Reaching Better Competitive Positioning in the Downstream Industry – IMO 2020 Compliance and Petrochemicals Maximization

Introduction and Context

The recent market forecasts indicate a trend of reduction in the participation of transportation fuels in the energetic matrix at a global level. Face to this scenario, the refiners have been looked at closer integration with the petrochemical sector taking into account the growing demand by petrochemicals intermediates, as presented in Figure 1. 

Figure 1 – Growing Trend in the Demand by Petrochemical Intermediates (Deloitte, 2019) - *Million Metric Tons (MMT)

Historically, the refining industry has been optimized his operations and developed technologies in sense of maximizing the production of transportation fuels, taking into account the high demand. Figure 2 shows a typical refining configuration of a high complexity refinery focused on the production of transportation fuels. 

Figure 2 – Refining Arrangement to a Refinery under Coking/Hydrocracking Configuration 

The current refining configurations of the refineries aim to add value to the crude oil through the maximization of high added value fuels, mainly middle distillates (Kerosene and Diesel).

Nowadays, the pressure to minimize the consumption of fossil fuels are leading some countries to announce the ban of combustion engines vehicles, this fact associated with alternative technologies like electric vehicles create great pressure over the available market to transportation fuels that present a reduction at global level. This scenario is the main driving force to refiners look for closer integration with petrochemical assets, maximizing the yield of petrochemical intermediates in the refining hardware.

Change the focus from transportation fuels to petrochemicals is a deep change in a secular industry like the crude oil refining sector, and in this scenario, the IMO 2020 create even more pressure over the refiners. Started in January, the IMO 2020 promoted deep changes in the refining sector once stablished the maximum sulfur content in the marine fuel oil (Bunker) of 0,5 % (in mass) against the 3,5 % previously practiced. Due to be produced from residual streams with high molecular weight, there is a tendency of contaminants accumulation (sulfur, nitrogen, and metals) in the bunker, this fact make difficult meet the new regulation without additional treatment steps, what should lead to increasing the production cost of this derivative and the necessity to modifications in the refining schemes of some refineries.  

The trend of petrochemicals maximization in the refining hardware associated with the necessity to comply with a restrictive regulation like IMO 2020 creates a highly competitive scenario in the downstream market where the players with low bottom barrel conversion capacity as well as low complexity tends to lose competitiveness in short term, leading these players to look for alternatives to keep those economic sustainability and competitive positioning in the downstream industry. In this scenario, the capacity to maximize petrochemicals in the refining hardware and comply with IMO 2020 can be a significative competitive advantage among refiners.

Petrochemicals Maximization in the Refining Hardware

The trend of reduction in transportation fuels demand associated with the growing petrochemical market have been lead the refiners to search optimize the refining hardware to raise the yield of petrochemicals in detriment of fuels, promoting them a closer integration with the petrochemical sector.

In this sense, flexible refining technologies as fluid catalytic cracking (FCC) and catalytic reforming have been gained prominence in the downstream industry once are capable to maximize the production of high added value petrochemical intermediates (olefins and aromatics, respectively).  However, some refiners have come across the high cost of capital as a barrier to further integration with the petrochemical industry in view of the greater need for investments associated with petrochemical maximizing units, usually the installation of units dedicated to the production of petrochemical intermediates requires high capital investment in high reaction severity units such as the FCC petrochemical and high complexity separation units as in the case of catalytic reforming units dedicated to the production of light aromatics.

Despite capital investment restrictions, there are some alternatives to petrochemicals intermediates maximization in the refining hardware with relatively low capital investment. The fractionating of straight-run naphtha can be an attractive alternative, as presented in Figure 3.  

Figure 3 – Crude Oil Distillation Scheme Considering the Fractionating of Straight-Run Naphtha 

In this case, the light fraction of naphtha may be directed to the market for higher value-added petrochemical intermediates while the heavier fraction may comprise the gasoline, diesel or jet fuel pool, according to local market demand.

           Due to its process characteristics, as shown in Figure 4, the conventional FCC unit can have its variables optimized for the production of petrochemical intermediates.

