Grassroot Refinery Economics PDF

Petroleum Refining Overview
Updated: August 11, 2016

Copyright © 2016 John Jechura (jjechura@mines.edu)
Topics
• Energy consumption & petroleum’s place
 Size of U.S. industry
 Major refiners
• Petroleum products
• Basic petroleum economics
 Trends for crude oil & gasoline prices
 When do refiners make money?
• Generalized Petroleum Refinery

Copyright © 2016 John Jechura (jjechura@mines.edu) 2
Energy Markets Are Interconnected
https://flowcharts.llnl.gov/commodities/energy

World & U.S. Refining Capacity
“Asia-Pacific refining primed for capacity growth”, Oil & Gas Journal, pp
34-45, Dec. 1, 2014
EIA, Jan. 1, 2016 database, published June 2016

http://www.eia.gov/petroleum/refinerycapacity/

Number & Capacity of World & U.S. Refineries
“Asia-Pacific refining primed for capacity growth”, Oil & Gas Journal, pp 34-45,
Dec. 1, 2014
Source:
http://tonto.eia.doe.gov/dnav/pet/pet_pnp_cap1_dcu_nus_a.htm

Locations of U.S. Refineries
http://www.eia.gov/todayinenergy/detail.cfm?id=7170

Individual U.S. Refinery Sizes – 10 Largest & Selected 10 Small


World’s Largest Refineries
“Asia-Pacific refining primed for capacity growth”, Oil & Gas Journal, pp 34-45, Dec. 1, 2014

Recent changes to the slate of US refineries
• Motiva completed $10 billion JV expansion • Changes in ownership
in 2013  Marathon Petroleum purchased BP’s 460,000
 Increased to 600,000 bpd capacity, now bpd Texas City (Feb. 2013) – $589M total,
largest in US $1.4B inventory
• Operating problems caused near  Par Refining purchased Tesoro’s 94,000 bpd
immediate shut down of new crude Hawaii refinery (Sept. 2013)
distillation train • Tesoro was going to convert to storage
 Plan to export refined products terminal. Par will keep open.
• Changes in operations  PBF Energy purchased two ExxonMobil

refineries
 Tesoro to shut down Carson, CA’s FCCU in
2017 & integrate into adjacent Wilmington • Chalmette, LA, 189,00 bpd refinery (from
refinery ExxonMobil / PdVSA, November 2015)
 Motiva may shut down Convent, LA FCC by • Torrance, CA, 155,00 bpd refinery (June
2016 – would shift focus to diesel 2016)
• Could build new crude unit, ROSE units, or  Tesoro buying Dakota Prairie Refining (June
add coker 2016)
 Par Pacific Holdings purchased Wyoming
Refining Co (July 2016)

New Grass-Roots Refineries in U.S.?
First Original Capacity 2014 Capacity

Year Built Location Original Owner Current Owner Type
Operated Bbl/cd Bbl/cd
2014 2015 Dickinson, ND Dakota Prairie 19,000 Dakota Prairie Refining 19,000 Simple
2014 2015 Galena Park, TX Kinder Morgan 43,000 Kinder Morgan 43,000 Simple
2008 2008 Douglas, WY Interline Resources 3,000 Antelope Refining 3,800 Simple
1998 1998 Atmore, AL Goodway 4,100 Goodway 4,100 Simple
1993 1993 Valdez, AK Petro Star 26,300 Petro Star 55,000 Simple
1991 1992 Ely, NV Petro Source 7,000 Foreland 2,000 Simple
1986 1987 North Pole, AK Petro Star 6,700 Petro Star 19,700 Simple
1985 1986 Prudhoe Bay, AK ARCO 12,000 ConocoPhillips 15,000 Simple
1981 1982 Thomas, OK OK Refining 10,700 Ventura 12,000 Simple
1979 1980 Wilmington, CA Huntway 5,400 Valero 6,300 Simple
1978 1979 Vicksburg, MS Ergon 10,000 Ergon 23,000 Simple
1978 1979 North Slope, AK ARCO 13,000 BP Exp AK 10,500 Simple
1978 1978 North Pole, AK Earth Resources 22,600 Flint Hills 126,535 Simple
1977 1978 Lake Charles, LA Calcasieu 6,500 Calcasieu 78,000 Simple
1976 1977 Garyville, LA Marathon 200,000 Marathon 522,000 Complex
1976 1977 Krotz Springs, LA Gold King 5,000 Alon 80,000 Complex
1975 1975 Corpus Christi, TX Saber 15,000 Valero 200,000 Complex
http://www.eia.gov/tools/faqs/faq.cfm?id=29&t=6, updated January 26, 2016

