The Politics and Economics of International Energy (Spring 2009- E657) Lecture 3 Playing with the Molecules Prof. Giacomo Luciani

The Politics and Economics of International Energy

(Spring 2009- E657)Lecture 3Playing with the Molecules

Prof. Giacomo Luciani

Outline

Refining and cracking The various qualities of oil Refinery capacity and location “Petroleum Products” that do not

come from petroleum: Gas to Liquids Coal to Liquids Bio-Fuels: Ethanol & ETBE, Bio-Diesel

Refining and cracking

Petroleum refining Crude oil must be refined before it can

be optimally used Crude oil from the field is a mix of

hydrocarbons of different molecular length (all hydrocarbons contain carbon and hydrogen, but in different compositions)

Refining is the process through which the various components of crude oil are separated

Different Hydrocarbons

CH4 = Methane C2H6 = Ethane C3H8 = Propane C4H10 = Butane C5H12 = Pentane Etc. Gasoline = a mix of C5 to C12

Diesel = various higher fractions

What is a refinery?A refinery is a plant where crude oil is boiled and distilled to separate the individual componentsAtmospheric distillation is the essential process from which refining starts.

It is normally followed by further stages: •Vacuum distillation,•Cracking: thermal or catalytical, •etc.The objective is to increase the output of light products, which are more valuable and reduce residuals, which constitute a problem

2. Refining Process

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Petroleum RefiningPetroleum Refining ProcessProcess

Content of a Typical Barrel of Crude Oil Content of a Typical Barrel of Crude Oil

Gasoline 25%

Kerosine 12%

Distillate Fuels 25%

Residual Oil 39%

From Distillation Only

Gasoline 58%

Kerosine 8%

Distillate Fuels 24%

Residual Oil 10%

From Modern Refining Process

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Simple Distillation Process – straight run Simple Distillation Process – straight run

Fractionating

Tower

Gasoline 30C - 105C

Crude Oil Heater

Naphtha 105C - 160C

Jet Fuel 160C - 230C

Gas Oil 230C - 425C

Residual Fuel Oil +425C

Butane & Lighter 30C

Crude Oil Charge Tank

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Thermal Cracking ProcessThermal Cracking Process

Fractionating

Tower

GasolineReaction Chamber

Flash

Chamber

Crude OilHeater

Middle Distillate

Residual Fuel Oil

Crude Oil Charge Tank

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Refinery Flow Diagram

Cracking

Cracking takes large hydrocarbons and breaks them into smaller ones

There are two main types of cracking: Thermal Catalytic

Thermal cracking You heat large hydrocarbons at high temperatures (sometimes

high pressures as well) until they break apart. steam - high temperature steam (1500 degrees Fahrenheit /

816 degrees Celsius) is used to break ethane, butane and naptha into ethylene and benzene, which are used to manufacture chemicals.

visbreaking - residual from the distillation tower is heated (900 degrees Fahrenheit / 482 degrees Celsius), cooled with gas oil and rapidly burned (flashed) in a distillation tower. This process reduces the viscosity of heavy weight oils and produces tar.

coking - residual from the distillation tower is heated to temperatures above 900 degrees Fahrenheit / 482 degrees Celsius until it cracks into heavy oil, gasoline and naphtha. When the process is done, a heavy, almost pure carbon residue is left (coke); the coke is cleaned from the cokers and sold.

Catalytic cracking Uses a catalyst to speed up the cracking

reaction. Catalysts include zeolite, aluminum hydrosilicate, bauxite and silica-alumina. fluid catalytic cracking - a hot, fluid catalyst

(1000 degrees Fahrenheit / 538 degrees Celsius) cracks heavy gas oil into diesel oils and gasoline.

hydrocracking - similar to fluid catalytic cracking, but uses a different catalyst, lower temperatures, higher pressure, and hydrogen gas. It takes heavy oil and cracks it into gasoline and kerosene (jet fuel).

