Total refining

The oil and gas industry has for a while been at the mercy of a chronic under investment in facilities and infrastructure in refining which has reverberated throughout the whole industry and contributed greatly to shortages of oil products and the resultant sharp rises in prices. The global refining industry has now reached the stage where increasing utilization will not be feasible to cope with increased demand, instead capacity additions will be an essential requirement. For many years, however, companies have been reluctant to embark on major refining projects, fearful that future investment returns may be poor. For one, rising costs are proving challenging: “Over the last 12 months we’ve had to live with continuously soaring maintenance and investment costs,” explains Andre Tricoire, SVP for Refining at Total. “Especially as at Total in 2007, we had many turnarounds and inspections and a lot of investment for compliance to the 2010 European air emissions standards.”

In 2004, world crude oil distillation capacity was estimated to be approximately 83.1mb/d, but capacity will need to grow to almost 93mb/d to meet demand in 2010. To put things in perspective, the US has not built a new refinery in three decades, whilst in Europe none have been built in about two. The only option to rectify the problem is that global construction in refining will need to drastically grow.

The Middle East region, in particular, is projected to play a significant part in meeting global demand for refined products. According to a study by APICORP, the Arab countries (many of them MENA oil producers) are expected to invest around $180 billion over the next five years in exploration, development and refining. The report predicts that the refining sector will need around US$37 billion for upgrading existing refineries as well as for new refining capacity. Total has maintained strong refining positions in Europe and Africa. To date the company has interests in 27 refineries in Europe, the United States, the French West Indies, Africa and China and operate 13 of them directly. In Africa, the company has interests in seven refineries.

MENA refineries

One of the major refining interests Total currently has in the MENA region is the Jubail project in Saudi Arabia. The $6 bn project is a joint effort with Saudi Aramco to build a 400,000 barrels per day, export-orientated refinery scheduled to start up in 2011. Both Total and Saudi Aramco will hold a 35 percent stake. Up to 30 percent ownership in the project is planned to be offered to the Saudi public in the future. Tricoire highlights how this will be an opportunity to build a refinery that processes local heavy crudes with very complex process scheme. “This refinery could either sell its products to the local market or export to the growing markets in Asia or to the markets in the US and Europe, for example to respond to the deficit of middle distillates in Europe.”

Up until 2010, Total plans to invest approximately 5B Euros in refining. Tricoire outlines some of the drivers behind these planned investments and what they hope to achieve long term: “These investments are covering a wide range of activities which are of great importance for the future of our business,” he enthusiastically informs. “First, we are continuing to upgrade the refineries’ safety standards. Safety is a top priority for our activities and a key factor for the reliability of our refineries. We are also investing to comply with new European and domestic legislation about air emissions and to adapt to the continuing development of biofuels and product specifications. The same is true for the adaptation to market trends as the increase in diesel demand and to the evolution of the crude slate. Finally, at our refineries we also invest in energy efficiency as part of the Groups strategy for sustainable development.”

The pressure of increasing demand, particularly in emerging markets such as India and China, will likely act as a catalyst for existing refineries to utilise new technologies while also encouraging the development of new innovations which will be able to optimise efficiency. Environmental concerns in the industry are also encouraging adoption of new ‘cleaner’ processes. New regulations in Europe and the USA will have an effect in all world regions that will have to meet these if they want their products to be sold in these regions. For instance, there is a much greater focus on tackling issues such as smog. As a result, technologies such as isomerisation, alkylation, hydrotreating and desulphurisation are likely to move to the forefront. Innovations are also geared towards helping reduce the high levels of sulphur in finished products, particularly relevant due to the introduction of strict regulations which call for lower quantities.

Lower levels

In fact, regulations are calling for sulphur levels of 10-50ppm by 2010. As the quality of crude oil continues to becomes heavier, sourer and consequentially contain more sulphur refiners will be looking towards technological innovations that can not only make the refining process simpler and reduce these sulphur levels. Total has been deploying some of these catalytic processes which have been making the complex procedures more manageable as Tricoire explains: “There are a lot of improvements in catalysts and processes that help us to adapt to new product specifications as well as to new crude slades which are heavier and high sulphur crudes. The same is true for the increase of biofuel components. Therefore, we are promoting innovation at all levels of our business which obviously stays a very complex one.”

In future, the refining industry is likely to face numerous challenges including the limited availability of crude oil, a greater demand for lighter products, and increasing concern about producing cleaner products.

As the oil and gas industry continues into its period of dramatic change, Tricoire’s final thoughts are on the outlook for the refining industry in 2008. “We assume that the margins will remain at a satisfactory level in the coming years but costs will remain high as well,” he predicts. “This will also have an impact on the share of energy in overall costs. But for our refining activities this means most of all to continue with our investment programme to face the numerous challenges of our business.”

How is the company making headway in promoting renewable energies and alternative fuels?

Total has always played a major role in promoting biofuels with more than 15 years of experience in ETBE production and blending of biodiesel. With more than 900.000 tonnes per year, Total is the leading marketer of biofuel blends in the European motor fuel market. We foresee a further growth of our biofuel use in Europe to around 3 million tonnes per year by 2010. But all this is for biofuels of the so-called first generation and we are intensively looking into ways to develop more efficient biofuels of the so-called second generation.

Total also has a long term record with renewable energies for example solar energy. As an actor in this sector since 1983, Total has recently launched considerable investments through its solar energy affiliates Tenesol with a new factory in Toulouse opened a year ago and Photovoltec which started a new production line in its factory in Tienen in Belgium in November 2007, quadrupling its production capacity from 20 to 80 Megawatt peak (MWp). A new 45 million Euro investment is due to bring its capacity further up to 145 MWp by 2009.