Chapter 5 the Petroleum Refining Industry
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Chapter 5 The Petroleum Refining Industry Photo credit American Petroleum Institute and Exxon Corp. ———— - -.— —.— . ~. 4 , ‘. - Contents Page Industry Overview . Industry structure........,. 85 Product Mix . .... .... ..... ● ... ...... 86 Economics of Refining .. ....,. ● .... ... 88 imports and Exports ....... 89 Trends and Uncertainties.. ..... 90 Energy and Technology.. 92 Production Processes . 92 Kinds of Refineries . 94 Energy Use . .; . 95 Energy Conservation . 97 Potential for Energy Saving . 98 Technologies for lncreased Energy Efficiency . 99 Proven Technologies for Energy Conservation . 99 New Concepts in Refinery Energy Use . 101 Investment Choices for the Refining industry . ......... 104 Capital Expenditures in the oil lndustry . 104 Other Investment opportunities ● P. 105 impacts of Policy Options on the Petroleum Refining Industry . 107 The Reference Case . 107 Projected Effects of Policy Options . 110 TABLES Table No. 21. Definition of SIC 29-The Petroleum Refining and Related Industries . 85 22. Petroleum Refining Corporations Earning More Than $16 Billion in 1981 . 86 23. Products Manufactured in SIC 29, . 87 24. Process Plant Construction Cost,1972 and 1982. 88 25. Comparison of 1972 and 1981 Energy Consumption in Petroleum Refining Industry. 98 26. Petroleum Refining industry Projects To Be Analyzed for lnternal Rate of Return (lRR) Values . 108 27. Projected Changes in Petroleum Refining Production Between 1985 and 2000.... 110 28. Effects of Policy Options on lRR Values of Petroleum Refining Industry Projects.. 111 29. Effect of Lower interest Rates on lRR Values of Petroleum Refinery Industry Projects . 112 FIGURES Figure No. Page 19. Employment Trends in Petroleum Refining lndustry,1970-82 . 89 20. Topping Refinery Model Configuration . 94 21 Hydroskimming-Refinery Model Configuration . 94 22 Complex Refinery Model Configuration . 96 23 Alliance Refinery Energy Profile . 97 24 Comparison of Petroleum Refining Industry Energy Use and Production Output 1972 and 1981 . 98 25 Diagram of Atmospheric Fluidized-Bed Combustion Boiler/Combustor Arrangements. 103 26 Petroleum Refining Industry Projections of Fuel Use and Energy Savings by Policy Options 1990 and 2000 . 109 27 Petroleum Refining Industry Energy Intensity Projection, 1970X)00. 110 Chapter 5 The Petroleum Refining Industry INDUSTRY OVERVIEW The petroleum refining industry uses the largest Finally, the refining process is becoming more quantity of premium fuels in the industrial sec- complex as demand increases for high octane, tor, amounting to 2,7 Quads in 1981. ’ It is sec- unleaded gasoline. Crude petroleum, as found ond only to the chemicals industry in the total in nature, must be processed (refined) to remove amount of energy it consumes. Classified under impurities and to manufacture such usefuI ma- SIC 29, the petroleum refining industry is defined terials as gasoline, jet fuel (kerosene), and fuel as the group of establishments engaged in refin- oil. In the early days of the petroleum refining ing petroleum, producing paving materials, and industry, simple distillations were used to pro- manufacturing lubricating oils. Its official descrip- duce desired gasoline and kerosene products, tion is shown in table 21. with up to so percent of the crude oil feedstock being discarded. In recent years, this industry has This industry faces a future that bears little re- made a great deal of effort to increase the yield semblance to its past. Previously, the firms that of high octane products, minimize waste, and im- made transportation fuels for the United States prove the overall quality of the product pro- had access to large quantities of high-quality duced. crude oil. Now, they must use less desirable high- suIfur crude oils as feedstocks. The petroleum product market is changing as well. Environmen- Industry Structure tal considerations require production of high- The U.S. petroleum refining industry now con- octane, unleaded gasoline, instead of gasoline sists of approximately 270 refineries owned by with lead added to improve fuel quality. 162 companies.2 Refineries are located in 40 of In addition, the costs of fuel have risen to such the sO States. Refining capacity is located in areas levels that overall demand for refining products known as Petroleum Administration for Defense is projected to decline over the next two decades. (PAD) districts. Major concentrations of refining Thus, the management of firms in SIC 29 finds capacity exist in PAD districts 2 (Great Lakes and itself in the unenviable position of having to make Midwestern States), 3 (Gulf Coast), and 5 (Pacific sizable capital investments in an industry whose Coast). PAD district 1 (East Coast) has less refin- product will be in less demand. ing capacity, a deficiency made up for by pipeline and tanker shipments from the Gulf Coast and by imports, primarily of residual fuel oil, from 1 American Petroleum I nstltute, Energy Et’t’/c/ency /rnpro~’emenl 3 and Recot ered ,W]tcr\al L’tlllzatlon Report to U.S. Department ot foreign Western Hemisphere refineries, . Energ}, June 10, 1982, p 2. As of January 1, 1982, the operating refineries in the United States had a total crude-running capacity* of about 17.7 million barrels per day Table 21 .