The North American Crude Boom: How Changing Quality Will Impact Refiners
John R. Auers
Turner, Mason & Company
EPRINC Embassy Series May 22, 2013
Norwegian Embassy Washington, D.C.
Presented by
! International consulting practice since 1971
! Downstream focus; refinery/chemical engineers
! Industry and financial clients
! Publish various outlook and forecast products ! Crude and Refined Products Outlook ! Refinery Construction Outlook ! World Crude Oil Outlook ! Special Studies
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Turner, Mason & Company
! Detailed regional production forecasts – focus on changing quality of crude
! Evaluation of refinery capabilities on a plant by plant basis
! Analysis of required logistics
! Evaluate challenges and opportunities for producers and refiners and midstream operators
! Initial publication – June 2012
! Update issued in October 2012
! Next edition scheduled for release in June 2013
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2013 NACCO Production Forecasts
! North American crude oil production forecasts • Annual forecasts from 2013 through 2022 • High and low production cases for US
• Low Case – 9.5 MMBPD by 2022 • High Case – 12.0 MMBPD by 2022
• Canadian production forecast – 5.5 MMBPD by 2022
! Forecast assumptions • Absolute crude prices (Brent) remain in $80 to $120 range • Assumes some limitations (manpower, materials, regulatory, etc.) • Limited production from some high potential prospects • High case would require significant crude exports
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U.S. Production Forecast
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5"
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10"
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12"
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Million"BPD"
Low" High"
Gravity °API
Sulfur Wt.%
Condensate ≥ 55.0 All
Super Light ≥ 42.0 All
Light Sweet 31.0 – 42.0 ≤ 0.99
Light Sour 31.0 – 42.0 ≥1.00
Medium 24.0 – 31.0 All
Heavy ≤ 24.0 All
TM&C Crude Quality Categories
6"
Change in Crude Production by Grade 2012 to 2022"
7"
41000"
0"
1000"
2000"
3000"
4000"
5000"
6000"
7000"
Condensate/"Light"
Sweet"
Light"Sour" Medium" Heavy"
MBPD"
US"Low" US"High" Canada"
0.2"
0.4"
0.6"
0.8"
1.0"
1.2"
1.4"
31"
32"
33"
34"
35"
36"
37"
2000" 2002" 2004" 2006" 2008" 2010" 2012" 2014" 2016" 2018" 2020"
Sulfur,"wt."%
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API"Gravity"
API"Gravity" Sulfur,"wt."%"
Quality of U.S. Crude Oil Production
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Low"Cases"
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Region"
Cat"
Cracking"
Capacity"
Hydro4
cracking"
Capacity"
Coking"
Capacity"
Total"
Upgrade"
"Capacity"
U.S."7"1981" 28%" 5%" 8%" 41%"
U.S."–"2012" 34%" 10%" 15%" 59%"
Asia" 14%" 5%" 3%" 22%"
Europe" 12%" 6%" 2%" 20%"
World" 17%" 6%" 5%" 28%"
Upgrading"ability"is"total"conversion"capacity"as"percentage"of"distillation"capacity" 9"
PADD II Heavy Crude Projects:
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Refinery
Year
Crude Demand Impact
MBPD
Light Heavy
COP/Cenovus Wood River End of 2011 -95 +130
Marathon Detroit End of 2012 -65 +80
BP Whiting Mid to Late 2013
-170 +205
NCRA/McPherson 2015 -15 +30
BP/Husky Toledo 2018 -45 +60
Total -390 +505
! API gravity/sulfur not especially meaningful to refiners • Easy to measure and categorize
• More valuable as commercial parameter
! Distillation yields most important • Determine how much finished product can be made
• Determine how much can be processed based on unit capacity limits
! Finished product blending qualities/feedstock properties • Impact finish product make/operating yields at downstream units
• Seasonality can be important
! Properties impacting processing • TAN, salt, chlorides, impurities, BS&W, others
! Others • Consistency, etc. 11"
Component Property Purpose
Light Straight Run RON RVP
Gasoline Blending
Heavy Naphtha N+A Reformer Feed
Kerosene Sulfur Freeze
Smoke Pt. Jet Fuel Blending
Diesel
Sulfur API Gravity
Cetane Cloud Pt.
