Basics of Refining
February 17, 2005
Refining Fundamentals & Impact of Changing Fuel Specifications 1
Safe Harbor Statement Statements contained in this presentation that state the Company’s or management’s expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. It is important to note that the Company’s actual results could differ materially from those projected in such forward-looking statements. Factors that could affect those results include those mentioned in the documents that the Company has filed with the Securities and Exchange Commission.
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Crude Oil Characteristics Q Crude density is commonly measured by API gravity O
O
API gravity provides a relative measure of crude oil density … the higher the API number, the lighter the crude Classified as light, medium, or heavy ¾
Light crudes are easier to process
¾
Heavy crudes are more difficult to process
Q Sulfur content measures if a crude is sweet (low sulfur) or
sour (high sulfur) O
Less than 0.7% sulfur content = sweet
O
Greater than 0.7% sulfur content = sour
O
High sulfur crudes require additional processing to meet regulatory specs
Q Acid content measured by Total Acid Number (TAN) O
Acidic crudes highly corrosive to refinery equipment
O
High acid crudes are those with TAN > 0.7 3
Crude Oil Basics Crude Quality by Types
Estimated Quality of Reserves (2005)
SOUR
3.5 Maya 3
Arab Heavy
High Acid (Sweet) 2%
SULFUR CONTENT
Arab Medium 2.5 Mars
Venezuela Medium
2010
Iran Heavy
Heavy Sour 16%
Arab Light
1.5 2000
Iran Light Urals
1990
1
SWEET
Dubai
2
Alaska North Slope (ANS)
1980
0.5
Brent Cabinda
0 20
25
HEAVY
30
35
Light/Medium Sour 63%
WTI Tapis
Bonny Light
API GRAVITY
Source: Simmons & Co.
Sweet 19%
40
45
50
LIGHT Source: Oil & Gas Journal, Company Information
Q Majority of global reserves are light/medium sour Q Most quoted benchmark prices are light sweet crudes O WTI (West Texas Intermediate), Western Hemisphere O Brent (North Sea Crude), Europe 4
Basic Refining Concepts Crude Types
Characteristics 34+ API Gravity
Yields 3%
Sweet Crude
< 0.7 % Sulfur
30%
(i.e. WTI, Brent)
35% Demand
34%
Most Expensive 24 - 34 API Gravity
Medium Sour Crude
> 0.7 % Sulfur
(i.e. Mars, Arab Light, Arab Medium)
50% Demand Less Expensive < 24 API Gravity
Heavy Sour Crude
> 0.7 % Sulfur
(i.e. Maya)
15% Demand Least Expensive
2004 U.S. Refinery Production 8% 8%
Propane/ Propane/ Butane Butane
49%
Gasoline RFG Conventional CARB Premium
33%
3% 21% 26%
50%
32%
Distillate Jet Fuel Diesel Heating Oil
1% 14% 22%
11% Heavy Fuel Oil
& Other
63%
Source: EIA Refiner Production
Refineries upgrade crude oil to higher value products
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Basic Refining Concepts <90 Degrees
Crude Crude Oil Oil
Butane & Lighter
Refinery Fuel Gas Processing
Straight Run Gasoline
Further Processed to Gasoline
220-315 Degrees
Naphtha
Further Processed to Gasoline Heavy naphtha for jet fuel
315-450 Degrees
Kerosene
Further Processed to Jet Fuel, Diesel and Fuel Oils
450-650 Degrees
Light Gas Oil
Further Processed to Gasoline, Diesel and Fuel Oil
650-800 Degrees
Heavy Gas Oil
Further Processed to Gasoline, Diesel and Fuel Oil
800+ Degrees
Residual Fuel Oil/Asphalt
Further Processed to Gasoline, Diesel, Fuel Oil & Lube Stocks
Distillation 90-220 Degrees Tower (Crude Unit)
Furnace
Vacuum Unit
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Hydroskimming Refineries – Distillation Process
Light Sweet Crude
Distillation Tower
Crude Unit
Propane/Butane
Low Octane Gasoline
Reformer
High Octane Gasoline
30%
Hydrogen
Kerosene/Jet Fuel
Distillate Desulfurizer
Kerosene/Jet Fuel
34%
Diesel/Heating Oil
Diesel/Heating Oil
Vacuum Unit
4%
Propane/ Butane Gasoline RFG Conventional CARB Premium Distillate Jet Fuel Diesel Heating Oil
Gas Oil Heavy Fuel Oil
32%
Heavy Fuel Oil & Other
100% Total Yield Simple low upgrading capability refineries tend to run sweet crude
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Medium Conversion Refineries - Catalytic Cracking Crude Unit
Propane/Butane
Reformer
Distillation Tower
Low Octane Gasoline
Light Sour Crude
8%
High Octane Gasoline
45%
Hydrogen
Kerosene/Jet Fuel
Distillate Desulfurizer
Diesel/Heating Oil
Kerosene/Jet Fuel
27%
Diesel/Heating Oil
Propane/ Butane Gasoline RFG Conventional CARB Premium Distillate Jet Fuel Diesel Heating Oil
Light Cycle Oil (LCO)
Vacuum Unit
Gas Oil
Fluid Catalytic Cracker (FCC)
Alkylation Unit
Alkylate
FCC Gasoline
24% Heavy Fuel Oil
Heavy Fuel Oil & Other
104% Total Yield Moderate upgrading capability refineries tend to run more sour crudes while achieving increased higher value product yields and volume gain.
