OIL PRICES
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production (Gary et al. 2007, Speight 2007). In addition, the crude
slate is expected to change significantly in the years ahead as refiners increase their capacity to process heavy crude oil and lower
quality synthetic crudes. Refineries that are dependent on imported
crude oil tend to process a more diverse crude slate than their counterparts where the oil is shipped from a domestic wellhead. These
refiners have the capacity to purchase crude oil produced almost
anywhere in the world and therefore have flexibility in their crude
buying decisions.
As supplies of light sweet crude oil continue to deplete, refiners
will increasingly turn to heavy sour crude. But, not enough refiners yet have a demand for heavy sour, so it trades at a significant
discount to light sweet crude oil. This will of course change as
more coking units are installed in refineries. There will be a higher
demand for heavy crude oil, and the asphalt market will become
more lucrative as the atmospheric and vacuum residua are routed
to coking units to increase liquids production. Thus, economics currently favor installing coking units and hydrotreaters to handle the
heavy sour crudes, and will continue to do so as long as they trade
at a substantial discount to light sweet crudes.
The installation of additional conversion capability increases
the yield of clean products and reduces the yield of heavy fuel oil.
However, increased conversion capability would generally result
in higher energy use and, therefore, higher operating costs. These
higher operating and capital costs must be weighed against the
lower cost of the heavier crude oil. With increased heavy oil production and the declining production of conventional light sweet
crude oil, many refineries have undertaken the investment required
to process the increasing supply of heavy crude oil. Much of this
investment is by the large integrated oil companies — those that are
involved in both the production of crude oil and the manufacturing
and distribution of petroleum products.
Thus, refinery configuration is also influenced by the product
demand. For example, in the United States, the demand for gasoline is much larger than distillate demand and, therefore, refiners
configure their installations to maximize gasoline production. On
the other hand, in several Western European countries, most notably Germany and France, policies exist that encourage the use of
diesel engines creating a much stronger distillate component.
The relationship between gasoline and distillate sales can create
challenges for refiners. A refinery has a limited range of flexibility in
181
production (Gary et al. 2007, Speight 2007). In addition, the crude
slate is expected to change significantly in the years ahead as refiners increase their capacity to process heavy crude oil and lower
quality synthetic crudes. Refineries that are dependent on imported
crude oil tend to process a more diverse crude slate than their counterparts where the oil is shipped from a domestic wellhead. These
refiners have the capacity to purchase crude oil produced almost
anywhere in the world and therefore have flexibility in their crude
buying decisions.
As supplies of light sweet crude oil continue to deplete, refiners
will increasingly turn to heavy sour crude. But, not enough refiners yet have a demand for heavy sour, so it trades at a significant
discount to light sweet crude oil. This will of course change as
more coking units are installed in refineries. There will be a higher
demand for heavy crude oil, and the asphalt market will become
more lucrative as the atmospheric and vacuum residua are routed
to coking units to increase liquids production. Thus, economics currently favor installing coking units and hydrotreaters to handle the
heavy sour crudes, and will continue to do so as long as they trade
at a substantial discount to light sweet crudes.
The installation of additional conversion capability increases
the yield of clean products and reduces the yield of heavy fuel oil.
However, increased conversion capability would generally result
in higher energy use and, therefore, higher operating costs. These
higher operating and capital costs must be weighed against the
lower cost of the heavier crude oil. With increased heavy oil production and the declining production of conventional light sweet
crude oil, many refineries have undertaken the investment required
to process the increasing supply of heavy crude oil. Much of this
investment is by the large integrated oil companies — those that are
involved in both the production of crude oil and the manufacturing
and distribution of petroleum products.
Thus, refinery configuration is also influenced by the product
demand. For example, in the United States, the demand for gasoline is much larger than distillate demand and, therefore, refiners
configure their installations to maximize gasoline production. On
the other hand, in several Western European countries, most notably Germany and France, policies exist that encourage the use of
diesel engines creating a much stronger distillate component.
The relationship between gasoline and distillate sales can create
challenges for refiners. A refinery has a limited range of flexibility in