July's Oil market report - A look at Oil refineries
Every single refinery in the world has a Crude Distillation Unit (CDU) and into this unit is pumped crude oil where it is heated and boiled – just like a “giant kettle”. Those who paid some attention in chemistry lessons will remember that liquid mixtures will separate into their component parts when they are heated and this is what happens to oil, which - in its crude form - is a latent mixture of all the different grades of fuel (petrol, diesel etc) that a refinery produces. As the temperature inside the CDU increases, the lighter products rise to the top, whilst heavier products separate and sink to the bottom.
So at the top end of the CDU (which is actually a heated steel column), we have the products with the lowest boiling points (ie, they boil first at “lower” temperatures), such as liquid petroleum gases (propane and butane used for heating and leisure), gasolines (cars) and napthas (used in the petro-chemical industry). Then we have the heavier products with higher boiling points, such as kerosenes (jet fuel) and distillates (diesel and heating oil). And the process continues all the way down the column with residual fuels (fuel oils for ships and power stations) coming next, followed by bitumen (for roads), base oils (lubricants) and various special products and waxes at the bottom. This is all illustrated on the attached slide. Of course most of the products typically have to be treated further (octane boosting, sulphur removal, biofuel blending, odour neutralisation etc, etc, etc – the list is long!) to meet legislative requirements and these extra processes add massive complexity to a refinery. But like an ageing monarch surrounded by eager, young courtiers, the Kettle remains King of the Refinery, upon which all other units depend.
Another point to note is that different types of crude generate different product yields and this affects the price of crude. For example a sweet (North Sea) crude will produce a high yield (>50%) of light-end products (gasolines, naphthas, jet fuels) and these grades typically sell for higher values, meaning that the refinery can generate high income without significant manufacturing complexity (= cost). On the other hand, a heavy, sour crude (Saudi) might only produce 10-15% of light-end products through the CDU, which means significant further processing is required elsewhere on the refinery to produce the light-ends that the market requires. This obviously pushes manufacturing costs up, which in turn means that sour crudes have to be discounted versus the sweeter crudes on the market.
As we know from previous Oil Market Reports, refineries in Europe are stuck in a dreadful mire of buying high priced crude versus selling products at low margins and more specifically, over supply of gasoline versus decreasing demand. Much of this was due to poor strategic decisions in the 1980’s and 90’s and many refineries are expected to close over the next 5-10 years. This of course presents a hugely worrying trend for UK and European consumers who nonetheless seem increasingly to forget that crude oil has absolutely no value nor use if it cannot be refined.
Furthermore to visit a refinery is to visit an industrial monument on a scale that is difficult to describe on paper, so perhaps some facts will do the job better. The Total refinery at Immingham (This is where Rix Petroleum Hull Ltd and our Lincolnshire depot, Rix Spalding gets our Fuel from) is only the UK’s 3rd biggest refinery but it still dispatches daily 400 road tankers, 10 – 12 trains, 6 ships and a mass of jet fuel down a 225km pipeline to Heathrow Airport. It has 160 storage tanks, the biggest of which holds 137m litres (yes that’s 137,000,000 litres in one tank). In volume terms, the refinery produces about 31.5m litres per day or if you prefer circa 22,000 litres per minute. Wow! Those facts might even stave off some “are we there yet questions?” over the next few weeks! Happy holidays…