Tuesday, June 3, 2008

Crude Oil and Gasoline

Much as I hate to let my day job intrude into the real world of writing, I see so much confusion about oil and gasoline these days that I have to say a few words about how oil is turned into the oil products people actually buy and use. Most of you will want to stop reading right here.

You've been warned.

Crude oil is generally referred to as “sweet” or “sour.” This relates to the sulfur content of the crude (the stuff that would give you acid rain if you burned it). Some crudes, such as Malaysia’s Tapis, have as little as 0.03% sulfur by weight, while others, like Venezuela’s notorious Boscan, have as much as 5.5% sulfur by weight (which means about 19 pounds of sulfur in every barrel of oil!)

Sulfur is bad stuff, so most countries have restrictions on how much of it is allowed in products. But most of the world’s supplies of oil are sour; sweetish crudes are concentrated in only a few locations (West Africa, North Africa, East/SE Asia, and the North Sea). All things held equal, sweeter crudes are nicer to work with--but sulfur standards in the US and Europe on gasoline and diesel are now so stringent that everything blended into gasoline or diesel needs to be desulfurized first no matter how sweet the crude is.

Crude oil is a mixture of hydrocarbons of various lengths. The more large molecules, the “heavier” the crude; the more short molecules, the “lighter” the crude.

Smaller molecules boil at lower temperatures. The first thing that happens in a refinery is the crude is heated to about 650 F and then run into a distillation tower that splits it into boiling ranges. A typical crude oil yields something like this

LPG (less than 100 F): 2%
Light Naphtha (100-200 F): 8%
Heavy Naphtha (200-350 F: 10%
SR Kerosene (350-450 F): 10%
SR Diesel (450-650 F): 20%
Heavy Fuel Oil (650 F+): 50%

The SR Kerosene is desulfurized and turned into jet fuel. The SR Diesel is desulfurized and turned into various grades of diesel fuel.

Where’s the gasoline? Nowhere. In modern refineries, the Light Naphtha is run to a desulfurizer, and then becomes a gasoline blendstock. So the direct yield of gasoline from a typical crude, assuming you have a naphtha desulfurizer, is about 8%--but even then, the octane of most Light Naphtha isn't high enough to be gasoline by itself.

But the Heavy Naphtha can be desulfurized and then put in a unit called a catalytic reformer. This unit rearranges the molecular structure of the naphtha and raises the octane, but it also destroys some of the naphtha, so if you put in 10 barrels, you may only get 9 barrels of “reformate” out.

The reformate plus the desulfurized Light Naphtha gives us perhaps 17% yield of gasoline from a typical crude. Since the US demands 52% of every barrel as gasoline, this obviously poses a problem.

Furthermore, the US uses almost no Heavy Fuel Oil—the stuff burned in oil-fired power plants or giant ship engines. Heavy Fuel Oil is only 5% of the US oil demand, but about 50% of the yield from a typical crude, so there is a huge surplus of this produced from a typical barrel.

A lot of people get riled up by the fact that gasoline and diesel cost so much more than crude oil. Well, Heavy Fuel Oil (also known as Residual Fuel Oil, Resid, Bottoms, Bunker Fuel, Bunker, C, and a host of other names) sells for less than the crude it is made from (because the stuff isn’t good for much; it’s main competition is coal).

If half of the output sells for less than the price of the crude, then guess what? The other half will sell for more than the price of the crude, even before factoring in the cost of the refinery.

The answer to the imbalance between supply and demand of Heavy Fuel Oil is “cracking,” the generic name for any number of technologies that split large molecules into smaller fragments, turning Heavy Fuel Oil into material that boils in the naphtha, kerosene, and diesel ranges.

In the US, we have about 17 million barrels per day of distillation capacity, but there is nearly 10 million barrels per day of cracking capacity sitting behind that, waiting to bust up the Heavy Fuel Oil into material to make lighter products.

Neat, huh? The only problem is that cracking technologies are complex and hugely expensive. A single large cracking unit and its auxiliary processes costs hundreds of millions of dollars—sometimes as much as a billion dollars. In addition, the sulfur and other contaminants are concentrated in the heavier materials. So converting Heavy Fuel Oil into lighter products is expensive—and uses a lot of the energy contained in the oil. And, guess how that capital cost and energy loss is paid for? Yep. Higher costs for gasoline, diesel, and jet fuel.

In sophisticated refining centers like California and Texas, the heaviest, sourest crudes in the world can be converted to ultraclean gasoline, jet fuel, and diesel. Despite what some pundits say, there aren’t any crudes that are inherently unsuitable to make into gasoline, except in those countries—mostly in the Third World—where refinery capacity is still based on simple distillation alone and desulfurization hasn’t been added. The lmitation isn't the crude, it's the refining capacity.

Refiners tend to prefer lighter, sweeter crudes, and pay more for them. There was a time decades ago when many refiners in Europe and the US could only run sweet crudes, which was why Colonel Qaddafi was so important in the 1970s (Libyan crude is very sweet). But now most refineries have been upgraded with cracking and desulfurization. Refiners in Houston and Los Angeles run a vast volume of heavy, sour crudes every day, some of it so heavy it's almost asphalt—and turn most of it into gasoline and diesel.

Recently there have been weird comments swirling around the web that even if Saudi Arabia increased its crude exports it wouldn't help the situation in the US because Saudi Arabia produces "the wrong kind of crude to make gasoline." Given that the US imports about 1.5 million barrels per day of crude oil from Saudi Arabia, this obviously can't be true--no US refiner is going to import crude that can't produce gasoline. But if you simply look at the profile of US crude imports, you will find that the average of our crude imports are both heavier and more sour than Saudi Arabia's crude oil exports. Saudi Light Crude would be a big step up compared to the junk we import from Mexico and Venezuela.

For a modern refinery, there is no "wrong kind of crude to produce gasoline."

I'd say more, but then I'd have to start charging my daily rate.


neil said...

thanks, David. I actually found that rather interesting.

Jen Ster said...

Hi! Thanks for the input on that - I'm sending the link to my uncle and cousin. They're on the "find the oil" end of the biz. My uncle almost went bankrupt in the 1980s (in fact, he credits Quadafi and Saddam Hussein for saving his business.)

David Isaak said...

Hi, Neil--

Messy stuff, innit? And it's hard to figure out how to dramatize it...

David Isaak said...

Hi, Jen--

The situation today isn't really that different from 1979/80, either. It's expensive to find new oil, but once it's found, the actual cost of production is usually quite low.

What this means in practice is that when high prices (or other events) clobber demand, prices can drop...and drop...and drop.

And when they do that, they wipe out all the alternative energy investments and research, and also wipe out all the new oil exploration.

What we need is a floor price for crude oil, just to protect solar and wind.

By the way, if you're cool, you call the exploration and production (E&P) side of things "upstream" and all the stuff I do (transportation, refining, chemicals) "downstream." Try that out on your E&P relatives.

Jamie Ford said...

Cool breakdown.

I used to work for an ad agency in Anchorage that handled part of BP, Petro Star, and Alyeska Pipeline. This reminds me of the meetings we used to have with various scientists and engineers where they'd tell us all the great things they were doing and our job was to filter the technical stuff into layman's terms.

Basically they'd tell us a bunch of complex stuff and we're spit out a headline that said "Hey, we're not raping the land."

David Isaak said...

Hi, Jamie--

Yeah! All that drilling was totally consensual.

Plus the tundra was just asking for it, going around with practically no vegetation on...

Alis said...

Fascinating, David - thanks!

David Isaak said...

Hi, Alis--

Don't encourage me.

sexy said...