AN INTRODUCTION TO PETROLEUM REFINING AND THE PRODUCTION OF ULTRA LOW SULFUR GASOLINE AND DIESEL FUEL

1. INTRODUCTION

This tutorial addresses the basic principles of petroleum refining, as they relate to the production of ultra-low-sulfur fuels (ULSF), in particular gasoline (ULSG) and diesel fuel (ULSD).1 This is the first work product of a comprehensive analysis of the economics of ULSG and ULSD production and supply in Brazil, China, India, and Mexico, being conducted by HART Energy and MathPro Inc. for the International Council on Clean Transportation (ICCT). The purpose of the tutorial is to (1) provide context and an organizing framework for the overall analysis, (2) identify the technical factors that determine the refining cost of ULSG and ULSD production, and (3) facilitate interpretation of the results of the analysis. The tutorial addresses:
♦ Fundamentals of the petroleum refining industry
♦ Crude oil and its properties
♦ Classes of refinery processes and refinery configurations
♦ Properties of the refinery-produced streams (“blendstocks”) that make up gasoline and diesel fuel
♦ Refinery processing options for producing ULSG and ULSD
The tutorial is written for readers having an interest in ULSG and ULSD production but having no familiarity with refining operations in general and sulfur control in particular

2. PETROLEUM REFINING AT A GLANCE

Petroleum refining is a unique and critical link in the petroleum supply chain, from the wellhead to the pump. The other links add value to petroleum mainly by moving and storing it (e.g., lifting crude oil to the surface; moving crude oil from oil fields to storage facilities and then to refineries; moving refined products from refinery to terminals and end-use locations, etc.). Refining adds value by converting crude oil (which in itself has little end-use value) into a range of refined products, including transportation fuels. The primary economic objective in refining is to maximize the value added in converting crude oil into finished products. Petroleum refineries are large, capital-intensive manufacturing facilities with extremely complex processing schemes. They convert crude oils and other input streams into dozens of refined (co-)products, including: 

♦ Liquified petroleum gases (LPG)

♦ Gasoline

♦ Jet fuel

♦ Kerosene (for lighting and heating)

♦ Diesel fuel

♦ Petrochemical feedstocks

♦ Lubricating oils and waxes

♦ Home heating oil

♦ Fuel oil (for power generation, marine fuel, industrial and district heating)

♦ Asphalt (for paving and roofing uses).

Of these, the transportation fuels have the highest value; fuel oils and asphalt the lowest value.

Many refined products, such as gasoline, are produced in multiple grades, to meet different specifications and standards (e.g., octane levels, sulfur content).

More than 660 refineries, in 116 countries, are currently in operation, producing more than 85 million barrels of refined products per day. Each refinery has a unique physical configuration, as well as unique operating characteristics and economics. A refinery’s configuration and performance characteristics are determined primarily by the refinery’s location, vintage, availability of funds for capital investment, available crude oils, product demand (from local and/or export markets), product quality requirements, environmental regulations and standards, and market specifications and requirements for refined products.

Most refineries in North America are configured to maximize gasoline production, at the expense of the other refined products. Elsewhere, most of the existing refining capacity and virtually all new capacity is configured to maximize distillate (diesel and jet fuel) production and, in some areas, petrochemical feedstock production, because these products are enjoying the fastest demand growth in most regions of the world.

3. CRUDE OIL AT A GLANCE

Refineries exist to convert crude oil into finished petroleum products. Hence, to understand the fundamentals of petroleum refining, one must begin with crude oil. 

3.1 The Chemical Constituents of Crude Oil

Each crude oil is unique and is a complex mixture of thousands of compounds. Most of the compounds in crude oil are hydrocarbons (organic compounds composed of carbon and hydrogen atoms). Other compounds in crude oil contain not only carbon and hydrogen, but also small (but important) amounts of other (“hetero”-) elements – most notably sulfur, as well as nitrogen and certain metals (e.g., nickel, vanadium, etc.). The compounds that make up crude oil range from the smallest and simplest hydrocarbon molecule – CH4 (methane) – to large, complex molecules containing up to 50 or more carbon atoms (as well hydrogen and hetero-elements).

