The future for hydrocracking: part 1
Hydrocracking technology faces challenges and opportunities amid diesel emission scandals, low sulphur marine fuels, and the growing position of electric vehicles.
PATRICK CHRISTENSEN, AMY HEARN and THOMAS YEUNG
Hydrocarbon Publishing Company
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Once considered the most valuable conversion unit in a refinery, the hydrocracking unit (HCU) is at a crossroads in terms of its direction and even sustainability in the future because of environmental concerns over fossil fuels, particularly diesel (or gasoil) and competition from alternative fuels.
This article is part one of a two-part series focusing on current market conditions and long term challenges facing hydrocracking technology. In part two of the series, we will discuss operational flexibility, adoption of the latest technologies, and the importance of selecting R&D works that could help refiners to capture opportunities and sustain refining business as market shifts.
In a refinery, the HCU is utilised to upgrade a variety of feeds that range from coker naphtha to various heavy gasoils and residual fractions into lighter molecules. The hydrocracking process has emerged as the production ‘workhorse’ of middle distillates – diesel, jet fuel, and heating oil – in many refinery configurations. As environmental regulations on transportation fuels continue to tighten, the hydrocracker will be one of the tools available to refiners to meet new product specifications. Hydrocrackers can effectively yield ultra low sulphur diesel (ULSD) streams whereas middle distillate range products (light cycle oil, LCO) from FCC units will regularly require additional dearomatisation to meet product blending specifications. HCUs can also offer improved flexibility to shift production modes between gasoline and diesel products based on process selection, operating conditions, and catalysts used.
Nevertheless, hydrocracking technology needs to step up its flexibility nowadays in light of shifting demand. In the short term, global gasoline and diesel/gasoil demand is still riding high thanks to lower retail prices. Climbing global air traffic, particularly for citizens of China and India, continues to support jet fuel consumption. Diesel is considered a good replacement for high sulphur bunker fuel to meet International Maritime Organisation (IMO) mandate by 2020. In the longer term, gasoline demand in the US and China is expected to be peaking. But diesel is also facing twin threats: a ban of diesel cars in growing numbers of countries and cities triggered by Volkswagen’s diesel emissions scandals in 2015 and the increasing popularity of zero-NOx emitting electric vehicles.
Short term stays positive
Transportation fuels consumption grows steadily thanks to lower retail prices and gradual recovery in the world’s major economies from the 2007-2009 recession. Key positive signs are the latest uptick in gasoline and diesel consumption, consistent increase in jet fuel demand, and potential opening of a bunker fuel market for diesel.
Recent gains in gasoline and diesel/gasoil markets
Lower oil prices that have translated into lower retail prices are driving up fuel consumption around the world. Data compiled in the BP Statistical Review of World Energy (June 2017) confirmed increasing sales of both light and middle distillates in the last five years (see Figures 1 and 2).
Figure 1 shows rising demand for light distillates including motor and aviation gasolines, and light distillate feedstock. From 2015 to 2016, global consumption was up 2.5% to 31.72 million b/d and the uptake was higher than 1.6% (per annum) over 2005-2015. Fastest growing regions are Africa, Asia Pacific (particularly China and India), and the Middle East while the maturing US market remained strong thanks to the popularity of fuel-guzzler sport utility vehicles. As a matter of fact, US gasoline demand touched 9.842 million b/d in the last week of July 2017, the highest level since the country’s Energy Information Administration started keeping track of the data in 1991.
Likewise, world demand for middle distillates – jet and heating kerosene, diesel oils, and marine bunker oils – was trending upwards to reach 24.63 million b/d in 2016 (see Figure 2). However, the direction was opposite to that of light distillates as its growth rate fell to 0.3% from 2015 to 2016 versus 1.4% (per annum) over 2005-2015. Asia-Pacific is the largest consumption region due to the size of the population, though sale of middle distillates is highest in Europe and Eurasia on a per capita basis. Middle distillates are the primary fuel used in the region, 49.3% of overall fuel consumption with the European Union as high as 54.2% in 2016. In comparison, middle distillates capture a 46.8% share in Africa, followed by 38.6% in the South and Central Americas, 34% in Asia Pacific, 30.8% in the CIS, 28.3% in North America, and 28.2% in the Middle East.
Thanks to economic recovery and tax incentives, middle distillates use in Europe and Eurasia grew again in 2016, better than the 2005-2015 growth rate of 2.2% per annum.
Diesel consumption is rebounding in two major consuming countries. China’s increased demand comes from improvements in the construction and transportation sectors, while India’s growth in demand for diesel will continue on its upward path after the government’s demonetisation drive – taking 500- and 1000-rupee banknotes out of circulation to overhaul the country’s tax collection system – which dampened economic growth for a few months since its implementation in November 2016.
In the US, diesel demand is recovering from the slump in 2015. Higher oil and gas prices were at least partly responsible for stronger growth in diesel demand, with reviving oil drilling activity accounting for some diesel demand on its own (to power drilling rigs and other on-site equipment) and also driving a significant rise in freight movements as proppant, pipe, water, and equipment are transported to and from remote drilling sites. Additionally, higher natural gas prices have led power companies to increase capacity utilisation at coal-fired units, resulting in increased rail movements to deliver coal.
Global jet fuel demand flying high
Lower fares, a stronger global economy, and an expanding middle class in developing economies, particularly China and India, have significantly bolstered air travel for the past several years according to the International Air Transport Association (IATA). For instance, load factors – a measure of how full planes are – were up 80.7% in the first half of 2017. In addition, demand for global air freight is climbing on the back of a stronger global economy. The rate of increase is faster paced than at any time since the global financial crisis. In the first six months of 2017, air freight demand, measured in freight tonne kilometres, was up by 10.4%. ExxonMobil predicted global jet fuel demand will rise 50% by 2040.
Current global jet fuel demand is about 5.6 million b/d. The US is the leader in world air passenger travel, followed by OECD Europe and China. Based on the US Department of Transportation’s Bureau of Transportation Statistics, US airlines consumed 17.7 billion gallons (1.15 million b/d) of jet fuel in 2016, up 2% on the year. According to the Association of Asia Pacific Airlines’ (AAPA) Director General, Andrew Herdman, “High levels of business and consumer confidence across most major markets underpins continued optimism for further growth in both air passenger and cargo demand. However, intense market competition, rising fuel and other costs will continue to put pressure on yields [of travellers]. As such, the region’s carriers remain vigilant in seeking further opportunities to enhance growth and increase operational efficiency.”
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