ROCKMAN wrote:I'm with you Stein: let's "tank" that lying oil patch bastard westexas. I can tease you because my dumb fingers are always making typos.
westexas wrote:Steinar,
my wife is married to a Norwegian diplomat.
Dumbbell Lessons Refiners Need to LearnHere’s the situation. Most crude oils when they come out of the ground are relatively balanced across the yield curve. So for example, a light crude might yield 25% naphtha & lighter products, 30% middle distillates, 30% gas oils and 15% bottoms. A heavy crude will have a lot less naphtha and middle distillates and a lot more bottoms, but still the yield is spread over the different fractions.
But what if you had a crude oil with a lot of naphtha and lighter fractions, a lot of heavy bottoms and nothing in the middle? Big on one end – big on the other end. Like a dumbbell. For decades unscrupulous crude oil marketers have been buying batches of cheap heavy crude and very light crude. They then blend the two together to make a crude with API and sulfur specification that looks like West Texas Intermediate (WTI) and sell the resulting cocktail to unsuspecting refiners as WTI. Refiners hate these artificial blends because their refinery processes are balanced for real WTI, so the fake dumbbell grade throws off operations. Also because dumbbell crudes have little middle distillate fractions, the refinery produces less diesel, fuel oil and jet fuel the refined products that come from the middle distillate range. These days with diesel and related products at high prices, that’s a bad thing.
because of the influx of a mixture of very light shale and very heavy Canadian crudes, the entire crude slate for U.S. refiners is being ‘dumbbelled’. Here’s how:
On one end, as we’ve discussed here in many RBN blogs, US domestic crude production from shale is growing rapidly. The majority of this new crude production is light sweet crude, with a significant percentage consisting of what TM&C calls Super Light crude (42 – 60 API) and for the first time in US history, large volumes of condensate – very high API gravity ultra-light liquids that are being produced from shale basins –plays like the Eagle Ford and Granite Wash. These super-lights and condensates are increasing as a percentage of the total U.S. crude mix, and are one end of our dumbbell.
The other end of the dumbbell is growing too. That is because of increasing imports of Canadian crude, which is super-heavy. We’ve talked here many times (see It's a Bitumen, oil - Does it go too far) about how very heavy crude extracted from tar sands (called bitumen) are mixed with various diluants to enable them to flow in pipelines (the resultant mix known as dilbit). In effect, dilbit is a dumbbell crude by definition.
Put these two developments together and you have a situation where the entire U.S. crude slate is starting to look more like those dumbbell crudes that the refineries don’t like – with similar consequences – Yields of middle distillates will decline, and gasoline production as a percentage of total refinery output will grow. Both of these developments are important, so let’s look a little closer at their implications.
Gulf Coast Diesel Export Boom/Bust: For the past two years, US Gulf Coast refineries have benefited from a booming diesel export market. This is because many Gulf Coast refineries are well equipped to process conventional crudes from West Texas and the offshore Gulf of Mexico to produce high yields of the middle distillates that diesel is blended from. US refiners also have better technology to remove sulfur from the distillate pool so that they can produce diesel to ultra-low sulfur European and US specifications. These advantages together with tight international low sulfur diesel supplies have allowed Gulf Coast refineries to profit by exporting product into global markets. As the dumbbell crude mix grows as a percentage of the total crude oil supply (backing out international waterborne imports), production of diesel, fuel oil and jet fuel will fall. There just won’t be as many middle distillate molecules around. Ultimately this will wipe out much of the lucrative diesel export market.
Reduced Demand for Gasoline and Export Growth: In contrast to diesel, US domestic demand for gasoline has shrunk over the last 5 years as drivers use fuel-efficient autos and as ethanol mandate volumes replace gasoline in the tank. While gasoline exports have been growing, the international market for gasoline is more competitive than it is for diesel, so margins are lower. the refiner’s marginal return from manufacturing diesel has been higher than the marginal return from making gasoline.
Because of the high naphtha content of super light sweet shale crudes and the diluent component of dilbit, there will be a lot more naphtha in the U.S. crude mix, and that will make a lot more gasoline. So much more that gasoline production (as a percentage of total refinery output) will grow, resulting in the need for significant increases in gasoline exports.
