The Politics and Economics
of International Energy
(Spring 2009- E657)
Lecture 3
Playing 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
components
Atmospheric 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
Petroleum Refining Process
Content of a Typical Barrel of Crude Oil
Gasoline 25%
Kerosine 12%
Gasoline 58%
Distillate Fuels
25%
Kerosine 8%
Residual Oil
39%
From Distillation Only
Distillate Fuels
24%
Residual Oil 10%
From Modern Refining Process
8
Petroleum Refining Process
Simple Distillation Process – straight run
Butane & Lighter 30C
Gasoline 30C - 105C
Crude Oil
Charge Tank
Fractionating
Tower
Naphtha 105C - 160C
Jet Fuel 160C - 230C
Crude Oil Heater
Gas Oil 230C - 425C
Residual Fuel Oil +425C
9
Petroleum Refining Process
Fractionating
Tower
Crude Oil
Charge Tank
Reaction
Chamber
Flash
Chamber
Gasoline
Middle Distillate
Crude Oil
Heater
Residual Fuel Oil
Thermal Cracking Process
10
Petroleum Refining Process
Refinery Flow Diagram
11
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 silicaalumina.
 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 Quality
Thousand 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
The tightening sulfur specs stipulate
global investments
Desulfurization growth 2003-09
2,300
Africa
Major policy
changes
South America
North America
1,800
FSU
Europe
Middle East and North Africa
1,300
kb/d
Asia
800
300
-200
2003
2004
HESS ENERGY TRADING COMPANY, LLC
2005
2006
2007
2008
2009
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
HESS ENERGY TRADING COMPANY, LLC
Distillation growth will at best take place
towards the end of the decade
Global Distillation Growth 2003-2011
4,000
Net additions
Gross additions
3,500
3,000
kb/d
2,500
2,000
1,500
1,000
500
0
2003
2004
HESS ENERGY TRADING COMPANY, LLC
2005
2006
2007
2008
2009
2010
2011
And when it does it is mainly
outside the OECD
Regional distillation growth 2003-11
kb/d
4,000
3,500
Africa
South America
3,000
North America
FSU
2,500
Europe
Middle East and North Africa
2,000
Asia
1,500
1,000
500
0
2003
2004
-500
HESS ENERGY TRADING COMPANY, LLC
2005
2006
2007
2008
2009
2010
2011
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: Installed refinery capacity in the GCC, 2004
b/d
Bahrain
265,000
Kuwait
900,000
Oman
80,000
Qatar
137,000
Saudi Arabia
UAE
TOTAL
1,786,000
508,000
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 FisherTropsch
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
Fuel additives
Methanol
Fuel cells
Olefins
Product
Volume
by 2020*
Gas
Requirement*
> 500,000 bbl/day
(13 world-scale
methanol plants)
~2bscfd
> 200,000 bbl/day
(4.5 world-scale
DME plants)
~1.5bscfd
3,000,000 bbl/day
(20% of incremental
product demand by
2015)
~28bscfd
Proplylene
Natural Gas Refinery
Fuel for Power
DME
Fischer
Tropsch
Products
LPG substitute
Diesel
Jet fuel
Naphtha
Lubes
* ADL and BP Estimations
The Shell MDS Technology
In 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