Where does the oil refining industry can go? 10

[0707]

In Europe, refining margins are very small and in some cases negative. In principle this situation should-be attributed to:

An overproduction of oil products,

A slowdown in the economy with low market demand,

Technological advances in the automotive industry,

Appearance of electric motors,

Greater environmental awareness.

Unfair environmental requirements competition between EEC, USA, Eastern countries, Africa, Asian and Australia.

In this context where does the oil refining industry can go?

Luis

 

[glass99]

What do you guys think about the Canadian Energy East pipeline to the Atlantic? I guess the Canadians have lost patience with Keystone XL.

 

[JohnRBaker]

Speaking of the Keystone XL pipeline, it might just be history, and not because of anything that will happen here in the States, but rather something that the Canadians are considering (I read it this morning on my iPhone while I was waiting for a flight from Rochester, NY to Baltimore):

http://www.bloomberg.com/news/2014-10-08/keystone-be-darned-canada-finds-oil-route-around-obama.html

John R. Baker, P.E.
Product 'Evangelist'
Product Engineering Software
Siemens PLM Software Inc.
Industry Sector
Cypress, CA
Siemens PLM:
UG/NX Museum:

To an Engineer, the glass is twice as big as it needs to be.

 

[zdas04]

"Refinery stock" is kind of a hard beast to find. The majors still have refining branches, but as crude prices go down the producer margins go down. There are some refiner/marketers out there (I'm not going to mention names since if I do someone will buy that stock and when it goes down because of the next war they'll be mad at me), but mostly they seem dominated by their marketing end (which makes more money from selling cigarettes and candy bars than from selling motor fuel). I can't think of any company that is just a refiner, but there probably are some. They might do really well in the next 6-18 months. Or they may not because of uncertainty in supply-mix and market accessibility (Keystone XL and export restrictions).

I don't think that the pipeline to the Atlantic has much chance to actually get built (much like the Alaska Gas pipeline). Pipeline economics tend to be around 4% ROI and 30 year treasury bond prices are around 3% which doesn't provide enough delta to account for the risk. Keystone is kind of a special case because it is being funded as a reservoir-management tool by producers instead of a marketing tool for speculators (as I understand it, once the oil gets to the Atlantic coast it hits a spot market instead of a long-term contract).

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist

 

[glass99]

My guess is that if the oil pipeline folks think Obama is a tree hugging obstructionist, they have not met a French Canadian.

 

[CELinOttawa]

Hahaha... Love your (very astute) comment glass... We can be a "touch" difficult.

I think, however, that you are in fact referring to the extra-unique group of distinct Canadians, the Québécois. They are not uniquely francophone, though most certainly are, and they are nearly universally hard left. At least left from an average Canadian standpoint, and certainly HARD left from a US standpoint. Many would have a hard time making Obama look like Mussolini, but they are probably the most typically European group in North America. Do you think any of these pipelines would get built through the Netherlands?

 

[glass99]

CEL: Yes exactly, the Quebecois. Not a chance.

I do of course love the French Canadians. My favorite glass fabricator of the moment is of that place, and he is in fact very easy to work with. I am just glad I don't have to build an oil pipeline through his backyard.

 

[moltenmetal]

CELinOttawa: politics in Quebec are a little more complicated than that. Urban Francophone Quebecois definitely tend to be lefties- but the rural ones aren't quite so leftie, though they are often separatists. The xenophobic thing (banning religious symbols etc.) came from somewhere, and you can bet it wasn't from the urban leftie Quebcois...Remember that the Bloc Quebecois came from the conservatives in the province, not the Liberals- and the NDP have never had any traction there, until the last election where Quebec sent a raft of NDP university students to parliament as a protest vote.

Agree that there's a strong current of BANANAism (build absolutely nothing anywhere near anything) pretty much everywhere in Canada except Alberta and maybe Saskatchewan- there's a fracking ban in New Brunswick and one considered in Newfoundland too as examples. But the people you need to concern yourself with in building a pipeline east, or west, aren't so much the Quebcois- it's the First Nations, where the issues are much more complex than just environmentalism.