Refinery capacity

When the capacity of a refinery is quoted, reference is normally to atmospheric distillation

However, conversion capacity is increasingly important to deal with heavier and sourer crude oils and meet mandated product specifications

Refineries are increasingly complex and expensive

Different qualities of oil

Different crude oil qualities Crude oil comes in very different qualities The two key measures are:

Gravity Sulphur content

Gravity reflects the composition of the crude: proportion of light vs. heavier fractions

A crude with: little sulphur is called sweet sulphur in excess of 1% is called sour

Other metals and impurities are also a problem

World Crude Production by QualityThousand Barrels/Day

Refinery capacity and location

Refinery location alternatives

Refineries can be located: Close to the source of the crude oil

(example: Abadan in Iran) Close to markets In strategic points along transport routes

(examples: Singapore, Aden, Augusta, the Caribbean)

For the last 50 years, refineries in proximity of markets have prevailed

The crisis of refining A refinery requires

considerable time to be built; heavy up-front investment;

Economies of scale are very important A high rate of capacity utilisation is key to a

refinery profitability In the 60’s oil companies built very large

refineries in the expectation of demand growth When oil prices rose in the ’70s, and demand

declined, excess refinery capacity ensued

The painful road to downsizing For 30 years, companies have been

struggling with poor refinery returns and excess capacity

It is difficult to close a refinery – you can sell it but the buyer will still run it

Little price differential for different qualities of crude – abundant supply of light, sweet crude

Tighter product specifications imposing investment with essentially zero return

HESS ENERGY TRADING COMPANY, LLC

The tightening sulfur specs stipulate global investments

Desulfurization growth 2003-09

-200

300

800

1,300

1,800

2,300

2003 2004 2005 2006 2007 2008 2009

kb

/d

Africa

South America

North America

FSU

Europe

Middle East and North Africa

Asia

Major policy changes

Insufficient capacity

For decades, all major oil companies have been busy reducing their refining capacity

The upstream has received the bulk of the investment and generated the bulk of the profits

Considerable regulatory/environmental hurdles for establishing a new refinery

Hence: no new refineries built


The spare capacity is unlikely in the near term

• Private companies are reluctant to use excess returns on investments

• The memories of over-capacity also loom large for governments in producing countries

• In US concerns are also connected to a lack of prospects that are politically acceptable

• Refining investments are taking place, but will only affect the market in size towards the end of the decade

• US refinery investments are limited by the lack of upgrading potential without new distillation capacity

• A new refinery in the US is likely to at least take 7 years to build


Distillation growth will at best take place towards the end of the decade

Global Distillation Growth 2003-2011

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2003 2004 2005 2006 2007 2008 2009 2010 2011

kb/d

Gross additionsNet additions


And when it does it is mainly outside the OECD

Regional distillation growth 2003-11

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2003 2004 2005 2006 2007 2008 2009 2010 2011

kb/d

Africa

South America

North America

FSU

Europe

Middle East and North Africa

Asia

Oil exporting countries

Integrating downstream in the value chain was a main objective of the oil producing countries in the 1950s and 60s

Major investment in refineries in the 1970s

Followed by a long parenthesis: oil production was down, the market demanded crude, margins were slim

A new wave of investment In the new market conditions, the situation

has changed radically Oil production is up, most of the incremental

production will be heavy and sour Refining capacity in the importing countries is

tight Hence: a wave of new refinery projects in the

Gulf But: the economic crisis is leading to

postponements and cancellations

Table 1: I nstalled refinery capacity in the GCC, 2004

b/d

Bahrain 265,000

Kuwait 900,000

Oman 80,000

Qatar 137,000

Saudi Arabia 1,786,000

UAE 508,000

TOTAL 3,676,000

Main Gulf Grassroots Refinery Projects

Saudi Arabia: four 400,00b/d refineries: Saudi Aramco in Ras Tanura W. Total in Jubail W. ConocoPhillips in Yanbu’ W. ? In Jizan

Kuwait: new 600,000 b/d refinery in Al Zour Abu Dhabi: new 500,000 b/d refinery in

Fujairah w. ConocoPhillips Oman: new 116,000 b/d refinery in Sohar

Old refinery revamping / Petrochemical Orientation

In addition, major revamping of older refineries is underway to improve product slate (e.g. in Rabigh, Yanbu’, Ras Tanura)

Revamping and new refineries are mostly based on FCCs to maximize petrochemical feedstock

This opens a new page in the Gulf petrochemical industry

Project Capital Requirement Escalation – the case of PetroRabigh

North American Polyolefins Net Trade

Geopolitical Impact of Producers’ Downstream Integration

What will be the geopolitical impact? Greater diversification of markets and

prices Greater diversification of logistics Greater dependence from foreign

sources but spread over multiple products

Supply in case of emergency?

