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HYDROCARBONENGINEERING

March 2015

March 2015
www.hydrocarbonengineering.com

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contents
March 2015 Volume 20 Number 3 ISSN 1468-9340

(03) Comment

(67) Compressor lubrication

(05) Guest Comment

Ayman Ali, ExxonMobil, EMEA, outlines challenges and


solutions in compressor lubrication

(07) World News

(71) Changing perspective

Contract awards, project updates, industry latest, news digest,


diary dates, mergers and acquisitions

(14) US refining: new again


Nancy Yamaguchi, Contributing Editor, discusses the outlook
for the US refining industry

(29) Making regulation work


Peter Davidson, UKPIA, presents a new approach to regulating
major accident hazards in the UK

(33) Making the switch

Mahesh Subramaniyam, James Ondyak, P.N. Ramaswamy,


James Noland, and Parag Shah, Dorf Ketal, USA, explain the best
way to take advantage of high acid crudes

(76) Maximising deep conversion


Angela Jones, Eric Lowenthal and Kent Turner, Grace, USA,
describe the need for deep conversion of resid and the use of
a high matrix, high activity FCC catalyst for maximising bottoms
upgrading

(81) Loading underair


Tim Campbell, Eurecat, USA, discusses how passivation
processes can enable preactivated catalyst loading under air

Trish Luedtke, MSA Safety, USA, discusses ensuring safety in


LNG/CNG use

(86) Guiding the way

(37) Minimising exposure


Andy Avenell, Crowcon Detection InstrumentsLtd., UK,
explains how gas detection technology is evolving to reduce
the need for maintenance and therefore operator exposure

(43) Walking the tightrope

Mark Hodgins, Endress+Hauser, UK, outlines effective level


measurement with the use of guided wave radar transmitters

(91) Compressor dampener optimisation:


part one

(49) Comprehensive corrosion control

Attilio Brighenti, Riccardo Bressan, Antonio Tufo, S.A.T.E.


Systems and Advanced Technologies Engineering S.r.l.,
Italy, discuss the optimisation of reciprocating compressor
dampeners under variable speed conditions

Joel Lack and Ralph Navarrete, Baker Hughes Incorporated, USA,


discuss corrosion control in crude atmospheric distillation units

(99) 3D asset virtualisation

John Williams, Aspen Aerogels, USA, outlines the challenges


and opportunities in properly insulating delayed cokers

Matthew Last and Adrian Finn, Costain, UK, look at processing


technology for UK shale gas

Saeed Al Somali, Saudi Kayan Petrochemicals, Saudi Arabia, and


Issam Karkoutli, INOVx Solutions, USA, present the benefits
of 3D asset visualisation for optimising enterprise asset
management

(64) Surviving 2015

(105) Simulating superior performance

(56) UK shale gas processing: part one

Dirk Frame, T.A. Cook Consultants, UK, discusses the prospects


for shale in 2015

Josep-Anton Feliu, Jos-Mara Ferrer and Jos-Mara Nougus,


Inprocess Technology and Consulting Group, S.L., Spain, discuss
how simulation technology can lead to higher efficiency, lower
production costs and improved plant safety

(112) 15 facts
This month we give you 15 facts on Nigeria

This month's

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Built on talent, technology, and trust, Grace high


performance specialty chemicals and materials improve
the products and processes of its customer partners
around the world. Grace Catalysts Technologies is
recognised as a global leader in specialty inorganic
catalysts. Combining its catalytic science expertise
with flexible manufacturing and materials science
fundamentals, Grace is a leading supplier of catalysts
and related products and technologies used in petroleum
refining and chemical processing.
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comment
Claira Lloyd Editor

was recently sent an email, and whilst the writer said that
they are a fan of Hydrocarbon Engineering, they asked why I
discuss outlooks in my editors comment when the world is
changing so rapidly and no one can really predict the future?
I do indeed fully admit that no one can accurately predict the
future and when it comes to the oil and gas sector I think we can
all safely say that peak oil is one phenomenon that was predicted
but hasnt come to pass. At the time that M. King Hubbert put
forward his theory of peak oil, based on his then research, Im
sure it was thought valid. Also in the years that followed there
was much debate about peak oil as supply and demand levels
fluctuated. Even I wrote about the peak oil debate back in 2012
when I came across a report written by Leonardo Maugeri,
which said that we were not yet in a position to announce peak
oil as supply was growing worldwide at such a fast pace it was
possibly going to overtake consumption. So yes, on one hand,
the Hydrocarbon Engineering fan is indeed correct to point out
that we cant always make accurate predictions, but on the other, I
believe that we can make predictions, as long as they are based on
solid information and comment on what is most likely to happen
if the status quo remains.
The above moves me swiftly on to the new phenomenon of
peak demand, which appears to have placed the peak oil theory
firmly on ice. I believe we can clearly see this due to the fact that,
despite the dramatic plummet in oil prices from summer 2014

highs, demand for oil hasnt shot up.


The general rules of consumption are
that as prices go down then more of a
product is bought, but this hasn't been
the case for oil and this can be attributed
to many factors. Firstly, as Bank of
America Merrill Lynch said in a recent
Global Energy Weekly, the sensitivity of global consumption [of
oil] to near term price changes in prices is low. Also, there is now
greater energy efficiency globally and this is particularly true for
the transportation sector, which is the biggest consumer of oil and
oil products. And finally, energy intensive economies are currently
going on a bit of a diet, and we all know that China can be taken as
a big example of that. So, as more and more oil is pushed on to the
market between new unconventional resources coming to fruition
and OPEC maintaining its output levels, I think we can safely say
that a demand peak is upon us. And that is a prediction I will firmly
stand by, be it for this moment in time only, as that is what the data
shows me.
As I said at the start, whilst we cannot make 100% accurate
predictions, we can make clear comment on outlooks based on the
information we have; so, at the moment, peak demand is indeed
a valid theory. And Id like to finish with what the International
Energy Agency said at the launch of its Medium Term Oil Market
Report, this is most definitely not your fathers oil market.

contact info
MANAGING EDITOR James Little
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claira.lloyd@hydrocarbonengineering.com

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Guest

comment

Charles T. Drevna, President, American Fuel &


Petrochemical Manufacturers

014 was a year of inconsistency and uncertainty. It combined


a dose of frustration and disappointment, with a splash of
optimism for the refining and petrochemical industries. Many
of the issues that drove these sentiments in 2014 are expected
to persist throughout 2015, leaving companies to face a range of
proposed rules, regulations and other administrative actions the scope and
effects of which are not yet known. On the plus side, as the 114th Congress
convenes, there is some optimism that these administrative excesses can
be limited.
This uncertainty and frustration is most clearly evidenced in
the Renewable Fuel Standard (RFS) the Environmental Protection
Agencys (EPA) decision to make no decision. They decided to delay the
announcement on the 2014 Renewable
Volume Obligations (RVO), which by
law were required to be finalised by
30 November 2013 into this year. This
dereliction of responsibility by EPA has
meant that refiners have simply had
to guess how much ethanol and other
biofuels they should be blending into
their fuels, in the absence of any rule
being announced. Needless to say, AFPM
will continue to push for Congress to
repeal or significantly reform the RFS,
as even EPA has shown the inability to
construct a workable programme from a
totally unworkable and very unnecessary
law. Congress created this mess and it is
up to Congress to fix it.
The transportation of crude oil by
rail was not on anyones radar until the
unfortunate and preventable tragedy in
Lac-Megantic. In 2014 the Department
of Transport (DOT) proposed a rule that
focused primarily on rail tank cars, while neglecting to focus on the root
causes of rail accidents: train integrity and human factors. The refining
and petrochemical industries are committed to protecting our workers
and the communities through which crude oil is transported. We have
already invested more than US$3 billion on upgrading tank cars and will
undoubtedly do more as the proposed rules are finalised. But, it is also
time for the primary causes of rail accidents to be addressed. DOT should
place further emphasis on preventing derailments, concurrently with
measures that mitigate the effects of derailments. As the number of crude
carloads have risen exponentially, from 9500 in 2009 to 450 000 in 2014,
track integrity and overall operations must be addressed.
A day in the life of a fuel or petrochemical manufacturer increasingly

