THE DYNAMICS OF CRUDE

This is Part I of a series on the changing dynamics of the single most important energy source for our economy, and will be for the foreseeable future – crude oil. 

First, we all must know and agree that not all crude oil is the same.  Each source of crude oil has a different chemical and physical make up, and how it is refined into all its various products (just for gasoline and diesel would make all but the most remote refineries a black hole for investors).

Further, types of crude oil being utilized in refineries have changed over the years. The days of the simple refinery consisting of a crude unit to heat and fractionate crude into say gasoline, diesel, kerosene (jet fuel) and fuel oil is long gone. 

A modern refinery now takes crude oil, fractionates it in a crude unit, removes excess hydrogen in reformer (through a chemical reaction), takes the hydrogen and removes sulfur (via another chemical reaction) in a hydrotreater (also called a desulfurizer). 

It may also further change the chemical structure of the heaviest portion via several methods namely a hydrocracker (pressure/chemical reaction), visbreaker (physical breakdown via heat), or catalytic cracker (controlled combustion with chemical reaction).  The very heavy remains may also be further converted to lighter products via petroleum coking (much like a giant pressure cooker with high pressure and high heat).

Now we have to deal with non-liquids.  The sulfur converted to H2S to remove it from the product stream is turned into elemental sulfur.  Gases produced, some entrained in the crude oil, and other created during further processes, can be turned into "octane" via a chemical reaction called Alkylation.  There are other processes used, but not addressed here.

There are other products still which are shipped out for other uses, base oils for mineral oil, lube oils & grease, gases to be later turned into plastics and petrochemicals. Then there is petroleum coke, whose importance has emerged & grown over the last 30 years or so.

Key to the development of more complicated refineries was source, and type, of crude oil, type of vehicles requiring certain types of fuel, and what to do with "waste" produced by the refining process.

The most complicated and deep conversion refineries in the world are located on the West Coast of the U.S. (as local crude is heavy or very heavy), and the Gulf Coast of the U.S. (to take advantage of less expensive Venezuelan very heavy crude).  Two of the heaviest crude oil sources, pre-Canadian Tar Sands, were located in California’s Kern River Basin (Bakersfield) and Venezuela.

Decades ago, petroleum coking units were mainly used to only obtain lighter products and deal with an almost nuisance by-product, petroleum coke.  While petroleum coking has been around for 100 years, it was only during the oil shortages of the 1970’s that cokers were installed in a number of refineries to squeeze the last possible lighter product out of the very bottom of the barrel. 

Beginning in the early 1980’s new fuel grade petcoke markets were developed, particularly in Europe for cement manufacturing, making it a desirable product and profit center.  I was associated with the company, Otto Wolff, which developed this new market.  Several refineries, in Texas and Louisiana, made such process design changes to also take advantage of cheaper than market Venezuelan crude due to lower overall cost, less $ per barrel and short haul ocean freight (7 days) along with a new profit center. 

There are two basic coker designs, delayed and fluid bed (or flexicoker).  Delayed is a batch process with alternating coker drums which operated much like a large pressure coker and produce shot (undesirable due harder to grind) or sponge (it looks like a black natural sponge) is the preferred design. 

Fluid bed (flexi) consumes some of the coke as its heat source during the breaking down of the heavy feedstock but does produce a higher grade (needle coke) which is desirable for making large carbon anodes used in steel furnaces, and smelting of aluminum oxide (mineral contained in ores such as bauxite) into aluminum metal.

Now comes Canadian crude oil.  As we all know, Canada has the largest known and proven crude oil reserves, outside of Venezuela, in the world.  The vast majority of this crude is what is known as bitumen and is in sand formations commonly called "tar sands."  Much of this deposit is close to the surface and obtained via strip mining, but this is the smallest geographical area involved. 

An even larger area is produced via wells where a hydrocarbon diluent (solvent) is pumped at the top of the oil bearing formation, or even steam, and another well is drilled below this (both are horizontal) and the heated oil is pumped out.  Similar methods have been used in California, Texas and Venezuela for decades to stimulate production.

Companies have been strip mining and upgrading these "tar sands" for decades.  This is nothing new.  What is new is economy of scale, along with price of crude making it economically feasible, and some  process modifications achieving greater efficiency.  There is more than enough upgraded crude (crudely refined, desulfurized, and coked then mixed back together into synthetic crude).  What is available to ship out of the area is a blend of very heavy crude produced from wells, and refined but reconstituted crude resulting in blended crude on the cusp of between the heavy and very heavy categories.

Over the last decade several pipelines have been converted to all Canadian blend or new ones laid, such as the Keystone (not XL)  Several refineries have been converted, via reconfiguration and the addition of new process units to receive this crude.  They are located at Lima OH, Detroit MI, St. Paul MN, Wood River (St. Louis) IL & Borger TX.  It has taken billions of dollars in new construction at each of these to achieve this.

The only other existing refineries able to efficiently and economically process Canadian crude are in California, Texas and Louisiana.  All others will need some modification if not billions of dollars in additional process units.

The problem existing is in how to economically get this crude to where it can be refined.

Changing dynamics of crude sources and refining is nothing new.  During the 1980’s with declined major fields such as in East Texas and Oklahoma, and most crude oil containing higher sulfur content such as from Alaska, there was a widespread shuttering of refineries inland refineries across the country most of which were demolished between 1982 and 1995.

This will be covered in Part 2, Logistics of Crude Oil and Refinery Products

Kermit Hoffpauir – "Citizen K" on the TTP Forum – has been involved in marketing and sales of surplus refining, chemical, plastics process equipment and units for 25 years.  He is currently working with the liquidation of one the recently closed major Philadelphia area refineries, as well as finalizing the sale of a simple small inland refinery to be dismantled and shipped overseas.  He is president of K Energy Equipment, GM of C. A. Cooper Properties (both based in Baton Rouge) and JV partner in PXK (based in Houston).