Note that the Line 9 pipeline flow reversal (the one that runs through Toronto all the way to Montreal, has been approved. This particular recent "environmental action" hobby-horse, was originally intended for crude and originally flowed west to east, then was reversed, and now will be reversed again. Anyone concerned about pipeline safety has to understand the statistics versus rail transport.

http://www.enbridge.com/ECRAI/Line9BReversalProject.aspx

 

[glass99]

In my little NYC bubble you can't even renovate your bathroom without your upstairs and downstairs neighbors wigging out, so building an pipeline across a whole country is unthinkable. I have no idea how the interstate highway system got built.

 

[swall]

Zdas04--David could you elaborate on how the mixing of Baaken and Athabasca crudes makes a raw product similar to WTI crude for the refineries? My simple understanding of refineries is that they have distillation columns, cracking vessels and reformer vessels. So, if you hit the refinery with a diet of heavy crude instead of WTI, there will be a mismatch of utilization of distillation columns, crackers and reformers. But if you introduce the Baaken product into the mix, the refinery equipment usage becomes more similar to what it would be with WTI? Keep your answer simple, as I am a metallurgical engineer, not a ChemE or petroleum engineer.

 

[zdas04]

I get out of my depth pretty quickly here as well.

As it was explained to me, the equipment in the refinery splits the inlet stream into various components and then puts some of it back together. Each vessel is looking for a pretty specific mix of stuff to split (or combine). When the wrong crude comes in, some of the processes are over loaded (resulting in reduced purity on the outlet) and others don't have enough flow to sustain the process (which can result in overheating or runaway reactions). Consequently if you are looking for something like a 30 API crude at the inlet, then you can blend the very light shale oil with the very heavy oil-sands oil until you have a mix similar to what the plant is designed for.

If any plant guys read this, please correct any misconceptions above, I'd like to know if it was explained to me correctly.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist

 

[CELinOttawa]

France is altogether just as Xenophobic, and the Netherlands as well as most of the Scandinavian countries are well on their way there too...

I believe my statement stands well in this case. It is more true than most generalities to call Quebecers hard leftist for north america, and for any rural QC farmer you can find five way harder right wing nuts in the rural areas outside of Quebec.

 

[glass99]

What about Delta airlines having bought that refinery in Philadelphia a couple of years back? In a lot of ways, airlines are just a pass through organization for jet fuel from a refinery to passengers. They seemed to think that they were paying hundreds of millions of dollars a year in markups to the refinery. Running a refinery can't be that much different from running an airline, can it?

CEL: I don't think of the Quebecois as especially left or right, I think of them as spirited an independent. They love nothing more than to raise a middle finger to those in power, whoever that may be. It is why they choose to speak French in spite of the outlandish inefficiency involved.

 

[0707]

Oil refineries constructed before the oil crises in the beginning of years 70, were base in 3 cases of crude feeds such as; Arabian light, Arabian medium and Arabian heavy. Today, refineries constructed at that time, they process all the stuff, the so called "opportunity" crudes bought at low prices. Crude is blended in a way, to obtain what the markets demand, and the refinery equipment is being progressively up-dated, and, corrosion inhibitors are added to fight the corrosion originated by those "opportunity" crudes.

 

[moltenmetal]

If David is out of his depth, then I'm drowning- but here are my impressions: it would take quite a lot of Bakken crude to make Athabasca bitumen good enough, but I guess if they pick Bakken crude up en route that would be a bonus. They currently use distillate to make the bitumen pumpable, so you have trainloads of distillate going north and trainloads of diluted bitumen going south. They need to send it to the Texas refiners which have sufficient coker capacity to handle it. Building and operating upgraders in Alberta is too expensive and not getting any cheaper, and there are mountains of petcoke there already. Lots of people have been studying alternatives to cokers since the 1930s, but the one thing the coker has on every other heavy oil/resid utilization technology is flexibility/robustness. It's a garburator- it grinds up pretty much anything you feed to it, with no catalysts to poison etc.

