Increasing volumes of unconventional shale crudes and light tight oils (LTOs) are expected to comprise half the US refinery crude diet by 2020, but process design and market factors still require balancing heavy crude with other unconventional blends.
A recently released editorial by Syed S Hasnain, with 34 years experience as an international oil industry professional, noted that with the rapid price drop and uncertainty with oil prices, US refiners are in a driving seat to buy oil at their own whims. However, due to the design of most US refinery process configurations, a certain balance of heavy and sour crudes must be blended with the growing volumes of LTOs. Hasnain noted that US refiners are not only maximising runs to capitalize on higher margins, but also processing more and more LTOs to ensure their competitive advantage. The main point made by Hasnain’s analysis is that as LTO production continues to rise (along with Canadian Heavy), it appears the Middle East crudes [typically heavy crudes] would lose their marketability in the US, both in terms of volume and also in terms of preference despite competitive pricing and supply reliability. But US refiners cannot run their plants efficiently without medium or heavy sour crudes.
A recent McKinsey study noted that US refiners have invested heavily over the last two decades to process medium-to-heavy-crude slates, especially on the US Gulf Coast. To process greater quantities of LTO, most refiners will have to either debottleneck the light-ends part of their distillation, or add new distillation that is specifically suited to LTO. Longer term, as LTO displaces medium and heavy crudes, refiners will struggle to keep their high value conversion units (FCC, hydrocracking, and coking) full. They will either need to reduce utilization of these units or find ways to backfill, perhaps through importing feedstock. Based on McKinsey’s outlook for LTO growth, the Gulf Coast refiners’ crude diet is expected to shift dramatically by 2020. Whereas light crude is currently a small share of total crude diet, by 2020 LTO volumes could increase to more than half of the total crude diet for Gulf Coast refineries, backing out large volumes of crude currently imported from the international market. This has significant implications for domestic producers, for suppliers of current crude imports to the US, and for global trade flows. The McKinsey study also noted that LTO has the potential to affect the global supply-demand balance for resid and light/heavy differentials. Greater use of LTO displaces other heavier crudes and result in less resid production. According to the McKinsey research, the supply-demand balance for resid is already snug due to overbuilding of deep conversion capacity.
Against a backdrop of growing demand for shale crudes and LTOs, two refining companies have spent heavily on the necessary equipment to refine heavy crude, making them poised and ready to process discounted heavy Canadian crude shipped by rail or pipeline from Canada to the US Gulf Coast. Valero Energy, having increased its overall refining capacity by 277% between 2000 and 2013, has 57% of its refining capacity on the Gulf Coast, more than any of its competitors. In September, Valero began operating a new rail offloading facility at its Port Arthur, Texas refinery, which allows it to obtain cheap Canadian heavy crude without a pipeline. Its overall expansion is continuing, too, with the planned addition of refining units in Houston and Corpus Christi, Texas. Marathon also has projects in the works to make it easier to get heavy crude from Canada to its refining facilities. According to earlier press reports, approximately 1.2 million bpd of heavy Canadian crude could be shipped via pipeline to Marathon facilities in the Gulf Coast.
Much of this industry narrative revolving around the careful balancing and blending of heavy crudes with LTOs for downstream conversion in refinery operations will be discussed in detail at the May 4-8 RefComm Galveston 2015 refining conference. The event’s online brochure, listing the topics and papers to be presented, including processing challenges encountered with blends of heavy and unconventional crudes can be downloaded from BROCHURE.