Chapter 5 The Petroleum Refining Industry

1 Chapter 5 The Petroleum Refining IndustryPhoto credit American Petroleum Institute and Exxon Corp. -.. -..4~..- Contents..,PageIndustry Overview .. Industry ,.. 85 Product Mix .. l ..86 Economics of ..,..l ..88imports and Exports .. 89 Trends and .. 90 Energy and ..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 l P.. 105impacts of Policy Options on the Petroleum Refining Industry .. 107 The Reference Case .. 107 Projected Effects of Policy Options .. 110 TABLEST able Definition of SIC 29-The Petroleum Refining and Related Industries .. 8522. Petroleum Refining Corporations Earning More Than $16 Billion in 1981.

2 8623. Products Manufactured in SIC 29, .. 8724. Process Plant Construction Cost,1972 and 1982.. 8825. Comparison of 1972 and 1981 Energy Consumption in Petroleum RefiningIndustry.. 9826. Petroleum Refining Industry Projects To Be Analyzed for lnternal Rate of Return(lRR) Values .. 10827. Projected Changes in Petroleum Refining Production Between 1985 and Effects of Policy Options on lRR Values of Petroleum Refining Industry . 11129. Effect of Lower interest Rates on lRR Values of Petroleum Refinery IndustryProjects .. 112 FIGURESF igure Employment Trends in Petroleum Refining lndustry,1970-82 .. 8920. Topping Refinery Model Configuration .. 9421222324252627 Hydroskimming-Refinery Model Configuration .. 94 Complex Refinery Model Configuration .. 96 Alliance Refinery Energy Profile .. 97 Comparison of Petroleum Refining Industry Energy Use and Production Output1972 and 1981 .. 98 Diagram of Atmospheric Fluidized-Bed Combustion Boiler/CombustorArrangements.

3 103 Petroleum Refining Industry Projections of Fuel Use and Energy Savings byPolicy Options 1990 and 2000 .. 109 Petroleum Refining Industry Energy Intensity Projection, 1970X)00.. 110 Chapter 5 The Petroleum Refining IndustryINDUSTRY OVERVIEWThe Petroleum Refining Industry uses the largestquantity of premium fuels in the industrial sec-tor, amounting to 2,7 Quads in 1981. It is sec-ond only to the chemicals Industry in the totalamount of energy it consumes. Classified underSIC 29, the Petroleum Refining Industry is definedas the group of establishments engaged in refin-ing Petroleum , producing paving materials, andmanufacturing lubricating oils. Its official descrip-tion is shown in table Industry faces a future that bears little re-semblance to its past. Previously, the firms thatmade transportation fuels for the United Stateshad access to large quantities of high-qualitycrude oil. Now, they must use less desirable high-suIfur crude oils as feedstocks.

4 The petroleumproduct market is changing as well. Environmen-tal considerations require production of high-octane, unleaded gasoline, instead of gasolinewith lead added to improve fuel addition, the costs of fuel have risen to suchlevels that overall demand for Refining productsis projected to decline over the next two , the management of firms in SIC 29 findsitself in the unenviable position of having to makesizable capital investments in an Industry whoseproduct will be in less American Petroleum I nstltute, Energy Et t /c/ency /rnpro~ emenland Recot ered ,W]tcr\al L tlllzatlon Report to Department otEnerg}, June 10, 1982, p 21. Definition of SIC 29 The PetroleumRefining and Related IndustriesThis major group includes establishments primarily en-gaged in Refining Petroleum , manufacturing of paving androofing materials, and compounding lubricating oils andgreases from purchased materials.

5 This SIC group containsthe following subcategories:SlCTitle291 .. Petroleum refining295. , .. Paving and roofing materials299..Miscellaneous products of Petroleum and oilSOURCE Office of Management and Budget, Standard Indusfrlal ClassificationManual, 1972 Finally, the Refining process is becoming morecomplex as demand increases for high octane,unleaded gasoline. Crude Petroleum , as foundin nature, must be processed (refined) to removeimpurities and to manufacture such usefuI ma-terials as gasoline, jet fuel (kerosene), and fueloil. In the early days of the Petroleum refiningindustry, simple distillations were used to pro-duce desired gasoline and kerosene products,with up to so percent of the crude oil feedstockbeing discarded. In recent years, this Industry hasmade a great deal of effort to increase the yieldof high octane products, minimize waste, and im-prove the overall quality of the product StructureThe Petroleum Refining Industry now con-sists of approximately 270 refineries owned by162 Refineries are located in 40 ofthe sO States.