Figure 4 – Possible Feedstocks and Derivatives Produced by FCC Process Units 

Through changing the reaction severity, it is possible to maximize the production of petrochemical intermediates, mainly propylene in conventional FCC units, as shown in Figure 5.

Figure 5 – Optimization of Process Variables in FCC Units to Improve the Yield of Petrochemicals Intermediates 

The use of FCC catalyst additives such as ZSM-5 can increase unit propylene production by up to 8.0%. The recovery of the propylene produced by the catalytic cracking unit requires the installation of a dedicated separation unit as shown in Figure 6.

Figure 6 – Typical Arrangement of Propylene Separation Unit

Despite the higher operating costs, the higher revenues from the higher added value of derivatives should lead to a positive financial result for the refiner, according to current market projections.

Another alternative for refiners with low capital availability is the installation of units dedicated to the recovery olefins from refinery off-gases, as shown in Figure 7.

Figure 7 – Typical Arrangement of the Olefins Recovery Process from Refinery Off-Gases 

The off-gases from deep conversion units such as FCC and delayed coking have high olefin content (> 20%), in markets with high availability of natural gas, the installation of olefin recovery units tends to be economically viable to the refiner.

           Recent forecasts indicate that the production of petrochemical intermediates will account for most of the crude oil consumption in the medium term. In this scenario, maximizing petrochemical intermediates in the refining hardware and a closer integration with petrochemical assets should be a downstream industry trend in the coming years, even refiners with capital investment constraints will be under pressure under the risk to lose market share and competitiveness, in these cases, actions with low relative cost to maximize petrochemicals can be economically attractive.

The Petrochemical FCC Alternative

The major part of the catalytic cracking units is optimized to maximize transportation fuels, especially gasoline, however, face to the current scenario of the refining industry some units have been optimized to maximize the production of light olefins (ethylene, propylene, and butenes). Units focused on this goal have these operational conditions severely changed, raising the cracking rate.  

The reaction temperature reaches 600 oC and higher catalyst circulation rate raises the gases production, which requires a scaling up of gas separation section. The higher thermal demand makes advantageous operates the catalyst regenerator in total combustion mode leading to the necessity of installation a catalyst cooler system.

Installation of catalyst cooler system raises the process unit profitability through the total conversion enhancement and selectivity to noblest products as propylene and naphtha against gases and coke production. The catalyst cooler necessary when the unit is designed to operate under total combustion mode due to the higher heat release rate as presented below. 

             C + ? O2 → CO (Partial Combustion) ΔH = - 27 kcal/mol

             C + O2 → CO2 (Total Combustion)      ΔH = - 94 kcal/mol

In this case, the temperature of the regeneration vessel can reach values close to 760 oC, leading to higher risks of catalyst damage which is minimized through catalyst cooler installation. The option by the total combustion mode needs to consider the refinery thermal balance, once, in this case, will not the possibility to produce steam in the CO boiler, furthermore, the higher temperatures in the regenerator requires materials with noblest metallurgy, this raises significantly the installation costs of these units which can be prohibitive to some refiners with restricted capital access.

Alternatives to Comply with the IMO 2020

The first alternative to meet the IMO 2020 is the control of the sulfur content in the crude oil that will be processed in the refinery, however, this solution limits the refinery operational flexibility and restrict the slate of crude suppliers which can be a threat in scenarios with geopolitical instabilities and crude prices volatility. According to related by McKinsey Consultancy and presented in Figure 8, just only a small part of crude oils is capable to produce an atmospheric residue that meets the new requirement to the bunker sulfur content.  

Figure 8 – Availability of Low Sulfur Atmospheric Residue (Source: McKinsey Energy Insights' Global Downstream Model)

Due to the limitation in the supply of low sulfur crudes, the use of residue upgrading technologies aiming to adequate the contaminants content in the streams applied in the production of the bunker is an effective strategy.

