Taking the lead

2007 has been an eventful year for the global refining industry, with demand for refined products continuing to soar despite a low refining capacity globally. The industry was also hit by unplanned shutdowns and other product related issues, all of which had an impact on global refining margins. Although meeting demand has been tight, achieving it has been eased by capacity additions and new building projects. In particular, the global refining industry spotlight has focused on the MENA region in recent times, with the area witnessing a particular flurry of refinery activity and a huge amount of new refinery construction taking place.

Taking the lead in this investment is Saudi Aramco, the world’s largest oil corporation, which has an ambitious refining programme: the company is planning to spend US$50 billion in the next five years to boost refining at home and abroad. As the demand for refined products continues to increase, Aramco hopes that despite the challenges that are impacting the markets, it will continue meeting at least some of the huge global demand. “In the refining arena, the system is stretched globally,” highlights Khalid Al-Buainain, Aramco’s VP of Refining. “On the supply side, the oil market has been impacted by a complex interaction of a variety of factors: they include but are not limited to supply and demand fundamentals; the situation of crude and product inventories; financial speculation; news involving geopolitical issues, such as Iran and the Nigerian civil strife; and the expectations concerning world economic growth. There is plenty of oil available in the market, but many times, it is not the real shortage of oil that drives the market, but the fear of an unexpected interruption.”

Capacity increase

To combat some of the challenges and to successfully ensure that it can supply energy to the world Aramco has a number of measures in place. The company intends to continue working closely with its foreign joint venture partners to supply high quality refined products to the world. The company intends to raise its daily crude oil production capacity from about 11 MMBD presently to 12 MMBD by 2009, which it hopes to accomplish through a number of new crude production increments that are under development.. “The main driver for this capacity increase is to meet domestic demand and also provide refined products to the world. Saudi Aramco will continue to evaluate projects based on economic and strategic merits,” explains Al-Buainain.

Bold plans for the company include the construction of three downstream facilities that will add an additional 1.2 million bpd capacity to the domestic refining network. This includes two new 400 MBD export refineries located at Jubail and Yanbu, and a large 400 MBD addition at the Ras Tanura Refinery. In addition, an increase to Yanbu’s distillation capacity is planned.

Along with these plans, the company is also studying a partnership with Dow Chemicals, one of the world’s largest chemical manufacturers, at Ras Tanura to build the largest petrochemical complex in the world. Aramco already has the most complex refinery in this area with a crude distillation capacity of 550,000 barrels per day. Enthusing about the project, Al-Buainain believes it holds huge advantages. “The site will include ethylene and propylene plants and over 25 chemical derivative units using refinery streams as the feedstocks,” he says. “The aim is to capture synergies with our Ras Tanura refinery to create a wide variety of basic and derivative petrochemicals.”

Meeting requirements

A major challenge for refiners is meeting new US and European product specifications and achieving compliance with these requirements. Currently, the company’s emphasis is on economically meeting domestic demand and producing high quality transportation fuels. “The roadmap for the future entails reducing the sulphur in gasoline and diesel to less than 10ppm and also reducing aromatics and benzene in gasoline to international standards,” says Al-Buainain. “This implies refinery operations will need to look more closely at oil to chemical products (reference the olefin and aromatic value chain between the refinery and petrochemical operations) and new uses for sulphur as more and more sulphur is removed from refinery process streams. Presently, the company is addressing lowering the sulphur levels in transportation fuels within the Kingdom. The regulatory environment continues to have a greater impact on the more stringent specification trends in the refining business, in comparison to technology development.”

Continually meeting regulatory requirements is a daunting task, so evaluating the usefulness of new technologies is essential for refiners. Making products cleaner, for instance, by reducing sulphur content is now a priority particularly as the trend towards cleaner fuel production continues to gain momentum. Al-Buainain outlines some of the considerations refiners need to take into account: “Hydro-processing catalysts to remove contaminants and increase yield; the processing of heavier, sour crudes with more contaminants (sulphur, nitrogen and metals) or even processing ‘opportunistic’ crudes (for example, acidic or high TAN crudes); and lowering operating costs are some of the notable challenges to the refiner. The refiner must also address how to most economically utilise by-products (sulphur, metals and carbon, for example) as refined products become cleaner.”

