[Cool Hand Linc]

I found an articale from 2001 that had the same quote in it.

This is a pretty interesting find.

[aflatoxin]

About 5 years ago I worked at a huge refinery in Port Arthur Texas. I was doing engineering work on a new Steam-Methane Reformer, which makes H2 from NG and steam. About 500,000 pounds of H2 a day, if I remember.

H2 is pretty dangerous stuff, and all of the guys were pretty jumpy during startup, and we had a lot of ESD's and unexpected shutdowns.


The H2 was going to be used in a process to crack heavy hydrocarbons into products.

I'm not sure if our H2 plant was plumbed into the neighboring FCCU (Fluidized Catalytic Cracking Unit) or not, but that thing made a lasting impression on me. Only 6 people were allowed to work there at a time, and they had rip lines off the side of the plant so if there was an alarm, the guys could clip on to a cable, jump off, rappel to the ground and run for their lives. The control room for this place had 10 PSI overpressure blast doors (think gun safe). It was about 1000 yards from anything else.

Other guys I have worked with have confirmed that FCCU's are scary. These things process heavy oil into lighter products. I guess that catastrophic accidents happen frequently with these things.

I've never worked on a coker, but as I understand it, these produce the feedstock for the FCCU's

As an aside, most of these plants are really old. They are showing the strain of the years

[MD]

I liked the analogy of the stoner running out of bud and being forced to scrape the
black, sticky, sinky, gooey resin from his smoking paraphernalia to get high.
.

I hadn't thought about that in years! memories

[BabyPeanut]

I feel strangly relieved by this explaination. I was beginning to suspect sabotage was the cause of so many refinery explosions in a short time.

[Mower]

As an aside, most of these plants are really old. They are showing the strain of the years

And presumably no new ones are being built or planned.

[Antimatter]

I think its also to do with the fact that refineries are running flat out to meet product demand. Push things harder and they tend to blow up more often.

[Eli]

Yep these cokers are sensitive to over use and seem to be prone to failure.

Here is what the Occupational Safety & Health Administration has to say about cokers

Fire Protection and Prevention.

Because thermal cracking is a closed process, the primary potential for fire is from leaks or releases of liquids, gases, or vapors reaching an ignition source such as a heater. The potential for fire is present in coking operations due to vapor or product leaks. Should coking temperatures get out of control, an exothermic reaction could occur within the coker.

Vapor leaks due to stress seams to be the main source of these refinery fires.

The furnace, soaking drums, lower part of the tower, and high-temperature exchangers are usually subject to corrosion. Hydrogen sulfide corrosion in coking can also occur when temperatures are not properly controlled above 900° F.

The lower grades of oil contain higher sulfur and are doing a number on all these old refinerys.

OSHA

[seahorse2]

One of the issues facing the world is a lack of refinery capacity. Boone Pickens often says the world has a maximum refinery capacity of about 84mbpd. With the hurricane damage, I've delved a little more into this issue. A quick search on the net found a report by ICF Consulting.

ICF says the following in a report on refinery capacity issues:

(1) "over the next roughly 5-year period, that the ability to meet forecast demands for oil will be driven by refinery capacity issues, not crude availability"
(2) This refinery "capacity crunch will change the istorical playing field for internation crude and product supply and trade, and create strong and sustained margins for refiners, higher prices and potentially supply shortfalls for consumers"
(3) "ICF Consulting has examined recent global demand forecast date from the (IEA) from 2000 through 2020 and compared it to the current and estimated growth in refining capacity . . . The IEA estimates that the global oil demand in 2010 will be about 90 million barrels per day, an increase of nearly 8 million barrels per day over the 2004 number. This increase is about 30-40 world scale refineries, and the net impact on the marketplace, even if that much refinery capacity could be made operational by 2010, would simply be maintaining today's high margins and volatility . . . for the refining capaity to keep pace with this increase . . . it would need an additional 13.9 million barrels per day capacity to be built between now and 2010. This would be 50-70 refineries of world scale size."