Available technologies to processing bottom barrel streams involve processes that aim to raise the H/C relation in the molecule, either through reducing the carbon quantity (processes based on carbon rejection) or through hydrogen addition. Technologies that involve hydrogen addition encompass hydrotreating and hydrocracking processes while technologies based on carbon rejection refers to thermal cracking processes like Visbreaking, Delayed Coking and Fluid Coking, catalytic cracking processes like Fluid Catalytic Cracking (FCC) and physical separation processes like Solvent Deasphalting units.

The deasphalting process is based on liquid-liquid extraction operation where is applied light paraffin (propane, butane, pentane, etc.) to promotes resins solubilization inducing the asphaltenes precipitation, that correspond to the heavier fraction of the vacuum residue and concentrate the major part of the contaminants and heteroatoms (nitrogen, sulfur, metals, etc.). The process produces a heavy stream with low contaminants content called deasphalted oil (Extract phase), that can be directed to produce low sulfur fuel oil (bunker), and a stream poor in solvent containing the heavier compounds and with high contaminants content, mainly sulfur, nitrogen and metals called asphaltic residue (Raffinate phase).

The processes ROSE? licensed by KBR Company, UOP-DEMEX? licensed by UOP and the process SOLVAHL? licensed by AXENS are examples of deasphalting technologies in supercritical conditions. Figure 9 presents a basic process scheme for a typical deasphalting unit under supercritical conditions. 

Figure 9 – Typical arrangement to solvent deasphalting unit under supercritical condition 

Delayed coking technology applies the carbon rejection through thermal cracking of the residual streams, however, the streams from this unit still present high contaminant content and chemical instability and require additional treatment steps to allow his use in the production of final derivatives or as intermediate streams to produce low sulfur bunker.

           Among the processes that involve the hydrogen addition, the residue hydrotreating, normally applied to reduce contaminants in feed streams to deep conversion processes as RFCC (Residue Fluid Catalytic Cracking) and hydrocracking, can be applied to treat the atmospheric residue allowing the production of the low sulfur bunker and the compliance with the IMO 2020. Figure 10 presents a process flow diagram for a typical high severity hydrotreating unit. 

Figure 10 – Basic Process Flow Diagram for High Severity Hydrotreating Process Units 

Bottom barrel hydrotreating units demand high severity and significantly increase the hydrogen consumption that normally is a high-cost utility, in refineries without hydrogen surplus will be need capital investment to revamp existent process units or to build new hydrogen generation plants. However, to the long-term, technology licensers like Axens, UOP, Exxon Mobil, McDermott, Lummus, Haldor Topsoe, Albemarle among others, still invest in researches to improve the technology, mainly in the development of new arrangements that can minimize the hydrogen consumption (high cost raw material) and that apply lower cost catalysts and more resistant to deactivation process.

           Extra-Heavy crude oils or with high contaminants content can demand deep conversion technologies to meet the new quality requirements to the bunker fuel oil. Hydrocracking technologies are capable to achieve conversions higher than 90% and, despite, the high operational costs and installation can be attractive alternatives.

The hydrocracking process is normally conducted under severe reaction conditions with temperatures that vary to 300 to 480 oC and pressures between 35 to 260 bar.  Due to process severity, hydrocracking units can process a large variety of feed streams, which can vary from gas oils to residues that can be converted into light and medium derivates, with high value added.

 Figure 11 shows a typical process arrangement to hydrocracking units with two reaction stage and intermediate gas separation, adequate to treat high streams with high contaminants content.  

Figure 11 – Typical Arrangement for Two Stage Hydrocracking Units with Intermediate Gas Separation

The residue produced by hydrocracking units have low contaminants content, able to be directed to the refinery fuel oil pool aiming to produce low sulfur bunker, allowing the market supply and the competitiveness of the refiners.

Technologies that use ebullated bed reactors and continuum catalyst replacement allow higher campaign period and higher conversion rates, among these technologies the most known are the H-Oil technology developed by Axens and the LC-Fining Process by Chevron-Lummus. These reactors operate at temperatures above of 450 oC and pressures until 250 bar.

