October 2020

Refining Technologies

Shape the refinery of the future through integration—Part 2

Part 1 of this article, which appeared in the September issue, discussed various aspects of evaluating options that enable an existing refiner to make investment decisions to optimally diversify into petrochemicals through integration. Part 2 will detail a case study that illustrates the synergies of refinery-petrochemical integration through a propylene recovery unit from an FCC-based refinery, as well as financial, configuration and sensitivity analyses.

Maiti, S. N., SNC-Lavalin Inc.

Part 1 of this article, which appeared in the September issue, discussed various aspects of evaluating options that enable an existing refiner to make investment decisions to optimally diversify into petrochemicals through integration. Part 2 will detail a case study that illustrates the synergies of refinery-petrochemical integration through a propylene recovery unit from an FCC-based refinery, as well as financial, configuration and sensitivity analyses.

Case study

This case study illustrates the synergies of refinery-petrochemical integration through a propylene recovery unit from an FCC-based refinery. The Base Case is a 100,000-bpd fuel refinery (FIG. 4) to produce naphtha, jet/diesel (Euro 5) and IMO 2020 fuel oil using Basrah Light crude (°API = 29.9, 2.93 wt% sulfur) for a client in the Middle East. The feed cost and product prices considered are an average of 2Q and 3Q 2018, USGC as shown in TABLE 1. The inflation rate for the projected time horizon for net present value (NPV)/internal rate of return (IRR) calculation is considered as 2.63% based on average historical values of the last 30 yr of inflation rates in the U.S.

FIG. 4. Base Case configuration of a simple fuel refinery.

The integration cases considered in this study are presented in TABLE 2.

  • Case 1: Base Case configuration with crude unit, DHDS, ARDS, SGP, SRU/ARU and HMU
  • Case 2: Case 1 plus RFCC (23,000 bpd) with a propylene recovery unit (9,200 bpd)
  • Case 3: Case 2 plus polypropylene unit (9,200 bpd)
  • Case 4: Case 3 plus acrylic acid unit (1,100 tpd)
  • Case 5: Case 4 plus n-butyl acrylate unit (1,800 tpd)
  • Case 6: Case 4 plus 2-ethyl hexyl acrylate (2,600 tpd).

These cases are considered as grassroots investment. The technical data (product yield, utility requirement, ISBL investment cost, etc.) for various open art process units are developed in-house, and those for licensed units are taken from licensor’s information, as well as an in-house data bank.

Cost estimation

The cost estimates of all options are developed with an accuracy level of +/– 30% (Class 3 estimate) using a proprietary software toola with inputs from various engineering departments. The total project cost (TIC) includes both direct and indirect costs: the direct cost includes process equipment, associated bulk and installation labor costs; and the indirect cost items are installation equipment rental, EPC contractor’s cost, licensors’ fees and royalties, owner’s cost, taxes, etc. The EPC contractor’s cost includes all costs involved in preparation of basic (for open art units such as CDU, SGP, SWS, ARU) front-end and detailed engineering, procurement and construction of the facility. The owner’s costs include startup and commissioning, initial charge of catalyst and chemicals, spare parts inventory, general and administrative (G & A) overheads, contingencies, etc.

Other associated costs (site development, offsites, etc.) are not considered since they are common facilities for all configurations. The economic life and the depreciable life of investments are considered as 20 yr.

Financial analysis

One of the most important deliverables of a feasibility study is the establishment of a quantitative basis for understanding the project’s ability to secure financing, repay debt and provide adequate returns for candidate equity investors.

The discounted cashflow method, such as IRR, is widely accepted and used in industry for all types of capital investment evaluations as a measure of profitability. IRR is the discount rate (or minimum interest rate of capital) at which the NPV is zero. If the NPV is positive and IRR is greater than the minimum interest rate, then the project can be accepted for further analysis. The higher a project’s IRR, the more desirable it is to undertake. IRR can also be used to rank multiple prospective projects under consideration on a relatively even basis.

Configuration analysis

The LP models of all six cases were developed based on available input data. Proprietary softwareb was used for the model development. The incremental relative economics for each of the integration steps were evaluated. FIG. 5 shows the economic summary of all grassroots investment cases.

FIG. 5. Relative investment and IRR of a grassroots facility.

The Base Case fuel refinery configuration yields an IRR value of 8.55%. The installation of a propylene recovery unit requires 20% more capital without resulting in any economic benefit compared to the Base Case. Integrating a polypropylene unit (Case 3) will enhance IRR marginally, but the inclusion of an acrylic acid or an acrylates unit will be much better (Cases 4, 5 and 6). Case 6 with a 2-EHA unit generates a return as high as 21% and a payback period of 5.3 yr. The overall product summary of Cases 1, 4, 5 and 6 is shown in TABLE 3.

