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The Politics and Economics of International Energy
(Spring 2009- E657)Lecture 3Playing with the Molecules
Prof. Giacomo Luciani
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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
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Refining and cracking
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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
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Different Hydrocarbons
CH4 = Methane C2H6 = Ethane C3H8 = Propane C4H10 = Butane C5H12 = Pentane Etc. Gasoline = a mix of C5 to C12
Diesel = various higher fractions
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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
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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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Petroleum RefiningPetroleum Refining ProcessProcess
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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Petroleum RefiningPetroleum Refining ProcessProcess
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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Petroleum RefiningPetroleum Refining ProcessProcess
Refinery Flow Diagram
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Cracking
Cracking takes large hydrocarbons and breaks them into smaller ones
There are two main types of cracking: Thermal Catalytic
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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.
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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).
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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
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Different qualities of oil
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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
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World Crude Production by QualityThousand Barrels/Day
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Refinery capacity and location
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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
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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
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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
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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
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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
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HESS ENERGY TRADING COMPANY, LLC
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
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HESS ENERGY TRADING COMPANY, LLC
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
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HESS ENERGY TRADING COMPANY, LLC
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
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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
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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
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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
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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
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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
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Project Capital Requirement Escalation – the case of PetroRabigh
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North American Polyolefins Net Trade
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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?
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“Petroleum Products” that do not come from petroleum
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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…
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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!)
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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.
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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.
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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
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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).
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Converting remote natural gas to environment-friendly liquid fuels
http://www.sasolchevron.com/technology.htm
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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
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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…
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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