must focus on how to negotiate


a growing number of overly
stringent and often conflicting air
quality regulations. The pace was
steady over the course of the last
12 months and AFPM anticipates no
slowdown from either EPA or the
Obama Administration. Yet, we are
fast reaching a point where costly
regulations, many that offer little to no
benefit to the environment or to the public,
will negatively impact states and local
economies and ultimately, harm consumers.
Low energy prices have enticed many
businesses back to these shores, and the benefits
of a manufacturing renaissance in the US are
considerable. However, uncertainty has raised its
head again in the form of EPAs unnecessary and
overly burdensome ozone proposal. If finalised,
this regulation could result in 2.9 million fewer job
equivalents per year until 2040, and reduce the
U.S. GDP by as much as US$270 million annually.
As petrochemical manufacturers are reshoring
their operations, with nearly US$100 billion in
planned investments announced, this regulation
could stop this renaissance in its tracks. With
so much investment and the prospects for a
robust economic recovery at stake, the nation
must focus on a balanced path forward that
leads to economic prosperity, innovation, and
environmental protection.
EPAs ozone proposal falls way short of those
expectations. However, there has been the occasional
issue where common sense has prevailed, and it is in these
instances that we can see the beneficial effect certainty can have on a
business. This can be seen, most notably, in Congresss reauthorisation of the
Chemical Facility Anti-Terrorism Standards (CFATS). The CFTAS programme
provides the necessary regulatory certainty so that fuel and petrochemical
manufacturers can help to maintain the security of Americas energy and
petrochemical infrastructure. We hope this continues in 2015 with the efforts
to modernize the Toxic Substances Control Act (TSCA).
As 2015 progresses, it is likely that more issues will arise than will be
solved. But with the new Congress, we are hopeful that we will begin to see
policies that encourage a free market, as these are the most beneficial to the
US economy and are required to drive our nation toward a future of growth
and prosperity.

A day in the
life of a fuel or
petrochemical
manufacturer
increasingly must
focus on how to
negotiate a growing
number of overly
stringent and often
conflicting air
quality regulations.

HYDROCARBON

ENGINEERING

March 2015

Customer:

Challenge:

Result:

LNG producers throughout the world.

Select a compression partner to ensure years


of efficient, reliable production.

Elliott refrigeration compressors and unmatched experience


have been central to successful LNG projects for decades.

They turned to Elliott


for leadership in LNG compression.
From the first commercial LNG baseload plants to todays mega-plants in Russia, the
Middle East and Asia, LNG producers have chosen Elliott for efficient, reliable compressors
and matchless expertise. Elliotts proven experience with different processes and drivers is
supported by manufacturing centers in the US and Japan, and a global network of service
centers. Who will you turn to?

C O M P R E S S O R S

T U R B I N E S

G L O B A L

S E R V I C E

The world turns to Elliott.


www.elliott-turbo.com

w rld news
Russia |

LONG TERM PARTNERSHIP SIGNED

SOC Bashneft and Yokogawa


Electric Corporation have signed
a long term partnership agreement
in the area of support of Ufa
refining complex production
facilities with automatic process
control systems and field
instrumentation/process control
instruments. The document was
signed by Alexander Korsik,
President, JSOC Bashneft and

Worldwide |

CYBERSECURITY SOLUTIONS

okogawa Electric Corporation has


announced a collaboration with
Cisco Systems, Inc. to deliver the
SecurePlant initiative at Shell.
SecurePlant is a comprehensive security
management solution for plant control
systems that was jointly developed as
an initative between Cisco, a leader in
the IT industry, Yokogawa, a leader in
mission critical plant automation
systems, and Shell. The three companies
have agreed to proceed over the next
three years with the implementation of
SecurePlant at approximatley 50 Shell
plants globally.
Industrial producers around the
world face a wide range of operational
challenges in areas such as cybersecurity
that pose a pervasive threat to safety
and availability. Most companies with
global operations, however, still take a
relatively simplistic plant by plant

Germany |

Shuzo Kaihori, Chairman and CEO,


Yokogawa Electric Corporation.
The agreement concerns the
broadening of cooperation between
the companies in development and
supply of control systems and
instrumentation equipment; the design,
startup, commissioning, and provision
of technical support for Yokogawa
equipment; and the provision of
consulting to Bashneft specialists.

approach, such as implementing


operating system security patches and
anti virus pattern file updates. As a
result, security levels tend to vary at
each plant.
The SecurePlant solution is
designed as a standard solution that
consists of the delivery of OS patches
and anti virus pattern files for control
systems and the provision of real time
and proactive monitoring of solution
delivery, as well as a help desk
operation to manage this solution.
Supplier certified Windows
security patches and virus signature
files are distributed from a
SecureCentre to the SecureSite at each
plant via Shell's existing global
network. Real time and proactive
monitoring capabilities will enable to
centralised management of plant
security.

CONCEPT ENGINEERING SERVICES

acobs Engineering Group, Inc. has


received a contract from
BP Gelsenkirchen GmbH for concept
engineering services to upgrade a
hydrotreater unit at its refinery
facilities in Gelsenkirchen, Germany.
BP recently selected Jacobs as
strategic supplier of mid cap work for

its downstream business on a global


basis. Under the terms of this new
regional framework agreement, Jacobs
is bringing technical expertise and
best practices to help BP reach its
goals to optimise operational
performance of the BP Gelsenkirchen
refining facilities.

TESTING
CONTRACT
Colombia |

ntertek has won a contract for testing


and analysis of refined products for a
major Latin American oil and gas
company. The agreement is for four
years, with an option for an additional
four year extension on the project.
Intertek will perform testing and
analysis of refined products being
transported by pipeline, delivering
quality control data which will help the
client better manage their operations
and support operational business
decisions.
To meet client requirements,
Intertek is constructing three fully
equipped laboratories in central and
western Colombia, equipped with state
of the art technology and staffed by
personnel trained and experienced in
the testing of petroleum refined
products.
With the new laboratories Intertek
will also provide independent, impartial,
and confidential analytical testing
services to other customers, effectively
expanding Intertek's capabilities and
locations in Colombia. This laboratory
project allows the company to expand
into new markets and provide clients
with enhanced service and logistical
coverage.

PAS Inc. |

NEW DEAL

AS Inc., has announced a new multi


year contract with BP Downstream.
BP will use PAS inBound to help manage
critical operational limits in their
refineries and petrocheimcal assets.
PAS inBound captures, visualises,
analyses, and alterts opeartors on
boundary data within plant operations.
Boundary data includes process alarms,
safety instrumented and environmental
trip points.
HYDROCARBON

ENGINEERING

March 2015

w rld news
INBRIEF
USA |

Australia

Jacobs Enginereing Group, Inc. has been


awarded a multi year engineering services
agreement by ConocoPhillips to support
the sustaining capital programme for
the Australia Pacific LNG facility after
its completion. The facility is located on
Curtis Island in Queensland, Australia.

Africa

Hempel's 26th factory, and its first in


Africa, marks an important milestone in
Hempel's ambition to become one of the
world's top 10 largest coatings suppliers
by the end of 2015. The new plant will
manufacture coatings for the decorative,
protective and marine industries and will
serve customers in Sub-Saharan Africa.

Japan

The energy segment of Marubeni


Corporation has selected Schneider
Electric to provide the market
intellegence platform to support its
global energy trading and development
business. Schneider's DTN ProphetX
solution will be used to support its wide
ranging operations, including oil and gas
trading and marketing.