“Petroleum Products” that do not come from petroleum

Petroleum products

We are accustomed to referring to gasoline, diesel, kerosene etc. as “petroleum products”

In fact, we shall increasingly rely on these same products derived from sources different than crude oil

You can play with hydrocarbon molecules in many ways…

GTL – Gas to Liquids Liquid fuels can be produced out of

gas through a reaction called Fisher-Tropsch

Methanol MTBE – a gasoline additive Diesel GTLs are premium fuels for blending Major projects underway, especially in

Qatar (but Exxon opted out!)

The Fischer-Tropsch process

The Fischer-Tropsch process is a catalyzed chemical reaction in which carbon dioxide, carbon monoxide and methane are converted into liquid hydrocarbons of various forms. Typical catalysts used are based on iron and cobalt. The principal purpose of this process is to produce a synthetic petroleum substitute.

The Fischer-Tropsch process

The mixture of carbon monoxide and hydrogen is called synthesis gas or syngas. The resulting hydrocarbon products are refined to produce the desired synthetic fuel.

The carbon dioxide and carbon monoxide is generated by partial oxidation of coal and wood-based fuels. The utility of the process is primarily in its role in producing fluid hydrocarbons or hydrogen from a solid feedstock, such as coal or solid carbon-containing wastes of various types. Non-oxidative pyrolysis of the solid material produces syngas which can be used directly as a fuel without being taken through Fischer-Tropsch transformations. If liquid petroleum-like fuel, lubricant, or wax is required, the Fischer-Tropsch process can be applied. Finally, if hydrogen production is to be maximized, the water gas shift reaction can be performed, generating only carbon dioxide and hydrogen and leaving no hydrocarbons in the product stream. Fortunately shifts from liquid to gaseous fuels are relatively easy to make.

Potential is enormous, maybe over 30bscfd could be monetised through GTL 2020

Methanol

DME

FischerTropschProducts

Fuel additives

Fuel cells

Olefins

Proplylene

Diesel

Jet fuel

Naphtha

Lubes

Fuel for Power

LPG substitute

> 500,000 bbl/day(13 world-scale methanol plants)

> 200,000 bbl/day(4.5 world-scaleDME plants)

3,000,000 bbl/day(20% of incrementalproduct demand by 2015)

Natural Gas Refinery

~2bscfd

Product Volume by 2020*

Gas Requirement*

~1.5bscfd

~28bscfd

* ADL and BP Estimations

The Shell MDS TechnologyIn essence, the Shell MDS technology is a three-stage process. In the first stage synthesis gas is obtained by partial oxidation of natural gas with pure oxygen in the Shell Gasification Process (SGP) In the second stage, Heavy Paraffin Synthesis (HPS), the synthesis gas is converted into liquid hydrocarbons. In the third and final stage, the waxy syncrude is fractionated into high-quality products, a part of which is converted into middle distillates by means of the Heavy Paraffin Conversion (HPC).

Converting remote natural gas to environment-friendly liquid fuels

http://www.sasolchevron.com/technology.htm

Coal to liquids

Liquids can also be produced from coal Coal, exposed to the atmosphere,

produces gas (grisou, methane) Coal gasification is a well established,

time-honoured process The Fischer-Tropsch technology was

originally developed to produce liquids from coal

Bio - Fuels Finally, fuels may also be produced

from vegetable sources Ethanol (alcohol) is the product of

fermentation of vegetable matter From Ethanol to ETBE – parallel to

MTBE Diesel oil can be produced from seeds

– prime candidate is rapeseed It is just a matter of costs…

Conclusion Fuels specifications are becoming

increasingly stringent – the chemistry is more important

Liquid hydrocarbons (crude oils) are the main, but not exclusive raw material to produce liquid fuels

As we move away from abundant oil, the transformation phase becomes more important

Growing role of the oil exporting countries

Documents

The Politics and Economics of International Energy (Spring 2009- E657) Lecture 3 Playing with the Molecules Prof. Giacomo Luciani