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Petroleum Refining Overview Petroleum Refining Overview

TopicsTopics

‣ Energy consumption & petroleum’s place

• Size of U.S. industry

• Major refiners

‣ Petroleum products

‣ Basic petroleum economics

• Trends for crude oil & gasoline prices

• When do refiners make money?

‣ Generalized Petroleum Refinery

U.S. Energy ConsumptionU.S. Energy Consumption

Source: 1850-1949, Energy Perspectives: A Presentation of Major Energy and Energy-Related Data, U.S. Department of the Interior, 1975; 1950-2000, Annual Energy Review 2000, Table 1.3.

0

20

40

60

80

100

120

1750 1800 1850 1900 1950 2000

Ener

gy C

onsu

med

(Qua

d =

10En

ergy

Con

sum

ed (Q

uad

= 10

Ener

gy C

onsu

med

(Qua

d =

10En

ergy

Con

sum

ed (Q

uad

= 10

1515 1515 B

TU)

BTU

) B

TU)

BTU

)

WoodHydroelectric Power

Nuclear Electric Power

Coal

Natural Gas

Petroleum

Program Markets Are InterconnectedProgram Markets Are Interconnected

U.S. Dependence on Foreign OilU.S. Dependence on Foreign Oil

Rate of Use

FranceS. KoreaBrazilCanadaIndiaRussiaGermanyChina

U.S.Japan

Mexico

0% 10% 15% 20%5% 25%

3%3%3%3%3%3%3%

7%

25%7%

3%

Oil Reserves

U.S.NigeriaLibyaRussiaVenezuela

U.A.E.

KuwaitIraqIranCanadaSaudi Arabia

2%2%

3%5%

6%8%8%

9%10%

14%21%

Updated July 2005. Source: International Energy Annual 2003 (EIA), Tables 1.2 and 8.1-O&GJ. Canada’s reserves include tar sands.Source: National Renewable Energy Laboratory

The United States uses more oil than the next five highest-consuming nations combined.

Sources:

U.S. data

Vehicles: U.S. Department of Transportation, Federal Highway Administration, Highway Statistics 2000, Table VM-1, and earlier annual editions.

Population: U.S. Department of Commerce, Bureau of the Census Time Series of National Population Estimates: April 1, 2000 to July 1, 2001

Other countries/regions

Energy Information Administration, International Energy Outlook 2002, DOE/EIA-0484(2002), p. 256.

Vehicles per Thousand PeopleVehicles per Thousand PeopleHistorical U.S. Vehicles per 1000 People

0

100

200

300

400

500

600

700

800

900

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

Vehicl es per 1000 People

Sources:

U.S. data

Vehicles: U.S. Department of Transportation, Federal Highway Administration, Highway Statistics 2000, Table VM-1, and earlier annual editions.

Population: U.S. Department of Commerce, Bureau of the Census Time Series of National Population Estimates: April 1, 2000 to July 1, 2001

Other countries/regions

Energy Information Administration, International Energy Outlook 2002, DOE/EIA-0484(2002), p. 256.

Vehicles per Thousand PeopleVehicles per Thousand PeopleHistorical U.S. Vehicles per 1000 People

0

100

200

300

400

500

600

700

800

900

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

United States

Vehicl es per 1000 People

�

�

��

��

China

Africa

Developing Asia

Middle East

Central & S. AmericaFormer USSR

Eastern Europe

� Industrialized Pacific�Western Europe

US Refining CapacityUS Refining Capacity

EIA, Jan. 1, 2009 databasehttp://www.eia.doe.gov/oil_gas/petroleum/data_publications/refinery_capacity_data/refcap_historical.html

Company

Capacity

Barrels per

Calendar Day

Capacity

Barrels per

Stream Day

ConocoPhillips 2,013,000 2,120,881

Valero Energy Corp 2,001,290 2,095,700

ExxonMobil Refining 1,964,350 2,047,650

BP 1,426,370 1,488,700

PDVSA 1,105,750 1,138,350

Marathon Petroleum 1,016,000 1,103,000

Chevron USA Inc 1,033,271 1,100,200

Total 18,249,450 19,291,308

Capacities for LLC refineries split among the partner companies Chevron USA Inc

ConocoPhillips

ExxonMobil Refining

BP

PDVSA

Marathon Petroleum

Valero Energy Corp

Company State Site

Atmospheric Crude

Distillation Capacity

(barrels per stream

day)

Atmospheric Crude

Distillation Capacity

(barrels per calendar

day)