****side note - keep in mind ICF just projected a need for an additional 13.9 mbpd in refinery capacity but as of 2005, only an additional 250K is in the pipeline for development****

"Since that publication, there have been some noteworthy announcements . . . however, even with these announcements, it is clear that the number of new refineries needed, or major expansions, is significant, and, more critically, these additions should right now, already be in the engineering phase to be operational by 2010 . . . the need for timely investment in capacity to sustain the demand outlook is compelling."

*** side note, so much for the optimistic CERA report of an oil glut by 2010, without addtional refinery capacity being added by 2010, any extra oil projected by Cera is of no use ****

"As capacity growth lags demand, small events can have a grossly magnified effect. This leads to increased upward pressure on prices, refining margins, and volatility"

****This was published before the Katrina and Rita Hurricanes. But the truth of this prediction that "small events have a grossly magnified effect" is evident from the U.S. refineries knocked off line, even temporarily.


"With IEA predicting another 17.6 million barrels per day demand by 2020, the refinery capacity need will grow even more"
****Whose budgeting for this?*****

"The magnitude of the need for additional capcity over the next 5 years is, however in stark contrast to the relatively few significant projects currently underway to expand global refining capacity. In cases where industry is evaluating or has announced capacity increases since the Oil and Gas Journal survey was released, the location of those projects are planned for China and the Middle East, and none are in the engineering stage"

***side note, so much for refinery capacity meeting the demand needs by 2010, maybe ole Boone Pickens is right***

"Moreover, the tighter product specifications in the United States versus the emerging Far East region will make it more cost effective for refiners with export capability in the Middle East, or even Europe, to manufacture and ship product to China or India. Where the product goes will depend on who is willing to ante-up and pay for the volume, and the ramnifications for both the 'winner' and the 'loser' in that battle are significant"

****note - this sounds like the beginning of a bad movie. In fact, it is the same thing Michael Klare has been saying concerning "resource wars." ***

"Conclusions:

Barring a radical and immediate innitiation of major refinery projects, there will be a competition for available supply as the decade draws to a close. The 'winning' bidders will pay a premium for products which could make today's prices look very reasonable; the 'losers' may be required to slow down economic growth. The overall effect of both may be that global economies will suffer until refinery capacity gets back in alignment with demand . . . The overall refining capacity crunch looks like it will be difficult to reverse given the long lead times necessary for construction . . . All these factors lead ICF Consulting to believe that the global oil product market will remain tight in the near future . . .it is more important than ever to look at the fundamentals and determine a long-term strategy to reduce or slow down the growth of petroleum demand, and to prepare for the future . . .

**note - how can any of us add to that last statement***

ICF

[JoeW]

It all makes you wonder if this is the plan.
You turn the oil peak into a plateau by restricting refinery capacity. It buys more time until crude production declines.
The question is, how much more time?

If you believed peak would have been 94mbpd in 2015, for example, but refining capacity remains capped at 84mbpd, here's what would happen:
you would cut the portion of your crude oil production graph above the 84mbpd line. the area above that line will get placed on the decline side somehow, pushing the decline further out. in this example, that area is roughly 10mbpd * 3650 days, or 36500 mb (36.5gb) [model production peak like intersection of two lines with slope 2mbpd/yr and -2mbpd/yr. Assuming production remains flat at 84mbpd due to refinery capacity bottleneck, the decline is pushed back by more than 11 years.

[seahorse2]

Whatever the reason for the bottleneck, it means demand destruction, and that's never good for the average man/woman.

[UIUCstudent01]

The cap on the refineries though for 11 (if you believe 2015, then there would be enough oil for flat production to last 20 years at least..) years or so would give alternatives a chance (as well as personal conservation..)

Sudden decline is definitely not healthy... I will be glad if the case is that these refinery constraints are voluntary to give a long plateau...

[Joe0Bloggs]

Indeed, it almost looks like governments and oil industries are cooperating to limit refinery building to delay the peak.

