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Chapter 5
The Petroleum Refining Industry
Photo credit American Petroleum Institute and Exxon Corp.
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- Contents , . .
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page
Industry structure........,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Product Mix . . .... .... . . . . . . . . ..... ● ... ...... . . . . . . . . . . 86
Economics of Refining .. ....,. . . . . . . . . . . ● .... . . ... . . 88
imports and Exports ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Trends and Uncertainties.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 90
Energy and Technology.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Production Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Kinds of Refineries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Energy Use . . . . . . . . . . . .; . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Energy Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Potential for Energy Saving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Technologies for lncreased Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Proven Technologies for Energy Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
New Concepts in Refinery Energy Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Investment Choices for the Refining industry . . . . . . . . . . . . . . . . . . . . . ......... . . . . 104
Capital Expenditures in the oil lndustry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Other Investment opportunities ● P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
impacts of Policy Options on the Petroleum Refining Industry . . . . . . . . . . . . . . . . . . . . 107
The Reference Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Projected Effects of Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
TABLES
Table No.
21. Definition of SIC 29-The Petroleum Refining and Related Industries . . . . . . . . . . . . 85
22. Petroleum Refining Corporations Earning More Than $16 Billion in 1981 . . . . . . . . 86
23. Products Manufactured in SIC 29, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
24. Process Plant Construction Cost,1972 and 1982. . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
25. Comparison of 1972 and 1981 Energy Consumption in Petroleum Refining
Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
26. Petroleum Refining industry Projects To Be Analyzed for lnternal Rate of Return
(lRR) Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
27. Projected Changes in Petroleum Refining Production Between 1985 and 2000.... 110
28. Effects of Policy Options on lRR Values of Petroleum Refining Industry Projects.. . 111
29. Effect of Lower interest Rates on lRR Values of Petroleum Refinery Industry
Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
FIGURES
Figure No. Page
19. Employment Trends in Petroleum Refining lndustry,1970-82 . . . . . . . . . . . . . . . . . . 89
20. Topping Refinery Model Configuration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
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21 HydroskimmingRefinery Model Configuration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
22 Complex Refinery Model Configuration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
23 Alliance Refinery Energy Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
24 Comparison of Petroleum Refining Industry Energy Use and Production Output
1972 and 1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
25 Diagram of Atmospheric Fluidized-Bed Combustion Boiler/Combustor
Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
26 Petroleum Refining Industry Projections of Fuel Use and Energy Savings by
Policy Options 1990 and 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
27 Petroleum Refining Industry Energy Intensity Projection, 1970X)00. . . . . . . . . . . . . 110
Chapter 5
The Petroleum Refining Industry
INDUSTRY OVERVIEW
The petroleum refining industry uses the largest Finally, the refining process is becoming more
quantity of premium fuels in the industrial sec- complex as demand increases for high octane,
tor, amounting to 2,7 Quads in 1981. ’ It is sec- unleaded gasoline. Crude petroleum, as found
ond only to the chemicals industry in the total in nature, must be processed (refined) to remove
amount of energy it consumes. Classified under impurities and to manufacture such usefuI ma-
SIC 29, the petroleum refining industry is defined terials as gasoline, jet fuel (kerosene), and fuel
as the group of establishments engaged in refin- oil. In the early days of the petroleum refining
ing petroleum, producing paving materials, and industry, simple distillations were used to pro-
manufacturing lubricating oils. Its official descrip- duce desired gasoline and kerosene products,
tion is shown in table 21. with up to so percent of the crude oil feedstock
This industry faces a future that bears little re- being discarded. In recent years, this industry has
semblance to its past. Previously, the firms that made a great deal of effort to increase the yield
made transportation fuels for the United States of high octane products, minimize waste, and im-
had access to large quantities of high-quality prove the overall quality of the product pro-
crude oil. Now, they must use less desirable high- duced.
suIfur crude oils as feedstocks. The petroleum Industry Structure
product market is changing as well. Environmen-
tal considerations require production of high- The U.S. petroleum refining industry now con-
octane, unleaded gasoline, instead of gasoline sists of approximately 270 refineries owned by
with lead added to improve fuel quality. 2
162 companies. Refineries are located in 40 of
In addition, the costs of fuel have risen to such the sO States. Refining capacity is located in areas
levels that overall demand for refining products known as Petroleum Administration for Defense
is projected to decline over the next two decades. (PAD) districts. Major concentrations of refining
Thus, the management of firms in SIC 29 finds capacity exist in PAD districts 2 (Great Lakes and
itself in the unenviable position of having to make Midwestern States), 3 (Gulf Coast), and 5 (Pacific
sizable capital investments in an industry whose Coast). PAD district 1 (East Coast) has less refin-
product will be in less demand. ing capacity, a deficiency made up for by pipeline
and tanker shipments from the Gulf Coast and
1 American Petroleum I nstltute, Energy Et’t’/c/ency /rnpro~’emenl by imports, primarily of residual fuel oil, from
and Recot ered ,W]tcr\al L’tlllzatlon Report to U.S. Department ot foreign Western Hemisphere refineries,3.