The physical and chemical properties of any given hydrocarbon species, or molecule, depends not only on the number of carbon atoms in the molecule but also the nature of the chemical bonds between them. Carbon atoms readily bond with one another (and with hydrogen and heteroatoms) in various ways – single bonds, double bonds, and triple bonds – to form different classes of hydrocarbons, as illustrated in Exhibit 1 on the following page.

Paraffins, aromatics, and naphthenes are natural constituents of crude oil, and are produced in various refining operations as well. Olefins usually are not present in crude oil; they are produced in certain refining operations that are dedicated mainly to gasoline production. As Exhibit 1 indicates, aromatic compounds have higher carbon-to-hydrogen (C/H) ratios than naphthenes, which in turn have higher C/H ratios than paraffins.

 

The heavier (more dense) the crude oil, the higher its C/H ratio. Due to the chemistry of oil refining, the higher the C/H ratio of a crude oil, the more intense and costly the refinery processing required to produce given volumes of gasoline and distillate fuels. Thus, the chemical composition of a crude oil and its various boiling range fractions influence refinery investment requirements and refinery energy use, the two largest components of total refining cost.

 

The proportions of the various hydrocarbon classes, their carbon number distribution, and the concentration of hetero-elements in a given crude oil determine the yields and qualities of the refined products that a refinery can produce from that crude, and hence the economic value of the crude. Different crude oils require different refinery facilities and operations to maximize the value of the product slates that they yield.

Each crude oil is unique and is a complex mixture of thousands of compounds. Most of the compounds in crude oil are hydrocarbons (organic compounds composed of carbon and hydrogen atoms). Other compounds in crude oil contain not only carbon and hydrogen, but also small (but important) amounts of other (“hetero”-) elements – most notably sulfur, as well as nitrogen and certain metals (e.g., nickel, vanadium, etc.). The compounds that make up crude oil range from the smallest and simplest hydrocarbon molecule – CH4 (methane) – to large, complex molecules containing up to 50 or more carbon atoms (as well hydrogen and hetero-elements).

The physical and chemical properties of any given hydrocarbon species, or molecule, depends not only on the number of carbon atoms in the molecule but also the nature of the chemical bonds between them. Carbon atoms readily bond with one another (and with hydrogen and heteroatoms) in various ways – single bonds, double bonds, and triple bonds – to form different classes of hydrocarbons, as illustrated in Exhibit 1 on the following page.

Paraffins, aromatics, and naphthenes are natural constituents of crude oil, and are produced in various refining operations as well. Olefins usually are not present in crude oil; they are produced in certain refining operations that are dedicated mainly to gasoline production. As Exhibit 1 indicates, aromatic compounds have higher carbon-to-hydrogen (C/H) ratios than naphthenes, which in turn have higher C/H ratios than paraffins.

 

The heavier (more dense) the crude oil, the higher its C/H ratio. Due to the chemistry of oil refining, the higher the C/H ratio of a crude oil, the more intense and costly the refinery processing required to produce given volumes of gasoline and distillate fuels. Thus, the chemical composition of a crude oil and its various boiling range fractions influence refinery investment requirements and refinery energy use, the two largest components of total refining cost.

 

The proportions of the various hydrocarbon classes, their carbon number distribution, and the concentration of hetero-elements in a given crude oil determine the yields and qualities of the refined products that a refinery can produce from that crude, and hence the economic value of the crude. Different crude oils require different refinery facilities and operations to maximize the value of the product slates that they yield.

 

Exhibit 1: Important Classes of Hydrocarbon Compounds in Crude Oil
 

3.2 Characterizing Crude Oils
 

 Assessing the refining value of a crude oil requires a full description of the crude oil and its components, involving scores of properties. However, two properties are especially useful for quickly classifying and comparing crude oils: API gravity (a measure of density) and sulfur content.