Growing Supplies of Light Sweet Crude Will Reduce Refining Capacity: Many U.S. refiners simply do not have the capacity to run lighter-than-planned shale crudes. Their refineries are not configured to process increasing quantities of light crudes due to column limitations, compressor constraints, overhead cooling issues and other problems – all of which can limit charge rates. Put simply, that means the refinery process overflows because the crude produces more light products than the units were built to handle. The only way to counteract this short term is to reduce the throughput volume. As a result, U.S. refinery capacity will decline by the equivalent of 2 or 3 average refineries during the 2013-17 timeframe unless compensating investments are made.
Fifty Shades of Condensates – Where is All This Condensate Going?U.S. refiners – thinking a few years ago that most of the growth in crude supplies would be heavy crude oil from Canada have recently retooled to favor the processing of those much heavier imported crudes. That’s exactly the opposite of what has ended up happening with the largest growth in crude volumes coming from light sweet shale crudes and condensates. The sheer volume of new condensate and light crude coming on stream will cause these refiners a variety of problems. We can summarize these problems into three general categories.
First, refineries are designed to handle certain mixes of crude oils with some equipment handling the lighter fractions while other equipment handles the heavier ends (See Sandy Fielden’s Complex Refining 101). Put in a crude oil mix that has way too much of the light fractions, and the refiner’s equipment for handling that material gets maxed out. And as that happens, the refiner’s equipment for handling the heavier ends can become underutilized. A refiner can adjust to run the lighter crude mix – by cutting back on total capacity. It works, but it’s a costly way to fix the problem because expensive refining capacity is underutilized. Ultimately the only way to fix the problem is to invest in new processing equipment.
Second, condensates and light crudes have much lower yields of distillates (diesel, jet fuel) and much higher yields of naphthas (motor gasoline and similar products). This is a problem for refiners because gasoline prices are much cheaper than diesel prices and refiners are making big margins on distillate-derived products and less money on gasoline. So the lighter the input crude mix, the lower the margin.
Third, a number of complex refiners are just completing major upgrades planned years ago to run more heavy crudes. Essentially this makes problem #1 above worse for the refineries that went this direction. They have the ability to run more heavies just when the supply of lights and condensates is increasing.
For all of these reasons, the refinery system is starting to choke on light crudes and is responding with the one way to make the economics work out – reducing the price they will pay for condensates. That $15 dollar differential mentioned earlier could get larger in the coming months. So if larger volumes of condensates continue to go to refineries they will do so at a lower price.
Exception to Article 603
For only those goods listed below, Mexico may restrict the granting of import and export licenses for the sole purpose of reserving foreign trade in these goods to itself.
2707.50
Other aromatic hydrocarbon mixtures of which 65 percent or more by volume (including losses) distills at 250 C by the ASTM D 86 method.
2707.99
Rubber extender oils, solvent naphtha and carbon black feedstocks only.
2709
Petroleum oils and oils obtained from bituminous minerals, crude.
Here's what's being added to underlying crude oil production and labeled as oil by the oil companies and reporting agencies:
• Biofuels - Essentially ethanol and biodiesel.
• Natural gas plant liquids - Butane, ethane, pentanes, propane and other non-methane components of raw natural gas.
• Lease condensate - Very light hydrocarbons gathered on leased production sites from both oil and natural gas wells, often referred to as "natural gasoline" because it can in a pinch be used to power gasoline engines though it doesn't have the octane of gasoline produced at refineries.
• Refinery gain - The most puzzling addition of all to crude oil supply calculations. This is merely the increase in the volume of refinery outputs such as gasoline, diesel and jet fuel versus the volume of crude oil inputs. It is due entirely to the expansion of the liquids produced, but indicates no actual gain in energy. In fact, great gobs of energy are EXPENDED in the refinery process to give us what we actually want.
Let's see if any of these non-oil things are acceptable as oil at major exchanges. Perhaps the most recognizable oil futures contract is the so-called Light Sweet Crude Oil contract. The exchange sponsoring that contract details in seven pages (of a much longer rulebook) what is acceptable to deliver to those who choose to take delivery on their contracts.
A search for three of the four items (and their subitems) listed above predictably comes up empty. But, the search for lease condensate produces a hit. Here's what the exchange says about lease condensate when discussing acceptable delivery of oil:
"For the purpose of this contract, condensates are excluded from the definition of crude petroleum."
Processing Gain
The volumetric amount by which total output is greater than input for a given period of time. This difference is due to the processing of crude oil into products which, in total, have a lower specific gravity than the crude oil processed.
Processing Loss
The volumetric amount by which total refinery output is less than input for a given period of time. This difference is due to the processing of crude oil into products which, in total, have a higher specific gravity than the crude oil processed.
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