New Grass-Roots Refineries in U.S.?
• Simple refineries near oil production • Complex refineries – 2 planned in mid
 Kinder Morgan, Galena Park, TX – 50,000 2000s no longer active projects
bpd (condensate splitter)  Hyperion Energy Center, $10 billion,
 Dakota Prairie Refinery – 20,000 bpd 400,000 bpd refinery near Union County,
Bakken crude topping unit with diesel SD
hydrotreating • Would have included Petcoke IGCC for power
& hydrogen
 MHA Clean Fuels Refinery, 15,000 bpd
• Air permit applications expired March 2013 &
refinery on the Fort Berthold Indian
released options on land May 2013
Reservation near Makoti, ND
• Ground broken May 2013. Phase I
 Arizona Clean Fuels Yuma, LLC, 150,000
construction underway as of May 2015. bpd refinery near Yuma, AZ
• No press releases since March 2009
 Plans near Bakken production
• Quantum Energy & Native Son Holdings
planning 40,000 bpd refinery near Berthold,
ND
• Meridian Energy Group planning 55,000 bpd
refinery near Belfield, ND – expected 2018
startup – may operate on midstream tolling
concept

Nelson’s Complexity Factor
• EDC: Equivalent Distillation Capacity
 Measure of downstream conversion capacity to the initial distillation
 Developed by Nelson (1960) to quantify relative costs of refining processes
• Reflects complexity of ISBL, no OSBL considerations
• Refineries to process heavy sour crudes typically have higher complexity factors
Ref: http://www.ril.com/downloads/pdf/business_petroleum_refiningmktg_lc_ncf.pdf

Nelson’s Complexity Factor


Petroleum Products
 There are specifications for
over 2,000 individual refinery
products
 Intermediate feedstocks can
be routed to various units to
produce different blend stocks
• Highly dependent on
economics specific to that
refinery & contractual
limitations
Ref: Unknown origin. Possibly Socony-Vacuum Oil Company, Inc. (1943)

U.S. Refinery & Blender Net Production
1.4 ratio of
gasoline &
naphtha to
middle distillates
EIA, refinery yield – updated May 17, 2016

http://tonto.eia.doe.gov/dnav/pet/pet_pnp_pct_dc_nus_pct_m.htm

Refinery Economics
• When do refiners make money?
 High crude oil prices?
 Low crude oil prices?
• It depends!
 Difference between the sale price of the products & purchase price of the crude oil
 Operating costs cut into this spread
• Typical prices
 What is the price of crude oil?
• Depends on location, quality, …
 What are the product prices?

Product Economics — Crack Spread
• Estimates the value added by refining as an industry
• 4 standard spreads
 5-3-2
• 5 bbl crude  3 bbls gasoline + 2 bbls heating oil/diesel
 3-2-1
 2-1-1
 6-3-2-1
• 6 bbl crude  3 bbls gasoline + 2 bbls heating oil/diesel + 1 bbl residual fuel oil
• Rule of thumb for profitable operating environment

 Long held view – greater than $4 per bbl as strongly profitable
 Current view – should be greater than $9 per bbl to be profitable