The Netherlands
Fluor Corporation has celebrated the
grand opening of its new office in
Amsterdam with hundreds of employees,
clients and business associates. Spanning
more than 50 years operating from the
Netherlands, Fluor recently moved from
Haarlem to its new sustainable office
building in Beukenhorst-Zuid business
park near Schiphol airport. The office
will continue to serve the energy and
chemicals, infrastructure and industrial
markets across Europe, Africa, the
Middle East, Asia and Australia.

March 2015

HYDROCARBON

ENGINEERING

THE KEY TO DELIVERY

E Oil & Gas has announced


that its downtream technology
solutions (DTS) business has been
awarded a contract from Sasol
North America for the provision of
the main compression trains
required for its new low density
polyethylene plant (LDPE) being
developed in Lake Charles,
Louisiana. The LDPE plant is a
central US$8.9 billion
petrochemical complex, which will
include a worldscale ethylene
plant and ethylene derivatives
plant.

USA |

ADVANCED CATALYST DEVELOPMENT

nellotech, Inc. and Johnson


Matthey Process Technologies
have announced an alliance to
codevelop advanced catalyst
systems for Anellotech's catalytic
fast pyrolysis (CFP) process for
production of bio based benzene,
toluence and paraxylene.
Anellotech's newly developed green
aromatics products are 'drop in'

USA |

The LDPE Hyper compressor,


which will sit at the heart of the
plant, is a unique 20 cylinder two
stage compressor, with discharge
pressures of 45 000 psi.
The scale of the plant, one of
the largest in the world, reflects
considerable growth seen in the
North American petrochemical
segment in recent years. The
complex will produce 1.5 million tpy
of ethylene, with approximately
90% of ethylene output converted
into a diverse slate of commodity
and specialty chemicals.

replacements for petroleum derived


aromatics.
The two partners will collaborate in
three major areas: On the technological
development of an optimal catalyst for
Anellotech's CFP process; for the supply
of high quality catalysts manufactured
for use in the testing and development of
the CFP process, and to manage
subsequent commercial implementation.

DOUBLE SIGNING

BR has announced that it has been


awarded a technical services
agreement by Magnolia LNG LLC to
provide cost verification and other
services associated with the delivery
of the Magnolia LNG export terminal
project located in the Port of Lake
Charles, Louisiana. Under the terms
of the contract, KBR will complete a
FEED gap assessment, work plant and
support completion of the remaining
FEED activities. This agreement
includes the development of a
project EPC contract execution plan,
schedule, contract and pricing as well

as an EPC bridging plan for the


construction of the export facility.
Additionally, KBR signed a
Memorandum of Understanding with
Magnolia LNG LLC and Korea's
E&C USA under which KBR and SKEC
agree to form a joint venture to
execute engineering, procurement
and construction of the initial two
LNG production trains with
provision for two additional trains.
Upon completion, the four train
Magnolia LNG facility will have the
capacity to export 8 million tpy of
LNG.

COMPLETE SOLUTIONS FOR


YOUR REFINERY OPERATIONS
Whether youre dealing with tight oil, more stringent sulfur limits or changing
feedstock supplies, CB&I has the answers to help refiners derive maximum value
from every molecule.
Were with you through every stage of the process plant life cycle, from feasibility
studies through technology selection, full-scope EPC, commissioning and start-up,
to plant optimization and upgrades.
Our broad portfolio of both refining and petrochemical technologies, combined
with our execution expertise, will help you maximize unit flexibility and achieve
margin benefits in the widest range of scenarios.
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FULL-SCOPE EPFC SERVICES
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w rld news
INBRIEF

Asia Pacific

Prometheus Group and SMEC are


excited to announce their global
partnership which combines Prometheus
Group's leading edge enterprise asset
management software with SMEC's best
in class asset management consulting
group. The partnership initially will focus
on the oil and gas industry and other
asset intensive verticals.

Egypt

CB&I has announced that it has been


awarded a contract by Carbon Holdings
for the license and engineering design
of a polypropylene unit to be built in
Ain Sokhna. The unit will be ablined to
the Tahrir petrochemical complex and
use CB&I's Novolen technology to
produce 350 000 tpy of polypropylene.

Mexico

Sempra Energy has anounced that its


IEnova and Sempra LNG units have
signed a Memorandum of Understanding
(MoU) with a subsidiary of Pemex for
the cooperation and coordination in
developing a natural gas liquefaction
project at the site of the Energia Costa
Azul receipt terminal in Esenada, Mexico.
The MoU defines the basis for the
parties to exporte Pemex's participation
in the potential Energia Costa Azul
project, including joining efforts on its
development and structuring agreements
that would allow opportunites for Pemex
to become a customer, natural gas
supplier and investor.

Europe

Klaipedos Nafta has signed a MoU with


Bomin Linde LNG to jointly develop the
LNG fuel market, including the necessary
infrastructure, in the Baltic Sea.

March 2015 10

HYDROCARBON

ENGINEERING

China |

SECOND UNIT COMMISSIONED

OP LLC, a Honeywell company, has


announced that China
commissioned its second unit to
produce propylene using its C3 Oleflex
process technology. Zhejiang Shaoxing
Sanjin Petrochemical Co., Ltd became
the second company in China to
commission a UOP C3 Oleflex process
unit to produce propylene from
propane, increasing the global
production capacity from UOP

USA | LIQUEFACTION

AND EXPORT PROJECT

ouisiana Governor Bobby Jindal and


Martin Houston, Chairman of Live
Oak LNG, have announced a new
natural gas liquefaction and export
project, up to US$ 2 billion investment,
to be developed in the Calcasieu
waterway. The mid sized project is
being designed for a plant capacity of
up to 5 million tpy production and will
include tow 130 000 m3 storage tanks,
and port facilities with a jetty for
standard size LNG carries. The proposed
site is approximatley 350 acres and is
situated within Calcasieu Parish on the
west bank of the Calcasieu River.

UK|

technology to approximately
3.8 million tpy.
Since 2011, UOP has licensed the C3
Oleflex process to more than a dozen
producers to meet rising demand, with
a majority of licensed capacity in China.
China is the world's largest energy
consumer and its propylene
consumption accounts for more than
15% of worldwide demand, which is
growing at approximately 5 - 6% /y.

Initial study work is already


underway and Live Oak LNG will begin
the permitting process within the next
few weeks. The anticipated startup of
the plant is in late 2019.
Live Oak LNG has awarded Bechtel
a contract for the preengineering
design and Chart Industries has been
selected for the process design work.
The company estimates that there will
be an average of 550 people working
directly on the project, with up to 1000
jobs during the construction peak.
Once operational, the plant will
employ approximately 100 people.

SHUTDOWN COMPLETE

eway has announced the


completion of a series of skilled
and demanding servies for the boiler
maintenance shutdown at the Essar Oil
UK refinery in Stanlow, Cheshire. The
company supplied specialist industrial
cleaning operatives to help the
completion of the recent shutdown,
where safe, effective and efficient
working procedures were paramount.
Neway also supplied operatives for
standby duties during the shutdown.
They were vitally important for
confined space working and acted as a

safety lifeline for engineers working


inside the boiler.
The company used specialist
techniques and equipment to help
clean boilers internally such as the
deluge wash, which is an effective and
efficient low pressure cleaning
procedure. Neway supervisors ensured
all work was carried out to the highest
standards. This required detailed
communication throughout the
shutdown using radios to pass on
crucial information and keep in contact
with staff inside the boilers.

