Petroleum Refining Overview - Inside Mines

1 Petroleum Refining Overview Updated: July 31, 2018 Copyright 2017 John Jechura consumption & Petroleum s place Size of industry Major refinersPetroleum productsBasic Petroleum economics Trends for crude oil & gasoline prices When do refiners make money?Generalized Petroleum Refinery2 Updated: July 31, 2018 Copyright 2017 John Jechura consumption in the & Petroleum s contributionUpdated: July 31, 2018 Copyright 2017 John Jechura Markets Are Interconnected4 : July 31, 2018 Copyright 2017 John Jechura Markets Are Interconnected5 : July 31, 2018 Copyright 2017 John Jechura & Refining Capacity6 EIA, Jan.

2 1, 2018 database, published June 2018 Asia Pacific Refining primed for capacity growth , Oil & Gas Journal, pp 34 45, Dec. 1, 2014 Updated: July 31, 2018 Copyright 2017 John Jechura & Capacity of World & Refineries 7 Source: EIA, Jan. 1, 2018 database, published June 2018 Asia Pacific Refining primed for capacity growth , Oil & Gas Journal, pp 34 45, Dec. 1, 2014 Updated: July 31, 2018 Copyright 2017 John Jechura of Refineries8 : July 31, 2018 Copyright 2017 John Jechura Refinery Sizes 10 Largest & 10 Smallest9 EIA, Jan. 1, 2018 database, published June 2018 : July 31, 2018 Copyright 2017 John Jechura s Largest Refineries10 Asia Pacific Refining primed for capacity growth , Oil & Gas Journal, pp 34 45, Dec.

3 1, 2014 Updated: July 31, 2018 Copyright 2017 John Jechura changes to the slate of US refineriesExisting refineries getting larger Motiva completed $10 billion JV expansion in 2013 Increased to 600,000 bpd capacity, now largest in USoOperating problems caused near immediate shut down of new crude distillation train Marathon Petroleum expanding Galveston Bay to incorporate Texas City refinery & increase capacity STAR programscheduledforfullcommissioningin20 22 Changes in operations Tesoro (now Andeavor) had planned to shut down Carson, CA s FCCU in 2017 Changes in ownership Tesoro purchased Dakota Prairie Refining (June 2016)

4 Tesoro bought Western Refining (June 2017) & will be known as Andeavor(August 2017) Marathon Petroleum to buy Andeavor(announced April 2018)11 Updated: July 31, 2018 Copyright 2017 John Jechura Grass Roots Refineries in BuiltFirst OperatedLocationOriginal OwnerOriginal Capacity Bbl/cdCurrent Owner2014 Capacity Bbl/cdType2014 2015 Dickinson, ND Dakota Prairie 19,000 Dakota Prairie Refining 19,000 Simple2014 2015 Galena Park, TX Kinder Morgan 43,000 Kinder Morgan43,000 Simple2008 2008 Douglas, WY Interline Resources 3,000 Antelope Refining 3,800 Simple1998 1998 Atmore, ALGoodway4,100 Goodway4,100 Simple1993 1993 Valdez, AKPetro Star26,300 Petro Star55,000 Simple1991 1992 Ely, NVPetro Source 7,000 Foreland2.

5 000 Simple1986 1987 North Pole, AK Petro Star6,700 Petro Star19,700 Simple1985 1986 Prudhoe Bay, AK ARCO12,000 ConocoPhillips15,000 Simple1981 1982 Thomas, OKOK Refining10,700 Ventura12,000 Simple1979 1980 Wilmington, CA Huntway5,400 Valero6,300 Simple1978 1979 Vicksburg, MS Ergon10,000 Ergon23,000 Simple1978 1979 North Slope, AK ARCO13,000BP ExpAK10,500 Simple1978 1978 North Pole, AK Earth Resources 22,600 Flint Hills126,535 Simple1977 1978 Lake Charles, LA Calcasieu6,500 Calcasieu78,000 Simple1976 1977 Garyville, LAMarathon200,000 Marathon522,000 Complex1976 1977 KrotzSprings, LA Gold King5,000 Alon80,000 Complex1975 1975 Corpus Christi, TX Saber15,000 Valero200,000 , updated January 26, 2016 Updated.

