of natural gas have been discovered, interest in GTL technology has rekindled.
"With high crude prices, the economics of gas-to-liquid fuel have started to look much better," Sander Cohan, principal at energy-analysis firm ESAI Inc., told The Wall Street Journal.
It should be noted that GTL technology has nothing to do with the more familiar liquefied natural gas (LNG) process, which simply chills the gas into a liquid state for transport. GTL actually converts the natural gas into petroleum-like products, which would help reduce U.S. dependence on imported oil.
"The real prize is using natural gas to power our own vehicles," said Money Morning Global Energy Strategist Dr. Kent Moors.
Shell as PioneerRoyal Dutch Shell PLC (NYSE: RDS:A, RDS.B) began production at its $18.5 billion Pearl GTL plant in Qatar earlier this year, with the first shipment of GTL base oil destined for lubricants arriving in Houston last month.
Shell estimates the plant will reach full production next year, converting 1.6 billion cubic feet of natural gas a day into 140,000 barrels of liquid fuels like kerosene and base oil in addition to 120,000 barrels of other products, such as condensate and liquid petroleum gas.
It already has at least one marquee customer: Qatar Airways has announced it will transition to GTL-based fuel in all of its aircraft next year.
Shell says the Pearl plant will account for 8% of its total production next year, making it the company's single biggest engine of growth. Last year Shell projected the plant would generate $6 billion a year in profit assuming oil prices at $70 a barrel. West Texas Intermediate (WTI) oil is now trading at over $100 a barrel.
Meanwhile, the price of natural gas has declined from between $6 and $7 per thousand cubic feet to less than $4 per thousand cubic feet. The more the prices of oil and natural gas head in opposite directions, the more profitable GTL becomes.
Just yesterday (Monday) Shell said it was considering building a GTL plant in the United States.
"We are looking for places where gas is cheap and [oil] products are expensive," Andy Brown, the managing director of Shell's Pearl project, said at a press briefing at the World Petroleum Congress in Doha, Qatar's capital. "Clearly the U.S. is something we're looking at."
That spread has other energy companies looking at GTL opportunities now.