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| DIARYDATES
API-PA |
17 - 19 March
StocExpo 2015
Ahoy Rotterdam, The Netherlands
Tel: +44 (0)20 8843 8804
Email: kyla@stocexpo.com

18 - 19 March
ARTC 18th Annual Meeting
Bangkok, Thailand
Tel: + 852 3411 4702
Email: Amanda.tung@incisivemedia.com

22 - 24 March
AFPM Annual Meeting
Marriott Rivercenter
San Antonio, Texas
Tel: +1 202 457 0480
Email: meetings@afpm.org

22 - 26 March
SOGAT
Beach Rotana Hotel
Abu Dhabi, United Arab Emirates
Tel: 971 (02) 674 4040
Email: nerie@domeexhibitions.com

12 - 15 April
Annual GPA Convention
Marriott Rivercenter
San Antonio, Texas
Tel: +1 918 493 3872

20 - 22 April
Sulphur World Symposium
Majestic Hotel and Spa
Barcelona, Spain
Tel: +1 202 293 9305
Email: events@sulphurinstitute.org

20 - 22 April
Global Refining & Petrochemical Summit
The Hague, The Netherlands
Tel: +44 (0)20 7202 7769
Email: stuart.hart@wtgevents.com

March 2015 12

HYDROCARBON

ENGINEERING

TAX HIKE WOULD DAMAGE ECONOMY

tephanie Catarino Wissman, Executive


Director of Associated Petroleum
Industries of Pennsylvania (API-PA) has said
that the Governor's proposal for a new
severence tax on natural gas development
in Pennsylvania will harm job growth and
weaken the state's economy.
Wissman commented, "the Governor's
proposed tax hike could treaten the future
of our state's best job creators. The current
local impact tax, which is collected from
every shale drilling site in the state, has
distributed more than US$630 million to

BMI |

PETROCHEMICALS IN SAUDI ARABIA

usiness Monitor International (BMI)


has said that the decline in the price
of naptha is posint a major challenge to
the competitiveness of Saudi based
petrochemicals production, which is
overwhelmingly based on ethane. As
naphtha comprises just 11% of
feedstock with the majority from
ethane, Saudi Arabia stands to suffer
from the fall in naphtha price that has
come as a result of crude oil prices
falling. BMI has said that at the same

API |

communites since 2012, including more


than US$224 million in just 2014. That's on
top of over US$2.1 billion in state and local
taxes generated by the energy industry.
Driving development away from
Pennsylvania will ultimately cost jobs and
lead to less revenue for education,
transportation, healthcare, and other state
programs. The Governor needs to look for
better budget solutions that will keep the
Commonwealth competitive, protect long
term economic growht, and preserve the
engine of Pennsylvania job creation."

time, product prices are falling on


export markets, leading to a severe
squeeze on margins. At stake is the long
term growth in Saudi petrochemicals
capacity.
BMI has also said taht Saudi Arabia's
economic performance, with strong
growth, shoudl lay the basis for growth
in downstream conversion sectors and
forecast real GDP growth for this year
to be 3.6%, a slight moderation from
the 2014 levels of 4.3%

GROWING ENERGY PRIORITIES

he American Petroleum Insitute


(API) has announced the
establishment of a Colorado
Petroleum Council that will focus on
energy priorities in the state,
including hydraulic fracturing and
energy infrastructure, as the state
seeks to create jobs, generate more
revenue to the government, and
produce more domestic energy. In
making this announcement, API has
also hired Tracee Bentley, a former
Colorado State Official, to lead the
new office as Executive Director.

API President and CEO,


Jack Gerard said, "Colorado is at the
forefront of America's energy
renaissance. The right energy
policies are essential to maintain
strong enconomic growth, which
energy development is generating
across the state. Bipartisan
cooperation among state
government officials and businesses
and cosumer groups to address
critical energy development issues
will ensure Colorado remains a
leader in creating energy jobs."

WHEN CONDITIONS HEAT UP


DONT LET CORROSION
SHUT YOU DOWN
Whether its higher temperatures, rising pressures or more acidic media, conditions in
oil refineries have never been more extreme. Tube and pipe corrosion are a constant
threat, causing as many as half of all major shutdowns. This is why hundreds of the
worlds most demanding petrochemicals refiners are turning to the next generation of
corrosion resistant alloys. Like one German oil refinery, which used Sandvik SAF 2707
HD hyper-duplex heat exchanger tubes to reduce the number of shutdowns from 8 to
1 over a period of four years. The result was massive savings on material replacement.
So as your tubes performance is pushed to new heights, find out how we can help
keep corrosion from shutting you down.

SMT.SANDVIK.COM

US
refining:
new

Again
T

he US refining industry has enjoyed a golden time in


Nancy Yamaguchi,
recent years, operating in synergy with the boom in US
oil production,
has been
possible by
Nancy Yamaguchi,
Contributing
Editor, discusses the
outlookwhich
for the
USmade
refining
Contributing
Editor,
advances in shale oil development. The majority of
industry.
new crude output has been squeezed into local refineries,
discusses the outlook for the
because US policy severely restricts the export of domestic
the US refining industry. crude. The sudden influx of domestic crudes has caused their

March 2015 14 HYDROCARBON


ENGINEERING

San Francisco skyline and Bay Bridge.

price to fall in relation to international crudes. In addition,


Canada has increased its production of synthetic crudes
and diluted bitumens from its oilsands resources.
Canadian output is largely landlocked, and the US is its
natural market. These factors have caused a strong rise in
US refinery utilisation. Initially, this benefitted refineries
directly in the path of the new crude supplies. More

recently, however, additional transport options have


allowed crude supplies to flow to the coasts as well,
evening out the countrys refinery utilisation. In addition,
export options have expanded, including allowances for
export of lightly processed condensate, trade with
Canada, and potential exports to or crude swaps with
Mexico.

HYDROCARBON 15

ENGINEERING

March 2015

Figure 1. US product supplied, 2000-2014*


25000

20000

Other

15000

Fuel Oil

0'
0
0
b
p
d

Diesel
Kero/Jet
Gasoline

10000

Naphtha/PCF
LPG/NGL

5000

0
36707

37072

37437

37802

38168

38533

38898

39263

39629

39994

40359

40724

41090

41455

2014*

Figure 1. US product supplied 2000 - 2014*.


Figure 2. Year-on-year change in US Oil Demand
1000

697
409

500

273
112
0'
0
0
b
p
d

397
82

71

-52

-115

-7
-298

-500

-392

-727
-1000

-1182

oil prices, since oil prices affect so many facets of the


business. At the time of writing, in January 2015, spot prices
for West Texas Intermediate (WTI) crude have fallen below
US$50/bbl. This is the lowest price since 2009, which was
regarded as the worst year of the recession that caused
such widespread suffering in the US and in many other
countries around the world. There are now so many
questions. Will prices remain low, and for how long? Will
low prices shut in some of the US production from
prospective shale plays? Will it shut in production in other
parts of the world? With a more consistent low price regime
worldwide, will other refineries increase throughput? Will
there be a demand response? Will US refining lose its
competitive edge in export markets? And ultimately, will the
low prices succeed in shutting in non-OPEC production,
derailing investments in alternative energy, and setting up
the global market for another oil price shock? In many ways,
a sharp downward correction in oil prices can be just as
detrimental as an upward price spike. This article will discuss
developments in US refining, how the industry has coped
with recent changes, and which key changes may be on the
horizon.

-1500
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

Figure 2. Year on year change in US oil demand.


Figure 3. US product demand: average annual growth rates 2000-2014*
0.02

0.5%

0.4%
0

-0.3%

-0.9%

-1.4%

-0.02

-0.3%

-0.04

-4.7%
-0.06

-0.08

-8.9%
-0.1
LPG/NGL

5Gasoline

5Kero/Jet

Diesel

5Fuel Oil

Other

Total

Naphtha/PCF

Figure 3. US product demand: average annual


growth rates 2000 - 2014*.
10
9

Figure 4. AEO 2014 forecast of gasoline and dis?llate demand to 2040, and
2011-2014 (January-October) data
8.75

8.91

m
m
b
p
d

Gasoline AEO
Dis8llate AEO
Gasoline actual*
Diesel actual*

6.84

6
5
4

4.01

4.62

3.90

3
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040

Figure 4. AEO 2014 forecast of gasoline and


distillate demand to 2040, and 2011 - 2014
(January - October) data.
The inexpensive feedstock has been a boon to US
refineries. But is the boon over? One of the key questions
today is how the market will respond to the drop in global
March 2015 16 HYDROCARBON
ENGINEERING

US oil product demand


Demand and demand pattern
Although the US refining industry is active in international
trade, the industrys prime directive has always been the
satisfaction of domestic demand. For the most part, this has
kept the industry quite busy. The US is by far the largest oil
market in the world, and it has had the most exacting and
wide ranging product quality specifications, complicated
further by regional and seasonal segmentation. The demand
barrel is a high value one, overwhelmingly dominated by
gasoline and middle distillates. Historically, consumers even
purchased a disproportionate share of premium grade
motor gasoline, adding to refiner profitability. This practice
has grown less common, and many retail outlets now
question the need to provide premium grade gasoline at all.
So many changes have occurred that the industry has been
in continual motion. The immediate future direction of the
industry will hinge largely upon how the market responds to
lower prices. To some extent, the lower prices will stimulate
demand. But US refiners have become huge players in
international export markets, and the likely level of demand
growth is tiny in relation to the volume that the US now
exports. The future profitability of US refining may rely
much more on export markets than it has in the past.
One of the most profound changes in the US market is
the change from growth in oil product demand to an era of
shrinkage. Figure 1 displays the trend in US oil demand by
product from 2000 through the January - October period of
2014. Unless otherwise noted, the data used here are the
latest available from the US Energy Information
Administration (EIA), and the 2014 data cited is an average of
the January - October period. At the beginning of the
decade, demand was expected to grow slowly but steadily.
Demand for oil products plus LPG/NGLS reached
20.8 million bpd in 2005, but it hit a plateau. In 2008, a
serious price shock hit the international market, and crude

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UPDATE: BP ENERGY OUTLOOK 2035


Despite the recent weakening in global energy markets, ongoing
economic expansion in Asia will drive continued growth in global energy
demand over the next 20 years.
For further information go to www.energyglobal.com/downstream

FRENCH OIL, GAS AND PETROCHEMICALS


In July last year, the French cabinet approved a long delayed energy bill
that would be used to encourage energy efficiency. The bill is expected
to become law early this year and the legislation poses some upside risk
to BMI's gas consumption outlook. Natural gas could indeed become an
attractive option as a backup to intermittent renewables.
For further information go to www.energyglobal.com/downstream

MEDIUM TERM OIL OUTLOOK: MERRILL LYNCH PART 1

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The share of energy consumption as a percentage of global GDP has


dropped to just 3.7%, the lowest level since 2002. Global spare oil
production capacity remails relatively low by historical standards. The
current price shock is different to the last three because it is mostly driven
by a massive surge in North American oil production.
For further information go to www.energyglobal.com/downstream

USW STRIKE UPDATE


As strikes at US refineries entered their 13th day on Friday last week, Tesoro
Corp announced that it was confident that its refineries in California and
Washington could operate with its non-union workers for a 'very long period
of time.'

www.intergraph.com/go/cadworx

For further information go to www.energyglobal.com/downstream


2014 Integraph Corporation. All rights reserved. Intergraph
is part of Hexagon. Intergraph and the Intergraph logo are
registered trademarks of IntergraphCorporation or its subsidiaries
in the United States and in other countries. AutoCAD is a registered
trademarkof Autodesk, Inc.

Figure 5. US renery capacity and number of operable reneries


20000

400

18,621

18000
16000

350

336

17,925

324

300

14000
C
D
U
c
a
p
a
c
i
t
y

250 #
o
f
r
e
200 f
i
n
e
r
i
e
150 s

12000
10000
8000
6000

142

6,231
CDU capacity

4000

100

# of operable reneries
50

2000

0
19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

20

Figure 5. US refinery capacity and number of


operable refineries.
Figure 6. US rener and blender yield of gasoline and diesel

0.6

0.5

46%

46%

0.4
0'
0
0
b
p
d

47%

47%

% Gasoline

46%

47%

46%

47%

22%

22%

23%

24%

2005

2006

2007

2008

47%

49%

49%

23%

23%

2009

2010

49%

48%

48%

49%

24%

25%

25%

25%

2011

2012

2013

2014*

% Gasoil

0.3
21%

21%

21%

21%

21%

2000

2001

2002

2003

2004

0.2

0.1

Figure 6. US refiner and blender yield of gasoline


and diesel.
Figure 7. Ethanol use by US reners and blenders
900
800

748

700

771

785

805

825

637

600
0'
0
0
b
p
d

499
500
361

400

Rener input of ETOH

312

Blender input of ETOH

300
223
200
100
13

20

23

35

46

46

43

44

7
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

Figure 7. Ethanol use by US refiners and blenders.

spot prices skyrocketed above US$100/bbl. Recall that only


a few years earlier, prices had been in the range of
US$25 - 30/bbl. The US and several other major countries
fell into serious recession. US demand fell by 1.9 million bpd
between 2007 and 2009, and although demand has crept
back up during the period from 2010 to today, it has not
recovered to its 2007 level.
Figure 2 presents a closer look at the changes in oil
demand by calculating the incremental year on year changes
in demand. Between 2007 and 2008, demand dropped by
1.182 million bpd. Between 2008 and 2009, demand dropped
by another 727 000 bpd. Demand rebounded by
409 000 bpd in 2010. It then fell again by 298 000 bpd in
2011 and 392 000 bpd in 2012. In 2013, demand rose by
397 000 bpd. Data for the first ten months of 2014 show a
small increase of 82 000 bpd. However, early release
March 2015 18 HYDROCARBON
ENGINEERING

numbers for the full year of 2014 suggest that there will be a
greater increase, and it is noteworthy that the large drop in
prices did not occur until the early part of 2015. This
suggests that US demand will grow more strongly in 2015
than has been forecast, barring geopolitical events that
could force prices back up. Most forecasts of US oil demand
foresee a long term downward slope, and this most likely
will be the case. In the near term, however, low prices and
an improvement in economic circumstances is expected to
cause a slight rebound in demand.
For most US refiners, the most welcome rebound in
demand would be in gasoline and diesel. Gasoline currently
accounts for 53.6% of US finished product demand, and
diesel accounts for 24.1%. Together, these two key fuels
represent 77.7% of finished product demand. In 1985, the
demand barrel included 48.1% gasoline, 20.2% diesel, and
8.5% fuel oil. US consumption of fuel oil has nearly vanished,
since it has been phased out of all major end uses.
Preliminary data for 2014 indicate that fuel oils share has
fallen to 1.5% of the barrel. As Figure 3 shows, gasoline and
diesel are the only two key fuels that maintained positive
rates of growth between 2000 and 2014. The growth rates
were small, 0.36%/y and 0.53%/y respectively, but in
contrast, demand for fuel oil continued to decline at
-8.86%/y, demand for naphtha and petrochemical feedstocks
fell at -4.69%/y, and demand for kerosene and aviation fuels
fell by -1.44%/y. In total, US demand fell at an average rate of
-0.34%/y from 2000 - 2014 (January - October).