ExxonMobil Refining Texas BAYTOWN 596,400 572,500

Hovensa LLC Virgin Islands KINGSHILL 525,000 500,000

ExxonMobil Refining Louisiana BATON ROUGE 524,000 503,000

BP Texas TEXAS CITY 475,000 455,790

PDVSA Louisiana LAKE CHARLES 440,000 429,500

BP Indiana WHITING 420,000 405,000

Chevron USA Inc Mississippi PASCAGOULA 360,000 330,000

ExxonMobil Refining Texas BEAUMONT 359,100 344,500

Sunoco Pennsylvania PHILADELPHIA 355,000 335,000

Deer Park Refining Ltd Partnership Texas DEER PARK 340,000 329,800

Individual Refinery SizesIndividual Refinery Sizes

Distribution of U.S. Refinery Distribution of U.S. Refinery

CapacitiesCapacities

0

5

10

15

20

25

30

35

40

Less

than 10

Mbpd

10 - 50

Mbpd

50 - 100

Mbpd

100 -

200

Mbpd

200 -

300

Mbpd

300 -

400

Mbpd

400 -

500

Mbpd

Greater

than 500

Mbpd

Number of Opera

ting Refineries

0

1,000

2,000

3,000

4,000

5,000

6,000

Capacity [Mbbl/calendar day]

History U.S. Refinery CapacitiesHistory U.S. Refinery Capacities

254

145

0

50

100

150

200

250

300

198119

8319

8519

8719

8919

9119

9319

9519

9719

9920

0120

0320

0520

0720

09

Number o

f Operating U

S Refineries

0

2

4

6

8

10

12

14

16

18

20

Operating Refinery Capacity [MMbbl/stream day]

Source: http://tonto.eia.doe.gov/dnav/pet/pet_pnp_cap1_dcu_nus_a.htm

Trends in Average U.S. Crude SlateTrends in Average U.S. Crude Slate

Source: Shore, J., “Refining Challenges: Changing Crude Oil Quality & Product Specifications,” Energy Information Administration,

World Fuels Conference, Washington, Sept. 25-28, 2002

Ref: Gunaseelan & Buehler, “Changing US crude imports are driving refinery upgrades, Oil & Gas Journal, Aug. 10, 2009

TopicsTopics



• Major refiners






Petroleum ProductsPetroleum Products

‣ There are specifications for over 2,000 individual refinery products

‣ Intermediate feedstocks can be routed to various units to produce different blend stocks

• Depends upon the local economics & contractual limitations

Ref: Unknown origin. Possibly Socony-Vacuum Oil Company, Inc. (1943)

U.S. Refinery and Blender Net U.S. Refinery and Blender Net

ProductionProduction

Source: http://tonto.eia.doe.gov/dnav/pet/pet_pnp_refp_dc_nus_mbbl_m.htm

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Thou

sand

s Ba

rrels

Ann

ually

Thou

sand

s Ba

rrels

Ann

ually

Thou

sand

s Ba

rrels

Ann

ually

Thou

sand

s Ba

rrels

Ann

ually

Miscellaneous Petroleum ProductsStill GasAsphalt and Road OilPetroleum CokeWaxesLubricantsSpecial NaphthasOther Oils for Petrochemical Feedstocks UseNaphtha for Petrochemical Feedstocks UseResidual Fuel OilDistillate Fuel OilKeroseneKerosene Jet FuelAviation GasolineFinished Motor GasolineLiquefied Petroleum Gases

April 2009 U.S. Refinery Yields

Finished Motor Gasoline,

44.8

Aviation Gasoline, 0.1Kerosene-Type Jet Fuel, 9.5

Kerosene, 0.1

Distillate Fuel Oil, 27.4

Waxes, 0

Lubricants, 0.9

Special Naphthas, 0.2

Petroleum Coke, 5.5

Asphalt and Road Oil, 2.5

Still Gas, 4.2

Miscellaneous Petroleum

Products, 0.5

Liquified Petroleum Gases,

5.2

Other Oils for Petrochemical

Feedstock Use, 1.2

Naphtha for Petrochemical

Feedstock Use, 1.3

Residual Fuel Oil, 3.2

About 1.2 ratio of gasoline to

distillate fuels

EIA, refinery yieldhttp://tonto.eia.doe.gov/dnav/pet/pet_pnp_pct_dc_nus_pct_m.htm

U.S. Refinery and Blender Net U.S. Refinery and Blender Net

ProductionProduction

TopicsTopics



• Major refiners






How Much Do Refiners Get for How Much Do Refiners Get for

Gasoline?Gasoline?

