Where does the oil refining industry can go?
Where does the oil refining industry can go?
(OP)
In Europe, refining margins are very small and in some cases negative. In principle this situation should-be attributed to:
An overproduction of oil products,
A slowdown in the economy with low market demand,
Technological advances in the automotive industry,
Appearance of electric motors,
Greater environmental awareness.
Unfair environmental requirements competition between EEC, USA, Eastern countries, Africa, Asian and Australia.
In this context where does the oil refining industry can go?
Luis
An overproduction of oil products,
A slowdown in the economy with low market demand,
Technological advances in the automotive industry,
Appearance of electric motors,
Greater environmental awareness.
Unfair environmental requirements competition between EEC, USA, Eastern countries, Africa, Asian and Australia.
In this context where does the oil refining industry can go?
Luis





RE: Where does the oil refining industry can go?
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RE: Where does the oil refining industry can go?
now maybe refined oil products can be imported for a lower price than those refined there. maybe Europe is trying to outsource it's refinery business ?
another day in paradise, or is paradise one day closer ?
RE: Where does the oil refining industry can go?
I guess if countries want to get rid of the refining business, they can at the cost of higher prices to import. And that's the falacy of enviromental regulations. There will always be some country somewhere that will be willing to make a butt load of tax revenue by taking in businesses that other countries don't want.
Countries need to wise up that some things aren't going to go away very soon, and accept that taxes may not be the solution to all there problems, or throwing money at problems also won't fix things. You need a working plan and people who can make it work (not political hacks).
RE: Where does the oil refining industry can go?
another day in paradise, or is paradise one day closer ?
RE: Where does the oil refining industry can go?
Supply and demand
Cost of Crude
European Tax structure
Maintenance costs
Labor rates and productivity
Energy costs to produce the refined product
Tranportation costs, etc.
Currnt Economic conditions (Recession or very low growth)
US refineries have also experienced periods of low profitability due to many of the above issues.
RE: Where does the oil refining industry can go?
With the rise of the MBA in the late 1970's this model was thrown out the window. By 1985 the upstream operations side of the Major that I worked for would happily take a lower price to keep from selling to our sister downstream company (the paperwork that the sister company required of us was too onerous to continue, especially when they didn't require the same documentation from 3rd parties). We would sell to jobbers at a discount and the jobbers would sell to our sister company.
Today the vertical integration is mostly gone. Every business segment must succeed or fail on its own. At today's high crude prices the OP is quite correct that refining margins are really skinny. Add to that the fact that well over half of the world's refining capacity is more than 80 years old. They are getting tired, but the margins do not exist to build new multi-billion dollar plants. Silly government policies (like the U.S. export ban and the U.K. Frac'ing ban) are keeping crude prices very high. Other government policies (like the very high usage-tax rates in most of the world and the threat of price control) are keeping end-use prices very low. Not a lot of room in there for new capital investment. So the OP's list is mostly not the driving force:
- An overproduction of oil products, Crude oil prices don't seem to indicate that this is true
- A slowdown in the economy with low market demand, Rate of increase in market demand has slowed in the last few years, but world demand is still increasing
- Technological advances in the automotive industry, A bigger factor in the U.S. than in most of the world. The U.S. road use taxes are so much lower than Europe or Japan that we don't have nearly as much price sensitivity as I've seen elsewhere. If you are driving your vehicle 40,000 km/year technology is a much bigger deal than if you are driving it 15,000 km or less
- Appearance of electric motors, A sideshow at best, not a factor in refinery profitability
- Greater environmental awareness. Environmental regulations are raising costs in refineries, which cuts into thin margins, it is certainly a major factor in the cost of new plants (getting a permit through the environmental regulators takes decades)
- Unfair environmental requirements competition between EEC, USA, Eastern countries, Africa, Asian and Australia. My practice is global and I have clients on every continent with a large city and I don't see much difference in environmental regulations from one place to the next. The Interwebz is everywhere. A country seen as "lagging" the world's environmental regulations tends to find the strictest rules and modify them for the current thinking which leapfrogs from the "bottom" of the pack to the "top" of the pack in one legislative session.
