The overall economics or viability of a refinery depends on the interaction of three key elements: the choice of crude oil used (crude slates), the complexity of the refining tools (refinery configuration) and the specified type and quality of merchandise produced (product slate). Refinery utilization charges and environmental issues additionally influence refinery economics.
Using more expensive crude oil (lighter, sweeter) requires much less refinery upgrading but provides of mild, candy crude oil are decreasing and the differential between heavier and extra bitter crudes is rising. Using cheaper heavier crude oil means extra investment in upgrading processes. Costs and payback periods for refinery processing models should be weighed towards anticipated crude oil prices and the projected differential between mild and heavy crude oil costs.
Crude Oil Input
Crude oil is the primary input into the petroleum refining industry. Whereas Canada is a large and rising internet oil exporter, crude oil imports satisfy greater than half of domestic refinery demand. The transportation prices associated with transferring crude oil from the oil fields in Western Canada to the consuming areas within the east and the greater choice of crude qualities make it extra financial for some refineries to use imported crude oil. Subsequently, Canada’s oil economic system is now a dual market. Refineries in Western Canada run domestically produced crude oil, refineries in Quebec and the japanese provinces run primarily imported crude oil, while refineries in Ontario run a mixture of both imported and domestically produced crude oil. In newer years, japanese refineries have begun operating Canadian crude from east coast offshore production.
Regardless of the supply of crude oil, the worth is set on this planet market and each imported and home crude oil is priced in accordance with the supply/demand balance and pricing dynamics on the world oil market. On this respect, Canadian refiners are rice takersand have little or no affect on the value they pay for crude oil. Utilizing costlier crude oil (lighter, sweeter) requires much less refinery upgrading however supplies of mild, sweet crude oil are lowering and the differential between heavier and extra bitter crudes is rising. Utilizing cheaper heavier crude oil means more funding in upgrading processes. Costs and payback durations for refinery processing models have to be weighed towards anticipated crude oil costs and the projected differential between gentle and heavy crude oil prices.
Crude slates and refinery configurations should take under consideration the type of merchandise that will in the end be wanted in the market. The standard specs of the final products are also increasingly important as environmental requirements turn into more stringent.
Various kinds of crude oil yield a unique mixture of merchandise depending on the crude oil’s natural qualities. Crude oil sorts are typically differentiated by their density (measured as API gravity) and their sulphur content material. Crude oil with a low API gravity is taken into account a heavy crude oil and typically has the next sulphur content and a larger yield of lower-valued products. Therefore, the lower the API of a crude oil, the lower the value it has to a refiner as it’s going to either require extra processing or yield the next percentage of decrease-valued by-merchandise reminiscent of heavy gas oil, which usually sells for lower than crude oil.
Crude oil with a excessive sulphur content material is called a sour crude whereas sweet crude has a low sulphur content material. Sulphur is an undesirable characteristic of petroleum products, notably in transportation fuels. It might probably hinder the environment friendly operation of some emission control applied sciences and, when burned in a combustion engine, is launched into the ambiance where it might probably form sulphur dioxide. With more and more restrictive sulphur limits on transportation fuels, sweet crude oil sells at a premium. Sour crude oil requires extra severe processing to take away the sulphur. Refiners are typically prepared to pay more for light, low sulphur crude oil.
Most refineries in Western Canada and Ontario have been designed to course of the sunshine sweet crude oil that’s produced in Western Canada. In contrast to leading refineries within the U.S., Canadian refineries in these areas have been slower to reconfigure their operations to course of decrease price, less desirable crude oils, as an alternative selecting to rely extensively on the ample, domestically produced, gentle, candy crudes. So long as these lighter crudes had been out there, refining economics had been inadequate to warrant new investment in heavy oil conversion capacity.
However, with growing oil sands manufacturing and the declining production of typical mild sweet crudes, refineries in Western Canada and Ontario have began to make the investment required to process the rising provide of heavier crudes. A lot of this investment by the massive integrated oil corporations (corporations which can be involved in both the production of crude oil and the manufacturing and distribution of petroleum products) is related to making certain a market for their rising oil sands production.