6 Refining capacity is located in areasknown as Petroleum Administration for Defense(PAD) districts. Major concentrations of refiningcapacity exist in PAD districts 2 (Great Lakes andMidwestern States), 3 (Gulf Coast), and 5 (PacificCoast). PAD district 1 (East Coast) has less refin-ing capacity, a deficiency made up for by pipelineand tanker shipments from the Gulf Coast andby imports, primarily of residual fuel oil, fromforeign Western Hemisphere refineries, of January 1, 1982, the operating refineriesin the United States had a total crude-runningcapacity* of about million barrels per day(bpd), representing about 27 percent of the refin-ing capacity of the non-Communist Proc-essing from around 1,000 bpd to over 600,000bpd, refineries range from fully integrated com-Zlbld., p. ~etro/eum Encyclopedia, J. C. McCasli n (cd. ) (Tulsa,Okla.: The Petroleum Publishing Co., 1981).*The size of a refinery IS normally expressed as Its crude capaci-ty, meaning the number of barrels that can be run each daythrough its atmospheric distillation units.

7 Amercian Petroleum Institute, Basic Petro/eum Data Book, Jan-uary Industrial Energy Useplex plants, capable of producing a completerange of Petroleum products, to small, simplerefineries that can produce only straight-run dis-tillates, heavy fuel oils, and sometimes (less than 75,000 bpd) refineries make upabout 60 percent of the total number of refiningunits, but their combined capacity is only about24 percent of the total throughput. * In terms ofownership, the four largest companies haveabout 38 percent of the total Refining capacity,and 20 companies have about 77 percent of thetotal Refining The top 10 firms areshown in table is no single, accepted method of catego-rizing the structure of the Petroleum refin-ing Industry that captures the similarities and dif-ferences in refineries related to processing capa-bilities, access to feedstock supplies, ability tomarket, and the like.

8 One grouping is:1. Large, integrated, multinational companiestypically have worldwide production, refin-ing, and marketing operations in addition totheir activities in the United States. A numberof these firms are descendants of the Stand-ard Oil companies created when Rockefel-ler s Standard Oil trust was dissolved These major oil producers have typ-ically had access to assured supplies of crudeoil from the Middle East and other produc-ing areas of the world. Such guaranteed sup-*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. House of Representatives, Committee on Energy and Com-merce, Refineries: A Background Study, July of crude oil are diminishing as govern-ments of the producing countries increasing-ly take over responsibility for disposing oftheir crude production.

9 As a consequence,many of the multinational oil producersfind that their domestic activities includingrefining are becoming more important totheir financial health. These companies, withtheir sophisticated high-volume refineries,provide the bulk of the products manufac-tured through complex processing and medium-sized domestic refinersmake up a diverse group of are fortunate in being largely self-suf-ficient in domestic production of crude depend for their crude supply onsome combination of long-term contractsand spot purchases. * They have muchless total Refining capacity than do the ma-jor firms, but a number of them are signifi-cant marketers in their own refiners form the most diversegroup of all. Most independent refiners aresmall, domestic companies. Refining is theirprincipal operation; most do not producecrude oil and do not market their productsunder their own Mixpetroleum refinery is a complex assembly ofindividual process plants interconnected with pip-ing and tanks.

10 Each plant has a specific function,*Spot purchases are those made by refiners on the open marketand without benefit of a 22. Petroleum Refining Corporations Earning More Than $16 Billion in 1981 RevenuesCorporation(in billions)EmployeesExxon .. $ ,000 Mobil Oil.. ,000 Texaco .. ,728 Standard Oil of California (Chevron) .. ,000 Standard Oil (Indiana) (Amoco) .. ,700 Atlantic Richfield .. ,200 Gulf Oil Corp.. ,300 Shell Oil Co.. ,273 Conoco .. ,500 Phillips Petroleum Co.. ,500 SOURCE Standard and Poor s Register of Corporations, Directors and Executives, vol. 1, 1983Ch. 5 the petroleum refining industry . 87and each refinery has been built to process a cer-tain type of crude oil (or slate of crudes) to pro-duce the products required for a defined for specific products change constant-ly, and existing refineries are modified or newrefineries are built to accommodate suchchanges. In recent years, Government regula-tions, subsidies, and other influences (to bedescribed later) have greatly affected both re-finery operations and the construction of convert crude oils into a broad spec-trum of products, most of which are fuels.