My estimate of the driving force is regulations that put barriers in the path of supply and demand. Crude price should be around $60 USD/bbl and pre-tax pump price should be around $8 USD/gallon (€1.69/L). Neither is going to happen so we will Limp along until you see a major refinery go bankrupt, or blow up and not be fixed (I think that if anyone proposes shutting down a major refinery the government will nationalize it and run it until it burns to the ground).David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
I think refinerys will morf into more profitable ventures, like plastic production, or something else before that happens (or maybe they aren't run very well).
Several years ago I saw a large number of coal cars at a refinery, and wondered why. It seems that coal is one of the building blocks of plastics.
And there are much more in the way of products that can be produced, example asphault. So maybe auto gas is just a side line for other more profitable products.
RE: Where does the oil refining industry can go?
An explosion in a refinery is guaranteed.
Was it coal you saw or coke being shipped from the refinery?
RE: Where does the oil refining industry can go?
Refineries are amazingly complex operations that scratch every erg of value out of every molecule that comes in. The person who replaced me when I retired came from a refinery that had her and 7 other engineers responsible for a single vessel. It is a big deal vessel, but that still seemed excessive to me.
David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
It absolutely is a national security issue, but the governments are in a tough position. On the one hand they must have someone to blame their (the government's) screw ups on, and Oil & Gas is easy. On the other hand, they've been so successful in making these guys the villain of the piece (both in legislation and the captive press) that they can't appear to grant any special dispensations. So they fine BP for the last Texas City annual explosion and make speeches about forcing the industry to comply with regulations, and while meeting with BP executives on the golf course to work out how to keep the facility open. BP's old CEO (Sir John Lord Browne of Maddingly) was a world master at this game, never been anyone significantly better. His successors are hacks at it, consequently BP is in the news far more than the company or the world's governments would like. I'm not sure how this is going to play out, but I am confident that the real resolutions will not make the Evening News.
David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
That infrastructure is very old- nothing new has been built in a long, long time here in the US and Canada. I too am surprised that we don't see more catastrophic failures.
Many locales would be happy to have others do the refining for them, so they get the benefit of the fuels without a good chunk of the environmental impact of refining them- until there's a big shock in the world that makes them concerned about price spikes due to supply disruptions.
Smaller refineries, including many here, don't have the scale to make investments in new technology worthwhile. So when new sulphur limits in a couple products kick in, the refineries are sold and packed off to a part of the world where that doesn't matter so much.
Shale gas has been the big game changer here in North America. The effects are still rippling through the O&G and chemicals system. Many thought new chemicals investments in North America had gone the way of the dodo, but shale gas changed all that.
RE: Where does the oil refining industry can go?
David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
In steps politicians to "protect" consumers by putting huge roadblocks in the way of this global chess game. U.S. crude must be refined in the U.S. (but by god you can't build that stinky refinery in my Congressional district) and refined products must be consumed in the U.S. The result is refineries operating outside of their design conditions (at the cost of efficiency and quality of refined product). Until/unless the short-sighted government idiots step out of the way the best we are going to be able to do is blend and limp. And blow up the occasional 40, 50, or 60 year old facility.
David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
Crude prices float on fear and superstition from day traders (bomb an oil pipeline in Columbia and the crude price jumps $5/bbl, start a war in Iraq and the price jumps $20/bbl, Chavez dies in Venezuela and world crude prices drop $10/bbl). Supply and demand don't really have that big an impact on crude (some, of course, but not dominant).
On the other side, commodity petrol and diesel prices have a damped relationship to demand (the dampening effect is the very high road-use taxes around the world). In anticipation of summer holiday weekend, the prices increase in the face of increasing demand. Normal times, if people perceive prices are too high then they individually cut back on driving a bit and put downward pressure on prices.
Today crude is at historic high prices while motor fuel is at 1970's prices (when crude was selling for $12/bbl [$72/bbl in 2014 prices].
This morning some pundit predicted that shale oil supply was going to put downward pressure on crude prices. He may be right. It has occasionally happened that actual supply and demand factors have influenced prices more than day traders, but it has been a while. I'll believe it when I see it. In the 1950's when the bulk of the world's motor fuel came from vertically integrated majors, you could almost call the whole value chain supply-and-demand driven, but today with every segment under individual profitability pressure the refineries stand out as having really skinny margins (while the margins from the wellhead to the gas pump in total are acceptable, not as good as Micro$oft, but acceptable).
