Thi ChangU.S. refiners continue to face hard times. Many are seeking new ways to manage costs in a period of depressed margins. At the same time, most are considering investments to prepare for low-sulfur fuel requirements in the future.
These and other issues were the key focus of the National Petrochemical & Refiners Association (NPRA) annual meeting last week in San Antonio.
State of the industryU.S. refining margins remain low, and thus refiners are faced with a poor return on their capital. At the same time, the industry is faced with various environmental regulations: RFG (reformulated gasoline) Phase 2, refinery MACT (maximum available control technology) standards, U.S. National Ambient Air Quality Standards (Naaqs), reduced levels of sulfur in gasoline and diesel, and issues over oxygenated fuels.
In a reference to the U.S. film industry's Academy Awards program 2 days earlier, NPRA Chairman Robert H. Campbell said, "If there had been a category for the longest running 'horror show,' the U.S. refining industry would have been on the short list of favorites to win the Oscar."
While an excess of capacity is depressing refining margins, refiners continue to debottleneck units to capture growing demand, he noted. But a situation with too many refiners chasing the same idea, however, is intensifying competition.
What to doCampbell, also chairman and CEO of Sun Co. Inc., called on refiners and petrochemical producers to manage their way out of the downturn-not just wait it out.
Addressing attendees in the general session of the meeting, he said, "It is time to rekindle innovation and resourcefulness-strong characteristics of our industry-characteristics that have helped us achieve unsurpassed economic strength in this country...If we don't want to become a wishbone between environmentalists and the government, we must take the initiative and find a way to manage both our obligations and our opportunities."
John Elting Treat, vice-president of Booz Allen & Hamilton Inc., San Francisco, underscored the volatility of refining profitability today. According to Treat, 80% of global refining profit is made in only 25% of the operating time. He advised, "You better be making hay when the sun shines."
Furthermore, said Treat, refiners must go beyond the usual yardsticks of financial performance-such as Salomon Bros.' list of top-quartile company performers-to make a good profit. Fixed costs for refining operations in certain markets are down about 30% over the last decade, and yet refiners are still suffering from low returns on capital invested.
He listed several winning strategies for refiners: operating excellence, structural speed and flexibility, aggressive volumetric expansion, upgrading low-value streams, and enclave optimization.
Lower sulfur contentHydroprocessing is on the mind of many refiners, as both European and U.S. regulatory agencies are considering lower levels of sulfur in gasoline and diesel, as are countries elsewhere. Several sessions on hydroprocessing were held during the meeting.
Although numbers are still being debated, by 2003-05, U.S. and European refiners may be required to meet a maximum sulfur specification of 30-50 ppm for gasoline. Diesel specifications are expected to be less stringent in the U.S. than in Europe-that is, a maximum of 500 ppm for the U.S. and a possible limit of 50 ppm for Europe in 2005.
Murphy Oil U.S.A. Inc. has developed an original scheme to make low-sulfur distillate, said David J. Podratz, Murphy Oil manager of technical services.
Murphy's Meraux, La., refinery operates a mixed-distillate hydrotreating unit that both pretreats fluid catalytic cracker feed and produces low-sulfur (equal to or less than 500 ppm by weight) diesel.
Typically, Podratz explained, low-sulfur diesel production and FCC feed pretreating occur in discrete units.
In addition, various catalyst suppliers promoted different loading schemes of hydrotreating catalysts to prepare for low-sulfur specifications.
BiodesulfurizationBiodesulfurization is a process that uses bacteria to remove sulfur in hydrotreating processes as an alternative to contemporary hydrotreating operations. The process has several hurdles to overcome, however, notably cost-effectiveness.
Michael A. Pacheco, vice-president of process development of Energy Biosystems Corp., The Woodlands, Tex., said he expects a unit using the biodesulfurization process to be operating at Petro Star Refining Co.'s refinery in Valdez, Alas., in 2001.
And the U.S. Department of Energy's David J. Boron predicted that biocalalytic processes to produce a gasoline with less than 50 ppm sulfur would not be ready for commercialization for another 4-6 years.
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