 

3.2.1 API Gravity (Density)

The density of a crude oil indicates how light or heavy it is, as a whole. Lighter crudes contain higher proportions of small molecules, which the refinery can process into gasoline, jet fuel, and diesel (for which demand is growing). Heavier crudes contain higher proportions of large molecules, which the refinery can either (1) use in heavy industrial fuels, asphalt, and other heavy products (for which the markets are less dynamic and in some cases shrinking) or (2) process into smaller molecules that can go into the transportation fuels products.

In the refining industry, the density of an oil is usually expressed in terms of API gravity, a parameter whose units are degrees (o API) – e.g., 35o API. API gravity varies inversely with density (i.e., the lighter the material, the higher its API gravity). By definition, water has API gravity of 10o .

Exhibit 2 indicates the quality of a typical light crude (35°API) and a typical heavy crude (25°API), in terms of their natural yields of light gases, gasoline components, distillate (mainly jet fuel and diesel) components, and heavy oils. The exhibit also shows the average demand profile for these product categories in the developed countries.

Exhibit 2: Typical Natural Yields of Light and Heavy Crude Oils

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Source: Hart Energy Consulting (2010)

The natural yields of the heavy oils from both the light and the heavy crudes exceed the demand
for heavy refined products, and the natural yield of heavy oil from the heavy crude is more than
twice that of the light crude. These general characteristics of crude oils imply that (1) refineries
must be capable of converting at least some, and perhaps most, of the heavy oil into light
products, and (2) the heavier the crude, the more of this conversion capacity is required to
produce any given product slate.

3.2.2 Sulfur Content

Of all the hetero-elements in crude oil, sulfur has the most important effects on refining.


  ♦ Sufficiently high sulfur levels in refinery streams can (1) deactivate (“poison”) the catalysts that
promote desired chemical reactions in certain refining processes, (2) cause corrosion in refinery
equipment, and (3) lead to air emissions of sulfur compounds, which are undesirable and may
be subject to stringent regulatory controls.


  ♦ Sulfur in vehicle fuels leads to undesirable vehicle emissions of sulfur compounds and interferes
with vehicle emission control systems that are directed at regulated emissions such as volatile
organic compounds, nitrogen oxides, and particulates.


Consequently, refineries must have the capability to remove sulfur from crude oil and refinery
streams to the extent needed to mitigate these unwanted effects. The higher the sulfur content of
the crude, the greater the required degree of sulfur control and the higher the associated cost.


The sulfur content of crude oil and refinery streams is usually expressed in weight percent (wt%)
or parts per million by weight (ppmw). In the refining industry, crude oil is called sweet (low
sulfur) if its sulfur level is less than a threshold value (e.g., 0.5 wt% (5,000 ppmw)) and sour (high
sulfur) if its sulfur level is above a higher threshold. Most sour crudes have sulfur levels in the
range of 1.0–2.0 wt%, but some have sulfur levels > 4 wt%.


Within any given crude oil, sulfur concentration tends to increase progressively with increasing
carbon number. Thus, crude fractions in the fuel oil and asphalt boiling range have higher sulfur
content than those in the jet and diesel boiling range, which in turn have higher sulfur content than
those in the gasoline boiling range. Similarly, the heavier components in, say, the gasoline boiling
range have higher sulfur content than the lighter components in that boiling range.

3.2.3 Classifying Crude Oils by API Gravity and Sulfur Content

Exhibit 3 shows a widely-used scheme for classifying crude oils on the basis of their API gravity
and sulfur content. Each crude class is defined by a range of API gravity and a range of sulfur
content; the names of the categories indicate these ranges in qualitative terms.
Exhibit 4 lists some important crude oils in the world oil trade and indicates the API gravity/sulfur
classification for each of these crudes.

