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Cost effective revamps to meet the environmental challenge

Expected legislation in Asia for cleaner transportation fuels face refiners there with a challenge to stay profitable. The new laws can be met in a way that could still generate profitable returns

Nigel Unsworth and Philip Brown, Foster Wheeler Energy
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Article Summary
The past two to three  years have not been kind to Asian oil refiners. The economic crisis and its aftermath hit demand for refined oil products to such an extent that it has been estimated that 1 million bpd of demand was lost in 1998 and 300000bpd in 1999. During this same period new capacity was coming on stream as a result of investment decisions made well before the crisis hit. Not surprisingly, the result has been a catastrophic collapse in profitability with margins sinking to very low or negative levels.

This was the situation at the end of 1999 and it would seem difficult to advance a case for substantial investment in Asia’s refineries. Indeed, there has been a sharp fall-off in interest in grassroots refineries or major expansions. It may appear, therefore, that there is neither the need nor the economic incentive to invest in Asia’s refinery infrastructure for several years. It is our contention that this is not the case and that substantial investment will be needed throughout Asia over the next few years for a combination of reasons, namely:
- Product quality improvements
- Reduced emissions from plants
- Changing crude feedstock
- Changing shape of the demand barrel – possible gasoline surplus
- Petrochemical integration
- Power integration
- Revamps to raise efficiency levels
- Rising demand

Product quality. The need to raise the quality standards for oil products is a global phenomenon with the lead usually taken by the USA, the European Union and Japan. Most Asian countries have tended to follow with reductions in the sulphur content of fuels, low aromatics, etc.

The momentum tended to go out of this trend during the economic crisis but unacceptable levels of pollution in many cities remain a problem and the drive to cleaner products will be resumed. There is also pressure from vehicle manufacturers who are increasingly producing standard models for all markets and are designing their engines to require cleaner fuels. This has the effect of pushing towards uniform oil product quality standards in all markets.

Further factors

Plant emissions. Another global trend spreading out from the USA and Europe is the need to minimise noxious emissions from process plants, including refineries. Although this rarely requires spending on the same scale as the production of cleaner fuels, it can be a factor in determining investment at refineries, especially if more restrictive legislation coincides with a change in the quality of fuels production. There is also a move to control global emissions of carbon dioxide.

Changing crude feedstock. Asian refineries traditionally sourced their crudes from within the region and much of the supply was relatively light and low in sulphur. This remains true of much Asian crude production but, with demand through the 1990s rising sharply at the same time as local supply failed to increase, the region has increasingly had to buy crude from elsewhere.

There has been a sharp increase in imports of light, low sulphur West African crudes, but imports from the Middle East have also risen and seem certain to become a more important source over the next 10 years. Much of this is expected to be heavier and contain more sulphur than most Asian crudes and this will inevitably lead to a requirement for more complex processing, especially when combined with the need to make cleaner fuels.

Shape of the barrel. Like most parts of the world, demand growth in Asia is increasingly focussed on light and mid-distillate products. The growth in travel is increasing demand for jet fuel, gasoline and diesel at a time when demand for fuel oil is stable. The latter is expected to fall steeply in future years as the region invests heavily in gas production and, in particular, as regional gas pipeline networks are developed.

Petrochemical integration. Once Asia recovers fully from the economic crisis, demand for most products produced from petrochemicals will grow rapidly. This will stimulate a requirement for principal feedstocks such as ethylene, propylene and aromatics. Significant supplies will come from refineries in the region and there will be an economic incentive to integrate refinery and petrochemical operations to improve on the poor returns obtained from a fuels-only refinery.

Power integration. This represents another way of improving refinery economics, especially if there is a surplus of bottom-of-the-barrel material to dispose of. Opportunities will be site-specific but could play an important role in coming years.

Revamps for efficiency. Many Asian refineries operate to the highest standards and will only require conventional revamp work. In some cases, however, there is a history of less efficient operation that puts these refineries at an economic disadvantage. Some could benefit from extensive revamps to upgrade their performance and improve their economics considerably.

Gasoline surplus. Given the dominance of diesel demand in the region (badly hit in the recent crisis but expected to recover) there is a tendency for Asian refineries to produce an exportable surplus of gasoline. If this continues in the future there could be problems selling it to the biggest importer – the USA – unless it is produced to the more stringent specifications mandated in the United States.
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