Look! Up in the Sky! It's Natural Gas!

At the close of 2008, Air New Zealand made headlines with a test flight employing a 50/50 blend of jatropha-derived biofuel and conventional fuel. The blend was employed in just one of the Boeing (NYSE: BA  ) craft's four engines, but this marked the first commercial test flight using jatropha oil. About a week later, a jatropha/agae oil blend provided by Honeywell's (NYSE: HON  ) UOP division powered a domestic Continental Airlines (NYSE: CAL  ) test flight.

The aviation industry is slowly but surely seeking out fuel alternatives. That of course includes the military, which recently tapped UOP to supply a variety of jet biofuels, totaling 600,000 gallons. Biofuels are grabbing most of the headlines, but a different sort of test flight caught my attention this week.

On Monday, Qatar Airways announced a successful commercial passenger flight using a fuel derived from natural gas. The fuel, developed by Royal Dutch Shell (NYSE: RDS-A  ) , used a blend of synthetic gas-to-liquids (GTL) kerosene and conventional kerosene. Gas-to-liquids should be familiar to anyone who has caught our coverage of Sasol (NYSE: SSL  ) , one of the world's experts at turning coal and natural gas into synthetic oil.

So, is GTL fuel about to take the aviation world by storm? There are reasons to be skeptical.

While Shell and Qatar Petroleum are pushing ahead with Pearl GTL, the world's largest of such plants, other GTL projects have been dropped by the likes of ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) . Alternative gas projects, such as LNG export facilities, seem to be currying more favor with the majors.

This suggests to me that the economics of GTL are not compelling. Without a major wave of additional GTL plants, I don't see the alternative fuel really getting off the ground.