Future of opportunity crudes processing
Five critical drivers help refiners remain profitable and sustain long-term business goals while processing relatively inexpensive, low-quality crudes
Brett Goldhammer, Claire Weber, Patrick Christensen, Serena Yeung, Thomas Garrett and Thomas Yeung
Hydrocarbon Publishing Company
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The global refining industry is at a crossroads amid changing market conditions and environmental legislation requirements. As profit margins decline due â€¨to rising oil prices and weak demand, it is difficult for many refiners around the world to justify making additional â€¨investments for refining hard-to-process, poor-quality, although less expensive, opportunity crudes. These crudes generally include heavy sour grades, oil sands/bitumen, extra-heavy oil, high-TAN (total acid number) crudes and oil shale. However, some refineries do justify the investment; for instance, Marathon Petroleum’s 106 000 b/d Detroit refinery in the US and Repsol’s 100 000 b/d Cartagena refinery in Spain. As a matter of fact, some refining watchers believe that refineries without the capability to process opportunity crudes will lose out to competitors in the long term.
Reasons for processing opportunity crudes
First, political upheaval in the Middle East and North Africa in early 2011 has sent a wake-up call to refiners that crude diversity is key to business sustainability, as the lack of light sweet Libyan crudes has hurt Mediterranean refiners. Since many of the plants in the region are designed to process light sweet oil, they have been forced to find similar grades, thereby driving up costs for crudes from the North Sea and Nigeria and pressuring down margins in the region. Operators who have had to make adjustments include Greek Hellenic Petroleum, Italian Saras and Austrian OMV.
Second, less sophisticated, light oil refineries are less competitive, prompting some refiners to close down facilities, turn the plant into a terminal, or put it up for sale. Examples include Sunoco’s 150 000 b/d Eagle Point refinery in New Jersey, US, and 85 000 b/d Tulsa refinery in Oklahoma, US, ConocoPhillips’ 260 000 b/d Wilhelmshaven plant in Germany, Shell’s 107 000 b/d Harburg complex in Germany and 80 000 b/d Gothenburg facility in Sweden, and Total’s 137 000 b/d Dunkirk refinery in France. On the other hand, coking refineries processing Maya heavy oil in the US Gulf Coast consistently outperform cracking refineries handling light sweet Brent crude, based on historical data. Figure 1 compares Maya coking with Brent cracking margins amidst crude price volatility from Q1 2005 to Q1 2011. Figure 1 is a good representation of refining margin trends, since it covers the refining Golden Age in 2005–2007, the tremendous downturn in late 2008–2009 due to demand destruction, and a gradual recovery since 2010.
Third, developing countries with significant populations and growth potential such as Brazil, China and India continue to drive up global light oil demand for producing transportation fuels despite increasing use of biofuels and higher vehicle fuel efficiency. The IEA sees global primary energy demand, excluding biofuels, rising by 36% between 2008 and 2035, or an annual average of 1.2%, with non-OECD countries making up 93% of the forecasted rise in energy consumption. The consultancy FACTS sees Asian oil consumption at 38.1 million b/d by 2030, against 24.9 million b/d in 2009, with an average oil demand growth of 2.5% from 2011–2020 and 1.3% from 2021–2030.
A fourth reason to process opportunity crudes is that the ratio of reserves of heavy crude oil and natural bitumen to conventional crude oil is around 5:1. China and India are already competing for the development of oil sands and extra-heavy oil projects in Canada and Venezuela, respectively. Meanwhile, US Gulf Coast refiners are fighting for approval of the Keystone XL pipeline, which will send Canadian dilbit to the PADD III region.
Securing supply of opportunity crudes is not the end-game
Without a doubt, arrangement of a steady supply of opportunity crudes is of paramount importance. However, processing these crudes to maximise profit margins — by producing the “right” fuels to achieve the highest possible revenues and at the same time reduce costs — represents the ultimate business objective. It is not so straightforward, unfortunately, as fuel market dynamics have shifted and environmental regulations have been tightening for the past few years.
There are many issues threatening the possibility of refining opportunity crudes. These include the Low Carbon Fuel Standard (LCFS) and crude carbon intensity regulations, climate change (carbon cap-and-trade and carbon tax) and refinery emissions legislation, biofuels competition and higher vehicle fuel efficiency, lower residual fuel oil demand, refining business uncertainty in OECD nations, inherently higher processing costs associated with opportunity â€¨crudes because of fouling and corrosion problems, and competition from non-conventional crudes, NG condensates, and shale oil.
On the other hand, many factors favour processing opportunity crudes, such as an increasing demand for petroleum fuels, particularly in developing nations, expanding recoverable reserves of non-conventional crudes, global dieselisation, rising propylene demand, higher coking margins versus cracking margins, maintaining a competitive advantage, and sustainability strategies. Therefore, how can refiners take advantage of the opportunities and at the same time alleviate the threats when processing opportunity crudes?
Five major drivers enhancing profit margins
There are five major drivers identified to ensure profitability when processing opportunity crudes. The first three drivers — namely, increasing distillate yield and quality, converting high-sulphur fuel oil into valuable products such as diesel and gasoline, and boosting propylene production — contribute to revenues. On the other hand, the latter two drivers — mitigating fouling and corrosion, and reducing carbon footprint — help lower operating costs. The relation between the five drivers and the margins obtained from processing opportunity crudes is shown in the following equation:
Margins = f (distillate, ↓ HSFO, propylene,) - f (↓ fouling and corrosion, ↓ CO2 emissions)
Increasing distillate yield and quality
Middle distillates, consisting of diesel/gasoil, jet fuel, kerosene and heating oil, are projected to collectively comprise 45% of the global demand barrel by 2015, up from 35% in 2005. In its 2010 World Oil Outlook, the IEA predicted that a rising share of diesel cars in developing nations will raise the volumes of diesel/gasoil by nearly 10 million b/d from 2009–2030. Overall, global fuel consumption is clearly shifting towards middle distillates and light products, with 55% growth for middle distillates and 32% for gasoline and naphtha.
- Corrosion and Fouling Control
- Diesel Maximisation
- Energy Efficiency and Energy Management
- Emissions Reduction
- Fluid Catalytic Cracking
- Heavy and Sour Feedstocks
- Safety, Health, Environment and Quality (SHEQ)
- Crude and Vacuum Units
- Propylene Maximisation
- Shale Gas and Tight Oil Processing
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