Per Gallon Per Barrel

Retail Price $2.63 $110.46

Taxes 15% $0.39 $16.57

Distribution & Marketing 10% $0.26 $11.05

Refining 14% $0.37 $15.46

Crude Oil 61% $1.60 $67.38

Refinery Price $1.97 $82.85

Retail Cost Contributions

Source: http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp

How Much Do Refiners Get for Diesel?How Much Do Refiners Get for Diesel?

Per Gallon Per Barrel

Retail Price $2.53 $106.26

Taxes 18% $0.46 $19.13

Distribution & Marketing 11% $0.28 $11.69

Refining 8% $0.20 $8.50

Crude Oil 63% $1.59 $66.94

Refinery Price $1.80 $75.44

Retail Cost Contributions

Source: http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp

Refinery EconomicsRefinery Economics

‣ When do refiners make money?

• High crude oil prices?

• Low crude oil prices?• It depends!

» Difference between the sale price of the products & purchase price of the crude oil

» Operating costs cut into this margin

Product Economics Product Economics —— Crack SpreadCrack Spread

‣ Estimates the value added by the refining operation

‣ 4 standard spreads

• 5-3-2

� 5 bbl crude → 3 bbls gasoline + 2 bbls heating oil/diesel

• 3-2-1


• 2-1-1


• 6-3-2-1

� 6 bbl crude → 3 bbls gasoline + 2 bbls heating oil/diesel + 1 bbl residual fuel oil

‣ Rule of thumb (from Gary & Handwerk)

• Strongly profitable: > $4 per bbl

• Strongly unprofitable: < $3 per bbl

$9 per bbl$9 per bbl

more appropriate more appropriate

valuevalue

Crack SpreadCrack Spread

‣ Example — CNN Financial numbers, 7/27/2009

• Future prices (September 9, 2009 delivery)

� Light crude oil $68.38 per bbl ($1.628 per gal)

� Unleaded Gasoline $1.93 per gal ($81.06 per bbl)

� Heating Oil $1.82 per gal ($ 76.44 per bbl)

• Spreads

� 5-3-2

� 3-2-1

� 2-1-1

× + × − ×=

3 81.06 2 76.44 5 68.38$10.83 per bbl

5

× + × − ×=

1 81.06 1 76.44 2 68.38$10.37 per bbl

2

× + × − ×=

2 81.06 1 76.44 3 68.38$11.14 per bbl

3

Crack SpreadCrack Spread

‣ Example — CNN Financial numbers, 7/2/2008

• Future prices (August 8, 2008 delivery)

� Light crude oil $140.97 per bbl ($3.356 per gal)

� Unleaded Gasoline $3.51 per gal ($147.42 per bbl)

� Heating Oil $3.94 per gal ($165.48 per bbl)

• Spreads

� 5-3-2

� 3-2-1

� 2-1-1

× + × − ×=

3 147.42 2 165.48 5 140.97$13.67 per bbl

5

× + × − ×=

1 147.42 1 165.48 2 140.97$15.48 per bbl

2

× + × − ×=

2 147.42 1 165.48 3 140.97$12.47 per bbl

3

Historical Prices

$0

$25

$50

$75

$100

$125

$150

$175

$200

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Cushing, OK Crude Oil Future Contract Average

[$/bbl]

0

50

100

150

200

250

300

350

400

450

Gasoline & Distillate Price [¢/gal]

Crude Oil

Regular Gasoline

RBOB Regular Gasoline

No. 2 Heating Oil

Source: http://tonto.eia.doe.gov/dnav/pet/pet_pri_fut_s1_d.htm

0

50

100

150

200

250

300

350

400

450

$0 $25 $50 $75 $100 $125 $150 $175

Cushing, OK, Crude Oil Future Contract Average [$/bbl]

New York Harbor Future Contract Average [¢/gal]

Regular Gasoline

RBOB Regular Gasoline

No. 2 Heating Oil

Source: http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm

Historical Crack Spreads

-20

-10

0

10

20

30

40

50

60

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Crack Spread [$/bbl crude oil]

0

20

40

60

80

100

120

140

160

Cushing, OK Crude Oil Spot Price [$/bbl]

5-3-2 Crack Spread

6-3-2-1

Crude Oil

Historical Crack Spreads

-20

-10

0

10

20

30

40

50

60

2007 2008 2009

Crack Spread [$/bbl crude oil]

0

20

40

60

80

100

120

140

160

Cushing, OK Crude Oil Spot Price [$/bbl]

5-3-2 Crack Spread

6-3-2-1 Crack Spread

Crude Oil

Prices Are Crude SpecificPrices Are Crude Specific

$40.403.3321.8Maya

$53.351.0930.0Alaska North Slope (ANS)

$54.730.3738.3Brent (North

Sea)

$56.430.2439.6WTI

Price (2005)SulfurAPI GravityCrude

Source: http://www.tsocorp.com/refining101/index.swf

TopicsTopics



• Major refiners






Early HistoryEarly History

‣ First oil well of "Colonel" Edwin L. Drake

• August 1859, Oil Creek in northwestern Pennsylvania

• First refineries built up around Pennsylvania oil wells. Batch distillation to recover kerosene.� Kerosene viewed as a superior replacement to

whale oil for lamp oil.

