Reconfiguration of oil refining and capacity likely

“UOP isn’t in the prediction business, but everybody wants to know what UOP thinks,” said Norm Gilsdorf, a former hand at the refineries services company and now president of Honeywell Process Solutions.
Margaret Stine laid out her and UOP’s take on the future of oil refining, the trends, and the challenges at the Honeywell Users Group in Phoenix on Tuesday. Stine is a director in the company’s process technology and equipment group.
As way of disclaimer Stine did, with irony, point out, “Do you remember this time last year we were using the term ‘soft landing?’ Well, that didn’t happen.”
Stine predicts growth in demand for oil and products will be around 1.2%. “We had our first up tick in demand in 16 months in May. That’s good news and a sign we think.”
There will be strong growth in non-OECD countries. The OECD is a group of 30 member countries who develop economic and social policy. Suffice to say, the wealthier countries are OECD, and the growth is in the emerging and frontier markets.
The number of additional refineries planned over the last several years has been great. The price of oil was high, gasoline prices high, and refinery margins were as good as ever.
“Though circumstances have changed,” said Stine, “the refineries planned for the Middle East will go forward no matter what. They can do this because they are guaranteed a source for crude, they can rely on themselves.”
There will never be another new refinery built in the U.S. Other planned projects are smaller or on hold. There is much unused refining capacity in the industry now.
“As well, newer refineries are very complex,” Stine said. “This is because of the quality of oil we produce these days. It’s more difficult. It’s more sour. In addition, with sulfur regulations as they are, the refining is more advanced. The Nelson Complexity Index will move higher.”
The Nelson complexity index is a measure of the secondary conversion capacity of a petroleum refinery relative to the primary distillation capacity. The higher the index number is, the greater the cost of the refinery and the higher the value of its products.
Stine figures we should prepare for the oil industry to restructure due to overcapacity. Many refineries will be vulnerable for closing because of their geographical location being far from demand or their capacity to handle the newer, messier oil dynamic and sulfur regulations.
Fundamentally, the shift in refinery location will follow the shift in wealth and development from the mature Western world economies to the third world and emerging ones in Asia and South America.
She sees a shift to diesel in the future too, again the move away from sulfur. Not surprisingly, the move to more efficient engines and hybrids are also on her horizon. “Ethanol eventually replaces gasoline,” Stine said.
Configuration changes in the refinery will include the technology necessary to upgrade the lower grade of oil, to handle the production of low sulfur fuels, and to produce higher-octane gas.
She sees the keys to the industry success as those traits of flexibility, efficiency, safety, and reliability. “That’s why we’re all here.”
— Nicholas Sheble