European refiners risk glut of heavy oil

Europe's refiners may be so focused on tightening fuel specifications for the years 2000-2005 they may overlook a potentially larger problem-what to do with the bottom of the barrel. This is the view of Satvinder Roopra, senior consultant at Wood Mackenzie Consultants Ltd., Edinburgh, who says expected falling demand for products and stricter fuel oil limits may lead to a glut of heavy fuel oil. Roopra says Asia's financial crisis has reduced demand for products, including heavy fuel

May 4, 1998

2 min read

Europe's refiners may be so focused on tightening fuel specifications for the years 2000-2005 they may overlook a potentially larger problem-what to do with the bottom of the barrel.

This is the view of Satvinder Roopra, senior consultant at Wood Mackenzie Consultants Ltd., Edinburgh, who says expected falling demand for products and stricter fuel oil limits may lead to a glut of heavy fuel oil.

Roopra says Asia's financial crisis has reduced demand for products, including heavy fuel oil. Until last year European refiners relied on Asia to make up for declining demand within Europe.

Asia is also beginning to introduce tighter environmental legislation to combat pollution, while the region's largely untapped gas resources offer an attractive alternative to imported fuel oil for power generation.

Roopra said 16 European refineries have taken steps to reduce their fuel oil production. Twelve of these have positioned themselves as high-specification producers.

"The bottom of the barrel," said Roopra, "will be more of an issue for the large grouping of middle-ranked refineries, which may be unable or unwilling to afford the significant investment required."

Alternative uses

Roopra identified fuel oil gasification as one prospect, but warned that such projects are capital intensive and would likely require refiners to set up joint ventures with other refiners, utilities, or petrochemical manufacturers to fund them.

"Future technology breakthroughs cannot be predicted," said Roopra. "Desulfurization of crude at the wellhead or in transit may be the answer to refiners' problems.

"Indeed gasification of crude oil and selective recombination to form a required product-in other words, 'molecule management'-is in theory possible.

"Synthesis gas can also be converted into liquid hydrocarbons, using the Fischer-Tropsch process, to produce synthetic crude or 70-cetane, zero-sulfur diesel.

"Recent developments in gas-to-liquids technology may soon enable the integration of such plants into existing refinery operations. The traditional view of an oil refinery as a manufacturing plant that takes in crude oil and produces a slate of oil products is becoming increasingly outmoded.

"In today's competitive climate, unless particularly advantaged by location or cost, the refiner needs to do much more. By viewing themselves as energy centers providing oil products and services, or molecule managers providing petrochemical feedstocks and intermediate and finished products, refiners can make the economics work."