Exhibit 3: Crude Oil Classes

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Exhibit 4: °API Gravity and Sulfur Levels of Some Important Crude Oils

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3.3 Crude Oil Quality and Refining Economics

3.3.1 Average Crude Oil Quality is Trending Downg Title

The average API gravity and sulfur content of aggregate refinery crude slates varies by region;
some regions process lighter, sweeter crude slates than others. However, over time, the average
quality of the global crude slate has been declining gradually. Average API gravity has been
decreasing, but slowly. Average sulfur content has been increasing more rapidly, a trend likely to
continue for the foreseeable future.


Illustrating this trend, Exhibit 5 shows estimated crude quality, in terms of API gravity and sulfur
content, in various regions of the world for 2008 (actual) and 2030 (projected), and Exhibit 6
shows projected time profiles of average API gravity and sulfur content for the period 2008 to
2030.

Exhibit 5: Average Regional and Global Crude Oil Quality: 2008 (Actual) and 2030 

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These trends reflect the changing relationship between the average qualities of world crude oil reserves and annual crude oil production. On average, total world reserves of crude oil are of lower API gravity and higher sulfur content than is current world production. The large reserves in the Middle East (predominately medium sour), South America (predominately heavy sour), and Canada (predominately heavy sour) are contributing increasing shares of global crude oil supply.

Crude oil produced in Europe and Asia is, on average, of high API gravity and low sulfur content, but it constitutes a decreasing share of global crude oil supply.

3.3.2 Crude Oil Quality Influences Crude Oil Pricing

The popular press often refers to “the price of crude oil,” as though all crude oils were priced the same. In fact, they are not. The higher the crude quality, the higher the market price relative to the prevailing average price for all crude oil. In other words, light sweet crudes carry a price premium relative to medium and heavy sour crudes.

 

Light sweet crudes have higher refining value than heavier, more sour crudes, because (1) light crudes have higher natural yields of the components that go into the more valuable light products, and (2) sweet crudes contain less sulfur. Hence, light sweet crudes require less energy to process and call for lower capital investment to meet given product demand and quality standards than heavier, more sour crudes.

 

Refiners therefore face a key economic choice in meeting product demand and quality standards. They can either pay a price premium for higher quality crudes to capture their economic benefits or incur higher investment in refinery capital stock and higher refining costs to take advantage of the relatively lower prices of lower quality crudes.

 

Light sweet/heavy sour price differentials fluctuate over time and vary from place to place, due to the interplay of many technical and economic factors. These factors include crude quality differentials, crude supply/demand balances, local product markets and product specifications, and local refining capacity and upgrading capabilities. However, in general, the light sweet/heavy sour price differential tends to (1) increase (in absolute terms) with increasing world oil price level and (2) range from about 15% to 25% of the average price of light sweet crude.

4. FUNDAMENTALS OF REFINERY PROCESSING

Exhibit 7: Schematic Flow Chart of a Notional (Very) Complex Refinery

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Several aspects of refining operations suggested by Exhibit 7 merit comment. Refineries produce dozens of refined products (ranging from the very light, such as LPG, to the very heavy, such as residual fuel oil). They do so not only because of market demand for the various products, but also because the properties of crude oil and the capabilities of refining facilities impose constraints on the volumes of any one product that a refinery can produce. Refineries can – and do – change the operations of their refineries to respond to the continual changes in crude oil and product markets, but only within physical limits defined by the performance characteristics of their refineries and the properties of the crude oils they process. Finally, the complexity of refinery operations is such that they can be fully understood and optimized, in an economic sense, only through the use of refinery-wide mathematical models. Mathematical models of refinery operations are the only reliable means of generating achievable (i.e., feasible) and economic (i.e., optimal) responses to changes in market environment and to the introduction of new (usually more stringent) product specifications.

 

Exhibit 8 is a simpler schematic representation of a petroleum refinery, more useful for purposes of this tutorial. This exhibit illustrates, in schematic form, the separation of crude oil into specific boiling range (carbon number) fractions in the crude distillation process, shows standard industry names for these crude fractions, and indicates the subsequent refinery processing of these streams to produce a standard slate of finished refined products.2

Exhibit 8: Schematic View of Crude Oil Distillation and Downstream Processing

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The balance of this section (1) describes the standard classification scheme for refineries based on the combinations of refining processes that they employ (Section 4.1) and then (1) briefly describes the most important types of processes by which refineries transform crude oil into finished products (Section 4.2).