‣ Standard Oil Trust• John D. Rockefeller acquired petroleum

interests during the late 1800s. Organized as the Standard Oil Trust in 1882.

• U.S. Supreme Court dissolved in 1911. 34 companies spun off.

‣ Change in product demand• In 1911, nation's kerosene output

eclipsed for the 1st time by a discarded byproduct - gasoline

Year Process name Purpose By-products, etc.

1862 Atmospheric distillation Produce kerosene Naphtha, tar, etc.

1870 Vacuum distillation Lubricants (original) Cracking feedstocks (1930's)

Asphalt, residual coker feedstocks

1913 Thermal cracking Increase gasoline Residual, bunker fuel

1916 Sweetening Reduce sulfur & odor Sulfur

1930 Thermal reforming Improve octane number Residual

1932 Hydrogenation Remove sulfur Sulfur

1932 Coking Produce gasoline basestocks Coke

1933 Solvent extraction Improve lubricant viscosity index Aromatics

1935 Solvent dewaxing Improve pour point Waxes

1935 Cat. polymerization Improve gasoline yield & octane number

Petrochemical feedstocks

1937 Catalytic cracking Higher octane gasoline Petrochemical feedstocks

1939 Visbreaking Reduce viscosity Increased distillate,tar

1940 Alkylation Increase gasoline octane & yield High-octane aviation gasoline

1940 Isomerization Produce alkylation feedstock Naphtha

1942 Fluid catalytic cracking Increase gasoline yield & octane Petrochemical feedstocks

1950 Deasphalting Increase cracking feedstock Asphalt

1952 Catalytic reforming Convert low-quality naphtha Aromatics

1954 Hydrodesulfurization Remove sulfur Sulfur

1956 Inhibitor sweetening Remove mercaptan Disulfides

1957 Catalytic isomerization Convert to molecules with high octane number

Alkylation feedstocks

1960 Hydrocracking Improve quality and reduce sulfur Alkylation feedstocks

1974 Catalytic dewaxing Improve pour point Wax

1975 Residual hydrocracking Increase gasoline yield from residual

Heavy residuals

Ref: http://www.osha.gov/dts/osta/otm/otm_iv/otm_iv_2.html

Description of Petroleum RefineryDescription of Petroleum Refinery

‣ Manages hydrocarbon molecules

‣ Organized & coordinated arrangement of manufacturing processes

• Provide physical & chemical change of crude oil

• Salable products with specifications & volumes as demanded by the

marketplace

‣ Complete refinery will include:• Tankage for storage

• Dependable source for electric power

• Waste disposal & treatment facilities

• Product blending facilities

• Around the clock operations

• Conversion units

Petroleum Refinery Schematic Petroleum Refinery Schematic

RefineryProcesses

Raw Materials

Products

Petroleum Refinery Schematic Petroleum Refinery Schematic

Frac

tio

nat

ion

Raw Materials

Products

Co

nve

rsio

n P

roce

sse

s

Re

fin

ery

Pro

cess

es

Ble

nd

ing

Separation based on volatility

Processing of gasoline blend

stocks

Upgrade gas oils & distillates

Upgrade residua

Remove undesirable components (e.g., sulfur)

Blending to meet final

product specs

SummarySummary


• The US uses more than the next 5 highest consuming nations combined

• Largest US refiners have resulted from mergers of other major companies

� Valero, ExxonMobil, ConocoPhillips, BP, Chevron, …

• Petroleum used primarily for light & heavy transportation fuel

� But there are over 2,000 possible products for a refinery


• Crude oil & product prices have shown volatility

• Prices at historical highs

• Refiners make money based on the difference between product prices & feedstock costs

‣ Petroleum Refineries

• 1st refineries produced kerosene & discarded naphtha/gasoline

• Modern refineries & markets have developed over 100 years

• Societal influences: high octane gasoline production, clean fuels

• Generalized refinery: fractionation, conversion processes, & blending

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