 

[glass99]

Why do they not build a refinery in North Dakota where all the oil is? Its not too far from the Canadian tar sands. Surely there has been some advance in refining technology since WWII.

Another interesting tidbit from Wikipedia about Bakken shale:

​

"Absent the infrastructure to produce and export natural gas, it is merely burned on the spot; a 2013 study estimated the cost at $100 million per month."

 

[zdas04]

The current state is that it takes 10+ years to get a permit for a new refinery, another 3 years for engineering and procurement, and 5 years for construction. Call it 20 years. At $100 million/month of flared gas that is a lot of money. Some of the ideas that people have talked to me about for solving the vented/flared gas problem:
[ul]
[li]On-site small scale gas to liquids (viable at $3/gallon for diesel, but permits for GTL are tough, the enviro-wackos claim that GTL releases too much CO, so rather than simply setting max CO number and letting us develop a way to meet it, the EPA just slow plays GTL permits)[/li]
[li]Build a mega power plant in the middle of the field. Great idea, but the electric infrastructure to get mega-power to the grid doesn't exist and permits are a problem.[/li]
[li]Generate wellsite power with local gensets. Wellsite power requirements are too small to use it all and most wells don't have grid connections to export the excess.[/li]
[li]Build a pipeline for the gas. Compressor station and pipeline permits are not trivial to obtain, but are underway and a couple of pipelines are under construction, this will certainly be the first piece of the solution that is deployed[/li]
[li]Reinjection of the gas back into the formation. Interference between injected gas and reservoir fluids is so great that this would cut base production to near zero.[/li]
[/ul]

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist

 

[glass99]

Permits are always going to be a challenge, but compared to building a pipeline right through Quebec or the whole of the US, North Dakota would be a relatively welcoming jurisdiction for a refinery. My understanding is that ND is pretty much a subsidiary of the shale oil industry at this point. Transporting the oil by train is not ideal from an derailment point of view (sorry Warren Buffet).

Small scale GTL sounds like the right answer. Can you not burn the CO? Shame the EPA is not helpful (what about all those pointless CO2 emissions from the burnoff?) Mega scale pipeline and power line projects are always going to be rough politically.

A whacky idea would be to build an aluminum smelter in the field. Aluminum is basically solidified electricity, so if you had free electricity you just shovel in a bunch of bauxite and out comes aluminum billet.

I suspect part of the gas burnoff problem is just the low gas price right now.

 

[moltenmetal]

Small scale GTL is too capital intensive to make money, especially if the high value, zero sulphur product it generates is simply blended back into dirty crude to take it to market- and especially if there's no path to market for the significant quantity of LPG it also generates. Just how small "small scale" is, is a matter of debate, but it's certainly in the thousands of barrels per day. Individual wellhead flaring doesn't generate such large amounts of gas, and if you're going to spend the money to collect it from multiple wells in pipelines the most sensible thing to do then is to market it.

A flaring ban could make smaller scale GTL an attractive alternative, but the locations which are truly stranded AND on land are comparatively few. There's always an alternative.

Places like Qatar where large-scale GTL facilities have been built, are also building aluminum smelters...

 

[glass99]

Interesting about Qatar with the GTL and aluminum.

I guess building a relatively local pipeline network in the Bakken oilfield is relatively easy politically. Large scale GTL plants are gigantic. They are building one in my home country of Australia and its costing ~$20BB or some silly number like that. Its like the worlds biggest fridge.

 

[zdas04]

I was talking to a company about a recent patent on GTL that takes in 1.5 MMSCF/day and produces about 100 gallons of diesel and LPG components. Skid mounted, toss it in the dirt, drop a genset, set a tank, run a couple of hundred feet of pipe and a few wires and you are online. At first quarter 2014 average price the payout was less than a year, but it required someone to look at it about every 12 hours (i.e., more manpower intensive than is normal for wellsite equipment). Even with that kind of manpower requirement it might work. Interesting technology and really nice skid. Their target was to blend the zero sulfur diesel with low sulfur diesel to try to get to the CA standards, not blend it with the crude.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist