October 2016

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Viewpoint: New challenges demand innovative solutions

As the industry works through the most volatile conditions in more than a generation, refiners are facing several challenges that will define the industry in the next decade.

Liebert, R., Honeywell UOP

As the industry works through the most volatile conditions in more than a generation, refiners are facing several challenges that will define the industry in the next decade. The future will belong to a new kind of entrepreneur—one driven by world-class research and development, innovative cost elimination, commercial excellence, and modern control and automation systems.

Many state-owned companies are now emulating entrepreneurial upstart companies in other industries. Oil companies are crossing national boundaries, with Middle Eastern companies investing in Indonesia, and Chinese companies moving into Africa.

This trend is re-invigorating and changing trade flows. Evidence is seen in the thousands of miles of new pipelines, massive new ports, import facilities being re-engineered for exports and export facilities being reworked for imports.

Every year, demand for refined products—i.e., fuels and petrochemicals—will continue to rise by approximately
1 MMbpd–1.5 MMbpd. We can predict this increase because demand is being driven by growth in the world population, which increases by around 75 MM people each year (
FIG. 1).

Fig. 1. With the growth in global population, the world will need a substantial amount of  new energy by 2050.
Fig. 1. With the growth in global population, the world will need a substantial amount of new energy by 2050.

Even faster and equally unabated growth is seen in global standards of living, which are increasingly driven by emerging economies in Asia. Over the next 35 years, the number of vehicles will double to 2 B worldwide. Even with the growth of electric vehicles and renewable energy sources, demand for refined products will continue to rise in the foreseeable future. By the middle of the century, hydrocarbons will still provide three-quarters of the world’s energy. An increasingly prosperous population will consume more plastics, fertilizers, pharmaceuticals, fabrics and other products. All of this added demand will need to be met.

However, as capacity grows—powered by exploration, production and more efficient conversion technology—what energy providers produce will change. Until two years ago, most of the world was consumed by the race to make more diesel. Fundamental changes in the speed and nature of economic growth, as well as government economic policies to stimulate consumption, have effectively ended that race for the moment.

As lower crude oil prices stimulate consumption, especially among the growing middle class in emerging economies, the race now is about making gasoline. In China alone, a record 25 MM automobiles were sold last year, despite an economic slowdown.

Refiners participating in the gasoline race will reconfigure their plants, while others will simply add capacity. Either way, fuel producers will pursue the twin goals of adding production to meet demand growth and gaining the flexibility to capitalize on products that will generate the greatest profit.

Beyond fuels, we are on the cusp of an age where more and more refineries will exist only to produce petrochemicals. Population and GDP growth will drive annual demand growth of more than 5% for olefins and aromatics. As a result, regions of the world that generate these molecules will show more urgent interest in moving downstream, and many refineries that are not yet integrated with petrochemical production will soon be.

Another phenomenon fully under development is the tightening of clean fuels regulations. Whether Euro 6, China-5 or BS-6, these standards are becoming stricter as they converge toward a common set of specifications. Removing sulfur and volatile compounds, while enhancing gasoline pool octane, will be a challenge. With all the additional constraints, shifting refinery stream cut points is becoming less of an option. The new standards create opportunities, particularly as new trading patterns for these fuels emerge. In addition to meeting domestic demand, a world-scale refiner might plan to supply a dozen other countries bound to the same clean fuels standards—and do so quite profitably.

Finally, while margins will change on every product over time, an ongoing imperative remains to constantly improve efficiency—i.e., the unending campaign to get more out of every drop of oil. A historical constant in our industry is that new challenges inevitably are met by new solutions.

The industry is entering another revolutionary period where data can be collected more cost-effectively than ever before. Dramatic declines in the cost of sophisticated sensing devices are possible. We now can measure everything, and what we do with that data is changing how we operate refineries and petrochemical plants.

By leveraging the Industrial Internet of Things, refiners can unlock additional value by integrating smart-edge devices, secure cloud-based infrastructure and operational process knowledge. We can then run refineries with software-based systems that employ big data analytics. These systems yield smarter plants that are capable of deep self-diagnosis and self-learning. We can sense operating anomalies days, weeks and even months before they become problems.

The refinery of the future will solve another looming problem for the industry–the imminent retirement of skilled operators. In the phenomenon known as the “great crew change,” half of the industry’s skilled plant operators will retire in the next seven years. Here, software-based systems can help cover that knowledge gap.

Until now, operators could only leverage experience at their own plants, supplemented by their general training. In a smart plant, every operator can benefit from the knowledge gained by every operational challenge experienced by anyone, anywhere, that uses the same or similar processes.

The new, more entrepreneurial operator of the future will be diversified into petrochemicals; seize the opportunities provided by clean fuels standards; and count on technology to deliver smarter, higher-performing plants. HP

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