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Module 2. Refining Training. Refining Industry Drivers Alternative Fuel Products & Crude Sources. Section Contents. During this section you will learn. Learn the major USA refiners Factors driving future US demand and supply The importance of unconventional oil

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refining training

Module 2

Refining Training

Refining Industry Drivers

Alternative Fuel Products & Crude Sources

section contents
Section Contents

During this section you will learn...

  • Learn the major USA refiners
  • Factors driving future US demand and supply
  • The importance of unconventional oil
  • New alternatives affecting refining:
    • Ethanol
    • Biofuels
    • Gas-to-Liquids (GTL)
  • “To Dig Deeper”… Websites & References
ranking of usa refining companies
Ranking of USA Refining Companies

Top 10 refiners provide 75% of the total USA capacity...

Rank Company No. of U.S. U.S. Crude

Refineries Capacity, BCD

How the USA’s Largest Refiners Ranked as of 1/1/09

(2009) (2008)

1 1 Valero Energy Corp. 13 2,065,660

2 2 Conoco Phillips 13 2,000,200

3 3 ExxonMobil Corp. 7 1,965,750

4 4 BP PLC 6 1,401,525

5 6 Marathon Ashland, LLC 7 1,016,000

6 5 Royal Dutch/Shell 8 979,250 (1)

7 7 Chevron Corp. 5 914,000

8 8 Sunoco Inc. 5 880,000

9 9 Petroleos de Venezuela 4 849,400 (2)

10 10 Flint Hills Resources 3 817,475

11 11 Motiva Enterprises LLC 3 730,000

12 12 Tesoro Petroleum Corp. 7 658,000

13 13 Saudi Aramco 3 370,000 (3)

14 14 Lyondell Chemical Co. 1 268,000

15 Husky Energy Inc. 2 237,500

16 15 Total SA 1 231,452

17 16 EnCana Corp. 2 226,000

18 Alon USA 3 206,000

USA Crude Capacity is 17.6 million BCD in 149 operating refineries

(1) Includes Shell’s stakes in Motiva and its 50% stake in the Deer Park, Texas refinery

(2) Consists of PDVSA’s ownership of Citgo and its 50% stake in the its 50% stake in the ExxonMobil Chalmette, Louisiana refinery

(3) Consists of 50% stake in Motiva.

NPRA.org, Oil & Gas Journal, 12/22/2008

ranking of world refining companies
Ranking of World Refining Companies

These 25 largest refiners comprise over 60% of world-wide capacity...

How the World’s Largest Refiners Ranked as of 1/1/2009

Rank Company Crude Capacity

(1/1/09) (1/1/08) BCD

1 1 ExxonMobil Corp. 5,632,000

2 2 Royal Dutch/Shell 4,599,000

3 3 Sinopec 3,811,000

4 4 BP PLC 3,328,000

5 6 ConocoPhillips 2,696,000

6 7 Petroleos de Venezuela 2,678,000

7 5 Total SA 2,655,000

8 8 Valero Energy Corp 2,596,000

9 9 China National Petroleum Corp. 2,440,000

10 10 Saudi Aramco 2,433,000

11 12 Petroleo Brasileiro 1,997,000

12 11 ChevronTexaco Corp. 1,981,000

13 13 Petroleos Mexicanos 1,703,000

14 14 National Iranian Oil Co. 1,451,000

15 17 Nippon Oil Co. Ltd. 1,317,000

16 15 Rosneft 1,293,000

17 16 OAO Lukoil 1,217,000

18 18 Repsol Petroleo SA 1,105,000

19 19 Kuwait National Petr. Co. 1,085,000

20 21 Marathon Ashland Petroleum 1,016,000

21 20 Pertamina 993,000

22 22 Agip Petroli SpA 904,000

23 23 Sunoco Inc. 880,000

24 24 Flint Hills Resources 817,000

25 25 SK Corp 817,000

World Crude Capacity exceeds 85.6 million BCD in

655 Refineries

Capacity increased almost 300,000 BCD in 2007, primarily with “capacity creep.”

Oil & Gas Journal, 12/22/08—Annual Survey

the problem of this decade

12

Increased Demand – 1.5%/yr

34

Decline in Conventional Oil Production – 4.8%/yr

51

The Problem of this Decade

Integrated industry facing a different environment…

World Crude Demand: Mid 2009 IEA (MMbd)

97

84.5

High risk investments and multiple options across the complete supply chain

2018

2008

IEA – International Energy Agency Outlook

factors driving the us industry
Factors Driving the US Industry

Long term US supply-demand driven by a variety of key assumptions...

  • Product Consumption:
    • Return of economic growth
    • Government policy
    • Alternative fuel acceptance
  • Ability of US Refineries to Supply Consumption:
    • US refining investment challenges
    • Deteriorating quality of conventional oil
    • Role of unconventional oil
    • Environmental legislation
driver consumption forecast

Business as usual?

