Why refinery revamps offer compelling investment opportunities in today’s volatile markets

Suleyman Ozmen
Süleyman Özmen: Vice President, Refining and Chemical Licensing Shell Global Solutions International BV

Industry overcapacity, crude price volatility, the implementation of environmental regulations in new markets, the desire to reduce fuel oil production and changes in feedstock availability are combining to make this one of the most challenging periods that the industry has ever known.

Investment can be key to maintaining competitiveness, but large programmes requiring substantial capital expenditure are likely to be difficult to justify to shareholders.

In most parts of the world today, a proposal for a grass-roots refinery, for example, is extremely unlikely to get off the ground. At a cost of $10–$20 billion, depending on the scope and the size of the refinery, and with gross refinery margins being viewed as poor to average at best, such a project is likely to be out of reach for most investors. In fact, in many cases, the project cost escalates further with the need to integrate with petrochemicals production.

Refiners can often achieve better payback with less risk by improving or upgrading their existing assets. That is why, in this supplement, we are focusing on revamping and upgrading opportunities. The business case for such projects, which will typically cost $100–500 million, is usually far more compelling.

The cost per tonne of the capacity installed during a revamp is about 20–50% of that for a grass-roots facility. The extreme range reflects the flexibility a refinery has in a revamp project. A feasibility study for a revamp project can identify costs with a greater degree of certainty, thereby enabling a refiner to make easier decisions on how much scope to take on in a project. In addition, there is the gestation period to consider; a revamp will deliver returns far quicker than a grass-roots project.

Smaller, incremental investments can be extremely suitable in today’s market and revamps are key elements of many of our customers’ investment strategies. They carry a smaller investment risk, generate credibility with investors and, as many of our case studies demonstrate, provide the ability to respond flexibly to differing situations as market conditions change.

At Shell Global Solutions, we have always advised customers not to overlook their existing assets. Operational excellence should be your first consideration. Then, you should generate as much value as possible from your existing assets through revamps, for example. These can provide big gains for a relatively modest investment and the returns can help to fund any larger capital projects that you may require. This is the basis of the Shell Global Solutions Multiplatform Pentagon model below.

Shell Global Solutions’ revamp projects are, by definition, low in capital expenditure. We seek to reuse existing equipment and find synergies with the conversion units already on the ground. We try to minimise major equipment; the kit that needs to be acquired is usually limited to items that have a modest capital cost such as new reactor internals, heat exchangers and small furnaces (for a more detailed list of actions that are typically taken in a revamp, see Technology focus)

However, revamp projects are also more complex in the implementation phase than grass-roots initiatives. The project planners have to ensure that they do not disrupt the continuing operation of the existing facility. They have to design within the existing units’ precise boundary conditions, such as the size and duty of the existing reactors, and the tie-ins during project execution have to be carefully planned.

Fortunately, these issues can be mitigated by working with an experienced strategic licensor that has experience of delivering such projects internally and externally. Shell Global Solutions has delivered a wide variety of value-adding revamping and upgrading projects around the world, some of which are described in more detail in the pages that follow.

The Shell Global Solutions Pentagon Model

Pentagon I advocates a focus on operational improvements that do not require capital expenditure. These are short-term initiatives and can help to fund Pentagon II initiatives, which are short-to-medium-term revamp solutions. In turn, the cash generated from those initiatives can be used for the more capital-intensive projects of Pentagon III. Each of the three pentagons has investment options on all five sides.

Health, safety and environmental issues are of great importance to Shell Global Solutions and thus central to all Pentagon options.

ABOUT US

  • Shell Global Solutions can undertake the full range of revamp projects, which it generally designs for shorter delivery and payback periods.
  • A dedicated, highly experienced team manages our revamp projects and draws on the years of experience that Shell has gained in revamping and operating refineries and petrochemical omplexes around the world.
  • When revamping hydrocrackers and hydrotreaters, Shell Global Solutions offers proprietary state-of-the-art reactor internals and works with two of Shell’s catalyst companies, Criterion Catalysts & Technologies (Criterion) and CRI Catalyst Company.
  • Shell Global Solutions licenses a wide range of industry leading technologies across all refinery processes, from distillation and separation, through hydrocracking and hydrotreating (including for dewaxing, lubricant base oil and enhanced aromatic saturation) to technologies for treating sour gas such as the CANSOLV* SO2 Scrubbing System.
  • The alliance of Shell Global Solutions with KBR enables both companies to offer a broad range of refining technologies aimed at helping customers to unlock margin improvements while meeting their environmental mandates. This covers hydrocracking, hydrotreating, deep-flash, high-vacuum technology and bottom-of-thebarrel upgrading.

*Cansolv is a Shell trademark

Selected references

Revamp type Customer
Increase hydrocracker conversion for increased middle distillates yield Grupa LOTOS’s Gdańsk refinery, Poland
Reduce hydrocracker conversion for base oil production Hyundai Oilbank’s Daesan refinery, South Korea
Maintain hydrocracker conversion; increase middle distillates capacity

Valero’s St Charles refinery, USA

Valero’s Louisiana refinery, USA

Marathon’s Garyville refinery, USA

PREEM AB’s Preemraff Lysekil refinery, Sweden

Increase hydrotreater middle distillates yield TAIF-NK’s Nizhnekamsk refinery, Russia
From full conversion to partial conversion for ethylene cracker feed Shell Deer Park Refining Ltd’s Deer Park refinery, USA
Convert diesel hydrotreater to mild hydrocracker for increased middle distillates capacity OJSC Naftan’s Novopolotsk refinery, Belarus
Add distillate dewaxing to produce winter diesel S-Oil Corporation’s Onsan refinery, South Korea

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