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In view of the recent wave of refinery closures, including five in the US during 2021 and other closings, what technologies and market strategies are emerging to keep plants operating?

Dec-2022

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Raj Patel, Topsoe, rhp@topsoe.com

In the last two pandemic years, refinery closures have accounted for nearly 1 million bpd of refining capacity in the US. These refineries range in capacity from 50,000 bpsd to over 250,000 bpsd. The one market small and large refineries are considering and implementing is the production of renewable fuels (renewable diesel, sustainable aviation fuel, renewable naphtha). We have designed 6,000 bpsd to 50,000 bpsd renewable units in the smaller-to-intermediate size idle refineries, and more than one-third of the 350,000 bpsd total renewable processing capacity licensed by Topsoe come from idle refineries.

Idle refiners are turning to renewable fuels to take advantage of the incentives offered by federal as well as state governments. These include Renewable Identification Numbers (RINs), Low Carbon Fuel Standard Credits (LCFS), Blenders Tax Credit, and Carbon Cap and Trade. These incentives can amount to more than $3/gal. For one of the idle refineries being revamped to renewable service using Topsoe technology, these government incentives can be more than $5 million per day.

Utilising an idle refinery for processing renewables is a natural fit. Compared to a standalone renewable facility, the idle refinery has a lot of equipment and facilities that can be utilised for renewable processing. A list of equipment and facilities that can be reused for renewable processing includes:
- Rail, trucking, and marine facilities that can be used to bring feed into the refinery as well as send product out of the refinery
- Existing facilities that can be used for required feed and product tankage
- Utility facilities that can be reused in a renewables refinery
- A hydrogen plant or method to bring in hydrogen, which is required for renewables processing
- An existing sour water stripper and water treatment facility that can be reused for processing renewables, which will produce a significant amount of water in the chemical reaction
- Pretreatment facility assets may or may not be required, depending on the source of the feed, but some existing equipment can be utilised for this application
- Sour off-gas treatment facilities, which may be wholly or partly reused in renewable service
- Hydroprocessing units that can be revamped for renewable service.
Topsoe has utilised naphtha hydrotreaters, diesel hydrotreaters, FCC feed pretreaters, and hydrocrackers in idle refineries for renewable service. Converting an idle refinery to a renewable refinery is a natural fit.

Dec-2022
Andy Howell, KBC (A Yokogawa Company), Andy.Howell@kbc.global

Refineries have been under increasing pressure to increase profit margins while reducing carbon emissions. Global policies and regulations are being implemented to meet the Paris Agreement ‘zero-carbon road map’ that attempts to limit global surface temperature increases to 1.5°C by 2050. Furthermore, the rapid expansion of renewable and sustainable energy sources such as wind, solar, and bio-energy are negatively shifting consumers’ perceptions of energy and chemical products, causing a transformation among traditional energy sources.

Due to the changing socio-technical landscape, modern refineries have been able to diffuse niche innovations to fuel decarbonisation efforts and achieve Scope 1 and Scope 2 reductions. These innovative technologies include the development of carbon capture and storage, alternative energy supply, alternative feedstock, improved industrial processes, and waste heat usage. Following are several endogenous factors that can contribute to the success of these innovations:

Advanced software solutions: Process simulation and optimisation software systems monitor and analyse the effect of different feedstocks and operating conditions while enhancing yield and thermal efficiency to help refineries transition from traditional fossil fuels to clean energy whilst improving margins.
New business models: Traditional and new businesses such as refining, farming, and forestation are forming new alliances to restructure their knowledge base and supply chains to develop decarbonisation technologies with Scope 3 changes.

Market formations: A growing number of private investors are transforming traditional refineries into renewable fuels producers to expand capacity and market share.

Policy and advocacy coalitions: Lobbyists advocate on behalf of society for public policies that reduce hazardous air pollutants to improve air quality and promote public health.

Dec-2022
George Hoekstra, Hoekstra Trading LLC, George.hoekstra@hoekstratrading.com

According to American Fuel and Petrochemical Manufacturers, the US has lost 1.1 million barrels/day of refining capacity since early 2020, and other refineries are ‘on the bubble’. Valero’s CEO Joe Gorder, when asked in their April 2022 earnings conference call about the possible purchase of the Lyondell Houston refinery, sounded bearish, saying Valero’s experience in buying such assets indicates “it’s going to cost $3 billion to get it up to a Valero standard, and I look at it maybe that wasn’t exactly the best thing.” When I followed up and asked Valero’s Investors’ Relations whether the $3 billion was needed for safety, environmental, reliability, or profitability improvement, they said it was for reliability and profitability.

My research says refiners have been investing for safety, environmental, reliability, and diversification into other businesses, but they have stopped investing in technology for the manufacture of conventional fuels for the US market. The sudden halt in conventional fuels refining investment was an abrupt change in investment strategy. According to EPA, 85 US refineries installed new FCC feed pretreaters or gasoline desulphurisers in 2000-2005 to meet the US Tier 2 clean gasoline sulfur standard, which was phased in from 2004-2006. That came immediately after a similar round of investments to meet the ultra-low sulphur clean diesel (ULSD) specification. Those investments in the first decade of this century did much more than merely comply with clean fuel specifications. In retrospect, they unquestionable paid off handsomely in higher profitability.

But then investment in US fuels refining suddenly stopped. During the six-year phase-in for investment for Tier 3 gasoline, 2014-2019, US refiners made almost none of the anticipated $3 billion+ capital investment that was understood by all to be needed. As a result, many US refineries today are producing less on-spec gasoline marketable in the US.

In my opinion, to keep US refineries operating, profitable, and healthy, we need an immediate reversal of this sudden, unprecedented halt in investment in conventional fuels refining technology. Much is being made of the US losing 1 million barrels/day of crude refining capacity. But what about the record levels of US fuels exports to Mexico, Central and South America? According to a July 2022 detailed study, the US is exporting nearly 1 million barrels/day of both gasoline and diesel to Mexico, Central and South America. Conventional wisdom says these fuel barrels are being exported because of global economics and because we cannot move them where they are needed in the US. But I wonder whether the gasoline barrels we are exporting even meet US clean fuels specifications?

Regardless, unless we want our fuel supply to go the way of California’s electric grid, it is time for refiners to start investing again in fuels refining technology, starting with gasoline desulphurisation.

Dec-2022
Ioan-Teodor Trotus, hte GmbH, ioan-teodor.trotus@hte-company.de

Refinery closures are by no means a sign that the need for refined products is doomed to disappear. More likely, closures are related either to regional factors that make it difficult to ensure profitable operation or to a lack of flexibility and diversity in the product slate of those refineries. Refineries capable of switching from mainly producing fuels to increased production of petrochemicals are very likely to remain profitable for years to come. Lubes production can also be a significant source of profit for refineries. Also, refineries which produce renewable diesel or sustainable aviation fuel should be able to navigate themselves in a position to charge a premium for these products over fossil-derived diesel and jet fuels.

One must balance cost and revenue to be profitable, and cost minimisation is the easy, safe bet. However, saving in the wrong place can be very costly in the long run. With the need for increased flexibility in feedstocks being used and operating conditions applied, the number of variable risk factors to be considered in unit operations can easily become too large to model reliably. One common feature of highly profitable refineries is that they perform laboratory tests to evaluate different operating scenarios on catalysts before running these scenarios in their units. Such tests can either be performed in the refineries’ own testing facilities or outsourced to third parties.

hte GmbH offers highly parallelised test units for refineries to accelerate their own testing capabilities, and hte also performs such tests for refineries that would outsource catalysts testing work.

Performing a test before loading a new catalyst, before deciding whether to buy a fresh, new catalyst or use a rejuvenated one, or before attempting to co-process a renewable feedstock are just a few examples where experimental evidence can increase margins by tens of millions every year.

Dec-2022
Scott Sayles, Becht, ssayles@becht.com

US capacity lost by refinery shutdowns or conversions will approach 1.5 MMBPD by 2024. Capacity increases in Asia will exceed these closure capacities, as well as planned closures/conversions in the EU market. For those assets that have been repurposed, their focus is on producing renewable diesel and/or sustainable aviation fuel (SAF) blendstock, often at a lower capacity. Hence, the product mix is shifted more towards distillate fuel products plus renewable co-products and away from traditional transportation fuels and byproducts.

From a market strategy perspective, remaining refiners are concentrating on several possible scenarios. The first strategy is to focus on their existing operation and configuration to continue to produce transportation fuels and petrochemicals and delay decisions on energy transition- related investments. For those entities, maintaining safe and reliable operation is at the forefront. Hence, their focus from a technology perspective is to bring to bear advanced analytics and decision-making tools and processes to ensure the asset meets reliability targets while achieving production requirements.

Operating companies are applying artificial intelligence (AI) and machine learning (ML) techniques to ‘bad actor’ pieces of equipment to help address root cause failures and meet on-stream availability. Other entities are examining ways to improve their crude/feedstock selection process by enhancing their entire crude decision-making work process throughout the value chain by streamlining data flows, analysis, and decision rights across planning, scheduling, trading, operations, maintenance, and engineering organisations.

Advancements in predictive models for understanding sulphidic corrosion (via Becht’s CorrExpert tool) and stream compatibility (via Becht’s Stream Compatibility tool) are available to help expand, narrow, and/or clarify the potential crude blends that are processed in a facility and adding this layer of analysis within the current crude selection and processing process. Fundamentally, these refiners are focusing on maximising margin within the existing assets to generate cash for potential future transformations of their business.

The second strategy involved the active pursuit of projects and investments in the energy transition. For many of the ‘closed’ refineries in the US, these assets are in the process of or have been converted and reconfigured into renewable feedstock processing service. Though many sites have much of the hydroprocessing and utility infrastructure for such a conversion, we are observing that many sites are being challenged by the ability to secure sufficient feedstock to operate a technically and economically viable asset. Hence, refiners are already examining more challenging waste feeds, such as used cooking oil (UCO) and animal fats (Categories 1, 2, and 3).

A key focus is on understanding feedstock qualities, contaminants, and downstream processing requirements, such that many entities are either building their own pretreatment facilities or going into partnerships with third-party entities to provide pretreated feeds. Though pretreatment technology has existed for many years within the food and waste processing industries, these are relatively new technologies for refiners and require an expansion of knowledge and capabilities within their organisation to ensure the pretreatment asset is properly designed and operated to meet up with a more traditional refining asset. Other refiners are examining ways to decarbonise through reduction of their energy requirements as well as investment in external renewable power production and carbon capture.

Still others are taking a very long-term perspective and examining the processing of used plastics and novel biomass feedstocks to decarbonise their products further, all of which involve a combination of known and new/novel technologies. Given the number of options available, along with technology, market, and operating risks, a holistic analysis early in the project cycle is critical to define the right investment pathway and clarify the market and regulatory incentives to monetise the investment. For these refiners, a careful balance must be struck between engaging internal resources in investigating these longer-term opportunities and ensuring their existing assets meet safe, reliable, and profitable operation to generate the funding needed for energy transition efforts.

Dec-2022