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

 

[JJPellin]

I work in a refinery built to process heavy canadian crude. We have made modifications to process bitumen and synthetic crude. ND crude passes right by us. It is much too light and too expensive for us to process profitably. Running crude that the refinery is not built for does not produce inferior products or unsafe reactions. It simply results in poor asset utilization. It we ran Bakken, our distilate units would fill up and our GOHT's, cokers and hydrogen plants would be under utilized.

The biggest barriers to running alternate crudes are metallurgy and asset utilization. Our refinery is making near record profits and is expanding with $1B per year in capital projects. We have a sister refinery in Texas. If Keystone makes it down there, they could not run the crude we run. They are swimming in light sweet Texas crude. The cost to metal-up for tar sands bitumen would be a deal-breaker. And diverting our heavy sour feed to the gulf would drive up our raw materials costs and errode our profitability. We make more money if Keystone is not built.

Our company owns refineries, but no drilling and exploration and no retail. We may be unique in this regard.

Johnny Pellin

 

[JohnRBaker]

Why do they not build a refinery in North Dakota where all the oil is? Its not too far from the Canadian tar sands.

At least with respect to the oil that would have been delivered via the Keystone XL pipeline, it's being directed to a series of refineries in Texas which are located in a sort of free-trade zone which will allow the oil companies to sell the refined fuels to overseas customers and avoid paying ANY US taxes because technically the oil will have NEVER been in the United States. It enters the pipeline in Canada and is delivered to a refinery where little or none of the refined products are going to be sold on the US domestic market. Therefore this argument that it will help lower the price at the pump for us consumers is not going to happen. In fact, it could raise the price since the Keystone XL could result in LESS Canadian oil going to refineries which are supplying the domestic markets. After all, where is the Canadian oil going now? Once the pipeline is finished they could pump literally 100% of the oil to Texas where it could ALL be shipped overseas, to Asia or Europe.

http://thinkprogress.org/climate/20...e-xl-would-ship-foreign-oil-to-foreign-lands/

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.

 

[glass99]

JJPellin - thanks for the great insiders view. Sounds like you guys are doing just fine - what's this business about refineries having tight to negative margins? Or are you guys doing something different?

 

[JJPellin]

Our company is closely held (not publicly traded stock). Our owners have invested for the long term. We had relatively little competition for our crude until the last decade or so. There are no major refineries nearby. We have spent billions upgrading, expanding and improving. Original carbon steel piping in our crude units has been replaced with solid Inco. We can process the nastiest crude on the planet.

Johnny Pellin

 

[glass99]

JJPellin: The problem with being publicly traded is that a bunch of passive investors become your boss. I am a great believer in the Mittelstand and its US equivalent.

 

[swall]

JohnRBaker--the destination of products refined from Athabasca tar sands oil, delivered to the U.S gulf coast, i.e. being exported, has not exactly been kept secret. I have read about this for the last several years. It is also not a secret that European refineries have been shipping gasoline to the U.S. for several years. I would also say that your fears of XL pipeline crude being hogged by the gulf coast refineries is unfounded. BeePees big refinery in Whiting, Indiana was upgraded a few years ago for the specific purpose of being able to handle the tar sands oil. I am sure they will continue to get their share of this crude.

 

[JohnRBaker]

I would also say that your fears of XL pipeline crude being hogged by the gulf coast refineries is unfounded. BeePees big refinery in Whiting, Indiana was upgraded a few years ago for the specific purpose of being able to handle the tar sands oil. I am sure they will continue to get their share of this crude.

That's because that's as far as the current pipeline runs from the Canadian tar sands operations. However, there is the possibility that if the Keystone XL pipeline is completed that these mid-west refineries could be left holding the bag as there would be more profit to be made by refining the oil in Texas and shipping the refined products overseas, both in the price that they could get for finished goods and the ability to avoid paying US taxes.

And as for these facts not being a secret, that the whole issue, the proponents of the Keystone XL has always made that claim that the pipeline will help reduce America's dependence on foreign oil (as if Canada was part of the US, eh) and reduce the price at the pump due to increased production of gasoline here in the US. This has always been pablum for the masses since this project is after all being paid for by people who are looking to maximize their ROI and if that means earmarking most if not all of the oil going into the pipeline for overseas customers, that's exactly what they're going to do. They have absolutely nothing to gain by continuing to sell their oil to purely US domestic refiners who supply finished products to local markets, at less than the world market price simply because they currently have NO way of delivering their oil to an international market.

http://www.nber.org/digest/oct12/w18127.html

http://business.financialpost.com/2...rsweet-for-producers-as-price-discount-bites/

http://business.financialpost.com/2012/02/07/glut-sinks-canadian-crude-prices/

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.

 

[moltenmetal]

David: the devil's in the details. If it sounds too good to be true... Doing GTL profitably at lower than 1000 bbl/d is going to be very, very tough, irrespective of patents. Not impossible- but I'd say very, very tough absent a flaring ban. A GTL plant isn't a "toss it in the dirt" kind of unit- there are too many steps, too many unit ops to go wrong.

Here's my chance to promote Bill Banholzer's paper again: it's a brilliant paper, one of the best I've read in many years. It has an uninspiring title, but is very good reading and not just for chemical engineers. In Banholzer's parlance, "Scale always wins...". GTL isn't like microcomputers. How I wish it weren't true! But regrettably, it is.

http://www.dow.com/innovation/pdf/Banholzer_AIChE_Perspective.pdf

 

[glass99]

moltenmetal: Good article. There are clearly a lot of advantages with scale, but there are a lot of advantages with small scale too. Are there economies of scale in shale oil and gas? Unlike offshore oil platforms, wells are basically small individual operations which have been made possible by technical innovation. If refineries could be made small scale close to the well, you would avoid all the human hassle of building pipelines.

In my construction industry world, hassle with human beings is massively expensive, and the bigger the project, the more hassle you get. In the middle of a boom market like right now, a huge condo development in Brooklyn called B2 is imploding under the weight of political pressure and some technical problems. Scale does give you production efficiencies, but the main reason you would go for scale is to simply take advantage of a larger opportunity and carve off a bigger piece for yourself.

And don't get me started on scale in professional services...

 

[moltenmetal]

The reason you go for scale is to ensure payback on capital invested. If the costs of capital are too high to recoup in a reasonable period of time, the investment doesn't happen- or more properly shouldn't happen. Scale reduces capital intensity, lowering $ of capital per unit produced. Lots of dumb investments are made because people haven't read Banholzer's paper and hence haven't done the very basic technoeconomic analysis required to determine whether the claims of the inventors can actually be achieved within the limits of thermodynamics, conservation of mass, conservation of energy etc. There are whole areas of technology development which are literally castles built in the sky, i.e. without adequate foundations...

There's always an alternative, and some alternatives don't involve building pipelines either.

Could small scale GTL become economically feasible? At double today's oil prices, perhaps it could- assuming gas prices don't also rise. Who knows: the guys David is talking to may have the elusive magic bullet, but I'm skeptical.

The biggest problem is that the product is too cheap, especially in historical terms. That the feedstock is essentially free helps a lot, but the product is still too cheap to provide rapid payback on capital invested. Another problem is more of a future risk- that the process only makes sense if you can dump the product CO2 to the atmosphere for free. You get at least a mole of CO2 for every mole of -CH2- you make, and that represents a huge source energy waste relative to direct uses of the gas. Fortunately the latter disadvantage also kills flaring, which is a pure waste which we'd all be better off finding some way to avoid. The pure waste of it is providing the motivation to find something- anything- that makes money off this gas.

 

[glass99]

moltenmetal: totally agree that techno-economic and techno-political analysis is the answer to most problems in this world. I'm sure you are right about GTL scale, though I am still a scale skeptic in general.

Interesting that GTL releases so much CO2. Is it not possible to simply compress the gas into big cylinders at the well head? I know this may wrankle with the political sensitivities of some folks here, but it seems like flaring should be illegal. It would seem like a cheap way to reduce total carbon emissions. Much better ROI than subsidizing solar for example.

 

[0707]

GTL

“The technology is not new. People have been making liquid fuel for many years from gas, most principally natural gas, which actually started in World War II, by the Germans. Our particular technology is a CO2-based gas-to-liquids technology. While most GTL technologies produce and emit CO2, we actually use the CO2 as a feedstock.”

“One of the reasons you don't see the big oil companies bragging about their GTL efforts is because it's not particularly sexy in terms of the environment. You produce a lot of CO2. But from a national security standpoint? It's spot on.”

See the site below

http://www.smartplanet.com/.../carb...-gtl-tech-were-turning-pollution-into-energy/

 

[moltenmetal]

Sorry, but the link you posted is dead. However, so-called "dry reforming" (where CO2 is used in a pseudo closed loop instead of adding water to run the water-gas shift reaction) isn't new either. Using CO2 as a "feedstock" to the reforming process, using some of the hydrogen produced from the fuel to run the reverse water-gas shift reaction to essentially generate water in situ, has a significant energetic cost, which is additive to the already very significant energetic cost of F-T. Breaking a feedstock all the way down to CO and H2, then hydrogenating the CO to -CH2- and water (that's basically what F-T amounts to), is very energy intensive as you can imagine.

 

[0707]

What percentage of taxes, take your governments, for every liter of petrol or diesel?

Crude oil at the moment is at prices of four years ago...

 

[ScottyUK]

0707,

In the UK 60% of the sale price of fuel goes to the government.

http://www.ukpia.com/files/pdf/ukpiabriefingunderstandingpumpprices2014.pdf

 

[glass99]

In the US, gasoline taxes are supposed to cover the cost of the highways the cars run on, but have not been adjusted for inflation since the 90's because of political resistance. As a direct result, the transportation highway trust fund is broke, and roads are paid for out of general revenue. I hate tax as much as the next red blooded American, but roads are not free.

 

[CELinOttawa]

Collapses are... And then they blame the engineers! *sigh*

 

[Leftwow]

Everyone should start driving faster.

 

[zdas04]

Playswow,
It is rarely a good idea to open up a conversation that has been dormant for 6 months to make a quip. In this case I went back and read the end of it and found that it continued while I was without internet in October/November and I missed the end of the conversation.

Moltenmetal posted a link to me that I never saw until this afternoon. I've been reading the Banholzer paper this afternoon and it is fantastic. He puts a number of very difficult concepts into terms that are completely accessible to any engineer and very accessible to anyone willing to open their minds a touch.

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

 

[zdas04]

MoltenMetal,
The well-scale GTL liquids skid does not violate any of the concepts in Banholzer's paper. The reason that it seems like it is you are comparing a commodity with value (natural gas) to another commodity with value (syngas and follow-on products) and the economics favor scale. In the case I was talking about (the Baaken) not only is the feedstock worthless (zero value), but everyone from the county commissioners to the EPA are clamoring for fines to be assessed on flared gas. So if I'm taking a product that has a significant negative value and converting it into a product with a significant positive value then the economics change dramatically. Once someone builds gas pipe to that field then the economics get considerably skinnier quickly.

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