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103 comments on Refinery Utilization Rates and Increase in Use of Heavy/Sour Crudes
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Question.
The thesis is that even as crude has become heavier that refiners accepted this and produced a larger amount of side or low value products.
The spread has gotten large enough that is increasingly economic to switch to complex refining combined the low sulfur rules are having a negative impact on refinery utilization although gasoline per barrel may be higher. I think that the low sulfur requirements may be a big part of the current refinery problems.
So do we have the product mix per barrel ? Has it changed over time as refiners upgraded and became more efficient at handling the heavier crudes ? US refiners today seem to have a lot of control over the product mix they can produce has this always been the case ?
Next the US as one of the wealthier importers probably can control the grades of oil it chooses to import so one would expect them to move to heavier grades only as the profit margin increases. Now this may well be because of peak light sweet but thats secondary.
In general I agree with Roberts take on the situation except that I think the effects of the recent low sulfur rules coupled with the Ethanol requirements has caused serious refining supply issues.
So overall is their any evidence that the US is buying lower quality oil because it has no choice i.e the lighter oil are not economic or is it simply because we have complex refineries that can handle and are more profitable using lower quality oils.
In general however the depressed price of gasoline is causing problems attracting imports which is a whole different and probably more serious issue.
The thesis is flawed. Refiners could not accept larger production of low valued products. Simply no where to put them unless you price all the way down to replacing coal in thermal power stations (ugly!). Also with margins already poor, refiners couldn't afford to do this.
once you own a coker/resid hydrocracker + desulph capacity to make on spec products they run full. Even with shitty lith heavy differentials these units run full such that if their is over capacity, it's the simpler refiners that have to cry uncle and cut runs first.
ugh == "there" not "their"
It's a lost cause, dude.
I'm shocked at the illiteracy I see here at times.
Get a statistic wrong, and people will eviscerate you on TOD.
But confuse there/their/they're, its/it's, or be too g****** lazy to use the SHIFT key to properly capitalize, and no one cares.
Because it is trivial to determine the correct meaning, spelling and punctuation rarely matter. OTOH, it is hard to spot an error in a number, so accuracy here is important.
And what about those illiterate cretins who think it cool to mix case and put digits in place of letters, sheesh!
I agree with you. Right now reading to much into the US's supply of oil is probably a mistake. I think if any issues or strains exist in the system it will show up first in gasoline imports. However I think I came to the same conclusion once you have a complex refinery might as well use the lower grade oil and make money on the price spread.
Now you mention that its the simpler refiners that have to cut runs first but you would think that its the complex refiners that would fail more often so if we are having serious problems at or complex refineries we should see stronger imports of light sweet crude and the simpler refiners doing better now. This does not seem to be happening which is strange.
as long as the rest of the world is diesel driven, there will be plenty of surplus gasoline to export toward US markets especially if we continue to pay whatever it takes to attraat the oil. There are many many refineries that were built specifically to export toward us. Few examples -- Hess(no PDVSA) St. Croix. Venezuela's 4 biggies, Statoil Mongstat, . West coast UK refiners + several in the Mid East. Of course if another buyer pays more, we do without.
Refineries aren't usually single train systems such that when one element fails, the rest has to be shut. You work around the problem using intermediate feedstocks, storing offspec stuff, running the remainder differently etc. So the idea that complex refineries "fail more often" is too simplistic. They have more units to fail, but that doesn't mean they lose a larger percentage of their throughput due to failures.
Also simple refiners NEVER have better econs that complex ones. Even with a light heavy differential of zero(which never happens), the complex refiner can make more transportation fuels and less byproduct fuel oil than a topping/reforming refiner or a topping/reforming/cracking refiner. Once the investment is made for the cokers/resid upgraders etc, the cost is sunk. The units get run to the maximum extent possible as long as there is any extra margin to capture. Resid is still worth $20+/bbl less than gasoline so these units are staying full. So your expectation that imports of Lt. sweet should be up is off base IMO.
Sorry meant imports of light sweet into second third world refiners that tend to be of the simple variety in the poorer countries. You have to look at where the economic growth has been in the last few years and the bulk of the increasing demand is outside the western nations. Lists of refineries by country are readily available and the concentration of simple in the poorer countries seems pretty clear. Now this does not consider gasoline/diesel imports so its not a complete picture I'm sure they also import significant quantities of finished products but you can see they are probably paying more than their fair share for the recent price spikes.
I just don't think looking at US numbers without understanding the world situation better is not a good idea. I've never liked the focus on the US. I've always felt that by the time real problems start happening here we will be well and obviously past peak. Assuming we peak in 2005 this would mean late 2008-2009 before we should begin to see supply issues here. In the interim reading to much into data from the US is probably a mistake.
I've got no idea why we let our gasoline prices slide so we are not attracting the imports we need this summer this just seems to be simple stupidity but I'd have to guess that the first place we will get hit will be with gasoline imports at some point in the future people are simply not going to cause shortages at home to keep the US market supplied or we are going to fail to compete with closer customers who pay less of a premium. Note the Koreans ship to the Asian markets and the US the US has to cover the additional shipping costs beyond simple price competition. And if things get tight I suspect the jocking for export gasoline will not just be done on pure economics and its not clear th e US will win every round.
So all I'm saying is that when the US eventually has problems it will in my opinion show up in problems securing gasoline imports not oil. And I think the earliest this could occur would be summer 2008. Also if you think about it the oil market itself could be changing fairly rapidly right now so what was true three or six months ago may not hold right now in general we are looking at data thats inexact and often wrong so its fair to consider that we may not really know whats happening for some time. Right now the problems are probably generally in areas we don't have good data which I don't like but the gasoline import/export situation could easily get difficult fast so its something to watch.