—Definition of SIC 29—The Petroleum Refining and Related Industries (bpd), representing about 27 percent of the refin- ing capacity of the non-Communist world.4 Proc- This major group includes establishments primarily en- essing from around 1,000 bpd to over 600,000 gaged in refining petroleum, manufacturing of paving and bpd, refineries range from “fully integrated” com- roofing materials, and compounding lubricating oils and greases from purchased materials. This SIC group contains Zlbld., p. 6. the following subcategories: J/nrernatjona/ ~etro/eum Encyclopedia, J. C. McCasli n (cd. ) (Tulsa, SlC Title Okla.: The Petroleum Publishing Co., 1981). 291 . Petroleum refining *The size of a refinery IS normally expressed as Its “crude capaci- 295. , . Paving and roofing materials ty, ” meaning the number of barrels that can be “run” each day 299. Miscellaneous products of petroleum and oil through its atmospheric distillation units. SOURCE Office of Management and Budget, Standard Indusfrlal Classification ‘Amercian Petroleum Institute, Basic Petro/eum Data Book, Jan- Manual, 1972 uary 1983. 85 86 • Industrial Energy Use plex plants, capable of producing a complete plies of crude oil are diminishing as govern- range of petroleum products, to small, simple ments of the producing countries increasing- refineries that can produce only straight-run dis- ly take over responsibility for disposing of tillates, heavy fuel oils, and sometimes asphalt. their crude production. As a consequence, Small (less than 75,000 bpd) refineries make up many of the U.S. multinational oil producers about 60 percent of the total number of refining find that their domestic activities–including units, but their combined capacity is only about refining—are becoming more important to 24 percent of the total throughput. * In terms of their financial health. These companies, with ownership, the four largest companies have their sophisticated high-volume refineries, about 38 percent of the total refining capacity, provide the bulk of the products manufac- and 20 companies have about 77 percent of the tured through complex processing steps. total refining capacity. 5 The top 10 firms are 2. Large- and medium-sized domestic refiners shown in table 22. make up a diverse group of companies. Some are fortunate in being largely self-suf- There is no single, accepted method of catego- ficient in domestic production of crude oil. rizing the structure of the U.S. petroleum refin- Others depend for their crude supply on ing industry that captures the similarities and dif- some combination of long-term contracts ferences in refineries related to processing capa- and “spot” purchases. * They have much bilities, access to feedstock supplies, ability to less total refining capacity than do the ma- market, and the like. One grouping is: jor firms, but a number of them are signifi- 1. Large, integrated, multinational companies cant marketers in their own regions. typically have worldwide production, refin- 3. Independent refiners form the most diverse ing, and marketing operations in addition to group of all. Most independent refiners are their activities in the United States. A number small, domestic companies. Refining is their of these firms are descendants of the Stand- principal operation; most do not produce ard Oil companies created when Rockefel- crude oil and do not market their products ler’s Standard Oil trust was dissolved in under their own names. 1911.6 These major oil producers have typ- ically had access to assured supplies of crude Product Mix oil from the Middle East and other produc- ing areas of the world. Such guaranteed sup- A petroleum refinery is a complex assembly of individual process plants interconnected with pip- ing and tanks. Each plant has a specific function, *Throughput–the total amount of crude oil initially processed. ‘Oil and Gas Journal, “Refining Capacity Dips on Broad Front, ” vol. 81, No. 12, Mar. 21, 1983, p. 84. 6U.S. House of Representatives, Committee on Energy and Com- *Spot purchases are those made by refiners on the open market merce, U.S. Refineries: A Background Study, July 1980. and without benefit of a contract. Table 22.—Petroleum Refining Corporations Earning More Than $16 Billion in 1981 Revenues Corporation (in billions) Employees