The Feedstock Industry
Despite recent declines in the current depressed economic circumstance, the underlying picture for refined products is for increased demand for lighter products. This selective demand pattern is having a strong impact on refinery investments and will influence the feedstock options open to the petrochemical industry in the coming decades.
The oil and gas industry produces a wide range of hydrocarbons which are consumed in an increasing number of varied applications, globally. While these hydrocarbon products are principally used for heating and transportation, a smaller use is for the production of petrochemicals.
Refined Product Consumption
Behind the strong growth in crude oil demand has been a strong market pull for lighter refined products. Consequently, production of gasoline and distillates such as diesel, jet fuel, gas oil and kerosene now account for around two thirds of world oil demand. These products which tend to be harder to refine, require significant investment in refinery conversion or “upgrading” capacity. The main energy and non-energy related uses of crude oil are the key to understanding the shift towards these lighter refined products; transportation, heat, power and electricity generation and non-energy uses such as petrochemical feedstock.
In North America, oil consumption is primarily for transportation fuels where gasoline accounts for almost half of the refined product demand mix. Other economies are dominated by their consumption of refined products for heat and power generation. Global consumption of refined products is typically highest in the Northern hemisphere’s cold months when consumption is dominated by the need for heat and power generation. In the Northern hemisphere’s summer season, a swing in consumption occurs from heating and power to transportation.
Global Refined Product Consumption, 2008
Global Incremental Refined Product Consumption
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North America is the most gasoline orientated market in the world with the U.S. the primary consumer. The growth in consumption has been heavily skewed towards lighter, higher quality products. Despite rising excise taxes and extra costs related to producing more environmentally friendly and higher quality grades, gasoline still remains very affordable to the average American consumer, although the recent sharp increase in oil prices resulted in consumers seeking to reduce overall energy costs.
In Europe, diesel demand growth is being driven by its increased consumption by commercial vehicles due to relatively high economic activity and governments in several countries providing a more favourable price regime for diesel over gasoline, encouraging an increase in sales of diesel vehicles to private consumers. The increase in diesel fuelled vehicles, and consequent strong demand for diesel within the region, is a result of a combination of factors. These include the tax benefits diesel affords over gasoline, the favourable fuel consumption in terms of miles driven per gallon of fuel consumed and the perceived environmental benefits of diesel fuels.
In the industrialised regions of the world, residual fuel oil demand accounts for a small percentage of the refined product mix. Extensive gas distribution networks, ready availability of substituting fuels including natural gas, the increasing development of LNG, the drive towards improved energy efficiency, service orientated business economies and the relocation of some manufacturing and other industrial activities to the developing economies, have all contributed to the decline in fuel oil demand.
Industrial applications represent a large portion of domestic refined product consumption, particularly for LPG and naphtha. LPG and naphtha consumption growth is primarily driven by petrochemical investments within a given region. The Middle East is currently experiencing a huge expansion in the petrochemical sector as several countries move to diversify beyond oil and gas. Petrochemical demand growth is also strong with growth fastest in the Asia Pacific. The Middle East, in particular, is well placed to respond to such demand thereby building on the already significant trade between both regions. LPG and naphtha are primarily used in petrochemical processes to produce olefins, ethylene and propylene. The Middle East is expected to meet a significant portion of future olefins production and on this basis it is forecast that domestic use of LPG and naphtha as petrochemical feedstock will increase.
Investment / Supply
Refiners, globally, are increasingly investing heavily in upgrading units to facilitate both the general upgrade in value of refined products. This leads to the making of less fuel oil and maximising output of middle distillates (gasoline, kerosene and diesel) as well as an overall improvement in product quality. Thus, the trend over recent years has been towards increasing refinery complexity via installation of deep conversion and upgrading units.
Another factor for the refining industry is that the relative abundance of sweet and light crude oil is diminishing, with the trend expected to continue. Consequently, in the longer term, there will be an increasing shift from light to heavier and from sweet to sour crude oils, supporting investments geared towards refinery conversion and upgrading capabilities. This shift in crude oil availability poses an additional challenge for refineries as the majority of products achieved from heavy crude are in the low value fractions such as fuel oil. Medium sour crude oils also produce substantial quantities of heavy residue products. Additionally, refinery investments and installed capacity are influenced by distance from the oil fields in terms of feedstock supply. Hence, crude oil availability, crude oil logistics and refinery configurations all contribute significantly to the differences in refinery economics associated with various regional refineries in the world.
The Middle East is expected to produce the bulk share of future crude oil supply because of its vast resources of crude oil and natural gas, and additional advantage of low production costs. Saudi Arabia is the largest supplier within the region followed by Iran, Iraq, Kuwait and the UAE. The region is also one of the few globally with sufficient spare export refinery capacity as present levels of high demand have stretched middle distillate and gasoline capacity to limits everywhere else.
Meanwhile, Asian refinery configurations have historically been less complex than North America or Western Europe, supported by a stronger demand for fuel oil. In line with the trend in most regions, Asian refineries are increasingly becoming more complex or complete conversion refineries in order to process the growing supply of heavy and sour crude being sourced.
Trade
North America is typically an importer of all refined products with gasoline accounting for the bulk of imports. In addition, North American refiners are unable to match gasoline production to the growing domestic consumption.
In Western Europe, where diesel is the favoured transportation fuel, the increasing number of diesel fuelled vehicles being purchased in the region has also placed further pressure on diesel supply. It is forecast that West European diesel consumption will continue to outpace supply thereby widening the deficit and making the region increasing dependant on imports. The converse is that Western Europe will continue as a net exporter of gasoline primarily to the United States.
The influence of natural gas supplies is also considerable. In regions where adequate gas distribution networks exist, such as Western Europe, the decline in fuel oil production is projected to outpace a declining domestic demand caused by substitution of fuel oil by cheaper natural gas. Such regions are forecast to become increasingly dependant on imports of fuel oil for power generation purposes. In Asia and other transition economies where such gas distribution networks are not as advanced, a growing dependency on fuel oil is projected in the short to medium term which will eventually slow in latter years when demand for natural gas is projected to pick up and gas infrastructure develop.
Petrochemical Feedstocks
The majority of ethylene is produced via thermal cracking of hydrocarbon feedstocks in the presence of steam; steam cracking. Ethylene is also produced in oil refineries in the fluid catalytic cracker (FCC).
In the Middle East, ethane is predominantly the feedstock of choice due to access to readily available cheap ethane gas. The simplicity and less capital intensive features of the ethane gas fed crackers over heavier liquid alternatives further adds to the cost competitiveness of Middle Eastern producers over their global counter parts. In Western Europe and Asia, naphtha is the predominant feedstock. The propylene, C 4 and aromatic by product yields are maximised to provide raw materials for derivative markets. In North America, ethylene is predominantly produced utilising natural gas liquids feedstock comprising of ethane, propane and butane.
Global Steam Cracker Feedstock Consumption, 2008
Aromatic Feedstocks
Almost three-quarters of aromatics production is extracted from reformate produced in the catalytic reformers. Steam cracking of pyrolysis gasoline (pygas) produced from naphtha and heavy liquids is the second largest source. Steam crackers operate primarily based on ethylene demand and the feedstock slate may vary depending on market conditions. Extraction from reformate and pygas are typically the most economical sources of benzene.
Global Aromatics Production, 2008
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