Why don't you tell us how you think peak oil will first effect the US besides the obvious of increasing prices.
You will stay confused as long as you keep putting the cart before the horse. We don't "let our gasoline prices slide so we are not attracting the imports we need this summer"
First, we are getting plenty of imports. Imports are well above the typical levels of years before Katrina (ie, have to ignore fall 2005 to summer 2006). See
http://tonto.eia.doe.gov/dnav/pet/hist/wgtimus24.htm
Second, who is the overarching "we" that decides to lower prices? Prices slid because production is coming back restoring inventories to a safer level. Speculators liquidated their length when it became apparent there would be no shortfall. The market isn't prescient but it does reflect the common wisdom of the moment. There are more sellers than there were so prices have move back to just too high from obscene.
I don't think peak oil will effect the US beyond increasing prices. There is still a lot of wasteful demand out there that can be trimmed. Ditto countries that import that cannot compete with us for the marginal bbl. They may suffer, but we'll get all the mogas we wish to pay up for.. the only caveat is if Venz, with their enormous export capacity mostly aimed at us, decides to supply other nations for less money instead.
Its not like suddenly one day the world will be short 10% of demand (barring some political upheaval). The tightening will be slow strangulation like a boa constrictor. We'll have a flat supply curve for years and years. And as prices rise, we'll shift demand to other energy sources -- electric cars etc. Kunstler's collapse is bollocks IMO.
The cart may well be before the horse as you say but US gasoline inventories have slid to dangerous levels. A hurricane anywhere in the gulf that causes refineries to shutdown simply as a safety precaution could well lead to shortages. Letting our gasoline inventories get close to critical levels is a national problem not a industry issue.
I'm not happy with the current situation and it has nothing to do with prices if we have a hurricane this summer I suspect I'll not be alone in this sentiment.
This is the problem.
http://tonto.eia.doe.gov/oog/info/twip/gtstusm.gif
The west coast is the only place we seem to have decent gasoline stocks so we should be importing gasoline like mad.
Considering a 1%+ demand increase each year and the refinery problems we are having we should have already seen record breaking imports of gasoline. Instead we seem to have embarked on a grand experiment to discover exactly what our minimum operating levels are before we see widespread shortages. But hey I live on the west coast and we get our gasoline from Korea so its not my problem. We at least are not playing the same game.
And finally I am in agreement at least initially for the US I don't see sudden shortages. Later on I disagree mainly since I can't see us going forever without upheaval a world of ever increasing energy costs will not be a nice one.
As far as Kunstler a simple observation once living hours from work and commuting is not perceived as efficient then the value of the far flung suburbs will decrease all thats needed is a trend downwards to stall and reverse suburban expansion people will not buy a deprecating asset. I know for a fact that at least in my field Americans will no longer move too silicon valley to work if they have families and a lot of the senior programmers are leaving and working remotely like a lot of the American employees that work for silicon valley companies. The only people left are either rich executives or H1B's/immigrants living in crappy apartments and condo's with illegal migrant workers. At each economic downturn the immigrants scatter and the H1B's go home.
This goes into the general problem that prices are set at the margin slow squeeze concepts although nice tend to ignore this at some point the situation changes. Silicon Valley has changed into a overpriced slum unless your rich.
you seem to approach this perceived problem (gasoline shortfall) from a command and control economy viewpoint. Just who is the "we" in the system that would import gasoline as a buffer and take the price hit if it isn't needed?
We are NOT at some scary level of stocks. We're on the low end of normal and I suspect just like NAIRU, the predicted level at which the shit is supposed to hit the fan is higher e than the reality. When push comes to shove, the system will get by on a bit less. 200 million bbls is a hell of a lot of oil. It's roughly a tank and a half for every person in the country.
Your West Coast gas is not coming from Korea to any great extent. I'm going to guess 90%+ is made in the PAD V refineries. Just 20 years ago, I was exporting US mogas to Japan and Korea. Korea overbuilt refinery capacity not long after so now at time they may well have a tad of surplus for export. California gas is pain to make. We used to find it in odd spots like Finland for example. You need refineries that can make octane without aromatics and with low RVP. Not any easy equation.
Hello OcE,
Thanks for your comments. I've asked previously and still wonder:
1) re: "There is still a lot of wasteful demand out there that can be trimmed."
- Where do you see this? Could you explain a little further?
- Can it "be trimmed" without altering (presumably in a negative fashion) the economy that relies upon it?
2) re: "... beyond increasing prices."
How do you expect the price increase to effect the economy?
3) re: "Ditto countries that import that cannot compete with us for the marginal bbl."
So, those countries (as entire countries) can "be trimmed"?
What does this look like?
And...what about say, China, deciding to simply purchase contracts, rather than bid for or "pay for" barrels?
And...how does the "we wish to pay up for..." come into it? does this rely on a "healthy dollar"? Or what?
What about US debt?
4) "...suddenly one day"
What about Memmsl's idea concerning the probability of shortages?
5) "As prices rise..."
What about Deffeys' (and others') argument that we will see, not a gradual rise, nor a "slow strangulation", rather increasing volatility in price?
6) And then, of course, the "finale" of a question:
re: "...we'll shift demand to other energy sources..."
And use those energy sources to...
--devour the last fish in the sea?
--in other words, introduce other non-energy resources, which are nonetheless critical in the spot they occupy?
Example, water supply.
7) And may as well ask you about Venezeuala:
re: "...with their enormous export capacity mostly aimed at us, decides to supply other nations for less money instead."
What do you see as the deciding factors on the part of Venz. - either way?
What do you see as "pre-emptive" actions US can take, if any?