Energ}, June 10, 1982, p 2. As of January 1, 1982, the operating refineries
in the United States had a total crude-running
Table 21.—Definition of SIC 29—The Petroleum capacity* of about 17.7 million barrels per day
Refining and Related Industries (bpd), representing about 27 percent of the refin-
ing capacity of the non-Communist world.4 Proc-
This major group includes establishments primarily en- essing from around 1,000 bpd to over 600,000
gaged in refining petroleum, manufacturing of paving and bpd, refineries range from “fully integrated” com-
roofing materials, and compounding lubricating oils and
greases from purchased materials. This SIC group contains Zlbld., p. 6.
the following subcategories: J/nrernatjona/ ~etro/eum Encyclopedia, J. C. McCasli n (cd. ) (Tulsa,
SlC Title Okla.: The Petroleum Publishing Co., 1981).
291 . . . . . . . . Petroleum refining *The size of a refinery IS normally expressed as Its “crude capaci-
295. , . . . Paving and roofing materials ty, ” meaning the number of barrels that can be “run” each day
299. . . . . . . . Miscellaneous products of petroleum and oil through its atmospheric distillation units.
SOURCE Office of Management and Budget, Standard Indusfrlal Classification ‘Amercian Petroleum Institute, Basic Petro/eum Data Book, Jan-
Manual, 1972 uary 1983.
85
86 • Industrial Energy Use
plex plants, capable of producing a complete plies of crude oil are diminishing as govern-
range of petroleum products, to small, simple ments of the producing countries increasing-
refineries that can produce only straight-run dis- ly take over responsibility for disposing of
tillates, heavy fuel oils, and sometimes asphalt. their crude production. As a consequence,
Small (less than 75,000 bpd) refineries make up many of the U.S. multinational oil producers
about 60 percent of the total number of refining find that their domestic activities–including
units, but their combined capacity is only about refining—are becoming more important to
24 percent of the total throughput. * In terms of their financial health. These companies, with
ownership, the four largest companies have their sophisticated high-volume refineries,
about 38 percent of the total refining capacity, provide the bulk of the products manufac-
and 20 companies have about 77 percent of the tured through complex processing steps.
total refining capacity.5 The top 10 firms are 2. Large- and medium-sized domestic refiners
shown in table 22. make up a diverse group of companies.
There is no single, accepted method of catego- Some are fortunate in being largely self-suf-
rizing the structure of the U.S. petroleum refin- ficient in domestic production of crude oil.
ing industry that captures the similarities and dif- Others depend for their crude supply on
ferences in refineries related to processing capa- some combination of long-term contracts
bilities, access to feedstock supplies, ability to and “spot” purchases. * They have much
market, and the like. One grouping is: less total refining capacity than do the ma-
jor firms, but a number of them are signifi-
1. Large, integrated, multinational companies cant marketers in their own regions.
typically have worldwide production, refin- 3. Independent refiners form the most diverse
ing, and marketing operations in addition to group of all. Most independent refiners are
their activities in the United States. A number small, domestic companies. Refining is their
of these firms are descendants of the Stand- principal operation; most do not produce
ard Oil companies created when Rockefel- crude oil and do not market their products
ler’s Standard Oil trust was dissolved in under their own names.
1911.6 These major oil producers have typ-
ically had access to assured supplies of crude Product Mix
oil from the Middle East and other produc- A petroleum refinery is a complex assembly of
ing areas of the world. Such guaranteed sup-
individual process plants interconnected with pip-
*Throughput–the total amount of crude oil initially processed. ing and tanks. Each plant has a specific function,
‘Oil and Gas Journal, “Refining Capacity Dips on Broad Front, ”
vol. 81, No. 12, Mar. 21, 1983, p. 84.
6U.S. House of Representatives, Committee on Energy and Com- *Spot purchases are those made by refiners on the open market
merce, U.S. Refineries: A Background Study, July 1980. and without benefit of a contract.
Table 22.—Petroleum Refining Corporations Earning More Than $16 Billion in 1981
Revenues
Corporation (in billions) Employees
Exxon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $110.06 137,000
Mobil Oil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.33 82,000
Texaco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57.63 66,728
Standard Oil of California (Chevron) . . . . . . . . . . . . . . . . . . . . . 46.61 43,000
Standard Oil (Indiana) (Amoco) . . . . . . . . . . . . . . . . . . . . . . . . . . 31.73 58,700
Atlantic Richfield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.75 54,200
Gulf Oil Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.17 53,300
Shell Oil Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.60 37,273
Conoco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.29 34,500
Phillips Petroleum Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.29 34,500
SOURCE” Standard and Poor’s Register of Corporations, Directors and Executives, vol. 1, 1983
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