Long term forecast of demand


In the long term, the EIAs Annual Energy Outlook (AEO)
forecasts that demand for liquid fuels and other petroleum
will decline gently at an average rate of -0.052%/y between
2011 - 2040. The mix, however, will shift in favour of
distillate fuel oil at the expense of gasoline.
Figure 4 presents the AEO 2014 forecast of gasoline and
diesel demand, 2011 - 2040. In 2011, gasoline demand was
8.75 million bpd and distillate fuel oil demand was
3.9 million bpd. By 2040, the AEO forecasts that gasoline
demand will fall to 6.84 million bpd (a drop of
1.91 million bpd) whereas distillate fuel oil demand is
forecast to rise to 4.62million bpd (an increase of
0.72 million bpd.) Overlaid on the chart, however, are data
for 2012, 2013, and the January- October period of 2014. In
both instances, the past three years brought a greater
resurgence in demand than expected, most noticeably in the
case of gasoline. Significantly, the recovery in demand
pre dates the current sharp drop in oil prices. While it would
not be sensible to merely extrapolate future demand upward
from the recent deviation in the trend lines, it is logical to
expect that the next official forecast will recalculate the
long term outlook based on a higher starting point, as well
as perhaps a lower price forecast. This assumes that prices
remain low during the coming year.
In an overall economic sense, a downward price
movement is a mixed bag. Lower oil prices can stimulate
demand and, in the case of a net importing country, reduce
imports. Yet persistent low prices could shut in higher cost
shale oil production and stymie investment in alternative
and renewable energy resources. Although many US

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Figure 8. Rener net inputs to rening


17500

17000

16500

16000

0'
0
0
b
p
d

15500

Unnished oils
Oxy/Renewables
NGL/LRG

15000

Crude
14500

14000

13500

13000
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

Figure 8. Refiner net inputs to refining.


Figure 9. Blender net inputs
9000

8000

Gasoline Blending Components


Renewable Diesel
ETOH
LPG/LRG

7000

6000
0'
0
0
b
p
d

5000

4000

3000

2000

companies, many retain interests stretching from upstream


to downstream, and many have interests in alternative and
renewable energy sources as well. In the near term,
petroleum product demand (for all products except fuel
oil) is expected to rise in 2015 over its 2014 level. Moreover,
the shale plays now producing will remain economical, and
output from them will continue to rise. Although there
have been a number of projects that initially were
estimated to require a price environment of US$70 - 80/bbl
to be economically feasible, these projects are not the
norm. There is a wide variety in breakeven costs among the
tight oil developments in the US. Most producers believe
that US output will continue to grow for the next few years
even at US$50/bbl prices. Similarly, advances in
unconventional production from Canadian oilsands
reserves have brought down production costs, and
Canadian output is expected to continue to grow. If global
crude prices continue to sag, production from other
non-OPEC sources might be the first to be cut. In such a
case, crude acquisition costs to US refiners would remain
relatively advantageous, just not as advantageous as they
have been in recent years.

1000

0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

Figure 9. Blender net inputs.

Rise in output and utilisation

Figure 10. US gasoline imports have been replaced by GBC imports

900
800

Gasoline Imports
GBC Imports

700
600
0'
0
0
b
p
d

500
400
300
200
100
0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

Figure 10. US gasoline imports have been replaced


by GBC imports.
9000

Figure 11. US reners blend a diminishing share of nished gasoline

8000

7,694

7000
6000

k
b
p
d

6,097

5000
4000
3000
2000

Blender Net Produc:on of


Finished Gasoline

2,221

1,941

Rener Net Produc:on of Finished


Gasoline

1000
0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

Figure 11. US refiners blend a diminishing share of


finished gasoline.
refineries are independent companies and/or have been
spun off in one way or another from large, integrated oil
March 2015 20 HYDROCARBON
ENGINEERING

US refinery capacity and


product output
In spite of the recent decline in US refined product
demand, US refiners and blenders have achieved gains in
output during the 2000 - 2014 period. Refiner and blender
net output rose from 17.2 million bpd in 2000 to
19.7million bpd during the January - October period of
2014, amounting to an expansion averaging 0.9%/y. Yet as
noted, US product demand fell at a rate averaging -0.34%/y
over the same period. The end result has been a more
aggressive move into export markets, made possible in part
by inexpensive crude feedstocks. The recent drop in global
crude prices is now leveling that field, and it will be up to
US refiners to deal with a more competitive environment.
Of course, US refiners are accustomed to a competitive
environment, after several waves of overcapacity, mergers,
closures, and regulatory changes. Figure 5 shows the long
term trend (1949 - 2014) in the number of operable
refineries in the US and total operable capacity. In 1949,
there were 336 refineries in the US, and total capacity was
6.2 million bpd. The average refinery size was 18 500 bpd.
Operable capacity peaked in 1981 at 18.6 million bpd, with
324 operable refineries. Utilisation rates, however, were
only 68.6%. Capacity was cut to 15.5 million bpd within the
next five years. The number of refineries fell to 216, as the
smaller, less efficient plants were shut down. Nameplate
capacity settled at a plateau, and by the mid 1990s, it began
to grow once again. The number of refineries continued to
fall, however, and only the largest, most sophisticated of
the lot survived. The US Department of Energy lists
142operable refineries remaining, with an average size of
126 200 bpd.
As would be expected, the average US refinery is now
sophisticated and experienced. As Figure 6 illustrates, the
refiner and blender yield of gasoline rose from 46.1% in

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Figure 12. US gasoline at the 10% ethanol blend wall

1000
900
800
700

0'
0
0
b
p
d

600
Rener and Blender net input of ETOH

500

10% of gasoline demand


400
300
200
100
0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

Figure 12. US gasoline at the 10% ethanol blend


wall.

Figure 13. US Renery u1liza1on rates: strength in the center

100

95

90

%
r
e
f
i
n
e
r
y
u
t
i
l
i
za
t
i
o
n

85

80
P1 Ref U2l
P3 Ref U2l
P5 Ref U2l

75

P2 Ref U2l
P4 Ref U2l

70

65
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

Figure 13. US refinery utilisation rates: strength in


the centre.
Figure 15. Growth in US rened product exports

4000

Refiner and blender inputs

3500

3000

Other
Fuel Oil
Diesel

2500
0'
0
0
b
p
d

Kero/Jet
Gasoline/GBC

2000

Naphtha/PC Feed
LPG

1500

1000

500

0
2000

at such a grand scale that the impacts on US refining are


huge.
The widespread adoption of 10% ethanol blends has
radically changed the way finished gasoline is produced
because of ethanols affinity for water. Because it is
hydrophilic, the ethanol in ethanol/gasoline mixtures may
pick up water in pipelines and tanks, and the water may
later separate from the fuel, degrading fuel quality. Many
fuel transport, handling, and storage systems are not well
equipped to handle ethanol blends, so the common practice
has become to blend ethanol at the last possible moment
(often called splash blending). In fact, some dispensers
allow the consumer to specify and blend custom mixes of
ethanol and gasoline right at the pump, a practice that was
popularised in Brazil but now is spreading to areas in the US
where ethanol supplies and flexible fuel vehicles are
abundant.
The majority of US ethanol, however, is used in 10%
blends at standard dispensers, finalised by blenders instead
of refiners. Regulatory compliance is tracked via a
complicated system of renewable identification numbers
(RINs). Figure 7 shows the trend in ethanol used by blenders
and refiners from 2005 through the first 10 months of 2014.
In 2005, refinery input of ethanol was 7000 bpd. Blenders
used 223 000 bpd. Refinery input of ethanol has grown
modestly, reaching 44000-46000bpd in 2012 - 2014. In
contrast, blender use of ethanol has grown immensely,
reaching 825 000 bpd during the January - October period
of 2014.

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

Figure 14. Growth in barge, rail and truck


deliveries of US crude to refineries.

2000 to 48.8% in 2014. The gasoil yield has risen from


20.8% in 2000 to 24.7% in 2014. The fuel oil yield, already
low at 4.0% in 2000, has fallen to a mere 2.2% currently.

