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US refining: new again – part two

Hydrocarbon Engineering,

US refinery capacity and product output

Rise in output and utilisation

In spite of the recent decline in US refined product demand, US refiners and blenders have achieved gains in output during the 2000 - 2014 period. Refiner and blender net output rose from 17.2 million bpd in 2000 to 19.7 million bpd during the January - October period of 2014, amounting to an expansion averaging 0.9%/y. Yet as noted, US product demand fell at a rate averaging -0.34%/y over the same period. The end result has been a more aggressive move into export markets, made possible in part by inexpensive crude feedstocks. The recent drop in global crude prices is now levelling that field, and it will be up to US refiners to deal with a more competitive environment.

The changing role of refiners in gasoline production

The use of ethanol as a transport fuel is now quite common, and it is widely known that ethanol blends are used in the US. However, the impact on US refiners is more far reaching than many observers realise. First, the US gasoline market is the world’s largest. Second, the US refining industry is the world’s largest also, and it evolved to maximise gasoline production. Third, the US is the world’s largest ethanol producer. Fourth, public policy calls for the use of a great deal of additional ethanol and other renewable fuels in the future.

The widespread adoption of 10% ethanol blends has radically changed the way finished gasoline is produced because of ethanol’s affinity for water. Because it is hydrophilic, the ethanol in ethanol/gasoline mixtures may pick up water in pipelines and tanks, and the water may later separate from the fuel, degrading fuel quality. Many fuel transport, handling, and storage systems are not well equipped to handle ethanol blends, so the common practice has become to blend ethanol at the last possible moment (often called ‘splash blending’). The majority of US ethanol, however, is used in 10% blends at standard dispensers, finalised by blenders instead of refiners. Regulatory compliance is tracked via a complicated system of renewable identification numbers (RINs).

Refiner and blender inputs

For refiners, the key input is crude oil (91 - 94%), with approximately 3% natural gas liquids, 2 - 5% unfinished oils, and 1 - 2% oxygenates, renewable fuels and other liquids. In 2005, these inputs totalled 16.4 million bpd. The recession and the slump in demand reduced inputs to 15.7 million bpd in 2009, but refinery inputs recovered and grew to 16.8 million bpd during the first 10 months of 2014. Crude oil inputs grew by 1.42 million bpd, displacing some unfinished oils, the use of which fell from 722 000 bpd in 2009 to 363 000 bpd in 2014.

In 2005, blenders used 223 000 bpd of ethanol and 1.978 million bpd of gasoline blending components, a logical proportion, given that most of the gasoline produced by blenders is 10% ethanol, and some is E15 and E85. Blender activity has grown swiftly. During the January - October period of 2014, blenders used 825 000 bpd of ethanol and 6.800 million bpd of gasoline blending components (GBCs). Blenders also used 34 000 bpd of butanes and pentanes plus, and 37 000 bpd of renewable diesel.

The majority of the gasoline blending components are produced by refineries, typically in formulations that suit the particular market requirements and need only 10% of ethanol added pre sale to create on spec gasoline. While US refiners produce the majority of the GBC used, a major volume is imported as well. Finished gasoline imports peaked at 603 000 bpd in 2005. GBC imports were 510 000 bpd in that year. But imports of finished gasoline were sharply curtailed in the years following, and they have averaged only 52 000 bpd recently. GBC imports have largely supplanted gasoline imports, reaching a peak of 789 000 bpd in 2009. GBC imports have declined to 526 000 bpd since then, the reasons being weaker demand for gasoline and higher refinery utilisation, which has boosted the output of domestic GBCs for transfer to blenders. The result is that US refiners today are responsible for a diminished share of US finished motor gasoline.

The 10% blend wall

The adoption of E10 across the US is essentially complete. The top line calculates 10% of the country’s gasoline demand, while the bottom line presents refiner and blender net input of ethanol between 2005 and late 2014. The convergence of the lines marks the reaching of the 10% ‘blend wall’. When the renewable fuels standards (RFS) were initially adopted, the blendwall was deemed a distant obstacle because the contraction of the gasoline market was not foreseen. With the demand outlook for gasoline now in negative territory, there is a push to find more ways to raise consumption of ethanol and other renewable fuels. The ethanol industry favours raising the blend limit to 15% ethanol, and E15 is indeed being sold in some areas. However, many vehicles and much of the fuel handling infrastructure are not ready for this switch.

Written by Nancy Yamaguchi. This is an abridged article from Hydrocarbon Engineering’s March 2015 issue.

Read part one of this article here. Part three is available here.

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