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High Conversion Refineries – Coking/Resid Destruction Crude Unit
Hydrogen Plant
Gas
Medium/ Heavy Sour Crude
Distillation Tower
Propane/Butane
Reformer
Low Octane Gasoline
Propane/ Butane
58%
Gasoline RFG Conventional CARB Premium
Hydrogen
Kerosene
Distillate Desulfurizer
Kerosene/Jet Fuel
Hydrocracker LCO
Medium Gas Oil
Heavy Fuel Oil
28%
Distillate Jet Fuel Diesel Heating Oil
15%
Heavy Fuel Oil & Other
Diesel/Heating Oil
Diesel
Light Gas Oil
Vacuum Unit
High Octane Gasoline
7%
Fluid Catalytic Cracker (FCC)
Hydrocrackate Gasoline
Alkylation Unit
Alky Gasoline
FCC Gasoline Delayed Coker
Coke
108% Total Yield Complex refineries can run heavier and more sour crudes while achieving the highest light product yields and volume gain. 9
Conversion Economics USGC Medium Sour Crude Refining Margins
$/BBL $/BBL
18.00 18.00 15.00 15.00 12.00 12.00 9.00 9.00 6.00 6.00 3.00 3.00 0.00 0.00 -3.00 -3.00 Jan-01 Jan-01
Jan-02 Jan-02
Jan-03 Jan-03
Hydroskimming Hydroskimming
Jan-04 Jan-04 Cracking Cracking
Jan-05 Jan-05 Coking Coking
Q Conversion capacity needed to capitalize on sour crude discounts O Hydroskim - Breakeven or moderate margins; High resid yield ¾ ¾
O O
When margins are positive - increase crude runs When margins are negative - decrease crude runs
Cracking - Better margins; Lower resid yield Coking - Best margins; Lowest resid yield ¾
Maximize heavy crudes 10
Regulatory Changes Impacting Supply Maximum Gasoline Sulfur Content (PPM)
Maximum Diesel Sulfur Content (PPM)
300 500 500
500
350
150
350
150
120 90 30
’03 ’04 ’05 ’06
U.S.
Q
30
Beyond
50
50 10
’03 ’04 ’05 ’06
Europe
Beyond
15
’03 ’04 ’05 ’06
U.S.
15
Beyond
50
50
’03 ’04 ’05 ’06
10
Beyond
Europe
Major changes in sulfur specs O
2005 in Europe and 2006 in U.S.