The changing role of refiners in gasoline


production
The use of ethanol as a transport fuel is now quite
common, and it is widely known that ethanol blends are
used in the US. However, the impact on US refiners is more
far reaching than many observers realise. First, the US
gasoline market is the worlds largest. Second, the US
refining industry is the worlds largest also, and it evolved
to maximise gasoline production. Third, the US is the
worlds largest ethanol producer. Fourth, public policy calls
for the use of a great deal of additional ethanol and other
renewable fuels in the future. Thus, everything is being done
March 2015 22 HYDROCARBON
ENGINEERING

Figure 8 and Figure 9 compare the net inputs to refining with


the net inputs used by blenders. For refiners, the key input is
crude oil (91 - 94%), with approximately 3% natural gas
liquids, 2 - 5% unfinished oils, and 1 - 2% oxygenates,
renewable fuels and other liquids. In 2005, these inputs
totaled 16.4millionbpd. The recession and the slump in
demand reduced inputs to 15.7 million bpd in 2009, but
refinery inputs recovered and grew to 16.8 million bpd
during the first 10 months of 2014. Crude oil inputs grew by
1.42 million bpd, displacing some unfinished oils, the use of
which fell from 722 000 bpd in 2009 to 363 000 bpd in 2014.
Figure 9 shows blender net inputs. In 2005, blenders
used 223 000 bpd of ethanol and 1.978 million bpd of
gasoline blending components, a logical proportion, given
that most of the gasoline produced by blenders is 10%
ethanol, and some is E15 and E85. Blender activity has grown
swiftly. During the January - October period of 2014,
blenders used 825 000 bpd of ethanol and 6.800million bpd
of gasoline blending components (GBCs). Blenders also used
34 000 bpd of butanes and pentanes plus, and 37 000 bpd of
renewable diesel.
The majority of the gasoline blending components are
produced by refineries, typically in formulations that suit
the particular market requirements and need only 10% of
ethanol added pre sale to create on spec gasoline. While US
refiners produce the majority of the GBC used, a major
volume is imported as well. Figure 10 compares US imports
of GBCs with imports of gasoline, 2000 - 2014. Finished
gasoline imports peaked at 603 000 bpd in 2005. GBC

In troubled times fierce global


competition for premium crudes
means that refinery units must
have the flexibility to handle
heavy, viscous, dirty crudes that
increasingly threaten to dominate
markets. And flexibility must
extend to products as well as
crudes, for refinery product
demand has become more and
more subject to violent economic
and political swings. Thus refiners must have the greatest flexibility in determining yields of
naphtha, jet fuel, diesel and vacuum gas oil products.

Why Do Many
Crude/Vacuum
Units Perform
Poorly?
In many cases its because the
original design was based more
on virtual than actual reality.
There is no question: computer
simulations have a key role
to play but its equally true
that process design needs to be
based on what works in the field
and not on the ideals of the
process simulator. Nor should the
designer simply base the equipment selection on vendor-stated
performance. The design engineer needs to have actual refinery
process engineering experience,
not just expertise in office-based

PROCESS

CONSULTING
SERVICES,INC.

modeling. Refinery hands-on


experience teaches that fouling,
corrosion, asphaltene precipitation, crude variability, and crude
thermal instability, and many
other non-ideals are the reality.
Theoretical outputs of process or
equipment models are not. In this
era of slick colorful PowerPoint
presentations by well-spoken
engineers in Saville Row suits,
its no wonder that units dont
work. Shouldnt engineers wearing Nomex coveralls who have
worked with operators and taken
field measurements be accorded
greater credibility?
Today more than ever before this
is important. Gone are the days
when a refiner could rely on
uninterrupted supplies of light,
sweet, easy-to-process crudes.
3400 Bissonnet
Suite 130
Houston, Texas 77005
USA

Rather than a single point process


model, the crude/vacuum unit
design must provide continuous
flexibility to operate reliably over
long periods of time. Simply
meeting the process guarantee 90
days after start-up is very different than having a unit still operating well after 5 years. Sadly few
refiners actually achieve thisno
matter all the slick presentations
by engineers in business suits!

If you want to explore these issues


in technical detail ask for
Technical Papers 267 and 268.
Ph: [1] (713) 665-7046
Fx: [1] (713) 665-7246
info@revamps.com
www.revamps.com

Figure 15. Growth in US rened product exports

4000

3500

3000

Other
Fuel Oil
Diesel

2500
0'
0
0
b
p
d

Kero/Jet
Gasoline/GBC

2000

Naphtha/PC Feed
LPG

1500

1000

500

0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

Figure 15. Growth in US refined product exports.


Figure 16. US rened product exports by desAnaAon
1400

1,329
1,160

N. Am

1200

1,063

S. Am.
1000

917

AP
Eur/Oth

0'
0
0
b
p
d

Refinery utilisation and trade


behaviour

783

800

574

600

The ethanol industry favours raising the blend limit to


15% ethanol, and E15 is indeed being sold in some areas.
However, many vehicles and much of the fuel handling
infrastructure are not ready for this switch. If E15 is
pushed, it would cause US refining to undergo another
round of adjustments, once again reducing output of
petroleum based gasoline and GBCs. For many refineries,
this would pose a serious threat to profitability. Yet many
proponents of E15 believe that it is the only way to
channel more ethanol into the transport sector, since
market penetration rates for E85 and flexible fuel vehicles
has lagged behind. Although ethanol prices have been
favorable close to ethanol production centres in the
Midwest states, the majority of the US driving population
lives on the coasts, where E85 prices have not been
competitive with E10 prices.

502

400

313

353

415

Shale boom boosts refinery utilisation

221
200

0
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

Figure 16. US refined product exports by


destination.

imports were 510 000bpd in that year. But imports of


finished gasoline were sharply curtailed in the years
following, and they have averaged only 52 000 bpd
recently. GBC imports have largely supplanted gasoline
imports, reaching a peak of 789 000 bpd in 2009. GBC
imports have declined to 526 000 bpd since then, the
reasons being weaker demand for gasoline and higher
refinery utilisation, which has boosted the output of
domestic GBCs for transfer to blenders.
The result is that US refiners today are responsible for
a diminished share of US finished motor gasoline. As
Figure 11 illustrates, in 2005, refineries produced
6.097million bpd of finished gasoline, while blenders
produced 2.221 million bpd. During the first ten months of
2014, refinery output of finished gasoline fell to
1.941 million bpd, while blenders produced
7.694 million bpd. In just one decade, US refineries went
from finalising 73% of the countrys gasoline to just 20%.

The 10% blend wall


The adoption of E10 across the US is essentially
complete, as Figure 12 demonstrates. The top line
calculates 10% of the countrys gasoline demand, while
the bottom line presents refiner and blender net input of
ethanol between 2005 and late 2014. The convergence of
the lines marks the reaching of the 10% blend wall.
When the renewable fuels standards (RFS) were initially
adopted, the blendwall was deemed a distant obstacle
because the contraction of the gasoline market was not
foreseen. With the demand outlook for gasoline now in
negative territory, there is a push to find more ways to
raise consumption of ethanol and other renewable fuels.
March 2015 24 HYDROCARBON
ENGINEERING

Global crude prices were at a long, sustained high before


their recent collapse. In the US, however, crude prices had
already broken with international prices. In the year 2011,
spot prices for Europes Brent crude were more than
US$16/bbl above prices for US WTI crude. This was a
major turnabout, since in 2004, Brent crude had been
approximately US$3/bbl cheaper than WTI. The rapid
growth in tight oil production from shale plays shook US
crude production out of its long term decline and ushered
in a period of renewed growth. Crude production has
risen from 5.0 million bpd in 2008 to an estimated
9.1millionbpd in January, 2015. Most of the shale plays are
in the north and central corridor of the country, reaching
down to the US Gulf Coast. The existing pipeline network
allows these crudes to flow south, but not easily to the
east or west. The restrictions placed on exports of US
domestic crude created localised surpluses of crude,
causing US refinery utilisation rates to rise, particularly in
the centre of the country.
Figure 13 shows the trend in refinery utilisation rates
among the five US PADDs (Petroleum Administration
Defense Districts). The US East Coast is PADD 1, where the
majority of the US population resides. Its refining industry
is relatively small and unsophisticated, however, and it
has been the site of several refinery sales and closures.
PADD 1 refinery utilisation rates have been the lowest in
the country, falling below 80% in 2008 and even below
70% in 2011. The US West Coast is PADD 5. PADD 5 also
experienced a slump in refinery utilisation, with rates
falling to 80% in 2009. As domestic crudes grew more
plentiful and cheap, refinery utilisation first rose in
PADD 2 (the US Great Lakes and Midwest), PADD 3 (the US
Gulf Coast), and PADD 4 (the Rocky Mountains). Refineries
in these areas enjoyed pipeline access to less expensive
domestic crudes. Pipelines are the favoured mode of
crude oil transport, handling approximately 80% of the
domestic crudes delivered to refineries. Tankers are the
second largest mode of delivery, handling in the range of
10 - 15% of domestic crude deliveries.