Driver: Consumption Forecast

Will economic growth restore US fuels consumption?

policy driver us car fuel consumption
Policy Driver: US Car Fuel Consumption

Historical perspective: US automobile fuel consumption...

40.0

New US CAFE target for vehicle fleet

35.0

30.0

25.0

Miles per Gallon

20.0

35.5

15.0

22.4

22.2

10.0

20.6

17.1

13.4

5.0

0.0

1973

1983

1993

2003

2006

2016

EIA, Monthly Energy Review, NPN 2008. NYTimes - 051809

policy price drives behavior
“Policy”: Price Drives Behavior

US weekly gasoline sales - impact of price...

MMbd

$/gallon

9.6

4.10

9.5

3.90

9.4

3.70

9.3

3.50

9.2

9.1

3.30

9.0

Impact of Price:

US DOT said Americans drove an estimated 4.3 percent less -- that's 11 billion fewer miles, in March 2008 vs. March 2007.

“The sharpest yearly drop for any month in history." Records have been kept since 1942.

3.10

8.9

2.90

8.8

2.70

8.7

8.6

2.50

08/29/08

09/26/08

10/10/08

09/12/08

08/15/08

10/24/08

08/01/08

Gasoline Demand (EIA)

Average Price (Regular)

www. IEA.org – Oil Market Report

implications for integrated companies

97

MMBD

12

34

Develop & Refine Unconventional Oil

Decline in Production

51

2018

Implications for Integrated Companies

Refinery planning will take on new dimensions...

  • More Refineries, but…
  • Gas-to-Liquids

Increased Demand

driver us capacity number of refineries
Driver: US Capacity & Number of Refineries

Cheaper to expand existing plants with environmental challenges…

Source: Chesnes, Matthew. Capacity and Utilization Choice in the US Oil Refining Industry. November 2008.

driver us refinery utilization

?

80%

1Q 2009

J. Carrig, COP, DJNews, 042309

Driver: US Refinery Utilization

100

2006 Forecast (DOE)

95

92% needed to justify new investment

90

85

Percent Utilization 1

History

80

75

70

65

60

1980

1985

1990

1995

2000

2005

2010

2015

2020

Source: U.S. Department of Energy

1 Percent utilization defined as: Gross input to refineries / operable capacity

drivers utilization api of crude imports

Crude Quality Discussion

Module 4

Drivers: Utilization & API of Crude Imports

Refinery utilization and crude imports API gravity (1978 to 2007)…

driver deteriorating crude oil quality
Driver: Deteriorating Crude Oil Quality

Trend is to heavier and more sour crudes in the system…

Source: Chesnes, Matthew. Capacity and Utilization Choice in the US Oil Refining Industry. November 2008.

what is heavy oil

API Gravity, degrees

31.1

22.3

10.0

Extra Heavy

Viscosity < 10,000 cP

Light

Medium

Heavy

Bitumen

Viscosity > 10,000 cP

0.87

0.92

1.00

Specific Gravity, g/cm3

What is Heavy Oil?

API gravity range of oils…

(Per DOE Report R-2946, Feb 1983)

unconventional oil
Unconventional Oil

Western Hemisphere unconventional reserve base is enormous…

Billion Barrels

Extra-Heavy Unconventional Potential

Conventional Proved

slide17

Suggest we all Start to Follow Hockey, Eh!

Projects being re-evaluated:

Need $70-80 a barrel for a return on new projects.

Suncor can make money on existing at $30 a barrel.

Equipment costs already coming down.

oil sands to us refineries one option
Oil Sands to US Refineries – One Option

COP Keystone Pipeline Project

Enabling Integrated Growth

  • Project being developed with TransCanada Pipeline
  • $2.1B project with 435 MB/D initial capacity
  • COP project sponsor with right to purchase 50% interest in Keystone pipeline
  • 2009-2010 estimated completion

Hardisty

Cushing

Wood River

Proposed 1,840 mile pipeline

Proposed Cushing extension

new products and sources
New Products and Sources

More options than ever...

New Alternatives:

  • Ethanol
  • Biodiesel
  • Gas-to-Liquids (GTL)

97

MMBD

12

34

51

2018

ethanol definitions

I bushel of corn

  • 56 pounds makes
  • 3 gallons of ethanol

Ethanol as a percentage of gasoline use

2.8%

2.0%

1.4%

Source: NY Times

Ethanol: Definitions

Fuel on the cob…

  • Ethanol is grain alcohol that can be made from a variety of crops, including sugar cane, but in the USA it is mostly derived from corn. Policy makers and some environmentalists say that ethanol can help reduce reliance on imports and cut greenhouse gases. But some experts argue that the energy needed to grow the corn and produce ethanol may be more than is in a gallon of ethanol as a fuel.
  • Replacing MTBE. In 1990, Congress required that gasoline contain a 10 percent additive to help control smog. The original choice was methyl tertiary butyl ether. But, health and environmental concerns about MTBE have lead to a switch to ethanol as the additive in many states.
  • E-85 is 85 percent ethanol mixed with 15 percent gasoline. But only about 5 million “flexible-fuel” cars that can run on E-85 have been produced, out of about 238 million vehicles in use in the United States.
biodiesel definitions
Biodiesel Definitions