In Western Canada and Ontario, nearly 50% of the crude oil processed by refiners is standard gentle, sweet crude oil and another 25% is top quality synthetic crude oil. Synthetic crude is a gentle crude oil that’s derived by upgrading oil sands. Many of the remaining crude oil processed by these refineries is heavy, bitter crude. The crude slate is expected to change significantly in the years forward as refiners improve their capacity to process heavy crude oil and lower high quality artificial crudes.
Refineries in Atlantic Canada and Quebec are dependent on imported crudes and are likely to course of a extra various crude slate than their counterparts in Western Canada and Ontario. These refiners have the capacity to purchase crude oil produced virtually wherever on the earth and therefore have unbelievable flexibility of their crude buying decisions. Roughly 1/3 of crude processed in Jap Canada and Quebec is standard, mild sweet crude and one other 1/3 is medium sulphur, heavy crude oil. The remaining 1/3 is a mix of bitter mild, sour heavy and really heavy crude oil. The crude slate in Japanese Canada is predicted to remain much more static than that in Western Canada and Ontario, as these refiners should not constrained by the standard or quantity of domestic crude manufacturing.
A refiner’s choice of crude oil will be influenced by the type of processing models at the refinery. Refineries fall into three broad categories. The best is a topping plant, which consists only of a distillation unit and doubtless a catalytic reformer to supply octane. Yields from this plant would most carefully reflect the natural yields from the crude processed. Usually solely condensates or gentle candy crude would be processed at one of these facility unless markets for heavy gasoline oil (HFO) are readily and economically obtainable. Asphalt plants are topping refineries that run heavy crude oil because they are only concerned with producing asphalt.
The subsequent stage of refining is known as a cracking refinery. This refinery takes the gasoline oil portion from the crude distillation unit (a stream heavier than diesel gas, but lighter than HFO) and breaks it down further into gasoline and distillate parts utilizing catalysts, high temperature and/or strain.
The last degree of refining is the coking refinery. This refinery processes residual fuel, the heaviest material from the crude unit and thermally cracks it into lighter product in a coker or a hydrocraker. The addition of a fluid catalytic cracking unit (FCCU) or a hydro cracker considerably increases the yield of upper-valued merchandise like gasoline and diesel oil from a barrel of crude, allowing a refinery to course of cheaper, heavier crude whereas producing an equivalent or better quantity of high-valued products.
Hydrotreating is a course of used to remove sulphur from finished products. Because the requirement to supply extremely low sulphur products will increase, additional hydrotreating functionality is being added to refineries. Refineries that at the moment have massive hydrotreating capability have the power to process crude oil with the next sulphur content material.
Canada has primarily cracking refineries. These refineries run a mix of mild and heavy crude oils to satisfy the product slate required by Canadian shoppers. Historically, the abundance of domestically produced light sweet crude oils and a higher demand for distillate merchandise, resembling heating oil, than in some jurisdictions reduced the necessity for upgrading capacity in Canada. However, in more moderen years, the provision of mild sweet crude has declined and newer sources of crude oil are usually heavier. Most of the Canadian refineries at the moment are being equipped with upgraders to handle the heavier grades of crude oil currently being produced.
Refinery configuration can be influenced by the product demand in every region. Refineries produce a variety of merchandise including: propane, butane, petrochemical feedstock, gasolines (naphtha specialties, aviation gasoline, motor gasoline), distillates (jet fuels, diesel, stove oil, kerosene, furnace oil), heavy gasoline oil, lubricating oils, waxes, asphalt and nonetheless gas. Nationally, gasoline accounts for about 40% of demand with distillate fuels representing about one third of product gross sales and heavy fuel oil accounting for under eight percent of sales.
Complete petroleum product demand is distributed virtually equally throughout the regions, with Atlantic/Quebec, Ontario and the West each accounting for about one third of complete gross sales. However, the mixture of products varies quite considerably among the regions.