But that would require foresight and strength of character on the order of Leto Atreides II, on hundreds of people in a whole industry, no less

My gut feeling is this is quite impossible, the accepted explanation that there won't be enough oil to justify new refineries seems much more plausible. But the production data doesn't seem to suggest this...?

[retiredguy]

I have no expertise in this area, but isn't the bulk of the oil that is left sour crude? Aren't refineries that process sour crude more expensive to build? Also, from what I understand, it is much more expensive to process heavy crude, at least into gasoline.

Might this not be the real reason that no new refineries are being built in the US?

[clv101]

It all makes you wonder if this is the plan.
You turn the oil peak into a plateau by restricting refinery capacity. It buys more time until crude production declines.
The question is, how much more time?

If you believed peak would have been 94mbpd in 2015, for example, but refining capacity remains capped at 84mbpd, here's what would happen:
you would cut the portion of your crude oil production graph above the 84mbpd line. the area above that line will get placed on the decline side somehow, pushing the decline further out. in this example, that area is roughly 10mbpd * 3650 days, or 36500 mb (36.5gb) [model production peak like intersection of two lines with slope 2mbpd/yr and -2mbpd/yr. Assuming production remains flat at 84mbpd due to refinery capacity bottleneck, the decline is pushed back by more than 11 years.

I think we could well see what you describe, a plateau below a maximum geological peak rate constrained by refineries, but not by grand design.

If this is the case, then crude prices should be falling and distillates rising? Where does this leave people like Simmons predicting hundreds of dollars per barrel soon. Surely he knows enough about refinery capacity and the heavy/light, sweet/sour mix to factor that into his predictions? Or is he just keeping his public message simple? Not wanting to drive a massive refinery build programme since that would bring the decline on sooner?

[seahorse]

I'm trying to repost here an article posted by LadyRuby concerning new refinery projects, and my reply.

LadyRuby posted the following:

Actually there are a few refineries being built/planned in other areas of the world.

http://www.resourceinvestor.com/pebble.asp?relid=12906

Quote:
Right across the Middle East, Indonesia, India and China, new refinery projects are ready to exploit the gaps in the market left by the OECD nations, especially the U.S.

Saudi Arabia's Yanbu refinery on the Red Sea is going to be financed to the tune of around $8 billion. The existing refinery at Rabigh is to receive somewhere in the region of a $2 billion upgrade in conjunction with the Japanese company Sumitomo. Then the refinery at Ras Tanura is also to be upgraded, at a cost of $1.3 billion.

Saudi Aramco has also been aggressively persuing refining operations overseas, notably in China. Here Aramco will work on joint ventures with the Chinese state oil company SINOPEC to create a $1.2 billion operation in Qingdao province. Then perhaps most interestingly is the three-way venture between the Chinese state, Aramco and American company Exxon Mobil [NYSE:XOM] to build a $3.5 billion refinery in Fujian province. This refinery is especially important as it will be built specifically to handle brands of heavy Saudi crude.

So other opportunities are now presenting themselves to Middle Eastern and also Asian countries. Indonesia is building a new refinery in Tuban, Eastern Java. China of course is undertaking a huge expansion programme including a $3.3 billion build in Dushanzi to process oil from Khazakstan. Also India is perhaps the most aggressive nation with $8 billion worth of new refining operations, upgrades and joint ventures.

Kuwait too has multi-billion dollar plans. A new $6.5 billion plant near Kuwait city to come online by 2010 will produce a whopping 600,000bpd. Plus $3.3 billion in upgrades for the Al Ahmadi and Mina Abdullah refineries will mean Kuwait could be producing as much as 1.3 million barrels of refined product every day, within five years.

Qatar have undertaken the multi-billion dollar Dolphin Project to work on new fuels, especially Gas-To-Liquids (GTL) refining. This will enable Qatar to supplement its existing petro-industry to produce new liquid fuels - ones that could be vital in powering road transport, airlines and others in an increasingly fuel-competitive world.