Willie a supporter – wnbiodiesel.com…

    • Biodiesel is the name of a clean burning alternative fuel, produced from domestic, renewable resources.
    • Biodiesel contains no petroleum, but it can be blended at any level with petroleum diesel.
    • It can be used in compression-ignition (diesel) engines with little or no modifications.
    • Biodiesel is simple to use, biodegradable, nontoxic, and essentially free of sulfur and aromatics.
  • A Long History
    • Using vegetable oil as a fuel dates back to 1895.
    • Dr. Rudolf Diesel developed the first diesel engine to run on vegetable oil.
    • Engine demonstrated at the World Exhibition in Paris in 1900, using peanut oil as fuel.
biodiesel conocophillips proposal

Update – Project Deferred

May 2009

Biodiesel: ConocoPhillips Proposal

Fuel from chicken-beef waste…

  • In April, 2007, COP & Tyson announced an alliance to produce diesel fuel made from pork, poultry and beef fat.
  • COP developed technology to co-process fat with hydrocarbon feedstocks last year at Whitegate refinery in Ireland. It will be tested in 4Q, 2007 at Borger.
  • COP will spend up to $100 mm on upgrades at Borger and other plants close to Tyson plants.
  • James Mulva said the effort needs the $1-per-gallon tax credit. Energy bill confusing for all tax incentives. COP’s access to the credit was denied.
gas to liquids gtl produces clean diesel
Gas-to-Liquids (GTL): Produces Clean Diesel

GTL a logical outlet & alternative for stranded gas…

In Existence

In Development

Possible

Source: AP in Houston Chronicle

gtl desert gamble
GTL – Desert Gamble

Oil giants building gas-to-liquids plants in Qatar…

  • $20 billion has been committed to build an unprecedented array of clean diesel plants in the Arabian Gulf. By 2011, Qatar plants should be producing 300,000 BCD of liquid fuels and other products.
  • Those investing include: Royal Dutch-Shell, Chevron and ExxonMobil. ExxonMobil original $7 billion bet on GTL – their largest investment in history….has been deferred.

Source: AP in Houston Chronicle

qatar projects currently dominate

Capacity reduction with Exxon cancellation

X

Qatar Projects Currently Dominate

Growth is not without challenges…

1,200

  • Industry projections suggest total GTL capacity could be ~ 1000 MBD by 2020
  • Qatar could have two thirds of GTL capacity
  • Current worldwide GTL Capacity ~ 45 MBD
  • Growth rate assumes successful resolution of technical, logistical and commercial issues

900

Capacity (MBD)

Total Worldwide Capacity

600

Total Qatar Capacity

300

0

Year

Source: XOM GTL Outlook 2006

regulation trends

Today’s Challenge

Carbon Emissions

Proposal in place to make refiners pay for GHG released when they process crude and the emissions from vehicle tailpipes and jet engines when their fuels are burned.

1990-2000’s

Clean Air Legislation

Focus on the Products

At $20 per ton to emit CO2, NPRA estimates the industry would be forced to pony up $4.1 billion for facility emissions and another $63 billion for emissions by consumers.

Regulation Trends

US refining has faced increasing regulation for over 30 years...

1970- 80’s

Clean Air Legislation

Focus on the Plants

NPRA, Chem Systems, NPC Report

planned us expansions as of 2008

?

600

Houston Chronicle – 111608

Planned US Expansions – as of 2008

High investment cost

Ethanol mandate

Reduced demand

Number of expansions declining as time goes by….

US Capacity Expansions 2007 through 2011 (MBD)

Energy Information Agency – US

to dig deeper
To Dig Deeper

Latest references treating the environmental issues...

  • Facing the Hard Truths about Energy - A comprehensive view to 2030 of global oil and natural gas. http://www.npc.org/
  • Transport’s role in sustaining the UK’s productivity and competitiveness, Sir Rod Eddington, December 2006. http://www.dft.gov.uk/about/strategy/eddingtonstudy/
  • Sustainable Bioenergy: A Framework for Decision Makers, Mats Karlsson, Chair – UN-Energy, April, 2007. http://esa.un.org/un-energy/
  • Curbing Global Energy Demand Growth: The Energy Productivity Opportunity, May, 2007, The Mckinsey Institute.http://www.mckinsey.com/mgi/publications/Curbing_Global_Energy/index.asp