104 PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
downstream business. However, regardless of the source of crude
oil, the price is determined in the world market and both imported
and domestic crude oil is priced according to the supply/demand
balance and pricing dynamics on the world oil market. In this
respect, many refiners have very little influence on the price they
pay for crude oil.
The overall economics or viability of a refinery depends on
the interaction of three key elements: the choice of crude oil used
(crude slates), the complexity of the refining equipment (refinery
configuration) and the desired type and quality of products produced (product slate). Refinery utilization rates and environmental
considerations also influence refinery economics.
Using more expensive, lighter and sweeter crude oil requires
less refinery upgrading, but supplies of light, sweet crude oil are
decreasing and the differential between heavier and sourer crude
oils is increasing. Using cheaper, heavier crude oil means more
investment in upgrading processes. Costs and payback periods
for refinery processing units must be weighed against anticipated
crude oil costs and the projected differential between light and
heavy crude oil prices.
Crude slates and refinery configurations must take into account
the type of products that will ultimately be needed in the marketplace. The quality specifications of the final products are also
increasingly important as environmental requirements become
more stringent.
Another aspect of crude oil pricing technology that is often
ignored, especially when dealing with crude oil pricing, is the
Hubbert peak theory.
The Hubbert peak theory, also known as peak oil, postulates
that future petroleum production, whether for individual oil wells,
entire oil fields, whole countries, or worldwide production, will
eventually peak and then decline at a similar rate to the rate of
increase before the peak as these reserves are exhausted. The theory
also suggests a method to calculate the timing of this peak, based
on past production rates, the observed peak of past discovery rates,
and proven oil reserves.
The theory arose in 1956 when M. King Hubbert correctly predicted US oil production would peak around 1971. When this
occurred and the US began losing its excess production capacity,
OPEC gained the ability to manipulate oil prices, leading to the
1973 and 1979 oil crises.
downstream business. However, regardless of the source of crude
oil, the price is determined in the world market and both imported
and domestic crude oil is priced according to the supply/demand
balance and pricing dynamics on the world oil market. In this
respect, many refiners have very little influence on the price they
pay for crude oil.
The overall economics or viability of a refinery depends on
the interaction of three key elements: the choice of crude oil used
(crude slates), the complexity of the refining equipment (refinery
configuration) and the desired type and quality of products produced (product slate). Refinery utilization rates and environmental
considerations also influence refinery economics.
Using more expensive, lighter and sweeter crude oil requires
less refinery upgrading, but supplies of light, sweet crude oil are
decreasing and the differential between heavier and sourer crude
oils is increasing. Using cheaper, heavier crude oil means more
investment in upgrading processes. Costs and payback periods
for refinery processing units must be weighed against anticipated
crude oil costs and the projected differential between light and
heavy crude oil prices.
Crude slates and refinery configurations must take into account
the type of products that will ultimately be needed in the marketplace. The quality specifications of the final products are also
increasingly important as environmental requirements become
more stringent.
Another aspect of crude oil pricing technology that is often
ignored, especially when dealing with crude oil pricing, is the
Hubbert peak theory.
The Hubbert peak theory, also known as peak oil, postulates
that future petroleum production, whether for individual oil wells,
entire oil fields, whole countries, or worldwide production, will
eventually peak and then decline at a similar rate to the rate of
increase before the peak as these reserves are exhausted. The theory
also suggests a method to calculate the timing of this peak, based
on past production rates, the observed peak of past discovery rates,
and proven oil reserves.
The theory arose in 1956 when M. King Hubbert correctly predicted US oil production would peak around 1971. When this
occurred and the US began losing its excess production capacity,
OPEC gained the ability to manipulate oil prices, leading to the
1973 and 1979 oil crises.