SULFUR INCREASE SEEN MOSTLY IN HEAVY FRACTIONS OF LOWER-QUALITY CRUDES

John R. Dosher, Jack T. Carney
Pace Consultants Inc.
Houston

Refiners are facing a continuing need to add bottoms processing capacity as a result of gradually deteriorating crude oil quality and flat to declining demand for residual fuel oil.

Marketing high sulfur coke will become increasingly difficult, requiring refiners to take proactive and innovative approaches.

There is a perception, especially among U.S. refiners, that world crude production has been steadily deteriorating and will continue to do so well into the future. (Poorer quality is defined as lower API gravity and higher sulfur content.) The need to continually add bottoms processing capacity in world refining is, however, only partially caused by a trend toward poorer quality crude.

As will be shown, world crude quality, including sulfur content, has been relatively constant and is not expected to change appreciably in the future. On the other hand, the world product slate has been consistently shifting toward more light, low sulfur products. This trend is expected to continue well into the future.

The coincident decline in demand for residual fuel oil has been the prime driving force for additional bottoms processing.

U.S. TRENDS

In an earlier article, Swain showed that, through 1991, there had been a modest trend toward heavier and higher sulfur content in the crudes processed in U.S. refineries.'

Fig. 1 shows the trend in crude gravity, incorporating information for the last 2 years. Fig. 2 illustrates the trend in sulfur content.

Gravity and sulfur content for U.S. crude runs is shown in Table 1. The table lists crude qualities by Petroleum Administration for Defense District (PADD) and for the entire U.S. (see map).

For U.S. refineries, API gravity declined slightly in 1992 but stabilized in 1993. The increase in sulfur content over the last 5 years has been negligible.

WORLD TRENDS

In the U.S., the Department of Energy (DOE) compiles gravity and sulfur content data that can be considered authoritative. But for the rest of the world, similar data sources are not available. Reasonable estimates, however, can be made.

Pace estimates that, in recent years, average properties of world crude production (excluding Eastern Europe, the former Soviet Union, and China) have been:

1986 32.2 API, 0.99 wt % sulfur
1989 32.6 API, 1.03 wt % sulfur
1992 32.7 API, 1.03 wt % sulfur.

(Throughout this article, references to "world" indicate data that exclude Eastern Europe, the former Soviet Union, and China.)

Pace's estimate indicates that gravity has been essentially constant, and sulfur content has increased modestly over the period shown.

Contrary to popular belief, Pace projects that average world crude gravity will remain essentially constant past the end of the decade, with sulfur content increasing only modestly. Projections of world crude properties are:

1998 32.5 API, 1.14 wt % sulfur
2005 32.6 API, 1.19 wt % sulfur.

For interest's sake, the major export crude from the former Soviet Union, Soviet Export blend, at last report had a gravity of 32.5 API and a sulfur content of 1.38 wt %. The crude is reputedly quite consistent in quality.

Fig. 3 shows Pace's estimate of historical and projected supply by source. Since the late 1980s, marginal supply (meaning lower quality crudes) has been from Organization of Petroleum Exporting Countries (OPEC). This is expected to continue through and past the end of the decade. More specifically, marginal supply will come from the Middle Eastern members of OPEC.

This conclusion is supported by the data in Table 2, which shows world crude Oil reserves and reserves to production (R/P) ratios.

The Middle East has about 65% of total world reserves, and an R/P ratio of nearly 100 years, based on 1993 production. This is far more than any other area.

For this reason, and the fact that the Middle East traditionally has been the world's major oil exporting region, the area will be the principal supplier of lower quality crude.

Properties for some of the major Middle Eastern crudes are:

Arabian Light 33.4 API, 1.8 wt % sulfur
Arabian Heavy 28.2 API, 2.96 wt % sulfur
Arabian Light (Berri) 38.5 API, 1.06 wt % sulfur
Iranian Light 33.9 API, 1,40 wt % sulfur
Kuwait Export 31.4 API, 2.50 wt % sulfur
Oman Export 34.7 API, 1.89 wt % sulfur
U. A. E. Dubai 30.8 API, 1.90 wt % sulfur
U.A.E. Murban 39.3 API, 0.81 wt % sulfur.

Average crude qualities for total 1993 Middle East production are 33.9 API and 1.74 wt % sulfur.