Expansion add-on scenario

It is assumed that the existing refinery has the same FCCU unit as most of the gasoline-producing refineries globally. For example, the expansion add-on Case 2-X is added with a propylene recovery unit (PRU), Case 3-X includes a PRU and a polypropylene unit (PPU), and so on.

The relative incremental investment and the economic summaries are shown in FIG. 6. As in Case 2-X, installation of a PRU is a very profitable proposition, and the payback period is only 2.5 yr with a high IRR of approximately 45%. Similar results are observed in other expansion add-on cases. The installation of a PPU reduces the profitability compared to PRU (Case 3-X vs. Case 2-X). However, installation of an acrylic acid (Case 4-X) or acrylates (Case 5-X and Case 6-X) unit is generating acceptable return.

FIG. 6. Relative investment and IRR of an expansion facility.

The existing refiners with FCCUs can go for any one or a combination of the expansion add-ons options to improve their profitability.

Sensitivity analysis

As previously discussed, the accuracy of input data is very important to get a meaningful profitability model. However, not all input data can be obtained accurately—especially feedstocks cost and product prices, which are predicted data based on certain assumptions—and market dynamics change frequently. Therefore, it is very important to test the profitability model if the assumed data varies from the base values.

Sensibility analysis measures the impact on profitability of a project—and therefore on returns—when key inputs and assumptions take on different values to those used in the Base Case financial analysis. The grassroots investment best configuration (Case 6) has been analyzed for its sensitivity to key variables and assumptions.

FIG. 7 shows the effect of variation of these key factors on the IRR. The project is highly sensitive to feedstocks cost and product pricing, moderately sensitive to investment cost and less sensitive to operating cost.

FIG. 7. Sensitivity of IRR (Case 6).

Takeaway

Uncertainty in the traditional fuel market leads to integration. Integration is a natural choice, and a petrochemical refinery can best respond to high competition and changing market dynamics on refining margins. Such integration not only adds high-value products but also optimizes the cost of utilities and generates better profitability and sustainability. Standalone refineries will be struggling in the near future, if not already. An integrated complex will shape the refinery of the future and will have the flexibility to meet rapidly changing market demands. Refiners must diversify and reset their business models by investing in new processes that create an alternative path to profitability.

From some perspectives, all refineries might appear to be the same; however, each refinery has a unique configuration and a complex industrial facility, with some flexibility in the crude oils it can process and the blend of products it can refine. The complexity of integration projects depends on the variety of existing process units, whether it is a revamp/expansion or a new grassroots plant, and the optimal solution is highly specific to each company. Also, the combined system is accompanied by reduced operational flexibility as two entities are now dependent on each other for feedstocks, utilities and so on.

Pre-project planning is key to success for minor revamp to complex multibillion-dollar investments. The evaluation stage requires an experienced consulting company for advisory expertise to support investment, financing and strategic decisions.

The case study here shows that the profitability of integration for an expansion add-on facility is better than grassroots plants due to shared infrastructure, storage and utilities, lower logistics and energy costs, decreased overheads and waste, trained workforce, etc. Today’s market dynamics require a potential integration business model roadmap and master planning that would allow a refiner to take actions to move forward profitably from a standalone fuel refinery into a fuels-with-petrochemicals complex. HP

NOTES

          a AspenTech ACCE
          b AspenTech PIMS

A short form of this article was published in the AFPM 2020 Annual Meeting Conference Daily, 24 March 2020, by Hydrocarbon Processing.

ACKNOWLEDGMENT

The author is grateful to colleagues in the  Downstream Technical Solutions department of SNC-Lavalin Houston and the Mumbai offices for their valuable contributions.

LITERATURE CITED (PARTS 1 AND 2)

  1. United Nations Department of Economic and Social Affairs, “UN Disability and Development Report—Realizing the SDGs by, for and with persons with disabilities,” April 2019.
  2. European Climate Foundation (ECF), “Roadmap 2050: A practical guide to a prosperous, low-carbon Europe,” online: www.roadmap2050.eu
  3. United Nations Department of Economic and Social Affairs, “World Population Prospects 2019: Highlights,” online: https://population.un.org/wpp/
  4. PricewaterhouseCoopers (PwC), “The World in 2050—Summary Report: The long view, How will the global economic order change by 2050?” February 2017.
  5. Maiti, S.N., J. Eberhardt, S. Kundu, P. J. Cadenhouse-Beaty and D.J. Adams, “How to efficiently plan a grassroots refinery,” Hydrocarbon Processing, June 2001.
  6. Chen, A., “Process evaluation/Research planning—Propane dehydrogenation technologies,” Nexant report PERP 2016S1, November 2016.

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