An improvement in relation of ebullated bed technologies is the slurry phase reactors, which can achieve conversions higher than 95 %. In this case, the main available technologies are the HDH process (Hydrocracking-Distillation-Hydrotreatment), developed by PDVSA-Intevep, VEBA-Combicracking Process (VCC) developed by VEBA oil and the EST process (Eni Slurry Technology) developed by Italian state oil company ENI.

Aiming to meet the new bunker quality requirements, noblest streams, normally directed to produce middle distillates can be applied to produce low sulfur fuel oil, this can lead to a shortage of intermediate streams to produce these derivatives, raising his prices. The market of high sulfur content fuel oil should strongly be reduced, due to the higher prices gap when compared with diesel, his production will be economically unattractive.

           Comply the IMO 2020 should pressure the refining margins of low complexity refineries and reduced conversion capacity, once there is the tendency to raise the prices of low sulfur crude oils, furthermore, the higher operational costs depending on the technological or optimization solution adopted by the refiner. The option by hydroprocessing routes will raise de demand for hydrogen, leading to a higher natural gas consumption and CO2 emissions that can lead to a higher pressure from environmental authorities, in this sense, a better integration between refineries and petrochemical process plants can be even more needed, once that normally, these units have a surplus of hydrogen and could supply a part of the refiners demand. Another attention point may be the trend of higher costs of shipping as a result of the transfer of costs by transporters.

           On the other hand, the new legislation represents an excellent trading opportunity for countries with easy access to low sulfur oil reserves. An example is Brazil, which has low sulfur reserves and refining facilities capable of producing bunkers within the specifications of IMO 2020 from the national crudes, which may make the country a relevant player in the supply of this derivative in the coming years.

Conclusion

           The current scenario faced by the players of the downstream industry presents some important challenges as described above. The trend of reduction of transportation fuels demand followed by the growing market of petrochemicals and the necessity of stricter treatment of bottom barrel streams to produce marine fuel oil (Bunker) requires deep changes in the refining hardware, especially those with low complexity. These refiners tend to lose competitiveness and market share in short term, due to the inability to comply with the new market requirements.

The synergy between refining and petrochemical processes raises the availability of raw material to petrochemical plants and makes the supply of energy to these processes more reliable at the same time ensures better refining margin to refiners due to the high added value of petrochemical intermediates when compared with transportation fuels, and, as aforementioned there are some relatively low cost alternatives to reach closer integration with petrochemical assets through maximization of petrochemical intermediates in the refining hardware.

The capacity to meet the IMO 2020 is another great competitive advantage to refiners, especially considering the short term where the refiners processing high sulfur crude oils needs more time to adapt his refining hardware to comply with the new regulation, in the most of cases with high capital spending, leading to an attractive market opportunity to refiners capable to produce the low sulfur Bunker. In summary, the current scenario in the downstream industry tends to be dominated to refiners with adequate balance of bottom barrel conversion capacity and high petrochemicals yield in the refining hardware. 

References:

GARY, J. H.; HANDWERK, G. E. Petroleum Refining – Technology and Economics. 4th ed. Marcel Dekker., 2001.

ROBINSON, P.R.; HSU, C.S. Handbook of Petroleum Technology. 1st ed. Springer, 2017.

Deloitte Company. The Future of Petrochemicals: Growth Surrounded by Uncertainties, 2019.

FITZGIBBON, T.; MARTIN, A.; KLOSKOWSKA, A. MARPOL Implications on Refining and Shipping Market., 2017.

Dr. Marcio Wagner da Silva is Process Engineer and Project Manager focusing on Crude Oil Refining Industry based in S?o José dos Campos, Brazil. Bachelor’s in chemical engineering from the University of Maringa (UEM), Brazil and PhD. in Chemical Engineering from the University of Campinas (UNICAMP), Brazil. Has extensive experience in research, design and construction to oil and gas industry including developing and coordinating projects to operational improvements and debottlenecking to bottom barrel units, moreover Dr. Marcio Wagner have MBA in Project Management from Federal University of Rio de Janeiro (UFRJ) and is certified in Business from Getulio Vargas Foundation (FGV).