There is the $1 billion Oryx refinery in conjunction with Sasol of South Africa [NYSE:SSL] and also the Pearl joint venture with Royal Dutch Shell [NYSE:RDS.A; RDS.B]. The latter is expected to produce 70,000bpd as early as 2009. Exxon Mobil has also penned a deal to undertake GTL in Qatar. Throw in the Ras Saffan operation co-financed with Korean company Daewoo which will produce LPG, kerosene and naphtha, and you can see a strong pattern evolving.

I don't think the refineries in this article would change the ICF opinion. Here's why: the ICF opinion already considers some of these Arab and Chinese refineries, but notes they are still in the "think tank" stage and not the engineering stage and thus, will not meet the world's demand for new refinery capacity by 2010.

For the projects listed with a start date, not they are in the 2009 and 2010 time frame, and the about of refinery capacity they will bring on line is far short of the estimated 9 mbpd in new refinery capacity needed to meet expected world demand in 2010.

Therefore, I don't see that the article takes away at all from the opinion that there will be a serious refinery shortage as we approach 2010 and probably beyond. Its a good article, and anything else that can be found on point would be appreciated.

[Kingcoal]

It's all supply/demand. Read up on the history of the oil industry and you'll see why they do what they do. Many oil exploration companies got burned when prices plummeted in the mid eighties. They remember that with much clarity. The way they (the oil companies) look at, as long as demand is met, all is well. They don't want to produce shortages and disorderly markets. They just want to get as much as they can for their product while meeting demand. What is happening today however is the inevitable consequence of demand out stripping supply. Oil is available to those who can pay. There is plenty of refinery capacity for light sweet crude. The problem is a deficiency in that particular raw material! Sour and heavy crude have a lower EROEI and are thus more expensive to refine. We are at a turning point where we either find a lot more light sweet or drive the prices up to make sour/heavy refining profitable. It’s a chicken and egg thing though as most well read Peakers know.

[Ludi]

It seems a tricky game to match refinery capacity with crude supply, while not over-investing in refineries, also of course keeping up with demand but not oversupplying and driving the price down. Quite a complicated tightrope act. Maybe we're seeing a little whoopsie. Hope there's a net.

[backstop]

The fact that so many players, both corporate and government, have apparently all made the same unprecedented error (of under-investment in refinery capacity) despite all having a long term interest in and expectation of economic growth,

plus the fact that this error is mirrored in the foreseeable shortage of tanker capacity (if volumes shipped p.a. were to increase as usual),

appears to point to standard investment cost-benefit analysis based on an expectation of limited supply - i.e. fore-knowledge of Peak Oil.

So just how many decades ago was Hubbert vindicated by the US peak ?

regards,

Backstop

[seahorse]

Backstop,

You may be right that Hubbert was vindicated. Its my understanding Hubbert believed the world would peak in about the year 2000. If I'm understanding TaskforceUnity and his new model (predicting peak in about 2013) he says that, but for the oil shocks of the 70s and early 90s, the world would have already reached peak production - vindicating Hubbert and ASPO.

I agree its odd there aren't a significant number of new refineries being built as we speak. If the market determines this oil issue, then these market capitalist, with record profits, would all be seeking to expand and gain more market share in a growing market for oil. The fact that they are not starting new refineries suggest, as all suggests here, that these oil/energy companies see that we are close to peak, and therefore, it would be a waste of money to build new refineries. This is one plausible market explanation to justify the fact that no refineries are being built. If the market takes care of us and rises to the occasion, more refineries would be built. They apparently aren't being built, so what is the market telling us? The Hirsh report to the DOE says that volatile and rising oil prices will be signalling the arrival of peak oil.

[BW3]

If I do not have assurance of 20 years of crude oil feed at full capacity, I will not build a multi-billion dollar refinery.

Welcome to peak refining. Peak refining beats peak oil.

For your consideration, refining heavy sour crude requires a lot of hydrogen for both the heavy part and the sour part. Do not build a refinery where you may have a natural gas shortage (natural gas is the feedstock of choice to make hydrogen).