Technical Options for Processing Additional Light Tight Oil Volumes within the United States April 2015 Independent Statistics & Analysis U.S. Department of Energy www.eia.gov Washington, DC 20585 This report was prepared by the U.S. Energy Information Administration (EIA), the statistical and analytical agency within the U.S. Department of Energy. By law, EIA’s data, analyses, and forecasts are independent of approval by any other officer or employee of the United States Government. The views in this report therefore should not be construed as representing those of the Department of Energy or other federal agencies. U.S. Energy Information Administration | Technical Options for Processing Additional Light Tight Oil Volumes within the United States i April 2015 Table of Contents Preface ......................................................................................................................................................... iv Executive Summary ....................................................................................................................................... v Limited- or no-investment-cost options ................................................................................................. vi Capacity expansion options ................................................................................................................... vii Technical options for processing additional LTO volumes ........................................................................... 1 Context and background ......................................................................................................................... 1 Issues surrounding capacity expansion decisions ................................................................................... 5 Capacity expansion options ..................................................................................................................... 7 Appendix: Estimation of Construction Costs .............................................................................................. 14 General methodology and assumptions ................................................................................................ 14 Baseline – Brownfield refinery unit costs .............................................................................................. 15 Greenfield refinery capital cost estimate .............................................................................................. 16 Splitter greenfield capital cost ............................................................................................................... 18 Hydroskimmer greenfield and brownfield capital costs ........................................................................ 18 U.S. Energy Information Administration | Technical Options for Processing Additional Light Tight Oil Volumes within the United States ii April 2015 Figures Figure 1. Projected U.S. crude oil production, by crude oil type, 2014-35 ................................................... 1 Figure 2. Proportional atmospheric distillation yields from three crude oil types ....................................... 3 Figure 3 (Appendix). Units at a refinery designed to process light crude oil .............................................. 19 Figure 4 (Appendix). Units at a refinery designed to process heavy crude oil ........................................... 20 Figure 5 (Appendix). Splitter design ............................................................................................................ 21 Figure 6. (Appendix). Crude hydroskimmer design .................................................................................... 22 Tables Table ES-1. Summary costs for capital investment options at refineries .................................................... xi Table 1. Combinations of heavy and light crude oil processed at heavy and light crude refineries ............ 4 Table 2. New splitter projects in the United States .................................................................................... 10 Table 3. New hydroskimmer projects in the United States ........................................................................ 13 Table 4 (Appendix). U.S. refinery expansion options for handling increasing light tight oil volumes ........ 15 Table 5 (Appendix). Brownfield project total costs .................................................................................... 16 Table 6 (Appendix). Greenfield refinery total project costs ....................................................................... 17 U.S. Energy Information Administration | Technical Options for Processing Additional Light Tight Oil Volumes within the United States iii April 2015 Preface U.S. oil production has grown rapidly in recent years. U.S. Energy Information Administration (EIA) data, which reflect combined production of crude oil and lease condensate, show a rise from 5.6 million barrels per day (bbl/d) in 2011 to 8.7 million bbl/d in 2014. Increasing production of light crude oil from low-permeability, or tight, resource formations in regions like the Bakken, Permian Basin, and Eagle Ford, often referred to as light tight oil (LTO), accounts for nearly all the net growth in U.S. crude oil production. EIA's March 2015 Short-Term Energy Outlook (STEO) forecasts U.S. crude oil production averaging 9.3 million bbl/d in 2015 and 9.5 million bbl/d in 2016, well above the 2014 average level but only moderately above production during December 2014. EIA's Annual Energy Outlook (AEO) projects further production growth, but its pace and duration remain uncertain, as shown by the significant differences in both the timing and level of the highest volume of U.S. crude oil production between the Reference case and the High Oil and Gas Resource case. Recent and forecast increases in domestic crude oil production have sparked discussion on the topic of how rising crude volumes might be absorbed. As EIA noted nearly two years ago, relaxation of restrictions on U.S. exports of crude oil is only one among several ways to accommodate growing near-term flows of domestic production (EIA, This Week in Petroleum, “Absorbing increases in U.S. crude oil production,” May 1, 2013). Recognizing that some options, such as like-for-like replacement of import streams, are inherently limited, the question of how a relaxation in current limitations on crude exports might affect domestic and international markets for both crude oil and products continues to hold great interest for policymakers, industry, and the public. In response to multiple requests, EIA is developing analyses that shed light on this question, including earlier reports on U.S. crude oil production by type (EIA, U.S. crude oil production forecast – analysis of crude types, May 29, 2014), gasoline price determinants (EIA, What drives gasoline prices?, October 30, 2014) and changes in U.S. crude oil imports to accommodate increased domestic production (This Week in Petroleum, “Crude oil imports continue to decline,” January 23, 2014). This report examines technical options for processing additional LTO volumes within the United States. Domestic processing of additional LTO would enable an increase in petroleum product exports from the United States, already the world’s largest net exporter of petroleum products. Unlike crude oil, products are not subject to export limitations or licensing requirements. While this is one possible approach to absorbing higher domestic LTO production in the absence of a relaxation of current limitations on crude exports, domestic LTO would have to be priced at a level required to encourage additional LTO runs at existing refinery units, debottlenecking, or possible additions of processing capacity. The cost of such adjustments or capacity additions, together with the perception of market and policy risks surrounding potential investments, will determine the extent to which LTO might need to be discounted to spur those investments. The analysis of technical options for additional domestic LTO processing discussed in this report, together with the previous analyses cited above, provide a foundation for further analyses of the market outlook and the effects of a possible relaxation of existing restrictions on U.S. crude oil exports. U.S. Energy Information Administration | Technical Options for Processing Additional Light Tight Oil Volumes within the United States iv April 2015 Executive Summary With the growth in U.S. production of light tight oil (LTO) in recent years, domestic refiners have been processing greater LTO volumes. To date, increased runs of domestic LTO have mainly been facilitated by a reduction of light crude oil imports, particularly to refineries on the U.S. Gulf Coast (USGC) and the East Coast. In addition, refinery utilization rates have increased, and some imports of heavier crude types have also been displaced in some U.S. regions. The sharp decline in oil prices in recent months may slow domestic LTO production growth in the immediate future. However, there is significant potential for further growth in domestic LTO production. This is particularly the case in scenarios with favorable resource availability, technology development, and oil prices that rise above their level in early 2015, even if they remain below the range sustained from 2011 through mid-2014. For this reason, there is considerable interest in how additional volumes of domestically produced LTO might be accommodated. This paper focuses