	Introduction

Technological improvements and investment commitments by the world's largest oil companies suggest that the gas to liquids industry (GTL) is likely to transform itself from a small, specialized producer to a large scale fuel producer over the next decade. As expansion of GTL proceeds, the industry may become a major consumer of natural gas, placing it in direct competition with the growing liquefied natural gas (LNG) industry for access to natural gas supply. If competition leads to tighter than expected natural gas supplies, the result is likely to be higher prices for natural gas consumers over the same time frame that the United States looks to world LNG markets to meet increasing domestic demand. Natural gas consumption in the United States is projected to increase by 18.6% to 26.1 trillion cubic feet per year in 2030, from a baseline of 22.0 trillion cubic feet per year in 2005, according to the Energy Information Administration (EIA) in the Annual Energy Outlook 2007 (AEO). Almost all of the increased demand over that period is expected to be met through an expansion of LNG imports to the United States. While the GTL industry is likely to compete for natural gas supplies, its output, which is mainly liquid petroleum products, such as diesel fuel, will do little to satisfy natural gas demand in consuming nations. These factors may be considered additional impediments to the projected increased dependency on LNG. From the 1960s through the 1990s, several companies specializing in synthetic fuels, as well as joint ventures between major oil companies and synthetic fuels companies, explored and developed the basic FT technology as well as other technological approaches. Investment Activity

The GTL industry has been reported to be on the verge of a boom in investment for some time. High investment cost, technological problems, and natural gas price uncertainty had delayed the expansion of the industry in the past. For a viable GTL industry, oil prices must not collapse. The cost of natural gas to supply either a GTL or LNG facility is negotiated between the producing nation and the investors, and likely has little relationship to observed market prices, because the available alternative is not to sell the gas in consuming markets, but to leave it undeveloped or flare it off. The other two nations with GTL investment activity, Nigeria with 176 trillion cubic feet of natural gas reserves, and Australia with 90 trillion cubic feet of natural gas reserves, are not likely to support an industry as large as that developing in Qatar, even though both have production capacity in excess of their domestic consumption needs. Some observers saw the potential for LNG to establish a price cap for natural gas in the U.S. market due to competition among suppliers. This competition, based on an over-supply of LNG, is less likely to materialize when GTL investments are available. Developing the industry is in the interest of producing nations with economically stranded natural gas resources, because it gives those nations the opportunity to choose the best use for their resources consistent with available rates of return and risk. No one source is likely to provide the supply and price stability that consumers desire.
Technological improvements and investment commitments from the world's largest oil companies suggest the gas to liquids (GTL) industry is likely to expand rapidly over the next decade. GTL uses large quantities of natural gas to produce liquid petroleum products like diesel fuel and home heating fuel. The GTL industry might become an important competitor to the liquefied natural gas industry (LNG) in the effort to secure natural gas supplies. As a result, LNG markets may be tighter, with higher prices, potentially altering LNG's projected role in the U.S. natural gas market.
The Energy Information Administration projects U.S. natural gas consumption increases of 18.6% by 2030, compared to 2005 levels. Much of this increased demand is expected to be met by importing LNG. LNG is natural gas that has been cooled to a liquid state to facilitate transportation. Although expanding LNG imports has drawbacks, the main positive factor is the belief that worldwide, there are large quantities of natural gas that have previously not had access to the market. Some believe that as the supply of imported LNG expands, it will provide a price cap for U.S. natural gas markets. An expanded GTL industry makes this result potentially less likely.
The GTL industry is poised for a major expansion based in Qatar, but also in Nigeria and Australia. The expansion is being funded by the major oil companies, in some cases in tandem with synthetic fuel companies and national oil companies. The projected expansion of the industry is based on favorable market conditions in addition to advances in technology. High oil and natural gas prices, declining capital investment costs, and improvements in technology that allow large scale production facilities are important factors in the industry's expansion.
The GTL industry offers an attractive choice to nations with economically stranded natural gas reserves because it allows those nations to diversify in the use of their resources. Diversification allows producing nations to gain higher rates of return than through a singular investment strategy. Consuming nations may find that dependence on one supply source, in this case LNG, does not offer the supply security and potential price stability of a diversified strategy.
For the United States, alternatives to increasing LNG imports include a pipeline to bring natural gas from Alaska, expanded exploration and development in areas, both on and off shore, that are currently restricted, and policies to enhance the development of current reserves. None of these alternatives alone is likely to close the projected gap between U.S. natural gas production and demand. The competition for natural gas resources between the LNG and the GTL industries may alter the parameters of the debate.
This report will not be updated.