September 2020

Special Focus: Refining Technologies

Shape the refinery of the future through integration—Part 1

The negative impact of fossil fuels on the environment has become widely accepted, and our global society has begun to focus on alternative fuels. The pollution of the local, regional and global environment has become a primary concern.

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

The negative impact of fossil fuels on the environment has become widely accepted, and our global society has begun to focus on alternative fuels. The pollution of the local, regional and global environment has become a primary concern. The massive growth in the number of automobiles, the increase in heating or air conditioning in offices and homes, and the growth in the number of industrial plants have focused opinion on the harmful effects of extensive use of oil products.

To protect the environment, stringent specifications for fuel qualities have been implemented by various regulatory bodies; these specifications have forced refiners to increase investments in leading-edge, advanced technologies to process clean fuels. The aim of the UN Sustainable Development Goal 7 of 2019 is to ensure universal access to reliable, affordable and clean modern energy by 2030, with increased sustainability through the increased share of renewable energy in the global energy mix.1 A similar objective is outlined in the EU Energy Roadmap 2050, which aims to create a competitive low-carbon energy system.2

Key factors that impact oil demand include economic growth, population growth, substitution by other energy sources and oil price. The world population is expected to reach 9.7 B by 2050,3 and the world economy could more than double in size over that same period due to continued technology-driven productivity improvements.4 As populations continue to expand and living standards rise, demand for energy and petrochemicals will grow. Key trends driving this growth include urbanization, the increasing movement of people from lower to middle economic classes in developing countries, mounting industrial demand, and increases in personal and commercial transportation needs. As demand for energy grows, refining and petrochemical companies must evaluate whether to make new plant investments or upgrade existing ones to meet production capacity needs.

The article discusses various aspects of evaluating options that enable an existing refiner to make investment decisions to optimally diversify into petrochemicals through integration. A case study (discussed in Part 2) was conducted, and the findings will help refiners to take actions to adapt their business model roadmaps to stay in the market profitably and sustainably.

Energy demand trends

Oil competes with other energy sources, and the extent to which substitution occurs depends on relative prices, availability, government policy with respect to taxation and environment, and the relative plant cost where products will be processed. The demand growth of traditional transportation (gasoline, diesel, etc.) is declining due to several factors, including:

  • Higher-efficiency vehicle engines
  • Fuel substitution, such as liquified natural gas (LNG), compressed natural gas (CNG), hydrogen (H2) and biofuels
  • The growth of electric vehicles
  • Strict environmental regulations
  • Circularity of economy.

This puts tremendous pressure and challenges on refiners, which face lower sales and profit margins, and in forcing them to utilize or innovate alternative options for sustainability. In contrast, the market demand for petrochemicals, such as ethylene, propylene and aromatics, continues to rise due to key driving factors that include global population growth and economic upliftment in developing countries like India and China. IHS Markit has predicted that by 2040, the global average demand growth rate for refined products will be less than 1%, whereas the global petrochemical demand growth will remain strong and will increase steadily at approximately 4%/yr. Refiners can capitalize on this growing petrochemicals demand to remain competitive and stay in business through integration with petrochemical units.

Standalone refinery or petrochemical facilities face market pressure due to crude price volatility and swings in global products demand and specifications. Feed availability, flexibility in feedstock, domestic or global market-based products demand, economies of scale and capital investment efficiency are key drivers in placing the focus on refinery and petrochemical integration. An integrated complex enables refineries to better accommodate future shifts in product patterns and demand that will see a greater focus on chemicals than on transportation fuels.

Solving a complex problem

The economics of the integrated facility are extremely complex. Feedstocks can be processed by many possible configurations, each of which includes various technology options that depend on market demand for finished products. Furthermore, the multiple blend pool destination of intermediate streams, uneven product demand, multitudinous specifications on final products, etc., make the whole system a complicated web of options. Due to the competitive market, companies are driven to optimize all potential investment options and select those options that provide the maximum profit and sustainability. Unfortunately, deciding on the optimal configuration using conventional simulation techniques is practically impossible.

The hydrocarbon processing industry (HPI)—indeed, any industry—cannot escape from the economic logic that any investment must result in acceptable profitability. The expected margin will, therefore, govern the adaptation of integrated facilities to meet the market demand. Companies must meet product quality constraints and growing product demands while maximizing profit. The competitive market drives the selection of the optimum configuration that satisfies multiple objectives.

Evaluating options

Linear programming (LP) algorithms are effective mathematical tools to efficiently handle this complex problem. LP techniques are particularly useful in the refining industry for planning when many alternatives are possible with available resources. LP determines the optimum allocation of resources while providing a clear indication of the combination of supply, processing, blending and selling activities that should be followed to achieve highest level of financial success. For both a grassroots or expansion add-on integrated complex, the investor must consider what products to produce, which markets (domestic or global) are the best fit, how much investment and equity to commit and, most importantly, the return on investment (ROI) and payback time.

