In spite of oil prices falling below $60 per barrel as of mid-December and numerous upstream energy companies already announcing lay-offs in 2015, long-term energy demand will explode. Even with energy conservation and efficiency improvement programs, all forms of energy (nuclear, solar, geothermal, hydrogen, oil & gas, etc.) will be required. According to ExxonMobil’s energy outlook for 2015, there will be a 35% increase in global demand for energy by 2040, and the number one energy source through 2040 and beyond will be oil.
World population growth is expected to approach 10 billion by 2030, according to the Brookings Institute. Population growth is directly tied to energy growth. William M. Colton, an executive at ExxonMobil, said this at a presentation earlier in December that population growth would continue for decades and cause energy demand to rise.
What’s more important to consider is that half of the demographic (5 billion) will be “middle class.” This unprecedented growth in affluence will require that all forms of energy need to be exploited to supply energy and produce conventional fuels. In parallel, the downstream refining and petrochemical industry in the U.S. will have unprecedented opportunities to access North American crudes.
With cheap feedstocks come low energy and hydrogen costs, and the flexibility to expand monetization opportunities ranging from fuel exports to production of petrochemical derivatives, including polymers, elastomers, plastics, etc. However, refiners who already have experience processing unconventional crudes, including light tight oils (LTOs), know too well about the accompanying processing and operational challenges. Nonetheless, LTO production in the U.S. will increase dramatically at the same time that light sweet crude production in the Middle East could also replace heavy Arab crude.
Going forward into 2015, cheap feedstock costs will also benefit sluggish European refining margins. For example, with Saudi Arabia’s full scale development by mid-2016 of the Shaybah super giant oilfield, located in the country’s Empty Quarter, European and Asian refiners will have access (in theory) to 1.0 million bpd of high quality sweet crude, on par with high API gravity U.S. shale crudes and LTOs. But what is the definition of “high quality” crude within the context of refining?
New and unexpected processing and operational challenges have accompanied the introduction of every major crude that has entered the market since the 1960s (Alaskan North Slope crude, North Sea Brent, Arab Heavy, etc.). So, if demand for oil continues to increase, it goes without saying that so too will the accompanying process challenges. For example, one of the challenges with processing higher volumes of paraffinic LTOs is that major conversion units originally designed to process heavier crudes will experience underutilization of unit capacity, at a time when plant economics are driven by maximum utilization.
Along with underutilization come other processing issues further complicating profitability targets when processing LTOs and other unconventional crudes. For starters, LTOs have higher pour points and as a result condense in places that are not heat traced, making it imperative for refinery maintenance and operations to maintain appropriate velocities and temperatures in heat exchangers, or else face furnace and heat exchanger fouling.
Refiners are very pleased with the overall quality of new American shale crudes and LTOs, such as much lower sulfur and nitrogen content compared to conventional crudes. However, relatively high Fe content in shale crudes have caused significant contamination problems with FCC catalysts. Less gas oil production is available from LTOs and their CCR levels are similar to heavier conventional crudes. So, It’s one thing to say that global oil and gas demand will increase and U.S. LTOs will “come to the rescue” to help meet projected demand, but it’s more problematic to figure out how to mitigate the accompanying crude blending compatibility issues and yield selectivity changes when running these shale based resources through an FCC/coker based refinery configuration.