6 July 31, 2018 Copyright 2017 John Jechura Grass Roots Refineries in refineries near oil production Kinder Morgan, Galena Park, TX 50,000 bpd (condensate splitter) Dakota Prairie Refinery 20,000 bpd Bakken crude topping unit with diesel hydrotreating Meridian Energy Group near Belfield, NDo49,500 bpd refineryoOriginally expected 2018 startup may operate on midstream tolling concept Plans near Bakken production MHA Clean Fuels Refinery, 15,000 bpd refinery on the Fort Berthold Indian Reservation near Makoti, NDoGround broken May 2013. No report of completion Quantum Energy? History of announcing refineries & not proceedingComplex refineries 2 planned in mid 2000s no longer active projects Hyperion Energy Center, $10 billion, 400,000 bpd refinery near Union County, SD Would have included PetcokeIGCC for power & hydrogen Air permit applications expired March 2013 & released options on land May 2013 Arizona Clean Fuels Yuma, LLC, 150,000 bpd refinery near Yuma, AZ No press releases since March 200913 Updated: July 31, 2018 Copyright 2017 John Jechura s Complexity FactorEDC.

7 Equivalent Distillation Capacity Measure of downstream conversion capacity to the initial distillation Developed by Nelson (1960) to quantify relative costs of Refining processes Reflects complexity of ISBL, no OSBL considerationsRefineries to process heavy sour crudes typically have higher complexity factors14 Ref: : July 31, 2018 Copyright 2017 John Jechura productsUpdated: July 31, 2018 Copyright 2017 John Jechura Products There are specifications for over 2,000 individual refinery products Intermediate feedstocks can be routed to various units to produce different blend stocks Highly dependent on economics specific to that refinery & contractual limitations16 Ref: Unknown origin.

8 Possibly Socony Vacuum Oil Company, Inc. (1943)Updated: July 31, 2018 Copyright 2017 John Jechura Refinery & Blender Net Production17 EIA, refinery yield updated April 12, 2018 ratio of gasoline & naphtha to middle distillatesUpdated: July 31, 2018 Copyright 2017 John Jechura Petroleum economicsUpdated: July 31, 2018 Copyright 2017 John Jechura EconomicsWhen 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 spreadTypical prices What is the price of crude oil? Depends on location, quality.

9 What are the product prices?19 Updated: July 31, 2018 Copyright 2017 John Jechura Economics Crack SpreadEstimates the value added by Refining (as an industry)4 standard spreads 5 3 2 5 bblcrude 3 bblsgasoline + 2 bblsheating oil/diesel 3 2 1 3 bblcrude 2 bblsgasoline + 1 bblsheating oil/diesel 2 1 1 2 bblcrude 1 bblsgasoline + 1 bblsheating oil/diesel 6 3 2 1 6 bblcrude 3 bblsgasoline + 2 bblsheating oil/diesel + 1 bblresidual fuel oilRule of thumb for profitable operating environment Long held view greater than $4 per bblas strongly profitable Current view should be greater than $9 per bblto be profitable20 Updated.

10 July 31, 2018 Copyright 2017 John Jechura Spread CalculationExample Bloomberg, 7/12/2018 Prices WTI Cushing Spot $ per bbl Brent$ per bbl RBOB Gasoline $ per gal Heating Oil$ per gal 5 3 2 Spreads WTI: Brent: 21 42 3 2 $ bbl5 42 3 2 $ bbl5 Updated: July 31, 2018 Copyright 2017 John Jechura Are Crude Specific22 Ref: Statistics, Oil & Gas Journal, July 9, 2018 Updated: July 31, 2018 Copyright 2017 John Jechura Are Crude Specific23 EIA published monthly production data updated July 12, 20148 : July 31, 2018 Copyright 2017 John Jechura Crude Prices & Crack Spreads24 Updated July 12, 2018 Source: shocks?