Crack Spread Calculation
• Example — Bloomberg, 8/4/2016
 Prices
• WTI Cushing Spot $41.78 per bbl
• Brent $44.29 per bbl
• RBOB Gasoline $1.3659 per gal
• Heating Oil $1.3199 per gal
 5-3-2 Spreads
• WTI:
42   3  1.3659  2  1.3199 
 41.78  $14.82 per bbl
5
• Brent:
42   3  1.3659  2  1.3199 
 44.29  $12.30 per bbl
5
http://www.bloomberg.com/energy/

Prices Are Crude Specific
Ref: Statistics, Oil & Gas Journal, August 1, 2016

Prices Are Crude Specific
EIA published monthly production data – updated August 4, 2016

http://www.eia.gov/dnav/pet/pet_pri_spt_s1_m.htm
http://tonto.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=IMX2810004&f=M

Historical Crude Prices & Crack Spreads
Updated August 4, 2016

Source: http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm

Historical Crude Prices & Crack Spreads

Source: http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm

Gasoline & Diesel Retail vs. Commodity Prices
Gasoline Retail Cost Contributions
Per Gallon Per Barrel
Retail Price $2.37 $99.54
Taxes 19% $0.45 $18.91

Distribution & Marketing 16% $0.38 $15.93
Refining 19% $0.45 $18.91
Crude Oil 46% $1.09 $45.79
Refinery Costs / Commodity Price $1.54 $64.70
Diesel Retail Cost Contributions

Per Gallon Per Barrel
Retail Price $2.42 $101.64
Taxes 21% $0.51 $21.34

Distribution & Marketing 17% $0.41 $17.28
Refining 17% $0.41 $17.28
Crude Oil 45% $1.09 $45.74
Refinery Costs / Commodity Price $1.50 $63.02

Source: http://www.eia.gov/petroleum/gasdiesel/

How do energy prices compare?

Early History
• First oil well of "Colonel" Edwin L. Drake
 August 1859, Oil Creek in northwestern Pennsylvania
 First refineries built up around Pennsylvania oil wells. Batch
distillation to recover kerosene.
• Kerosene viewed as a superior replacement to whale oil for lamp oil.
• Standard Oil Trust

 John D. Rockefeller acquired petroleum
interests during the late 1800s.
Organized as the Standard Oil Trust
in 1882.
 U.S. Supreme Court dissolved in 1911.
34 companies spun off.
• Change in product demand
 In 1911, nation's kerosene output
eclipsed for the 1st time by a discarded
byproduct - gasoline
Implementation of Technologies
Year Process name Purpose By-products, etc.
1862 Atmospheric distillation Produce kerosene Naphtha, tar, etc.
Lubricants (original) Asphalt, residual
1870 Vacuum distillation
Cracking feedstocks (1930's) coker feedstocks
1913 Thermal cracking Increase gasoline Residual, bunker fuel
1916 Sweetening Reduce sulfur & odor Sulfur
1930 Thermal reforming Improve octane number Residual
1932 Hydrogenation Remove sulfur Sulfur
1932 Coking Produce gasoline basestocks Coke
1933 Solvent extraction Improve lubricant viscosity index Aromatics
1935 Solvent dewaxing Improve pour point Waxes
1935 Cat. polymerization Improve gasoline yield & octane number Petrochemical feedstocks
1937 Catalytic cracking Higher octane gasoline Petrochemical feedstocks
1939 Visbreaking Reduce viscosity Increased distillate, tar
1940 Alkylation Increase gasoline octane & yield High-octane aviation gasoline
1940 Isomerization Produce alkylation feedstock Naphtha
1942 Fluid catalytic cracking Increase gasoline yield & octane Petrochemical feedstocks
1950 Deasphalting Increase cracking feedstock Asphalt
1952 Catalytic reforming Convert low-quality naphtha Aromatics
1954 Hydrodesulfurization Remove sulfur Sulfur
1956 Inhibitor sweetening Remove mercaptan Disulfides
1957 Catalytic isomerization Convert to molecules with high octane number Alkylation feedstocks
1960 Hydrocracking Improve quality and reduce sulfur Alkylation feedstocks
1974 Catalytic dewaxing Improve pour point Wax
1975 Residual hydrocracking Increase gasoline yield from residual Heavy residuals
Ref: http://www.osha.gov/dts/osta/otm/otm_iv/otm_iv_2.html