David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
btw: thanks for your excellent insight into oil and gas economics and history. I really feel a bit wiser having read your posts.
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
http://www.bloomberg.com/news/2014-10-08/keystone-...
John R. Baker, P.E.
Product 'Evangelist'
Product Engineering Software
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RE: Where does the oil refining industry can go?
I don't think that the pipeline to the Atlantic has much chance to actually get built (much like the Alaska Gas pipeline). Pipeline economics tend to be around 4% ROI and 30 year treasury bond prices are around 3% which doesn't provide enough delta to account for the risk. Keystone is kind of a special case because it is being funded as a reservoir-management tool by producers instead of a marketing tool for speculators (as I understand it, once the oil gets to the Atlantic coast it hits a spot market instead of a long-term contract).
David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
I think, however, that you are in fact referring to the extra-unique group of distinct Canadians, the Québécois. They are not uniquely francophone, though most certainly are, and they are nearly universally hard left. At least left from an average Canadian standpoint, and certainly HARD left from a US standpoint. Many would have a hard time making Obama look like Mussolini, but they are probably the most typically European group in North America. Do you think any of these pipelines would get built through the Netherlands?
RE: Where does the oil refining industry can go?
I do of course love the French Canadians. My favorite glass fabricator of the moment is of that place, and he is in fact very easy to work with. I am just glad I don't have to build an oil pipeline through his backyard.
RE: Where does the oil refining industry can go?
Agree that there's a strong current of BANANAism (build absolutely nothing anywhere near anything) pretty much everywhere in Canada except Alberta and maybe Saskatchewan- there's a fracking ban in New Brunswick and one considered in Newfoundland too as examples. But the people you need to concern yourself with in building a pipeline east, or west, aren't so much the Quebcois- it's the First Nations, where the issues are much more complex than just environmentalism.
Note that the Line 9 pipeline flow reversal (the one that runs through Toronto all the way to Montreal, has been approved. This particular recent "environmental action" hobby-horse, was originally intended for crude and originally flowed west to east, then was reversed, and now will be reversed again. Anyone concerned about pipeline safety has to understand the statistics versus rail transport.
http://www.enbridge.com/ECRAI/Line9BReversalProjec...
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
As it was explained to me, the equipment in the refinery splits the inlet stream into various components and then puts some of it back together. Each vessel is looking for a pretty specific mix of stuff to split (or combine). When the wrong crude comes in, some of the processes are over loaded (resulting in reduced purity on the outlet) and others don't have enough flow to sustain the process (which can result in overheating or runaway reactions). Consequently if you are looking for something like a 30 API crude at the inlet, then you can blend the very light shale oil with the very heavy oil-sands oil until you have a mix similar to what the plant is designed for.
If any plant guys read this, please correct any misconceptions above, I'd like to know if it was explained to me correctly.
David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
I believe my statement stands well in this case. It is more true than most generalities to call Quebecers hard leftist for north america, and for any rural QC farmer you can find five way harder right wing nuts in the rural areas outside of Quebec.
RE: Where does the oil refining industry can go?
CEL: I don't think of the Quebecois as especially left or right, I think of them as spirited an independent. They love nothing more than to raise a middle finger to those in power, whoever that may be. It is why they choose to speak French in spite of the outlandish inefficiency involved.
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
Another interesting tidbit from Wikipedia about Bakken shale:
"Absent the infrastructure to produce and export natural gas, it is merely burned on the spot; a 2013 study estimated the cost at $100 million per month."
RE: Where does the oil refining industry can go?
David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
Small scale GTL sounds like the right answer. Can you not burn the CO? Shame the EPA is not helpful (what about all those pointless CO2 emissions from the burnoff?) Mega scale pipeline and power line projects are always going to be rough politically.
A whacky idea would be to build an aluminum smelter in the field. Aluminum is basically solidified electricity, so if you had free electricity you just shovel in a bunch of bauxite and out comes aluminum billet.
I suspect part of the gas burnoff problem is just the low gas price right now.