Tanks
Terminals
Global&Publication

Its on its
way...

For more information visit:


www.hydrocarbonengineering.com

10000

Figure 17. Renery construc3on has languished in La3n America, while


demand has con3nued to rise

9000
8000
7000
0'
0
0
b
p
d

6000
5000
Demand, Mexico+Lat.Am

4000

CDU Capacity, Mexico+Lat.Am

3000
2000

0
Source: BP

1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

1000

Figure 17. Refinery construction has languished

in Latin America, while demand has continued to


rise.
19000

Figure 18. Rela.onship between operable capacity, opera.ng capacity, and


product supplied

18000

17000

0'
0
0
b
p
d

16000
Operable rening capacity
Finished Product Supplied
OperaCng renery capacity

15000

14000

12000

19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14*

13000

Figure 18. Relationship between operable capacity,


operating capacity and product supplied.
Getting the new shale crudes to additional refineries
outside the existing pipeline network required the use of
other transport modes. As Figure 14 shows, there has been
a recent surge in the use of barges, trucks, and tank trucks
(rail) to deliver domestic crudes. In 2010, these three
modes accounted for only 6% of domestic crude
deliveries to refineries. By 2013, the percentage had
grown to 15%. Although these modes of transport are
significantly more expensive than pipeline transport, they
have been the key to getting additional domestic crude
to refineries in PADD 1 and PADD 5. It is no coincidence
that the increased use of these crude transport modes
has corresponded with an improvement in refinery
utilisation in PADDs 1 and 5.

The US becomes an export refining


centre
The growth in US refinery throughput has not been
matched by a growth in demand. Excess output has hit
export markets. The huge growth in US petroleum
product exports by type is shown in Figure 15. In the year
2000, exports were under 1 million bpd. They more than
tripled to 3.3 million bpd in 2014 (January - October.) One
third of this is diesel, one of the fuels in greatest demand
in international markets. Diesel exports have grown at
rates averaging over 14%/y from 2000 through 2014.
Exports have increased for every class of product, and for
crude oil and natural gas liquids as well. Although it is
common to hear the expression US crude export ban, it
March 2015 26 HYDROCARBON
ENGINEERING

is not really a ban, but a set of restrictions. US crude


exports grew to 320 000 bpd during the first 10 months
of 2014, 303 000 bpd of which went to Canada. There are
discussions now underway to allow for a crude trade with
Mexico to exchange up to 100 000 bpd of US light sweet
crude for Mexican heavy sour crude. This plan would
benefit both traders, alleviating the oversupply of light
sweet crudes in the US and helping boost gasoline
production in Mexico. Mexicos refinery investment and
modernisation plans have been continually delayed, and
product imports have grown. US refined product exports
to Mexico have averaged over 500 000 bpd for the past
four years.
Figure 16 traces the growth in US product exports by
destination. With such rapid growth in exports, US
products are now reaching markets around the globe,
even to unexpected and far flung places such as Oman,
Poland and Macau. But the main export outlet is the
Western Hemisphere. Exports to Mexico and Canada are
now averaging 1 million bpd, and exports to Central and
South America are averaging 1.3 million bpd. Latin
America used to be a significant exporter of refined
product to the US, but its refinery capacity has stagnated
despite many ambitious construction and modernisation
plans. Figure 17 compares Latin American (including
Mexico) refinery capacity with oil demand from 1965
through 2013, according to British Petroleum (BP). Crude
capacity peaked at approximately 8.5 million bpd in 1980,
but it fell to 7.1 million bpd in 1986 as many refineries
closed during the time of overcapacity. Capacity
gradually crept back above 8 million bpd by 2008, but BP
noted capacity of only 7.6 million bpd in 2013. Demand, in
contrast, has grown steadily, surpassing nominal crude
capacity by 2010. Latin America therefore remains an
attractive export market for US refiners.

The outlook
The US refining industry has faced a number of major
challenges in past decades, including:
n n Periods of overcapacity and poor or negative margins.
n n Changes in crude feedstock types, sources, and
prices.
n n International refinery expansion programmes and
expansion of export refining.
n n Successive waves of fuel specification changes, both
home and abroad.
n n Mergers, acquisitions, and a retreat from vertical
integration.
n n The shift to 10% ethanol blends and the transfer of
gasoline finalisation to blenders.
n n The influx of light tight oils from shale plays in the
center of the country.
Now, more change is on the horizon. Some of the
critical questions facing the industry are:
n n How low will global crude prices go, and for how
long?
n n Will low crude prices internationally erode the
feedstock cost advantage recently enjoyed by many
US refineries?
n n What will the impact be on demand?

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nn Will low prices shut in domestic production and derail


progress in alternative and renewable energy sources, and
if so, will this pave the way for another oil price shock?
nn Conversely, if advances in alternative energy continue to
be made, and/or if carbon taxes are adopted, will the US
shift more quickly away from fossil energy?
nn Will the US move toward 15% ethanol blends, cutting
further into demand for oil based gasoline?
nn Will the US relax its restrictions on exports of crude oil,
removing what critics call a form of protectionism?
nn Can the US remain a competitive export refining center
in the Western Hemisphere and further afield?

Conclusion
US refiners have weathered many a storm, and they are not to
be underestimated. Capacity and the number of participants
have been carved down, and the remaining group is highly
sophisticated. Fuel quality is exceptional, and the industry is
famous for producing large yields of high value transport
fuels from difficult feedstocks. Additional quantities of
domestic feedstock are being more efficiently allocated
across the country. The phasing in of 10% ethanol into the
gasoline pool has been accomplished. And the US has
established itself as a major exporter. Yet as such, US refiners
are much more exposed to the vagaries of international
markets. Given past history, the US refining industry is at least
on a par with any other industry in the world, but in the
future, it will be able to rely less on the domestic market.
Figure 18 provides a longer term perspective on the
business cycles faced by US refining by tracking the long term

trend in operable refinery capacity, operating refinery


capacity, and product supplied (the EIAs proxy for demand.)
In the 1980s, demand was below operable and operating
refinery capacity. Gradually, the gap between operable and
operating capacity began to narrow as unused refineries
were closed. During the 1990s and into the 2000s, demand
was above operable and operating capacity, and the gap
between operable and operating capacity was very small. But
demand dropped sharply below capacity after 2008. The gap
between operable and operating refinery capacity has
widened.
Today, the incremental refinery in the US is being run
solely for the export market. This has been made possible
chiefly because of the influx of domestic crudes, the
restrictions on their export, and the wide differential
between US crude prices and international crude prices. It
also has been possible because export markets, chiefly in the
Americas, have continued to see oil demand growth without
a commensurate increase in refining. The coming year could
bring changes to any one of those factors, or all of them at
once. The recent uptick in US demand has been more or less
mirrored by an increase in refining, but a sustained increase
in US oil demand is not to be expected. That is to say, the
red line in Figure 18 showing demand is unlikely to surge past
the green and blue lines showing refinery capacity. As a final
note of caution, therefore, if US demand remains low, and
the export market grows more competitive, the more likely
outcome is that the gap between operable and operating
capacity will narrow, and that both will subside.

MARCH ISSUE

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