Within the Atlantic provinces, the place furnace oil (light heating oil) is the primary source of home heating, distillate fuels make up forty% of product demand, and heavy gasoline oil, used to generate electricity, accounts for an additional 24%. Gasoline sales account for less than 30% of product demand.
In Quebec, the place natural gas and hydroelectricity are prevalent, distillate gas has a 34% share of sales and gasoline is about 40%. Similarly, in Ontario, gasoline gross sales outpace distillate gross sales and account for more than 45% of total product demand, with distillates at less than 30%.
In Western Canada, agricultural use is one of the primary drivers behind distillate demand and gasoline and distillate each account for about 40% of whole petroleum product sales. These regional differences in product demand have influenced the configurations of the refineries in every area.
By comparison, in the U.S., the demand for gasoline is way bigger than distillate demand and, due to this fact, refiners configure their installations to maximize gasoline production. Gasoline sales account for nearly 50% of demand whereas distillate sales account for less than 30% of product demand. In a number of Western European nations, most notably Germany and France, policies exist that encourage using diesel engines making a a lot stronger distillate component. Gasoline accounts for lower than 20% of petroleum product gross sales in Europe.
The US refineries are configured to course of a big proportion of heavy, excessive sulphur crude and to produce large quantities of gasoline, and low quantities of heavy fuel oil. U.S. refiners have invested in additional complicated refinery configurations, which permit them to use cheaper feedstock and have a higher processing functionality.
Canada’s refineries would not have the excessive conversion functionality of the US refineries, because, on average, they process a lighter, sweeter crude slate. Canadian refineries also face a higher distillate demand, as a percent of crude, than those found within the U.S. so gasoline yields should not as high as those in the US, however are nonetheless considerably higher than European yields.
The relationship between gasoline and distillate sales may create challenges for refiners. A refinery has a restricted vary of flexibility in setting the gasoline to distillate production ratio. Past a certain level, distillate manufacturing can only be elevated by additionally rising gasoline production. For this reason, Europe is a major gasoline exporter, primarily to the U.S.
One other crucial component of refining economics is the utilization charge, or how efficiently the refining complicated is working. The Canadian refining sector has undergone significant rationalization in the final three a long time. Within the early 1970s, there were forty refineries in Canada. Since that point several factors have contributed to a major rationalization of firm operations. The oil value shocks in 1973 and 1979 led to enhancements in the effectivity of autos and to fuel switching from oil to natural fuel and electricity. This curbed the demand for petroleum products and resulted in a substantial surplus of refining capability. The spare capability resulted in increased competition amongst refiners, which additional eroded refining margins. Less environment friendly, smaller refiners were closed, sometimes in favor of recent larger services.
Weak economic circumstances in the early 1980s put further pressure on the trade to rationalize their operations, leading to a major number of refinery closures. Right this moment there are 19 refineries producing petroleum products in Canada. Nevertheless, as a result of expansions at the remaining refineries during the last decade, current refining capability in Canada is greater than it was within the 1970s.
In recent times, development within the demand for petroleum products has led to an enchancment in capability utilization, rising operating efficiency and decreasing costs per unit of output. Consequently, refinery utilization charges have been above 90% nationally for six of the last ten years. A utilization rate of about ninety five% is taken into account optimum because it permits for regular shut downs required for upkeep and seasonal adjustments.
Refinery capacity is based on the designed measurement of the crude distillation unit(s) of a refinery (also known as nameplate capacity). Occasionally, through upgrades or de-bottlenecking procedures, refineries can course of extra crude than the nameplate measurement of the distillation unit would indicate. In such cases, a refinery is ready to achieve a utilization rate higher than 100 percent for brief durations of time.
Not all investment decisions are pushed by refinery economics. Refiners also make funding choices due to voluntary actions or legislative and regulatory requirements. Lately, governments and industry have directed considerable effort in the direction of reducing the environmental impact of burning fossil fuels. Many of the initiatives have been geared toward offering 鈥榗leaner麓 fuels for Canadians. Petroleum refining is a really sophisticated and capital-intensive industry. New environmental regulations require industry to make additional investments to satisfy the more stringent requirements.
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