Shell team working strategically on a refinery revamp project.

Thriving in the new reality: Making strategic investments with a refinery revamp project

By Paul Rek, Vice President Technology Licensing and Services on Aug 3, 2020

Refinery operators were already facing mounting challenges in 2019: declining demand for gasoline and diesel in some markets, new and very efficient capacity coming on-stream, and increasing regulatory requirements, to name a few. Then, 2020 brought even more difficulties with the unprecedented challenges to operations brought on by the COVID-19 pandemic.

Global economic challenges prompted a dramatic fall in product demand and skewed product slates — sales of gasoline and diesel fell steeply, and jet fuel sales fell by as much as 90% at one point. Recovery will probably be prolonged, and the repercussions will be long-lasting.1

All of these factors present refiners with a dilemma: how to make smart investments while preserving cash in order to maintain their competitive position, when failing to invest could mean competitive vulnerability.

 

1 https://www.ft.com/content/b956c056-b22f-4db7-96e1-be0035c743a1

 

The case for refinery revamps

At Shell Catalysts & Technologies, we have always advised customers to consider revamping, repurposing, or upgrading their existing assets. In our experience, this can be more capital efficient than adding new units and offer a better return on investment.

The benefits of a refinery revamp and this smarter, more focused investment are discussed below.

Low capital expenditure

The cost can be as low as a few million dollars to generate higher upgrade margins within single units up to $100–500 million, realising significant changes in refinery configuration.2

High returns

The cost per tonne of the capacity installed during a revamp is about 20–50% of that for a grassroots facility.3 Such projects are therefore even more relevant in the new reality.

Adapting to the new reality

This is not an easy transition. Current market challenges may not be temporary setbacks from demand decline in many regions, and refinery operators may not be able to simply wait out the current circumstances and expect to return to “normal”. It may not be reasonable to expect all our operations to return to the way they were before 2020.

Rather, we see how existing challenges are accelerating action around energy transition conversations that have been ongoing for decades, as well as accelerating the change in product demand slates.

The energy transition is about decarbonising our society and reducing the amount of greenhouse gas molecules in our atmosphere. The carbon chain is everywhere in our society, making it a very diverse and complex challenge that will require many types of solutions.

We see this as a time for reinvention, and we’re applying this philosophy forward to help our partners adapt and modernise their facilities.

Through revamps, we can help refiners optimise their facilities to meet changing product demand slates. For example, we’ve helped refiners upgrade equipment to process crude oil into higher yields of petrochemicals feedstock, which can help them adapt to changing regional market conditions.4

We see revamps as one strategy among many that refiners, in particular, can use to transform operations and thrive through a long-term journey.

Read how Shell Catalysts & Technologies revamped Hyundai Oilbank Refinery to increase refinery capacity

 

2 https://www.digitalrefining.com/article/1002358/respond-to-changing-markets-with-revamps

3 https://www.digitalrefining.com/article/1002358/respond-to-changing-markets-with-revamps

4 https://www.iea.org/news/global-oil-demand-to-decline-in-2020-as-coronavirus-weighs-heavily-on-markets

 

Starting the journey with revamps

Revamping, repurposing, or upgrading existing units is one feasible strategy for refining operators to retain their competitive advantage while adapting to changing market conditions.

Revamps often require small, incremental investments, which can be highly appropriate in today’s market, as they carry low investment risk, generate credibility with investors, and provide ongoing flexibility as market conditions change.

Such projects are, by definition, low in capital expenditure because we seek to repurpose existing refinery equipment. We try to minimise capital requirements for 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, additional heat exchangers, and furnace modifications. Furthermore, we seek synergies with the units already on the ground, which helps to enhance the return on investment.

Discover how Shell Catalysts & Technologies enhanced refinery margins at Grupa LOTOS

However, these projects are also more complex in the implementation phase than grassroots initiatives. Project planners must ensure that they do not disrupt the continuing operation of an existing facility. Projects must be carefully planned to meet a fixed implementation date and within shutdown time constraints.

Fortunately, these issues can be mitigated by working with an experienced, strategic licensor that has a strong history of delivering such projects, both internally and externally. Our experts at Shell Catalysts & Technologies have delivered a wide variety of value-adding revamping and upgrading projects around the world.

Out of uncertainty comes opportunity: Thriving in the new reality

In this series, we will explore ways to succeed in the new reality by focusing on low capital requirement, high impact projects and revamps. We’ll cover six technology applications with case studies and interviews with our global revamps experts. We hope they provide insights that help you optimize your margins and excel despite market challenges.

Preview the six technology scenarios we’ll be focusing on in this series:

Reactor Internals

Reactor Internals

Shell reactor internals have improved the performance of more than 500 hydrotreaters and hydrocrackers, most of which are in non-Shell facilities. In this series you will see how Shell Catalysts & Technologies has worked to improve yields, solve pressure drop issues, and increase achievable cycle lengths.

Vacuum Distillation

Vacuum Distillation

Since 1985, we have licensed Shell deep-flash high-vacuum technology in 26 revamped units. This series will highlight a customer case study and show how Shell Catalysts & Technologies can increase vacuum gas oil yield, enhance unit throughput, and improve unit reliability and availability.

Hydrocracking

Hydrocracking

We work with refiners worldwide to help increase capacity, adjust conversion to meet the ideal yield profile, and to extend cycle length by increasing crude flexibility or to mitigate fouling. We will be sharing how the revamping of one train of a Residue Desulphurisation (RDS) unit to DAO Hydrocracker, enabled the refinery to process much heavier crudes and generate significant margin.

Distillate Hydrotreating

Distillate Hydrotreating, including dewaxing and renewables co-processing

Shell Catalysts & Technologies continues to be at the forefront of hydroprocessing catalyst development and offers a wide range of distillate hydrotreating solutions to meet the evolving needs of the global refining community.

Ethylene Oxide

Ethylene Oxide

Shell Catalysts & Technologies is the market’s leading EO/EG process licensor and EO catalyst producer, and a pioneer in the industry. For more than 50 years, we have led the industry in improving the performance and lifespan of EO catalysts. Over 50% of the world’s current EO production is manufactured using a Shell EO catalyst.

Fluidised Catalytic Cracking

Fluidised Catalytic Cracking

Refiners are under immense pressure to improve the performance of their Fluidised catalytic cracking (FCC) units. At the same time, there are changing market demands and environmental issues to consider. Shell Catalysts & Technologies helps refiners select technology from an extensive line-up to devise process solutions that meet the unique objectives of our customers.