RE: Where does the oil refining industry can go?
A flaring ban could make smaller scale GTL an attractive alternative, but the locations which are truly stranded AND on land are comparatively few. There's always an alternative.
Places like Qatar where large-scale GTL facilities have been built, are also building aluminum smelters...
RE: Where does the oil refining industry can go?
I guess building a relatively local pipeline network in the Bakken oilfield is relatively easy politically. Large scale GTL plants are gigantic. They are building one in my home country of Australia and its costing ~$20BB or some silly number like that. Its like the worlds biggest fridge.
RE: Where does the oil refining industry can go?
David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
The biggest barriers to running alternate crudes are metallurgy and asset utilization. Our refinery is making near record profits and is expanding with $1B per year in capital projects. We have a sister refinery in Texas. If Keystone makes it down there, they could not run the crude we run. They are swimming in light sweet Texas crude. The cost to metal-up for tar sands bitumen would be a deal-breaker. And diverting our heavy sour feed to the gulf would drive up our raw materials costs and errode our profitability. We make more money if Keystone is not built.
Our company owns refineries, but no drilling and exploration and no retail. We may be unique in this regard.
Johnny Pellin
RE: Where does the oil refining industry can go?
At least with respect to the oil that would have been delivered via the Keystone XL pipeline, it's being directed to a series of refineries in Texas which are located in a sort of free-trade zone which will allow the oil companies to sell the refined fuels to overseas customers and avoid paying ANY US taxes because technically the oil will have NEVER been in the United States. It enters the pipeline in Canada and is delivered to a refinery where little or none of the refined products are going to be sold on the US domestic market. Therefore this argument that it will help lower the price at the pump for us consumers is not going to happen. In fact, it could raise the price since the Keystone XL could result in LESS Canadian oil going to refineries which are supplying the domestic markets. After all, where is the Canadian oil going now? Once the pipeline is finished they could pump literally 100% of the oil to Texas where it could ALL be shipped overseas, to Asia or Europe.
http://thinkprogress.org/climate/2011/12/20/393247...
John R. Baker, P.E.
Product 'Evangelist'
Product Engineering Software
Siemens PLM Software Inc.
Industry Sector
Cypress, CA
Siemens PLM:
UG/NX Museum:
To an Engineer, the glass is twice as big as it needs to be.
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
Johnny Pellin
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
That's because that's as far as the current pipeline runs from the Canadian tar sands operations. However, there is the possibility that if the Keystone XL pipeline is completed that these mid-west refineries could be left holding the bag as there would be more profit to be made by refining the oil in Texas and shipping the refined products overseas, both in the price that they could get for finished goods and the ability to avoid paying US taxes.
And as for these facts not being a secret, that the whole issue, the proponents of the Keystone XL has always made that claim that the pipeline will help reduce America's dependence on foreign oil (as if Canada was part of the US, eh) and reduce the price at the pump due to increased production of gasoline here in the US. This has always been pablum for the masses since this project is after all being paid for by people who are looking to maximize their ROI and if that means earmarking most if not all of the oil going into the pipeline for overseas customers, that's exactly what they're going to do. They have absolutely nothing to gain by continuing to sell their oil to purely US domestic refiners who supply finished products to local markets, at less than the world market price simply because they currently have NO way of delivering their oil to an international market.
http://www.nber.org/digest/oct12/w18127.html
http://business.financialpost.com/2013/02/07/growi...
http://business.financialpost.com/2012/02/07/glut-...
John R. Baker, P.E.
Product 'Evangelist'
Product Engineering Software
Siemens PLM Software Inc.
Industry Sector
Cypress, CA
Siemens PLM:
UG/NX Museum:
To an Engineer, the glass is twice as big as it needs to be.
RE: Where does the oil refining industry can go?
Here's my chance to promote Bill Banholzer's paper again: it's a brilliant paper, one of the best I've read in many years. It has an uninspiring title, but is very good reading and not just for chemical engineers. In Banholzer's parlance, "Scale always wins...". GTL isn't like microcomputers. How I wish it weren't true! But regrettably, it is.
http://www.dow.com/innovation/pdf/Banholzer_AIChE_...
