Nov-2022

Economics of refining catalysts

Risk aversion, such as averting a dual-sourcing catalyst strategy, obstructs improved profit contribution, supply flexibility, adoption, and replication of good new catalysts.

George Hoekstra
Hoekstra Trading LLC

Article Summary

In the distant past, refiners like Amoco, Chevron, Exxon, Mobil, and Shell spent tens of millions of dollars a year each developing their catalysts within the walls of proprietary research and development departments. Over the decades, that work migrated to smaller companies in the specialty chemicals sector, which became the catalyst companies we are fortunate to have as business partners today.

These catalyst companies have consistently been leaders in developing new products for refining, and their innovations have been worth billions of dollars to our industry. They are arguably the most innovative technology companies in the energy industry, continually delivering new catalysts that enable the production of cleaner fuels in larger volumes from more difficult feeds at lower costs.

While the industry structure has changed radically, one thing that has not changed is that refiners still face the challenge of choosing the best catalysts for their units. Because of its financial impact, catalyst selection is as important today as ever.

Financial impact of catalysts
What is at stake financially in catalyst selection? For a large refining company, it directly affects tens of billions of dollars/year in product upgrade margin and over $100 million/year in third-party spend. Better catalyst selection brings margin improvement, cost savings, fast replication, early adoption, and supply flexibility.

Margin improvement
A one-tier improvement in diesel hydrotreating catalyst performance is typically worth $5 million/year per unit in margin improvement. It effectively expands reactor capacity enough to allow a 10°F = 5.5°C lower start-of-run (SOR) temperature. That added kinetic capacity could be used to increase throughput or switch 15% of the unit feed to lower-cost cracked feedstocks, typically providing $5 million/year in increased upgrade margin for the same product sulphur level and cycle life.

A one-tier improvement in FCC feed pretreating catalyst is typically worth $20 million/year. In addition to the previously cited benefits for desulphurisation kinetic capacity, a better FCC pretreat catalyst delivers increased upgrade margin by enabling lower-cost feeds to the FCC with higher-value FCC product yields and quality.

A better hydrocracking catalyst system will typically deliver a $30 million/year benefit through higher boiling range conversion, better product yield distribution, and quality. These typical values for margin improvement are given to one significant digit, recognising that catalyst selection is site and unit specific, especially for FCC pretreating and hydrocracking.

Procurement cost savings
On average, Hoekstra Trading clients have saved $300,000 per unit on diesel hydrotreating catalyst cost and over $1,000,000 per unit on hydrocracking catalyst cost using independent catalyst testing combined with a dual-source strategy.

Table 1 lists qualitative performance benefits and quantitative procurement savings from six case stories where a client used catalyst testing and a dual-sourcing strategy for the first time versus a strategy relying on vendor data and paper evaluation. The procurement savings are from just their first purchase using the new strategy.

Cases 2, 3, and 5 are typical cases where the refiner was using an outdated catalyst that had been surpassed by one or more generations of better-performing catalysts. Our catalyst testing data convinced the refiners to switch to a better, newer product from a different supplier not on their approved list, bringing them up to current industry margin performance plus hundreds of thousands of dollars in procurement savings on just the first refill.

Fast replication
When an engineer first sees good, competitive catalyst test data and uses it in a dual-source strategy, they usually get ‘hooked’ and start replicating the strategy with each successive purchase. Good data clears up confusion and overcomes undue fear of the unknown. Combined with good teamwork from procurement, this results in steady, consistent growth in margin benefits. In the bespoke Case 2, a first success led the refiner to quickly award another big hydroprocessing unit to a different new supplier for more performance benefits and procurement cost savings, replicating the first success within two months.

Early adoption
The following standardised catalyst testing programme proves good new catalysts by testing them alongside the industry’s best, enabling early adoption of new catalysts that would otherwise sit on the shelf for many years. Early adoption improves the refiner’s profit and, for suppliers, the first sales open the door to market growth. Catalyst suppliers eager for market entry for an improved new catalyst regularly share the value of early adoption with astute, proactive catalyst users who have what is needed for confident decisions their competitors cannot make.

For example, bp was among the first to use Albemarle’s STARS Type II catalysts and the first outside ExxonMobil to use Nebula bulk metal catalysts (ULSD) for ultra-low sulphur diesel.¹ Soon after, bp’s standardised catalyst testing programme proved equivalent performance for catalysts from ART, Axens, and Topsoe, which had only single-digit market shares, and convinced all bp refineries good Type II catalysts were available from five different sources.²

These new catalysts would significantly increase the kinetic capacity of existing units, reducing the capital investment required for ULSD, and reducing catalyst cost and lead time requirements for ULSD implementation. This multi-source strategy gave bp a huge advantage over competitors that limited their options to only the best-established market-leading suppliers.

The standardised catalyst testing programme and dual-sourcing strategy also enabled bp to lead the industry in early use of ART, Axens, and Topsoe Type II catalysts in all its FCC feed pretreaters with equal or better performance and combined procurement savings exceeding $50 million. Early adoption and fast replication of these catalysts by bp opened the door to spread the use of ART, Axens, and Topsoe catalysts throughout the industry over the next 20 years.

Supply flexibility
A dual-source strategy reduces the risks of being a captive customer. For example:  
- In cases 1, 4, and 6 in Table 1, the refinery needed quick access to a specific refill catalyst historically supplied by only one supplier, a problem that was immediately remedied by going to a different supplier with a better catalyst, not on the approved list
- In all six previous examples, a new strategy fostered cross-functional teamwork and networking among central and field departments around a new work process focused on profit contribution with benefits in performance and cost. The new work process helped overcome undue risk aversion and conflicting interests that can otherwise obstruct the realisation of good profit opportunities.

A good work process
A good work process for choosing hydroprocessing catalyst uses these steps:
Å’ The unit engineer requests proposals and quotes from catalyst suppliers
 The suppliers respond with proposals
Ž The unit engineer leads a cross-functional work group to evaluate the proposals
 The decision is made and communicated to all the suppliers.
Steps 1 and 2 are in common use throughout the industry. It is steps 3 and 4, evaluating proposals and making decisions, where practices vary widely.