CONVERSION GAINS REFLECT HEALTHY MARGINS

March 26, 1990
Richard A. Corbett Refining/Petrochemical Editor Crude oil distillation capacity at U.S. refineries increased only modestly in 1989 according to the Journal's exclusive, annual refining survey, but conversion and treating capacity showed respectable jumps. This is in line with the strong demand for gasoline, diesel fuel, and other high-quality products last year. That slight increase in crude capacity should keep the industry closely balanced with demand, keep its operating rates high,
Richard A. Corbett
Refining/Petrochemical Editor

Crude oil distillation capacity at U.S. refineries increased only modestly in 1989 according to the Journal's exclusive, annual refining survey, but conversion and treating capacity showed respectable jumps. This is in line with the strong demand for gasoline, diesel fuel, and other high-quality products last year.

That slight increase in crude capacity should keep the industry closely balanced with demand, keep its operating rates high, and keep operating margins healthy as the U.S. industry enters the 1990s.

U.S. refinery operating rates (crude unit utilization), expressed as crude runs as a percent of crude capacity, have been on the rise throughout most of the 1980s. Massive shedding of capacity during the first half of the 1980s (in 1981, 303 refineries had pushed capacity to an all time high of 18,465,000 b/cd) and only slight capacity increases during the last half of the decade, coupled with steadily increasing product demand, pushed operating rates up.

Although crude charging capacity rose only slightly during 1989, capacities of key downstream processes that produce gasoline and diesel showed good percentage increases (Table 1).

Processes that treat the feeds to these key processes increased substantially during 1989 because of increased feed demand for conversion and light-fuels production processes.

The downstream capacity increases also reflect the industry's response to tougher environmental rules that currently mandate oxygenated gasoline blends in winter in some areas of the U.S., and they reflect rules that went into effect in 1989 that require lower gasoline.vapor pressure during the summer nationwide.

But there is concern in the industry that even tougher environmental rules proposed for the 1990s that mandate how gasoline and diesel fuels should be formulated (so called reformulated fuels) could limit the industry's ability to meet demand, even with increases in crude and downstream processing capacity.

Although there are capacity concerns, these rules could have the positive effect of keeping refining margins healthy.

Fluid catalytic cracking will be heavily relied upon to help meet some of these proposed environmental rules. Two other articles in this special focus on improvements in FCC operation and analysis.

SMALL CAPACITY RISE

Crude charging capacity rose only 140,185 b/cd to 15,558,923 b/cd as of Jan. 1, 1990, from 15,418,738 b/cd .on Jan. 1, 1989. But capacities of key processes that produce light-fuel products such as fluid catalytic cracking, catalytic hydrocracking, alkylation, and aromatics/isomerization, scored notable capacity gains during 1989 (Table 1).

FCC capacity grew 2.8% to about 5.40 million b/sd during 1989 from about 5.25 million b/sd the previous year. Some 30,000 b/d of the increase of 147,100 b/cd came at Exxon Co. U.S.A.'s Baton Rouge, La., refinery. The remainder was distributed around the country.

Catalytic hydrocracking capacity rose 4.1% to about 1.24 million b/sd from 1.19 million b/sd the previous year.

Alkylation capacity rose 1.4% during 1989, and aromatics/isomerization capacity rose 1.2%.

In addition to increases in capacity of key light-fuels producing processes, capacities in feed treatment to these processes also increased (Table 2). Overall U.S. hydrotreating capacity rose 2.2% to about 7.26 million b/sd.

FCC and cycle stock pretreating capacity rose 3.7% to about 1.0 million b/sd from 960,000 b/sd. Catalytic naphtha reformer feed treatment and naphtha desulfurization capacity rose 2.8% to about 4.01 million b/sd.

The big increase in straight-run distillate hydrotreating capacity, up 17.9% to about 1.42 million b/sd from about 1.16 million b/sd, reflects either a "shift" or a redefinition of the types of materials being hydrotreated and is not totally due to new construction. Part of that shift in reported capacity came out of the hydrotreating category "other distillate and material," which is down 14.2% compared to 1989.

