A Tsunami Over the Oil & Gas Industry – Actions to Improve the Resilience of Downstream Industry

The pandemic of COVID-19 imposes to the Oil and Gas sector the worst crises in the last decades due to the severe impact in the crude oil consumption as well as in the whole energy matrix as presented in Figure 1. 

Figure 1 – Impact over the Global Energy Demand Due to COVID-19 Pandemic (International Energy Agency - 2020)

The reduction in the energy consumption (close to 6,0%) provoked by the economic slowdown due to the lockdown imposed by the governments to combat the Coronavirus makes the price of crude suffer a great reduction, from US$ 70,00 per barrel in January to close to US$ 23,00 in May. Despite the efforts of the OPEC and Non-OPEC producers to cut the production to sustain the prices, the drastic reduction in the derivatives demands reduces the added value of the crudes imposing severe economic restrictions on the producers.

From the point of view of crude oil production, the shock of the prices represents a great impact especially to producers of discounted crudes, normally the heavier, that have a stricter market and higher production costs. The producers like Venezuela, Canada, and Mexico can suffer more economic impact due to his lower financial margins among these players the situation is worst for Venezuela which is suffering a serious economic crisis in the last years and presents falling production rates. Another great impact is observed in the non-conventional reserves like the American tight oil once this crude present higher production costs when compared with the conventional crudes, on the other hand, these crudes tend to present a high demand especially by refiners focusing in petrochemical intermediates.

The lower revenues from crude oil and gas produce a great impact on the balance of the payments of the production countries especially they strongly dependent on the oil and gas industry. The in-development economies like Mexico and Venezuela can suffer even more to comply with his debts raising the risks to others in developing economies like Brazil, India, Russia, etc. Normally, the oil and gas industry is a high demand resources industry and the other sectors of the industry can be neglected, exposing the countries to risks in the crude oil sector, including the geopolitics interests, this effect is known as Dutch cow disease effect and economies with low diversity can suffer, even more, unfortunately, this is the case of the most part of the in-development economies.

The current scenario requires even more resilience of the players in a normally high competitive industry. The look for more efficient processes is an urgent need nowadays and the digitalization can help refiners and producers to build an agile, safe and effective decision making processes integrating key matters in the industry like asset integrity, production plans, and the optimization of the refining hardware aiming to find the best operation point that allows higher revenues in compliance with the market demand. In this sense, the automation systems are fundamental to allow the data acquisition in real-time allowing the quick identification of poor efficiency points and the agile maintenance and optimization actions to solve the problem and avoid severe production losses, no doubt this is a great competitive advantage in the current scenario.

The operational flexibility of the refining hardware is another competitive advantage in the downstream industry that can be strongly significant nowadays. The capacity to add value to heavy and discounted crudes can allow the refiners to operate with better refining margins in comparison with low complexity players, a good example is a compliance with the IMO 2020. The new marine fuel oil (BUNKER) requires a maximum of 0,5 % of sulfur in the derivative, the refiners with deep bottom barrel conversion capacity have a great advantage to produce the new BUNKER that, despite the current economic crisis maintain a high demand allowing a good revenues source to prepared refiners. In this environment, the producers with great reserves of crude oil with low sulfur content, like Brazil, can achieve a significant competitive advantage in the crude oil market which tends to reach a new level of competitiveness. Figure 2 presents a refining configuration capable to ensure a high bottom barrel conversion capacity, ensuring significant competitive advantage to refiners.

Figure 2 – Refining Configuration to a Refinery Operating Under Coking/Hydrocracking Configuration

Refiners with integrated operations also have a good advantage in the current scenario due to the market reserves. A good example is the Brazilian Oil State Company, PETROBRAS. The company is responsible for 98 % of the Brazilian Downstream market that represents an internal market with a demand of 2,5 million barrels per day of crude oil derivatives, mainly transportation fuels. The lack of competitors, in this case, is a beneficial point to the company in this case, even during the current economic scenario. Until the moment, any PETROBRAS refineries stopped his refining hardware.

In markets with a highly competitive environment like the North American market, the refiners with lower operation capacity are reducing or stopping his operation due to his high operation costs when compared with major internal players.

      The integration between refining and petrochemical operations is another strategy to help refiners to cross the current scenario. Before the pandemic, was observed a trend of reduction in transportation fuels demand and this situation tends to be worst now, the integration between refining and petrochemical assets is capable to improve profitability and share risks among the players, ensuring the high added value the crude oil despite the lower demand. Figure 3 presents some examples of the possible synergies between refining and petrochemical assets. 

Figure 3 – Possible Synergies between Refining and Petrochemical Assets

The current scenario tends to postpone the great capital investments, but the more integrated refiners can reach a significant competitive advantage, especially in the Asian market that presents great demand by petrochemicals.

       Among the available actions to ensure more operational and financial resilience to the downstream market players, the optimization of  FCC units to improve the yield of light olefins and LPG can ensure market share and revenues in the current scenario, Figure 4 presents some available low-cost actions to achieve these goals. 

Figure 4 – Optimization of Process Variables in FCC Units to Improve the Yield of Petrochemicals Intermediates and LPG

The use of FCC catalyst additives such as ZSM-5 can increase unit propylene production by up to 8.0%. Another interesting strategy is to recycle the cracked naphtha to the riser, improving the yield of LPG in the FCC unit. The requirement to keep the population in the house tends to raise the demand by LPG for cooking and heating needs, creating a good opportunity to refiners even in the unfavorable scenario.

        The great impact of the COVID 19 pandemic over the aviation sector reduces drastically the demand by jet fuels (kerosene) causing severe financial losses to refiners optimized to improve the yield of middle distillates, in this case, a good strategy is to add the kerosene to diesel that still presents good demand in some markets, especially in in-development economies like Brazil. The kerosene addition to diesel needs to respect some blending restrictions as described in Figure 5.

Figure 5 – Schematic Representation of the “Blending Space” to Crude Oil Derivatives 

The major restriction of the addition of kerosene to diesel is the flashpoint of the final derivative, despite this limitation, the use of on line blending systems can ensure optimized mixtures allowing significant revenues improvement and competitive differential, especially in the current scenario where the production of low demanded derivatives can lead a shutdown of the refineries due to the lack o space to storage the derivatives or intermediates.

Despite this scenario, it’s important to remember that humanity rises and be strong during the crisis. The pandemic will pass and the oil and gas industry needs to show resilience and learning capacity to quickly adapt to the new scenario, as quoted earlier the digitalization actions have a key role in the strategy to build more agile and efficient processes that can mean the survival in the market, one of the natures law is the change and the survival is directly related to the adaptation capacity. 

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.

International Energy Agency (IEA). Global Energy Review, 2020.

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 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).