RE: Where does the oil refining industry can go?
In my construction industry world, hassle with human beings is massively expensive, and the bigger the project, the more hassle you get. In the middle of a boom market like right now, a huge condo development in Brooklyn called B2 is imploding under the weight of political pressure and some technical problems. Scale does give you production efficiencies, but the main reason you would go for scale is to simply take advantage of a larger opportunity and carve off a bigger piece for yourself.
And don't get me started on scale in professional services...
RE: Where does the oil refining industry can go?
There's always an alternative, and some alternatives don't involve building pipelines either.
Could small scale GTL become economically feasible? At double today's oil prices, perhaps it could- assuming gas prices don't also rise. Who knows: the guys David is talking to may have the elusive magic bullet, but I'm skeptical.
The biggest problem is that the product is too cheap, especially in historical terms. That the feedstock is essentially free helps a lot, but the product is still too cheap to provide rapid payback on capital invested. Another problem is more of a future risk- that the process only makes sense if you can dump the product CO2 to the atmosphere for free. You get at least a mole of CO2 for every mole of -CH2- you make, and that represents a huge source energy waste relative to direct uses of the gas. Fortunately the latter disadvantage also kills flaring, which is a pure waste which we'd all be better off finding some way to avoid. The pure waste of it is providing the motivation to find something- anything- that makes money off this gas.
RE: Where does the oil refining industry can go?
Interesting that GTL releases so much CO2. Is it not possible to simply compress the gas into big cylinders at the well head? I know this may wrankle with the political sensitivities of some folks here, but it seems like flaring should be illegal. It would seem like a cheap way to reduce total carbon emissions. Much better ROI than subsidizing solar for example.
RE: Where does the oil refining industry can go?
“The technology is not new. People have been making liquid fuel for many years from gas, most principally natural gas, which actually started in World War II, by the Germans. Our particular technology is a CO2-based gas-to-liquids technology. While most GTL technologies produce and emit CO2, we actually use the CO2 as a feedstock.”
“One of the reasons you don't see the big oil companies bragging about their GTL efforts is because it's not particularly sexy in terms of the environment. You produce a lot of CO2. But from a national security standpoint? It's spot on.”
See the site below
www.smartplanet.com/.../carbon-sciences-ceo-byron-...
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
Crude oil at the moment is at prices of four years ago...
RE: Where does the oil refining industry can go?
In the UK 60% of the sale price of fuel goes to the government. http://www.ukpia.com/files/pdf/ukpiabriefingunders...
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
It is rarely a good idea to open up a conversation that has been dormant for 6 months to make a quip. In this case I went back and read the end of it and found that it continued while I was without internet in October/November and I missed the end of the conversation.
Moltenmetal posted a link to me that I never saw until this afternoon. I've been reading the Banholzer paper this afternoon and it is fantastic. He puts a number of very difficult concepts into terms that are completely accessible to any engineer and very accessible to anyone willing to open their minds a touch.
David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
The well-scale GTL liquids skid does not violate any of the concepts in Banholzer's paper. The reason that it seems like it is you are comparing a commodity with value (natural gas) to another commodity with value (syngas and follow-on products) and the economics favor scale. In the case I was talking about (the Baaken) not only is the feedstock worthless (zero value), but everyone from the county commissioners to the EPA are clamoring for fines to be assessed on flared gas. So if I'm taking a product that has a significant negative value and converting it into a product with a significant positive value then the economics change dramatically. Once someone builds gas pipe to that field then the economics get considerably skinnier quickly.
David Simpson, PE
MuleShoe Engineering
In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. Galileo Galilei, Italian Physicist
RE: Where does the oil refining industry can go?
RE: Where does the oil refining industry can go?
Until the heavy negative cost or ban is in place, there's insufficient driving force to pay back the capital and operating of something which is still fairly complex even at the small scale.
We deal with "waste conversion" projects all the time. As soon as your waste becomes someone else's feedstock, the economics change- again- with the negative value either going away entirely or being reduced quite a bit. If you're making money off my waste, generally I notice and want a slice. The oil producers wouldn't suffer from this if they ran the small scale GTL units themselves.
RE: Where does the oil refining industry can go?