For example, Shell Oil Co. reported substantial capacity shifts from "other distillate and materials" and "other" hydrotreating categories to the "straight-run distillate category at four of its refineries (see survey for legend of categories).

The resid and heavy gas oil hydrorefining capacity rise (2% up) indicates a continued need to convert heavier feedstocks into light products.

The total number of refineries in the U.S. grew to 191 in 1989, from 188 in 1988. Three previously idled refineries in Pennsylvania, Colorado, and New Mexico, were restarted and a new asphalt refinery was commissioned in Arizona. One plant in California was shutdown during 1989.

HEALTHY MARGINS

U.S. refining capacity has reached a level where it is in close balance with product demand. During the last half of the 1980s, refinery crude capacity additions barely kept pace with product demand.

And higher demand for high-quality, light fuels products has placed more emphasis on increasing the capacity of the processes that produce them.

Close balance between capacity and demand has caused average crude-unit operating rates to rise steadily since about 1983 (Fig. 1), helping to boost refining margins through the last years of the 1980s.

Capacity/demand balance has been maintained for the last 4-5 years because the industry has only added the incremental distillation capacity needed to meet demand.

Those additions were accomplished, for the most part, by debottlenecking projects and improvements in operating efficiency.

Little grassroots refinery construction in the U.S. is expected during the 1990s because the current margins, although good, still don't provide enough economic incentive to build a modern refinery.

And environmental regulations and groups make it difficult to obtain construction permits in some parts of the country.

With refined-product demand expected to rise 1% to 18.3 million b/d during 1990 (OGJ, Jan. 29, p. 49), capacity should remain in close balance with product demand, keeping refining margins healthy as the industry progresses into the 1990s.

The removal of lead from gasoline and more demand for higher-quality, light-fuel products (particularly high-octane, low-volatility gasoline), has kept downstream conversion processes running at full capacity in recent years.

Rules are also proposed for diesel formulations that reduce sulfur and aromatics content (aromatics may be limited by a minimum diesel cetane number of 45).

These new rules will help keep conversion capacity operating at high rates, fostering good margins for the next few years.

REGIONAL CAPACITY SHIFTS

U.S. regional distribution of crude capacity showed some shifts in 1989. But all regions scored gains in conversion capacity (Table 3).

The East Coast and Southeast U.S., or Petroleum Administration for Defense District (PADD) 1, scored a substantial gain of 170,230 b/cd in crude capacity during 1989 (Table 3). Much of that gain can be attributed to the restart of Sun Co. Inc.'s Philadelphia refinery last year.

PADD 11 (Midwest and Midcontinent) scored a slight gain of 18,700 b/cd, and PADD IV (Rocky Mountain region) scored a small gain of 22,000 b/cd.

Offsetting those gains was a decline in crude capacity in PADD III (Gulf Coast and southern Midcontinent) of 59,700 b/cd of crude capacity, and a decline in PADD V (West Coast, Hawaii, and Alaska) of 11,045 b/cd.

All regions scored gains in FCC capacity, with PADD III reporting the largest of 81,900 b/sd. Exxon's Baton Rouge FCC addition, as previously stated, was a major factor in the district's gain.

The fact that all regions gained capacity in this very important process shows that the U.S. industry relies heavily on conversion capacity to meet light-product demand.

Further evidence of the industry's downstream conversion muscle is the increase in hydrocracking capacity in all PADD districts. The substantial 30,000 b/sd capacity rise in PADD I is all attributed to the restart of Sun's Philadelphia refinery.

One refinery was restarted in PADD I, one in PADD III, and a new refinery, Sunbelt Refining Co., was commissioned in PADD IV last year.

Despite the slight shift in crude capacity to PADD's I, II, and IV, PADD III still dominates with 44% of U.S. crude capacity. The district also dominates in conversion capacity at 47.3% of U.S. cat. cracking capacity and 40.3% of U.S. hydrocracking capacity.