Refiners, of course, are concerned about numerous crude properties other than gravity and sulfur. One area of concern is the distribution of the sulfur across the boiling range.

Table 3 shows, for world crudes, Pace's estimate of expected yield and properties for vacuum gas oil (material boiling between 650 F. and 1,000 F.) and residual (material boiling at greater than 1,000 F.). Again, there is a modest increase in the sulfur content of both these fractions, on a worldwide basis.

Table 4 shows historical and projected crude properties for each of the producing regions. As shown previously, the average properties of world crudes are changing very little. The impact can probably be better understood, however, by looking at the properties of the lower quality crudes (primarily Middle Eastern) added to world supply.

Pace estimates reveal the volume and quality of marginal crude supply to be:

In 1998 4.68 million b/d more than in 1993, 32.5 API, 1.96 wt % sulfur
In 2003 7.42 million b/d more than in 1998, 32.8 API, 1.55 wt % sulfur.

For 650 1,000 F. range product, the expected properties of marginal supply are:

1998 25.4 vol % of crude, 22.8 API, 2.38 wt % sulfur
2003 27.5 vol % of crude, 23.6 API, 1.90 wt % sulfur.

For 1,000+ F. product, the expected properties are:

1998 22.5 vol % of crude, 8.6 API, 4.31 wt % sulfur
2003 20.1 vol % of crude, 9.3 API, 3.57 wt % sulfur.

Comparing this information with the average properties shown previously indicates that, although the gravity of marginal supply is essentially the same as the average gravity, the marginal material has somewhat higher sulfur content. This sulfur content is concentrated in the heavy (1,000 + F.) fraction.

Although for all three streams Pace predicts sulfur content to decrease in 2003, as compared to 1998, the sulfur content of the marginal supply sin will be significantly greater than the world average.

PRODUCT DEMAND OUTLOOK

Even though world crude is not becoming appreciably heavier or higher in sulfur content, it is increasingly difficult to process the heavy portions of the crude. This difficulty results from the nature of the product demand growth.

Table 5 shows a projection of worldwide refined products demand. To illustrate further the problem related to crude quality, Pace has computed a subtotal for the light products (gasoline, kerosine, and distillates).

For the period 1992 2005, average annual demand growth rates are:

Light products 1.89 %/year
Residual fuel oil 0.06 %/year
Total petroleum 1.47 %/year.

Essentially all the growth is in the light products markets, with residual fuel oil demand being relatively flat.

The trend toward increasing lighter product demand has persisted for some time, as illustrated by Table 5. This table also shows that relative demand for residual fuel has been declining steadily.

The future impact of the continuation of this trend can be seen by comparing growth in demand for the 1,000+ F. fraction of the crude with that of residual fuel oil demand.

The projected worldwide supply differentials, compared to 1993 output, are:

Crude 4.68 million b/d incremental supply in 1998, 12.1 million b/d in 2005
Residual fuel 364,000 b/d incremental supply in 1998, 603,000 b/d in 2005
1,000+ F. 1.03 b/d incremental supply in 1998, 2.53 b/d in 2005
1,000+ F. minus residual fuel 666,000 b/d incremental supply in 1998, 1.927 million b/d in 2005.

This clearly shows that, on an incremental basis, the need to convert additional bottoms will continue through the forecast period.

PETROLEUM COKING

By far the most important process used to convert heavy bottoms is coking. In 1993, coking capacity and planned expansions were:

U.S. 1.738 million b/d existing capacity, 100,000 b/d expansions
World (excluding U.S.) 959,000 b/d existing capacity, 300,000 b/d expansions
Total World 2.697 million b/d existing capacity,, 400,000 b/d expansions.

Existing coking capacity is mostly in the United States, but more coking capacity will be added in other locations.

Other processes such as heavy oil catalytic cracking and residual hydrocracking can be used to convert heavy bottoms. The former, however, is limited to better quality crudes, and the latter is quite expensive.

Despite some problems, coking is expected to remain the process of choice for years to come.

The problem facing coking is the need to convert more bottoms from high sulfur crudes. This leads to increasing difficulties in finding outlets for the high sulfur coke.

World coke consumption, current and projected, is:

Anode grade 10.586 million metric tons (MMmt) in 1992, 11,634 MMmt in 2000
Fuel grade 21.786 MMmt in 1992, 35.133 MMmt in 2000
Total 32.372 MMmt in 1992, 46.767 MMmt in 2000.

