ONLINE EXCLUSIVE: Supply/demand imbalance: How refiners can optimize during the current low-demand environment
Hydrocarbon Processing was pleased to speak with W. R. Grace’s Nathan Ergonul (NE), Vice President, Marketing; and Gary Cheng (GC), Regional Marketing Manager for the Asia-Pacific region. The following Q&A provides insights on how the COVID-19 pandemic has affected global transportation fuels demand, what types of refineries and regions have been most impacted, how refiners are responding, and ways refiners can optimize operations during the current low-demand environment.
HP: Can you take a few moments to summarize how the outbreak of COVID-19 has affected the hydrocarbon processing industry, especially to the significant drop in global transportation fuels demand?
NE/GC: The COVID-19 pandemic has had an unprecedented impact on the hydrocarbon processing industry and refined product markets. Overall demand for transportation fuels has hovered near historic lows as COVID-19 has taken a major toll on global economic activity. Many parts of the world have enforced lockdown and social distancing measures, resulting in less travel locally and abroad. The biggest impacts have been on jet fuel and gasoline demand as global air travel and car transportation have fallen sharply. Refiners have had to reduce crude runs and adopt unique operating modes to affect the global supply/demand imbalance.
Pandemics are not your typical business disruptions. Traditional disruptions such as natural disasters carry a clear time cycle, are limited to certain regions and often end after a short window. Yet, it is possible that recovery of gasoline demand could be quick given factors such as safe travel considerations for passenger cars, a pent-up demand for trips and reduced gasoline prices. All these factors should stimulate short-term demand.
HP: Are certain regions and/or types of refineries (i.e., simple vs. complex refineries) being impacted more severely than others?
NE/GC: Regional impacts of COVID-19 have been largely dependent on the severity of the outbreak, as well as the level of government intervention. With the initial reported cases of COVID-19 originating in Wuhan province, China was hit hard first. China’s crude throughput in February and March fell substantially. Through April (and expected through May), China has seen a demand recovery as measures to control the spread of COVID-19 have been eased. China has increased crude imports and refinery runs to supply a reviving economy.
However, in April, other countries in Asia—such as India—have implemented nationwide lockdowns to curb the transmission of COVID-19, effectively stymying oil demand growth in the region. Furthermore, in most parts of Europe, the impact has been significant, due to extreme lockdown measures put in place. Several operators in Europe have temporarily shut down entire refineries to balance the marketplace. In the U.S., lockdowns have been enforced at the state level, and so the impact has been more scattered. Across the U.S., a few refinery shutdowns have been announced, but the majority are still operating, albeit at reduced crude rates.
Overall, most refiners have been negatively impacted by product demand destruction from COVID-19, but the severity of the impact varies depending on geographic location and refinery complexity. Refineries higher on the Nelson complexity index and with downstream petrochemical connectivity enjoy greater flexibility for product yield shifts to better weather the storm, as petrochemical feedstock demand has remained strong.
HP: How are refiners responding to these demand scenarios? Are there ways to navigate or optimize operations during this low-demand environment?
NE/GC: Refiners are adopting a range of unique operating strategies in response to the lower demand environment. With the fluid catalytic cracker (FCC) being the heart of most refinery configurations and the key unit for gasoline production, refiner strategies are centered around FCC operating adjustments.
As the global FCC catalyst market leader, Grace has a very broad view of the refining industry and can provide a multi-faceted perspective. Most FCC units have had to reduce their charge rates to cope with the lower demand environment, and some units have extended their spring turnarounds or have taken limited shutdown. A recent survey of Grace’s global FCC Technical Service team indicates that gasoline reduction is a primary operating theme during this pandemic. Most refiners are adopting a low-severity mode of operation in their FCCs to reduce gasoline, while other refiners are pushing to a higher severity FCC operation to overcrack gasoline into lighter products. Undercutting is being used in both modes to further minimize gasoline production.
Another very effective strategy to reduce gasoline is to use ZSM-5-based additives in FCCs to preferentially crack gasoline into propylene and butylene. The benefit of this approach is two-fold: (1) reducing gasoline yield, and (2) maintaining LPG olefin production as product values for LPG—especially propylene—has remained relatively healthy. Several refiners are processing cheaper alternative feedstocks high in residue content to optimize refinery profitability considering poor product valuations. In most cases, a refiner’s operating strategy will depend heavily on crude and local product economics, as well as available hardware and constraints within the refinery gates. Typically, refiners’ strategies will vary significantly; however, under the sweeping effects of the COVID-19 pandemic, most refiners are sharing a common operating regime of lower crude rates to affect the global supply/demand imbalance.
Nathan Ergonul is the Vice President of Marketing, FCC, for W. R. Grace. Prior to joining Grace, Mr. Ergonul worked at Total’s Lindsey Oil refinery. He joined the Grace team in 2011. He has more than 16 yr or oil and gas experience. Over the past 9 yr, he has visited most oil refineries across the Middle East and Africa, using his in-depth knowledge and expertise to develop innovative and creative solutions to problems within FCC and hydroprocessing units. Mr. Ergonul earned a Bch degree in chemical engineering from Aston University in the UK and an MBA from Hult International Business School. He is a Chartered Chemical Engineer and a member of the Institution of Chemical Engineers, UK.
Gary Cheng is the Regional Marketing Manager, FCC, Asia Pacific for W. R. Grace. He is responsible for leading FCC marketing initiatives across the Asia-Pacific region. Prior to this role, he was based at Grace’s headquarters in Columbia, MD, providing both technical sales and technical service support to various North American refineries. Prior to joining Grace, Mr. Cheng was employed at ExxonMobil and has experience with design, operations, troubleshooting and major capital project work. He holds a BS in chemical engineering from the University of Maryland, College Park, and has 12 yr of industry experience.
Comments