Description of Petroleum Refinery
• Manages hydrocarbon molecules
• Organized & coordinated arrangement of manufacturing processes
 Provide physical & chemical change of crude oil
 Salable products with specifications & volumes as demanded by the
marketplace
• Complete refinery will include:
 Tankage for storage
 Dependable source for
electric power
 Waste disposal & treatment
facilities
 Product blending facilities
 Around the clock operations
 Conversion units

Petroleum Refinery Block Flow Diagram
Conversion Processes
Fractionation
Blending
Raw
Products
Materials

Petroleum Refinery Block Flow Diagram
Gases
Sulfur
Polymerization Sulfur
Plant
Gas
Sat Gas
Plant LPG
Fuel Gas
Alkyl
Feed
Butanes LPG
Alkylation
Gas
Separation &
Stabilizer Isomerization Polymerization
Naphtha
Light Naphtha
Alkylate
Aviation
Isomerate
Gasoline
Automotive
Reformate
Gasoline
Naphtha Solvents
Heavy Naphtha
Naphtha Hydrotreating Reforming Naphtha
Atmospheric
Distillation
Jet Fuels
Kerosene
Crude
Desalter Kerosene
Oil Cat
Distillate Naphtha
AGO Solvents
Hydrocracking Distillate Treating &
Heating Oils
Hydrotreating Blending
Fluidized
Gas Oil Cat Diesel
LVGO Catalytic Distillates
Hydrotreating
Cracking
Vacuum
Distillation Fuel Oil
Cycle Oils
HVGO Residual
Fuel Oils
DAO
Solvent SDA
Deasphalting Bottoms Naphtha
Coker Asphalts
Naphtha
Visbreaking Heavy Distillates

Coker Fuel Oil
Gas Bottoms
Vacuum
Oil
Residuum Lubricant
Lube Oil
Solvent Greases
Dewaxing
Waxes
Waxes
Coking Light Coker

Gas Oil
Coke

Supplemental Slides
• Genealogy Of Major U.S. Refiners
• Recent refinery closures
• U.S. Oil from Imports
• Import/Export Refined Products – Valero Example
• Prices may vary by location
 Gasoline & diesel taxes by state
• Process cost estimates
• Satellite View of Selected U.S. Refineries

Growth of U.S. Energy Consumption
120
100
Energy Consumed (Quad = 10 BTU)
80
15
Wood
Hydroelectric Power
Nuclear Electric Power
60
Coal
Natural Gas
Petroleum
40
20
0
1750 1800 1850 1900 1950 2000
Source: 1850-1949, Energy Perspectives: A Presentation of Major Energy and Energy-Related Data, U.S. Department of the Interior,
1975; 1950-2010, Annual Energy Review 2011, Table 1.3.

Refiner’s Realignment
“US refiners continue consolidation, restructuring efforts”, Leffler, Oil & Gas Journal, Aug. 3, 2015

Recent Refinery Closures
Ref: Valero, UBS Global Oil and Gas Conference, May 21-22, 2013

U.S. Refinery & Blender Net Production
Includes production to May 2016 – updated August 4, 2016

Source: http://tonto.eia.doe.gov/dnav/pet/pet_pnp_refp_dc_nus_mbbl_m.htm

U.S. Oil from Imports
EIA published data used for charts – updated August 4, 2016

http://www.eia.gov/dnav/pet/pet_move_wkly_dc_nus-z00_mbblpd_w.htm
http://www.eia.gov/dnav/pet/pet_pnp_wiup_dcu_nus_w.htm

Import/Export Refined Products – Valero Example
Ref: Valero, UBS Global Oil and Gas Conference, May 21-22, 2013

Prices Are Crude Specific – Historical Example
Ref: Statistics, Oil & Gas Journal, January 27, 2014

