Brent crude compared with Arab Light crude in Rotterdam
Figure 1: Short-term fluctuations in the relative pricing of Brent crude compared with Arab Light crude in Rotterdam.

With crude oil accounting for about 80% of a refinery’s costs, there are large opportunities for refiners to increase margins by including lower-priced, opportunity or niche crudes in their diet. They may also go further and invest in revamps to enable increased flexibility for their bulk crude diet. Naturally, there are concerns about the potential impact of such oils on assets, so how should a refiner assess the risks of a crude diet change?

Most refineries were configured to process a specific diet of crude oils that lies within a narrow quality window. However, over time, the crude diet may change and the quality window may not be fully exploited. Lower-priced, opportunity crudes provide a chance to increase margin, but steps must be taken to ensure that they do not adversely affect plant performance.

For a typical 200,000-bbl/d refinery, changing the crude diet to include 10% of an opportunity crude with a relative discount of $1.0/bbl could increase the gross refinery margin by some $7.0 million per year. Moreover, this will typically require no capital expenditure.

Crude flexibility is also valuable for the refinery’s core, or bulk diet. This is because it:

  • enables the refinery to take advantage of short-term fluctuations in crude pricing; and
  • increases the refinery’s economic robustness against longer-term market disruption and trends.

Studies by Shell Global Solutions have shown that refiners with full flexibility to take crudes of differing qualities from several supply regions can also capture margin benefits of up to $0.5/bbl compared with those that have a restricted feed diet. This could unlock a total value of up to $31.5 million if applied to all 90% of the core diet of a 200,000-bbl/d refinery.

Relative pricing of Brent crude compared with Urals crude in the Mediterranean
Figure 2: Short-term fluctuations in the relative pricing of Brent crude compared with Urals crude in the Mediterranean.

Taking advantage of short-term fluctuations in crude pricing

Figure 1 shows that there can be short-term fluctuations of $1–2/ bbl in the relative pricing of sweet Brent (North Sea) and sour Arab Light (Persian Gulf) crude in Rotterdam, the Netherlands. Similar fluctuations occur in other supply regions (Figure 2).

These fluctuations depend on factors that affect availability, including maintenance shutdowns of production facilities. This level of price fluctuation is significant when total refinery margins can be about $4–6 per barrel.

Relative pricing of Brent crude compared with Arab Light in Rotterdam
Figure 3: Longer-term comparison of relative pricing of Brent crude compared with Arab Light in Rotterdam.

Increasing the refinery’s economic robustness against longer-term market disruption and trends

In Figure 3, the curve for the same crudes as in Figure 1 but over a longer timeframe shows that there was a period of about six months in 2011 when the relative cost of light sweet crude in north-western Europe increased as the supply tightened during the Libyan crisis. Margins for those European refineries dependent on light sweet crude and unable to switch to sour crude were depressed. A refinery designed for a North Sea crude diet that wishes to enable sour crude capability may need to make hardware changes to, for example, its sulphur recovery capacity.

Refinery change in crude diet with moderate capital investment
Figure 4: Example of refinery change in crude diet with moderate capital investment.

Similarly, the increase in light tight oil production in the USA in 2011/2014 forced suppliers to find alternative markets for their West African crudes. This resulted in increased market volatility and more occasions when it was economic to run with West African crude in Europe. However, West African crudes can have higher levels of contaminants such as nitrogen, and refiners seeking to benefit from their cost advantage must take steps to ensure that these do not affect the performance of their process units.

Figure 4 shows a refiner that is making progress, with moderate capital investment, to reduce its dependency on conventional crude diets.

Key steps to increasing crude flexibility
Figure 5: The spider diagram shows how a crude diet can be analysed. In this example, the refiner could add more high-TAN crudes, which are typically lower cost, to its blends and still be within its quality window.

Key steps to increasing crude flexibility

Refineries typically tend to have an acceptance matrix that limits several of the crudes’ properties, including total acid number (TAN) and sulphur, nitrogen and vanadium levels (Figure 5). If a refinery is not simultaneously hitting some of the prevailing constraints, it may be failing to capture maximum value.

Compared with traditional grades, opportunity crudes can present the refinery with substantial challenges because they typically have a high TAN and high aromatics, metals and nitrogen content. Consequently, they bring the risk of reliability issues and unplanned shutdowns, and can make it more challenging to meet product specifications.

It is vital, therefore, that the refiner carries out a full evaluation of technical feasibility, especially the hardware constraints, before changing the crude diet. Potential bottlenecks and constraints must be identified; predictions should be made regarding whether corrosion and fouling would occur; and the impacts on the tank farm and all the process units must be understood.

In addition, switching to higher-sulphur crudes will likely affect the post-treatment units, which will probably also require a revamp to deal with the inevitable increase in hydrogen sulphide production. Moving from 1 to 2% sulphur in crude requires the capacity of the gas/liquid treating and sulphur recovery facilities to be doubled.

Next, the crude acceptance matrix, combined with the linear programming model, should be used to help identify the most appropriate crude that will cut feedstock costs without harming plant reliability or product slate.

For maximum margin impact, dynamic limits should be introduced. Applying dynamic limits rather than simply moving to a few approved crudes enables a refiner to accept distressed, non-compliant cargoes at highly discounted prices, providing the average over the cycle remains within the limits.

Scenario

An initial assessment indicated that a refinery’s crude diet did not hit some acceptance limits, in particular, acidity, gas oil, cetane, long-residue metals and Conradson carbon residue. The analysis also revealed spare capacity in crude distillation unit overheads within the refinery’s existing base crude diet.

Crude screening produced several potential candidates. However, the best option was a mixture of crude and condensate, which could replace 15% of the crude diet and provide additional value of $2/bbl while producing a similar yield pattern. Implementation of the recommended crude did not require any capital expenditure and was possible within four months.

Key Takeaways

  • There are huge opportunities for refiners to increase margins by including lower-priced opportunity crudes in their diet.
  • These crudes bring the risk of reliability issues and can make it more difficult to meet product specifications, but these issues can be mitigated.
  • With the right approach, refiners can take advantage of short-term fluctuations in crude pricing and become more robust against longer-term trends.
  • Benefits of up to $1.0 a barrel can typically be realised for little or no capital expenditure.

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