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Desulfurization Basics Q
Goal X
Q
Removal sulfur from light products (gasoline or diesel) to meet air quality requirements for clean burning fuels
Process Desulfurization Unit
High Sulfur Light Products (HC-S)
H2
HC-S
HC-S
H2
H2 HC-S H2
HC-S
Desulfurized Light Products Elemental Sulfur Sulfur Plant
Catalyst
HC-S
H
HC-S
HC
H2S
S
S S
S
S
• Agricultural • Pharmaceutical
S
2
Hydrogen Unit H2 H2
H2 H2 H2
H2
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Gasoline Desulfurization Hydrogen Plant
Crude Unit
Q
Sour Crude
Distillation Tower
Propane/Butane
Q Reformer
Low Octane Gasoline
Kerosene
Distillate Desulfurizer
High Octane Gasoline
Kerosene/Jet Fuel
Q
Significant capital investment Lower FCC gasoline octane (yield loss) Other Options X
Diesel
Diesel/Heating Oil X
Light Gas Oil
Hydrocracker
LCO Vacuum Unit
Medium Gas Oil
Heavy Fuel Oil
Fluid Catalytic Cracker (FCC) Delayed Coker
Hydrocrackate Gasoline Alky Unit
Desulfurize FCC feed Shift FCC gasoline into distillate
Alkylate Gasoline
FCC Gasoline Desulfurizer
FCC Gasoline
Coke
Install InstallNew New FCC FCC Gasoline Gasoline Desulfurizer Desulfurizer 13
Diesel Desulfurization Hydrogen Plant
Crude Unit
Q
Sour Crude
Distillation Tower
Propane/Butane
Kerosene
Diesel
Light Gas Oil
Kerosene Desulfurizer
Medium Gas Oil
Heavy Fuel Oil
High Octane Gasoline
Kerosene/Jet Fuel
Modified or New Diesel Desulfurizer
Fluid Catalytic Cracker (FCC) Delayed Coker
Q
Diesel/Heating Oil
Hydrocracker
LCO Vacuum Unit
Q
Reformer
Low Octane Gasoline
Significant capital investment Significant project management time and focus Diesel yield loss
Hydrocrackate Gasoline Alky Unit
Alkylate Gasoline
FCC Gasoline Desulfurizer
FCC Gasoline
Coke
Install InstallNew New Diesel Diesel Desulfurizer Desulfurizer oror Modify ModifyExisting Existing Desulfurizer Desulfurizer 14
Appendix
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Major Refining Processes Category Topping (Separation of Crude)
Definition Separating crude oil into difference hydrocarbon groups. The most common means is through distillation.
Process Desalting – Prior to distillation, crude oil is often desalted to remove corrosive salts as well as metals and other suspended solids. Atmospheric Distillation – Used to separate the desalted crude into specific hydrocarbon groups (straight run gasoline, naphtha, light gas oil, etc.) or fractions. Vacuum Distillation – Heavy crude residue (“bottoms”) from the atmospheric column is further separated using a lower-pressure distillation process. Means to lower the boiling points of the fractions and permit separation at lower temperatures, without decomposition and excessive coke formation.
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Major Refining Processes Category Thermal and Catalytic Cracking
Definition “Cracking” or breaking down large, heavy hydrocarbon molecules into smaller hydrocarbon molecules thru application of heat or thru the use of catalysts.
Process Coking – Thermal non-catalytic cracking process that converts low value oils to higher value gasoline, gas oils and marketable coke. Residual fuel oil from vacuum distillation column is typical feedstock. Visbreaking – Thermal non-catalytic process used to convert large hydrocarbon molecules in heavy feedstocks to lighter products such as fuel gas, gasoline, naphtha and gas oil. Produces sufficient middle distillates to reduce the viscosity of the heavy feed. Catalytic Cracking – A central process in refining where heavy gas oil range feeds are subjected to heat in the presence of catalyst and large molecules crack into smaller molecules in the gasoline and surrounding ranges. Catalytic Hydrocracking – Like cracking, used to produce blending stocks for gasoline and other fuels from heavy feedstocks. Introduction of hydrogen in addition to a catalyst allows the cracking reaction to proceed at lower temperatures than in catalytic cracking, although pressures are much higher. 17
Major Refining Processes Category Combination/ Rearrangement of Hydrocarbons
Definition Linking two or more hydrocarbon molecules together to form a large molecule (e.g. converting gases to liquids).
Process Alkylation – Important process to upgrade light olefins to high-value gasoline components. Used to combine small molecules into large molecules to produce a higher octane product for blending with gasoline. Catalytic Reforming – The process where naphthas are changed chemically to increase their octane numbers. Octane numbers are measures of whether a gasoline will knock in an engine. The higher the octane number, the more resistance to pre or selfignition. Polymerization – Process that combines smaller molecules to produce high octane blending stock. Isomerization – Process used to produce compounds with high octane for blending into the gasoline pool. Also used to produce isobutene, an important feedstock for alkylation. Ethers Manufacture – Alcohols and ethers (MTBE) are added to gasoline to increase octane levels and reduce generation of carbon monoxide. 18
Major Refining Processes Category Treating
Definition
Process
Processing of petroleum products to remove some of the sulfur, nitrogen, heavy metals and other impurities
Catalytic Hydrotreating, Hydroprocessing, sweeting/sulfur removal – Used to remove impurities (e.g. sulfur, nitrogen, oxygen and halides) from petroleum fractions. Hydrotreating further “upgrades” heavy feeds by converting olefins and diolefins to parafins, which reduces gum formation in fuels. Hydroprocessing also cracks heavier products to lighter, more saleable products.
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