Universally, oil and gas companies are striving to improve the environmental quality of their products. Aramco is proactive in its attempt to reduce the overall impact its products have, and is investigating a number of alternative options – although as Al-Buainain points out, there is still a long way to go before this issue is resolved. “Alternative fuels must overcome considerable technical and economic challenges before they make a significant contribution to the global energy mix,” he says. “The company continues to monitor renewable fuel developments and reassures the world that oil products can coexist with renewable fuels. Oil dominates in the transportation sector; whereas, alternatives like solar, nuclear, geothermal, hydro and wind compete primarily in the area of power generation. Globally, oil accounts for only about seven percent of the market.”

Although emerging technologies such as hybrids, electric vehicles, biofuels and new hydrogen-based technologies are unlikely to displace traditional energy sources in the near-future, Aramco, like so many other energy producers, is fully aware of the implications of an apathetic push for alternative sources. “With the steadily rising world population and the desires of developing nations to raise the living standards of their populations, a wide range of energy sources, including alternatives, will be needed to meet the growing global energy demand. However, we must be realistic about the timing of their contribution,” stresses Al-Buainain. “Oil continues to play a central role in countries and communities around the world and is largely the fuel of choice.”

Al-Buainain foresees continued challenges ahead for the refining industry, especially concerning bringing new, sophisticated, large-scale refining capacity on-stream by the end of 2008. “This activity will place downward pressure on refinery margins during the year,” he says. “The industry will monitor the health of the global economy for any sign of economic slowdown that may impact refined product demand. Demand growth will stretch the existing refining system and logistics network and new projects will be more costly and complex to bring on-stream. Asia and the Middle East regions will continue to be the centre of this robust downstream activity, due to strong regional demand growth. Refinery margins may often be volatile, influenced by external factors as well as supply and demand fundamentals.”

Finally, Al-Buainain adds that refiners will continue to look for opportunities or competitive advantages to increase their margins and grow the business (refining and petrochemical integration is an example), as the processing assets become more complex and costly. “The manning of these new and more complex facilities will also be a challenge not just in terms of numbers, but also in terms of new skill requirements within an already tight labour market,” he says. “Good performance metrics are essential to better understand the complexity of operations. New innovative financing schemes will surface as future projects become more expensive and additional liquidity becomes available in the market. Finally, there will be an increased focus on improving safety awareness within the workforce and the industry.”

Aramco projects in the pipeline

The integrated refining and petrochemical complex at PetroRabigh (Rabigh Refining and Petrochemical Company), a 50-50 joint venture with Sumitomo Chemical in Japan, will come on-stream during 2008.

Internationally, the announced US$7 billion Port Arthur, Texas refinery expansion project with Shell will add 325 MBD refining capacity and essentially double the existing Port Arthur capacity to 600 MBD. The facility will become the largest refinery in the US and also one of the largest in the world. The expansion will strengthen the supply of gasoline, diesel aviation fuels and high quality base oils in the US market and is scheduled to be on-stream in 2010. Expansions to the Petron refinery in the Philippines are being studied to upgrade it to a full conversion refinery. In Korea, S-Oil recently announced the initiation of an expansion to their aromatics capabilities to more than double their output of benzene and para-xylene by 2011. Also, the Fujian, China refinery expansion with petrochemicals project located in southern China’s Guangdong province is scheduled for start-up during 2008. It is a joint venture between Sinopec, Exxon-Mobil and Saudi Aramco.

Aramco’s refinery capacity

Saudi Aramco's five domestic refineries, at Riyadh, Ras Tanura, Rabigh, Yanbu and Jiddah, have a combined capacity of approximately 1.4 million barrels per day.

• The most complex Saudi Aramco refinery is on the Arabian Gulf at Ras Tanura with a crude distillation capacity of 550,000 barrels per day (BPD)
• The Rabigh Refinery is a 400,000 BPD crude topping facility located 160 kilometres north of Jiddah
  
• The Yanbu Refinery on the Red Sea produces LPG, gasoline, jet fuel, diesel oil and fuel oil. It is a hydro-skimming facility with a design capacity of 170,000 barrels per day, mainly serving the domestic market
  
• The Riyadh Refinery (120,000 barrels per day capacity) in the central region of Saudi Arabia is supplied with crude oil from the East-West pipeline
  
• The Jiddah Refinery, which started operations in 1967 (60 MBD nominal capacity, 100 MBD utilisation capacity) has a 22 MBD vacuum column and a 20 MBD cat cracker, and a three MBD catalytic reformer