SMALL AND LARGE SEGMENTS

The large segment of the U.S. industry that includes companies with 200,000 b/cd total crude capacity or larger added 101,300 b/cd during 1989 (Table 4). A big factor in that increase was the restart of Sun Refining & Marketing Co. Inc.'s Philadelphia refinery, with reported crude capacity of 125,000 b/cd.

Sun's Philadelphia refinery has relatively good light fuels producing capabilities with 29,000 b/sd of FCC capacity, 50,000 b/sd of catalytic reforming capacity, and 30,000 b/sd of hydrocracking capacity. The refinery also has 35,000 b/sd of asphalt production capacity.

The restart of the Philadelphia refinery, and some capacity changes in other companies, altered the ranking of the larger group of companies.

Sun moved up to 10th from 12th. Texaco Refining & Marketing Inc. and Phillips 66 Co. exchanged places, with Texaco in 16th and Phillips in 17th place. The larger group of companies gained strength in conversion capacity, as indicated by increases in FCC and hydrocracking capacity. The group's FCC capacity rose 97,500 b/sd to a total capacity of 4,333,700 b/sd during 1989. Hydrocracking capacity of the group rose 37,000 b/sd to 1,089,600 b/sd.

The increase in FCC capacity is notable in view of the fact that FCC capacity at Shell Oil Co.'s Norco, La., refinery is still inoperative as a result of an explosion and fire in 1988.

Two additional refineries were added to the larger segment, for a current total of 89 refineries for the group. One addition was the Sun Philadelphia refinery, and the other was the acquisition of Rock Island Refining Co., Indianapolis, by Marathon Petroleum Co.

Marathon's acquisition moved Rock Island from the smaller to the larger segment and boosted the company's total crude capacity to 500,000 b/cd.

The Derby refineries in El Dorado and Wichita, Kan., are now named Coastal Refining & Marketing Inc. This is only a name change because Coastal already owned Derby.

Although the larger segment increased its share of total U.S. crude charging capacity, the smaller segment, those companies with total crude capacity of less than 200,000 b/cd, added about the same percentage of capacity, 1.0%, during 1989.

FCC capacity in the smaller segment increased 53,700 b/sd, or 5.2%, to a total of 1,070,400 b/sd. It also added some hydrocracking capacity.

Although the smaller group operates only a small percentage of total U.S. conversion capacity (FCC capacity is only about 1 % of total U.S. capacity), it is significant that the smaller group is maintaining its conversion capability in FCC and hydrocracking.

The smaller segment also accounted for the only new refinery started in the U.S. since the 1970s. Sunbelt Refining Co. commissioned an 8,000 b/cd refinery in Randolph, Ariz.

The refinery was built primarily as an asphalt production facility. It is located near, and gets its crude from, the All-American Pipeline that transports heavy California crude oils to Texas Gulf Coast refineries.

The refinery also has 6,000 b/sd of vacuum distillation capacity, and it produces 3,500 b/sd of asphalt.

Two other refineries in the smaller segment were restarted during 1989. Thriftway Marketing Corp. restarted a 6,500 b/cd refinery in Farmington, N.M., and Western Slope Refining Co. restarted a 15,200-b/cd refinery in Fruita, Colo. The Thriftway refinery includes 1,000 b/sd of thermal cracking capacity, 2,500 b/sd of catalytic reforming capacity using bimetallic catalyst, and 1,000 b/sd of resid upgrading hydrocracking capacity.

Western Slope's refinery includes 8,100 b/sd of vacuum distillation capacity, 4,200 b/sd of delayed coking capacity, 5,000 b/sd of distillate upgrading hydrocracking capacity, and 3,400 b/sd of hydrotreating capacity used for catalytic reformer feed pretreatment.

The group only gained one net refinery in 1989 because of the shift of Rock Island Refining Co. to Marathon in the larger segment, and because one refinery, Newhall Refining Co. Inc., Newhall, Calif., was idled.

There were some name changes in the smaller group. Union Pacific Resources in Wilmington, Calif., is now Ultramar Inc., and Oxnard Refinery in Oxnard, Calif., is now Ten-by Inc. Mantua Oil Co. LP in Thorofare, N.J., is now Seaview Petroleum Co. LP.

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