Anode grade coke is the premium outlet for coke. It is derived from better quality crudes that are low in metals and sulfur. Sulfur content for anode grade coke averages about 1.75%.

Pace estimates that, on a worldwide basis, the sulfur content for fuel grade coke averaged 3.9 wt % in 1992. But with the increasing need to convert high sulfur bottoms, sulfur content in both anode and fuel grade coke is expected to increase.

Pace estimates average sulfur content of world fuel coke to be 4.2 wt % in 2000 an increase of 0.3%, or 8%, over 1992 levels.

Petroleum coke is essentially the only source of carbon for anodes used by industries such as aluminum and chlorine manufacturing. Although some users have a maximum specification on sulfur content, the limitation is primarily economic, and many users have accepted higher sulfur levels to assure supply.

Pace expects the sulfur content of coke used for anodes to continue to increase. Because alternate supplies are not available, however, anode users are expected to adjust to the higher sulfur content and continue to consume petroleum coke.

More serious problems face the fuel-grade sector of the petroleum coke market.

Cement is and will continue to be the largest outlet for fuel grade coke (35.5% of 1992 world demand). The coke provides energy for cement kilns, while the kilns operate as scrubbers, absorbing sulfur and other contaminants into the finished cement.

Pace expects the cement industry to consume additional quantities of high-sulfur coke, but the amount which can be absorbed win be muted by plant locations and other factors.

The only other end use large enough to absorb significant amounts of high sulfur coke is the electrical power sector. Moving material into this market will become increasingly difficult for refiners. Utility power companies are facing more stringent sulfur emission regulations.

Some companies have the option of using lower sulfur coal. In instances where stack gas scrubbers are in place or planned, utility companies may not choose coke as a fuel, but most will at least consider it.

To consume the coke expected to be available from new facilities, however, use of coke by power generation plants will have to more than double by 2000. Refiners, therefore, will have to take a more proactive role in developing this market, including aggressive marketing and possibly investment in consuming facilities.

ECONOMIC RELATIONSHIPS

Production of residual fuel oil is greater than the demand for fuels in the utility power, industrial, and ships bunkers markets. The excess supply must be converted into marketable products.

This is accomplished mainly in cokers, which convert the resid to light refined products and petroleum coke.

The price of resid, relative to crude oil (and light refined products), provides the incentive to build and operate cokers. Pace defines this differential as the "heavy oil discount" (HOD).

Historical relationships on the Gulf Coast, using WTS crude and 3.0%-sulfur resid, are shown in Fig. 4.

An increase in the utilization of refinery conversion units (catalytic crackers, hydrocrackers, and cokers) indicates that resid is becoming surplus as a feedstock, and that the HOD will widen, or increase. Conversely, a decline in the utilization of conversion units indicates that resid is becoming short as a feedstock, and that the HOD will narrow, or decrease.

When the price of crude oil is low, as it has been recently, the HOD narrows. This occurs because there is a "floor" price for resid, set by coal the alternate fuel in many power stations. This price is approximately $8.50/bbl, equivalent to about $1.35/MMBTU.

As seen in Fig. 4, this floor level was approached in late 1993 and early 1994.

It should be noted that changes in the HOD result in changes in relative crude prices.

If refiners have excess resid and are fully utilizing conversion capacity, resid can be reduced only by replacing heavy crude with lighter crude. This causes the price of the light crude to be "bid up," relative to that of the heavy crude. This process sets relative crude prices, and is referred to as the "light/heavy spread." The price spread provides another measure of the incentive to build and operate cokers.

Pace has defined the HOD in terms of two specific prices, but the industry does not have a generally accepted set of prices for measuring the fight/heavy spread. Fig. 5 shows the spread that results from the price difference between Saudi Arabian Light and Saudi Arabian Heavy crudes. Like the HOD, the spread has narrowed recently as crude prices have declined.

OUTLOOK

Pace expects crude oil prices to increase as world economies improve. This increase will be accompanied by a widening heavy oil discount and light/heavy spread, and a continuing need for additional coking capacity to dispose of excess resid.

As discussed, sulfur levels in petroleum coke will increase, presenting difficult disposal problems for refiners. One probable effect will be a need for refiners to become more proactive in marketing high sulphur coke, possibly including taking investment positions in power generating projects.