Pump prices are not the same across U.S.
Source: http://www.eia.gov/petroleum/images/gasoline_prices_map_375.png
Downloaded August 4, 2016

Gasoline Taxes are not the same across U.S.
Source: http://www.api.org/oil-and-natural-gas-overview/industry-economics/fuel-taxes

Diesel Taxes are not the same across U.S.
Source: http://www.api.org/oil-and-natural-gas-overview/industry-economics/fuel-taxes

Differential Between Regular & Premium Gasolines

Source: http://www.eia.gov/dnav/pet/pet_pri_refmg_dcu_nus_m.htm

Process Cost Estimates
• Accounts for size impact on installed cost
• Developed from reported final costs & supplemented
with engineering estimates
• Meant to represent “typical” values – no better than
±25%
• Not included:
 Working capital
 Inventories
 Start-up expenses
 Cost of land
 Site preparation
 Taxes
 Licenses
 Permits
 Duties
Kaiser & Gary, “Study updates refinery investment cost curves”, Oil & Gas Journal,
Apr. 23, 2007, pp 84-94. (Delayed coking curves may have been switched)

Satellite View of Selected U.S. Refineries
Dakota Prairie Refinery, Dickinson, ND

19,000 bbl per calendar day
Motiva Enterprises LLC, Port Arthur, TX


Marathon Garyville Refinery, Garyville, LA Wood River Refinery, Roxanna, IL

451,000 bbl per calendar day 336,000 bbl per calendar day

Suncor Refinery, Commerce City, CO

Phillips 66 Alliance Refinery, Belle Chasse, LA



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Petroleum Refining Overview

Updated: August 11, 2016

Updated: August 11, 2016

Updated: August 11, 2016

EIA, Jan. 1, 2016 database, published June 2016

Updated: August 11, 2016

Updated: August 11, 2016

Updated: August 11, 2016

EIA, Jan. 1, 2016 database, published June 2016

Updated: August 11, 2016

Updated: August 11, 2016

• Changes in operations  PBF Energy purchased two ExxonMobil

Updated: August 11, 2016

First Original Capacity 2014 Capacity

http://www.eia.gov/tools/faqs/faq.cfm?id=29&t=6, updated January 26, 2016

Updated: August 11, 2016

Updated: August 11, 2016

Updated: August 11, 2016

EIA, Jan. 1, 2015 database, published June 2015

Updated: August 11, 2016

Ref: Unknown origin. Possibly Socony-Vacuum Oil Company, Inc. (1943)

Updated: August 11, 2016

EIA, refinery yield – updated May 17, 2016

Updated: August 11, 2016

Updated: August 11, 2016

• Rule of thumb for profitable operating environment

Updated: August 11, 2016

Updated: August 11, 2016

Ref: Statistics, Oil & Gas Journal, August 1, 2016

Updated: August 11, 2016

EIA published monthly production data – updated August 4, 2016

Updated: August 11, 2016

Updated August 4, 2016

Updated: August 11, 2016

Updated August 4, 2016

Updated: August 11, 2016

Taxes 19% $0.45 $18.91

Refinery Costs / Commodity Price $1.54 $64.70

Diesel Retail Cost Contributions

Taxes 21% $0.51 $21.34

Refinery Costs / Commodity Price $1.50 $63.02

Updated: August 11, 2016

Updated: August 11, 2016

• Standard Oil Trust

Updated: August 11, 2016

Updated: August 11, 2016

Updated: August 11, 2016

Visbreaking Heavy Distillates

Coking Light Coker

Updated: August 11, 2016

Updated: August 11, 2016

Updated: August 11, 2016

Updated: August 11, 2016

Updated: August 11, 2016

Includes production to May 2016 – updated August 4, 2016

Updated: August 11, 2016

EIA published data used for charts – updated August 4, 2016

Updated: August 11, 2016

Updated: August 11, 2016

Ref: Statistics, Oil & Gas Journal, January 27, 2014

Updated: August 11, 2016

Updated: August 11, 2016

Updated: August 11, 2016