This approach must be underpinned by a detailed modeling exercise using LP tools that incorporate these factors and tests them through different scenarios using sensitivity analysis. The objective is to assess whether and where integration is appropriate, and what market drivers will deliver the optimum ROI. The result is a detailed economic analysis for the overall profitability of an integrated complex. While standalone refineries are gradually exploring integration opportunities with petrochemical complexes, it is beneficial for new refineries to consider such integration from the planning stage.

INTEGRATED FACILITIES

Integration implies identifying synergies and optimizing them for operational and economic gains by sharing and exchanging numerous streams, such as feedstocks, byproducts and utilities. Today, petrochemicals are driving the majority of global investments in the HPI. Two major challenges are decarbonization and singularity. A linear production model that generates waste materials through single use (singularity) will move to circularity by reusing those waste products so that they never leave the value chain and may not produce much emissions. These factors must be considered for the integrated facility.

Balancing risks and rewards

Building and operating a grassroots facility is a complex undertaking,5 but the economics associated with modifying or revamping a few units in an existing plant can be even more challenging. Many factors critically impact the investment: plant location, available feedstocks, end product mix, crude oil pricing, environmental issues (local, national and global) and licensed processing technologies, among others. How should a company considering such an investment plan to properly balance project risks and the potential rewards of new investment, or retrofitting current production assets to integrate with new petrochemicals units?

Typical refinery configuration

The key to optimizing refinery margins is often the technology used to upgrade the bottom of the barrel. In the past few decades, new technologies, including both carbon rejection and H2 addition processes, have emerged. Several options are available that convert heavy residue to valuable products. FIG. 1 shows a typical “zero residue” refinery configuration.

FIG. 1. A typical “zero residue” refinery.
FIG. 1. A typical “zero residue” refinery.

The main purpose of this configuration is to produce clean transportation fuels (gasoline, jet and diesel) that comply with the latest environmental regulations. To avoid any residue, a gasification unit that produces H2 for hydroprocessing units, steam and electricity for refinery internal use is incorporated. The excess H2 and electricity can be exported to the demand market for fuel cell and electric vehicle use, respectively. In a decarbonization scenario, this refinery can capture CO2 from flue gas using a suitable carbon capture and storage (CCS) technology.

The fluid catalytic cracker unit (FCCU) is a type of secondary unit operation that primarily enables gasoline production in petroleum refining processes. Refineries use this unit to maintain the balance between market demand for gasoline and fuel oil. The FCCU can be operated in high-severity and selective petrochemical mode with a choice of appropriate catalyst to produce more propylene when gasoline demand declines. FCC produces most of the world’s gasoline, as well as an important fraction of propylene for the polymer industry.

Integration scenarios

Integration is more complex and greater than just the sum of its parts. Controlling as many of the variables as possible in the integration process is essential to maximize system efficiency and profitability. Several integration scenarios are possible in an existing refinery (FIG. 2):

  • Installation of a steam cracker to produce ethylene, propylene and other derivatives
  • An aromatics complex to produce BTX
  • A gasification unit to produce chemicals through the syngas route
  • Petrochemicals through the recovery of propylene from FCC/coker units.
FIG. 2. Integration scenarios in an existing refinery.
FIG. 2. Integration scenarios in an existing refinery.

The first three are very capital-intensive compared to the last one.

The integrated complex should provide optimum molecule management for better ROI. Traditionally, refining operations have been aimed at maximizing various grade of transportation fuels as final products. However, this underutilizes opportunities for extracting higher-value products. For example, the naphtha stream is reformed to produce reformate and FCC unsaturated components (e.g., propylene processed with isobutane), which are used to produce alkylate. Both products are blended in the gasoline pool for octane improvement. Optimally, reformate that is rich in aromatics can be used to produce BTXs, and the propylene stream can be further processed to produce higher value petrochemicals. Similarly, naphtha and refinery offgas streams can be used as feedstock for a steam cracker unit to produce petrochemical base materials or other polymers to generate higher profitability.

More than 500 FCCUs are in operation globally. More than 30% of the world’s propylene is supplied by refinery FCC operations: approximately 45% is co-produced from ethylene steam cracking of naphtha and other feedstocks, and the remaining from propane dehydrogenation (PDH) and other processes.6

More than 60% of U.S. refineries have one or more FCCUs, and approximately 75% of them are in the U.S. Gulf Coast (USGC) and Midwest regions. Half of U.S. propylene is produced as a byproduct of FCC operation, and investment spending is going into FCC revamp to produce low-sulfur, high-octane gasoline. The majority of U.S. refineries can be integrated to petrochemicals based on current gasoline producing configuration by adding propylene recovery and other propylene-based petrochemical units, such as acrylic acid and acrylates. The demand for acrylic acid and acrylates is a steadily growing market in both the U.S. and developing countries.

Key factors

Deciding whether and where integration is appropriate requires careful consideration. Many factors critically impact the investment, including:

  • Availability of internal feedstocks (propane, propylene, butane or naphtha, etc.)
  • Synergies of utility streams (water, steam, power, hydrogen, etc.)
  • Complexity of configuration
  • Proximity of both plants
  • Market demand and competition
  • Ability to leverage staffing for maintenance, operation, management and logistics benefits.