4.1 Classifying Refineries by Configuration and Complexity

Each refinery’s configuration and operating characteristics are unique. They are determined primarily by the refinery’s location, vintage, preferred crude oil slate, market requirements for refined products, and quality specifications (e.g., sulfur content) for refined products.

 

In this context, the term configuration denotes the specific set of refining process units in a given refinery, the size (throughput capacity) of the various units, their salient technical characteristics, and the flow patterns that connect these units.

 

Although no two refineries have identical configurations, they can be classified into groups of comparable refineries, defined by refinery complexity.

 

In this context, the term complexity has two meanings. One is its non-technical meaning: intricate, complicated, consisting of many connected parts. The other is a term of art in the refining industry: a numerical score that denotes, for a given refinery, the extent, capability, and capital intensity of the refining processes downstream of the crude distillation unit (which, by definition, has complexity of 1.0). The higher a refinery’s complexity, the greater the refinery’s capital investment intensity and the greater the refinery’s ability to add value to crude oil by

 

(1) Converting more of the heavy crude fractions into lighter, high-value products and

 

(2) Producing light products to more stringent quality specifications (e.g., ultra-low sulfur fuels).

 

Broadly speaking, all refineries belong to one of four classes, defined by process configuration and refinery complexity, as shown in Exhibit 9

Exhibit 9: Refinery Classification Scheme

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♦ Topping refineries have only crude distillation and basic support operations. They have no capability to alter the natural yield pattern of the crude oils that they process; they simply separate crude oil into light gas and refinery fuel, naphtha (gasoline boiling range), distillates (kerosene, jet fuel, diesel and heating oils), and residual or heavy fuel oil. A portion of the naphtha material may be suitable for very low octane gasoline in some case.

Topping refineries have no facilities for controlling product sulfur levels and hence cannot produce ULSF.

 

♦ Hydroskimming refineries include not only crude distillation and support services but also catalytic reforming, various hydrotreating units, and product blending. These processes enable (1) upgrading naphtha to gasoline and (2) controlling the sulfur content of refined products. Catalytic reforming upgrades straight run naphtha to meet gasoline octane specification and produces by-product hydrogen for the hydrotreating units. Hydrotreating units remove sulfur from the light products (including gasoline and diesel fuel) to meet product specifications and/or to allow for processing higher-sulfur crudes.

Hydroskimming refineries, commonplace in regions with low gasoline demand, have no capability to alter the natural yield patterns of the crudes they process.

 

♦ Conversion (or cracking) refineries include not only all of the processes present in hydroskimming refineries but also, and most importantly, catalytic cracking and/or hydrocracking. These two conversion processes transform heavy crude oil fractions (primarily gas oils), which have high natural yields in most crude oils, into light refinery streams that go to gasoline, jet fuel, diesel fuel, and petrochemical feedstocks.

 

Conversion refineries have the capability to improve the natural yield patterns of the crudes they process as needed to meet market demands for light products, but they still (unavoidably) produce some heavy, low-value products, such as residual fuel and asphalt.

 

♦ Deep Conversion (or coking) refineries are, as the name implies, a special class of conversion refineries. They include not only catalytic cracking and/or hydrocracking to convert gas oil fractions, but also coking. Coking units “destroy” the heaviest and least valuable crude oil fraction (residual oil) by converting it into lighter streams that serve as additional feed to other conversion processes (e.g., catalytic cracking) and to upgrading processes (e.g., catalytic reforming) that produce the more valuable light products.

 

Deep conversion refineries with sufficient coking capacity destroy essentially all of the residual oil in their crude slates, converting them into light products.

 

Almost all U.S. refineries are either conversion or deep conversion refineries, as are the newer refineries in Asia, the Middle East, South America, and other areas experiencing rapid growth in demand for light products. By contrast, most refining capacity in Europe and Japan is in hydroskimming and conversion refineries.

 

Exhibit 10 summarizes the salient features of the different refinery classes and indicates their characteristic product yield patterns at constant crude oil quality.3

 

In the U.S. and in many other countries, including Brazil, China, India, and Mexico, conversion and deep conversion refineries constitute more than 95% of total crude running capacity, and essentially 100% of crude running capacity in refineries with > 50 K Bbl/day of crude distillation capacity. All new refineries being built in these countries are either conversion or deep conversion refineries. Consequently, the discussion in the next section (Section 5) applies specifically to these two refinery types.

Exhibit 10: Refinery Classes and Characteristic Yield Patterns

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Notes: (1) Gasoline and distillate fuel yields are nominal estimates, based on processing an average quality crude oil Source: Hart Energy Consulting

4.2 Classes of Refining Processes

The physical and chemical transformations that crude oil undergoes in a refinery take place in numerous distinct processes, each carried out in a discrete facility, or process unit. Large modern refineries comprise as many as fifty distinct processes, operating in close interaction. However, for tutorial purposes, these processes can be thought of in terms of a few broad classes, shown in Exhibit 11.

Exhibit 11: Important Classes of Refining Processes

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These categories are discussed briefly below.

4.2.1 Crude Distillation

Crude oil distillation is the front end of every refinery, regardless of size or overall configuration. It has a unique function that affects all the refining processes downstream of it.

 

Crude distillation separates raw crude oil feed (usually a mixture of crude oils) into a number of intermediate refinery streams (known as “crude fractions” or “cuts”), characterized by their boiling ranges (a measure of their volatility, or propensity to evaporate). Each fraction leaving the crude distillation unit (1) is defined by a unique boiling point range (e.g., 180o –250o F, 250o –350o F, etc.) and (2) is made up of hundreds or thousands of distinct hydrocarbon compounds, all of which have boiling points within the cut range. These fractions include (in order of increasing boiling range) light gases, naphthas, distillates, gas oils and residual oil (as shown in Exhibit 7). Each goes to a different refinery process for further processing.

 

The naphthas are gasoline boiling range materials; they usually are sent to upgrading units (for octane improvement, sulfur control, etc.) and then to gasoline blending. The distillates, including kerosene, usually undergo further treatment and then are blended to jet fuel, diesel and home heating oil. The gas oils go to conversion units, where they are broken down into lighter (gasoline, distillate) streams. Finally, the residual oil (or bottoms) is routed to other conversion units or blended to heavy industrial fuel and/or asphalt. The bottoms have relatively little economic value – indeed lower value than the crude oil from which they come. Most modern refineries convert, or upgrade, the low-value heavy ends into more valuable light products (gasoline, jet fuel, diesel fuel, etc.).

 

Because all crude oil charged to the refinery goes through crude distillation, refinery capacity is typically expressed in terms of crude oil distillation throughput capacity.

Exhibit 6: Global Crude Oil Quality Trends (2008-2030) (▬) °API, (▬) Sulfur [wt%]

Petroleum refineries are large, capital-intensive, continuous-flow manufacturing facilities. They transform crude oils into finished, refined products (most notably LPG, gasoline, jet fuel, diesel fuel, petrochemical feedstocks, home heating oil, fuel oil, and asphalt) by (1) separating crude oils into different fractions (each with a unique boiling range and carbon number distribution) and then (2) processing these fractions into finished products, through a sequence of physical and chemical transformations.

 

Exhibit 7 is a simplified flow chart of a notional (typical) modern refinery producing a full range of high-quality fuels and other products. It is intended only to suggest the extent and complexity of a refinery’s capital stock, the number of process units in a typical refinery, and the number of coproducts that a refinery produces. An appreciation of this complexity is essential to a basic understanding of the refining industry.

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