Diesel Blending
Gas Oil
Sulfur API Gravity
K Factor/Aniline Pt. Nitrogen Metals
FCCU or Hydrocracker Feed
Resid
API Gravity Sulfur
Concarbon Metals
Viscosity Penetration
Asphaltene Content
Coker Feed, Fuel Oil Blending,
Asphalt Blending, Resid Cracker Feed
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Shale Crude vs Displaced Light Imports
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Property
Bakken
Eagle Ford
Soyo
Bonny Light
API Gravity 41 45 39 34 Sulfur, wt% 0.20 0.20 0.14 0.24 Distillation Yield, volume % Lt. Ends, C1-C4 3.5 3.8 2.1 1.3 Naphtha 35.7 40.1 23.5 20.3 Middle Distillates 30.9 29.7 34.5 45.5 Gas Oil 24.8 21.2 31.1 27.4 Vacuum Residue 5.2 5.2 8.7 5.4
Heavy Canadian Crude Quality Shift
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Property
Current
2020
Change
API Gravity 20.3 20.3 - - Sulfur, wt% 3.4 3.5 0.1 TAN, mg KOH/gm 1.15 1.50 0.35 Distillation Yield, volume % Lt. Ends, C1-C4 2.7 4.9 2.2
Naphtha 14.0 14.9 0.9
Middle Distillates 21.7 17.8 -3.9
Gas Oil 33.7 31.2 -2.5
Vacuum Residue 27.8 31.1 3.3
Canadian Heavy vs. Latin Heavies
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Property
Canadian
Heavy (Current)
Canadian
Heavy (2020)
Mexican
Maya
Venez. Merey
API Gravity 20.3 20.3 20.5 16.0 Sulfur, wt% 3.4 3.5 3.7 2.5 TAN, mg KOH/gm 1.15 1.50 0.20 0.70 Distillation Yield, volume % Lt. Ends, C1-C4 2.7 4.9 0.9 0.1 Naphtha 14.0 14.9 16.0 7.1 Middle Distillates 21.7 17.8 23.1 24.1 Gas Oil 33.7 31.2 27.0 34.2 Vacuum Residue 27.8 31.1 33.0 34.5
! Heavy crude imports from Latin America to USGC • Estimate floor of about 1 MMBPD
• PDVSA and PEMEX control about 600 MBPD of heavy capacity
• Additional heavy capacity is either contractually “locked-in” or logistics for Canadian crude is difficult
• Overall Latin American heavy production will grow/natural home is USGC
! West coast imports • California refineries also designed for heavier crudes; locally produced heavy is declining
• Requires new mid-stream projects to access PADD II/III/IV crude
• LCFS will limit heavy Canadian imports
• Production from high potential Monterrey Shale is a “wild card”
! Other structural imports • Crude to other refineries controlled by foreign producers – Motiva (Aramco) and PRS (Petrobras)
• Imports for specific quality requirements – lubes/asphalt, etc.
• Hawaii 16"
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! “Dumbbelling” of Crude Slate ! Higher LPG and naphtha yields ! Lower middle distillate yields ! Resid yields up in Canadian heavy crudes; still generally lower than in Latin heavy
! Implications ! Higher LPG yield adds to surplus from field production ! Higher naphtha runs counter to declining domestic gasoline demand/potential lower
aromatics limits ! Distillate demand growing faster than gasoline ! Will lead to increasing exports of LPG’s/gasoline; decreasing ability to export diesel
! Remedies ! Construction of hydrocracking units – very capital intensive ! Development of LPG and gasoline export markets ! Export of particularly problematic crudes – export limitations; condensate splitting ! Incentivize high distillate yielding GTL projects
! Influx of light/super light crude could reduce capacity ! Loss could be 10%+ at refineries designed for heavier crudes ! Units impacted include crude units, gas plants, debutanizers, naphtha units, others ! Displacement of higher sulfur crude will impact sulfur units ! We do expect economic incentives will result in necessary investment being made ! Solutions will be refinery specific; could require new crude units, preflash towers,
expansion of naphtha HDS, etc.
! Other concerns ! Higher TAN from Canadian dilbits will require capital/treating costs; could limit volumes
at certain refineries
! Potential compatibility issues associated with blending dissimilar crudes
! Loss of access to imports will decrease crude slate flexibility
! Benefits ! Lower resid yield/metals content of shale oil will facilitate resid cracking
! Sulfur plant limited refineries will benefit from sweeter crudes 18"
! Eagle Ford ! Probably the most challenging for refiners; rapid growth/high volume of lights
! Condensate (> 55 API) particularly difficult; contains over 60% naphtha or lighter
! Refining value several dollars per barrel below LLS; condensate even less valuable
! Bakken ! Very high level of reformer feed (30%) causes naphtha handling issues ! Does have decent distillate yield and blending properties ! Good resid cracker feed properties; fits well with East Coast refineries ! Refining value a bit higher than Brent and WTI, lower than LLS
! Others ! Growing Permian production lighter; USGC getting access to unblended streams
! Niobrara appears to have both heavier (<40 API) and condensate barrels
! Utica likely to be similar to Eagle Ford; very light/significant condensate 19"
! US refiners will enjoy crude cost advantage ! As light imports disappear, LLS flips to permanent discount vs. Brent this year ! Domestic light crudes priced to incentivize USGC refiners to replace imported medium crude barrels ! If exports continue to be restricted, discount grows when all possible imports are displaced
! Regional differentials ! Inland refiners continue to be most advantaged
! Pipeline access to USGC will decease WTI/LLS spread
! St. James becomes price setting location
! Economics for EC and WC refiners improve as they gain access
! Heavy crude discount grows when Canadian crude arrives on USGC • With KXL in doubt, ability to find alternate ways to get heavy to USGC could be critical
! Profitable opportunities for light/heavy crude blending have developed
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Presenter
John R. Auers – Senior Vice President Turner, Mason & Company [email protected]
Telephone: 214-754-0898
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