Integration road map

The economic feasibility of a project can be established through proper master planning. The road map of this planning incorporates three major steps, shown in FIG. 3: identifying and agreeing on the project objective; economic evaluation of various configurations; and selection of feasible optimum configuration. Pre-project planning is key to success for minor revamps to a complex multibillion-dollar investment. The evaluation stage requires an experienced task force comprising several engineers from disciplines such as engineering, cost estimation, financial analysis and, of course, the owner’s engineers. A collaborative and transparent approach is essential for better understanding, to reduce project risks, to obtain optimum profitability and to support strategic decisions.

FIG. 3. A road map for integration.
FIG. 3. A road map for integration.

Profitability drivers

Profitable operations that deliver adequate ROI are a function of a complex set of variables underpinned by basic supply and demand dynamics and by global competition. Refiners must strive to maximize their profit margins by optimizing a number of variables, including the type of crude feedstocks and products, energy requirements, plant complexity and efficiency, logistics and transportation, while responding to an increasingly stringent regulatory agenda. The operational business environment is dynamic and comes with varying levels of commercial, technical, regulatory and economic risks.

The financial success of an integrated complex depends on various key parameters, such as input costs, optimum processing configuration, system reliability and efficiency, and product market value. All profit drivers are important, but not all have the same impact on profitability. In fact, input costs and product prices will always have more impact than other drivers. The main factors determining product values are market demand and competition, plant location, available inventory, seasonal shifts in demand, and geopolitical and natural risk in selling (e.g., the Covid-19 global outbreak has reduced energy demand).

The economics of the HPI business are complex and capital-intensive. The cost of inputs and the price of outputs are both highly volatile, influenced by global, regional and local supply and demand changes. Operating between these two related but independent markets for raw materials and finished products is a challenging business. Also, a refinery’s ability to produce high-margin specialty products that generate higher revenue increases profitability.

Since refineries have little or no influence over the price of their input or output, they must rely on operational efficiency to remain competitive. To be economically viable, the refinery must efficiently operate to keep operating costs (OPEX), such as energy, labor and maintenance, to a minimum. In addition, they must keep the facilities at maximum utilization through efficient maintenance. Minimizing unscheduled downtime is important to maintaining an optimal utilization rate. Since operating a refinery entails high fixed costs, utilization rates are one of the major factors influencing profitability.

The configuration and complexity of each facility determines the types of feedstock it can process and the products it can produce. A refinery’s level of complexity is often based on how much secondary conversion capacity it has. The complex refinery is more flexible and can process a wider range of crudes into a better yield of value-added products. The increased flexibility enables them to quickly adapt to constant changes in market conditions for both inputs and outputs. A refinery’s ability to adjust its product slate to meet changes in demand has a huge impact on its profitability and reduces risk. However, adding more complexity comes at a high investment cost and entails higher operating costs.

Economies of scale is another important factor contributing to profitability. Larger facilities are more efficient and better able to withstand cyclical swings in business activity, and they also have lower fixed costs per volume processed.

The location of a refinery directly affects the cost of bringing feeds to the facility and getting products to the market. Typically, products leaving a refinery cost more to transport than the crude oil coming in. So, the refinery’s location must balance crude transportation costs and proximity to markets. Integrated refinery and petrochemical facilities should be located as close as possible to minimize transport costs of various streams.

Integration economic feasibility

The economics of the integrated facility are extremely complex. Major steps involved to establish economic feasibility include data generation, configuration optimization (LP modeling), cost estimation and financial analysis.

The source of feedstocks supply, market demand of finished products and associated economic data are generally available from market surveys, which can be carried out by the engineering contractor, a third-party market analyst or provided by the owner. The data on various process units (yield, intermediate streams properties, utilities, catalyst and chemical consumptions, etc.) are generally available from licensors and some are taken from the engineering company’s in-house databank. The LP modeling exercise requires these data as input, along with all constraints relating to supply, processing (unit capacity, product specifications), selling, etc.

The accuracy of LP results depends on the validity of the input data. The data related to process units are generally accurate enough; however, data of feedstocks cost, product prices, market demand, etc., are forecast numbers. Hence, data accuracy should be high to get a realistic comparative result of different options. The LP model feasible solution for each option optimally allocates various intermediate streams from process units to destination product pools, satisfying all specifications and constraints. It generates an overall material balance, utility requirement figures and a profit objective value, which can be used for screening and ranking various configurations.

The engineering department develops preliminary data, such as offsites and utilities facility, site selection, environment studies and constructability studies, which are required for cost estimation.

Based on the LP model’s profit function ranking, one or two of the best options, or all options, may be selected for further analysis. A detailed capital cost estimation is performed with an accuracy level depending on the project stage, which includes a combination of equipment factored estimating, semi-detailed methods and vendor quotations.

Part 2 of this article, which will appear in the October issue, 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. HP

 

ACKNOWLEDGEMENT

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

LITERATURE CITED

  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.

The Author

Related Articles

From the Archive

Comments

Comments

{{ error }}
{{ comment.comment.Name }} • {{ comment.timeAgo }}
{{ comment.comment.Text }}