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Five Key Drivers

Continued crude market volatility and impacts of US oil exports

Lifting of the US of the crude export ban in Dec. 2015, resumption of Iranian oil exports in Jan. 2016, and on-going OPEC and non-OPEC oil production cuts that are expected to be extended through the end of next year have added unpredictable elements to the market. And the predictability is further complicated by recent events such as potential sanctions on Iran by the US, deteriorating conditions in Venezuela, and geopolitical uncertainties in different parts of the world. These could threaten crude supply security and drive up prices. On the other hand, recent increases in US oil exports?conventional oil, light tight oil (LTO), and condensates?and widening of the Brent and WTI price spread are acting as a price damper. So, what is the direction of oil prices?

According to the EIA, the US exported an average of 583K b/d of crude in 2016 and over 1.0MM b/d in just the first ten months this year. At the end of Oct., US oil output stood at 9.55MM b/d with exports hitting an all-time high at 2.13MM b/d. Besides Canada (which had been exempted from the earlier export ban), leading export destinations of US oil are China, the Netherlands, the UK, South Korea, Italy, and Singapore from Jan. 2016 to Aug. 2017. Enterprise Products forecasts US oil exports to the world will reach 4.0MM b/d by 2022.

This upcoming conference will present to refiners the current crude market trends and future outlooks affected by shifting geopolitics in different parts of the world, OPEC's strategies to protect market shares from non-OPEC producers, disruptive impacts of US shale oil, competition among heavy oil producers, and other supply-side issues. Furthermore, we will examine the impacts, implications, and caveats of these issues on oil trading, imports and exports.

Challenges and opportunities in ongoing fuel demand shift

The Volkswagen diesel emission scandal has not only halted, but helped reverse the global "dieselization" trend. Gasoline is becoming more popular even in diesel/gasoil-centric Europe. Gasoline demand is rising in many parts of the world despite electric vehicles making inroads. The International Maritime Organization's 0.5% sulfur global bunker fuel mandate by 2020 is expected to provide an outlet for surplus diesel at least for short term until LNG bunker fuel and on-board scrubbing become widely adopted.

Some well-equipped operations will benefit from the new IMO spec. A case in point is US refiners have the necessary coking capacity installed to meet the spec without the need for further investment. Additionally, US refineries also have the ability to increase production of low-sulfur distillates which are expected to be the main method for meeting the new IMO sulfur spec in the short-term. According to some estimates, about 2.0MM b/d of distillates would be needed to account for the backing out of residual fuel oil from the bunker pool to meet the new lower sulfur bunker spec.

Investments in bottom-of-the-barrel conversion capacity is another route being undertaken by a number of European refineries to comply with the new IMO spec, e.g. 200K b/d of additional coker capacity to start up in the next three years by ExxonMobil, Gazprom Neft, Grupa Lotos, and INA Rijeka. Royal Dutch Shell has said that it is planning to build a new solvent deasphalting (SDA) unit at its 140K-b/d Wesseling refinery in Germany to help it comply with the new IMO spec. Both Neste and Total are also adding new SDA capacity.

Refiners in South Korea are also positioning themselves to take advantage of the new spec, with local firms announcing over $5B in investments to upgrade plants—via the construction of a new SDA unit and expansion of existing delayed coking and hydrocracking units.

This upcoming conference will look at overall demand shift in coming decades and how refiners can take advantage of changing crudes to meet the upcoming challenges in production of the fuels in demand and transition into higher-growth petrochemical business, particularly propylene and BTX.

Novel Refining Strategies in Light of Disruption by Opportunity Crudes

US LTO has complicated crude selection decision by refiners who often purchase crudes based on price since feedstock costs are as much as 80% of a refinery's operating expenses. Now, this crude disruptor joins a host of opportunity or price-advantaged crudes—which include heavy sour, Canadian oilsands bitumen, Venezuelan extra heavy, high TAN/acidic, condensates, and even medium sour grades if they are cheaper because of supply and demand imbalance.

In the coming years, surging output and export of US LTO to the international market is deemed a "game-changer." Not only are US refiners (e.g. ExxonMobil, Marathon Petroleum, Valero and others) revamping their plants to accommodate rising availability of the unconventional grade, but also interested buyers in Asia, Europe, and Latin America are pressed to find ways to process the "new" oil which may not be compatible with existing feedstocks and produce different product slates despite crude cost advantage on some occasions. To heavy oil refineries, new processing strategies must be deployed to take advantage of increasing availability of LTO. Furthermore, LTO could help implement a timely strategy to raise production of light olefins and aromatics by retrofitting existing units (as discussed below) as these petrochemicals are expected to be in high demand in the future.

Refineries in the USGC and Asia may soon face another supply disruptor—declining Venezuelan oil exports due to its economic woes. Heavy oil processing plants must prepare for replacements such as Canadian oilsands bitumen, Iraqi Basra heavy, and others.

According to Reuters, the US East Coast (USEC) was expected to import a record 4.5MM bbl of Iraqi crude in Sept., with PBF Energy being the largest buyer. In addition to Basra Heavy, the refiner has also imported Latin American heavy crudes (Colombian Vasconia and Mexican Maya) to replace the Venezuelan barrels. As a matter of fact, US refiners have increased imports of foreign crudes because of better prices as the country accelerates exports.

Furthermore, Russia's pivot-to-Asia strategy would alter crude use in Asia, raising competition among Russian, West African, and Middle Eastern crudes as well as North Sea Forties in the region. Meanwhile, European refiners are courted by Iranian, Iraqi, and Saudi crudes to displace Russian Urals.

This upcoming conference will focus on latest crude management techniques of handling combinations of LTO, heavy crudes, and conventional oil. Also, presentations will discuss innovative operating strategies in processing LTO, bottom-of-the-barrel upgrading, and gasoline-centric vs. diesel-centric configurations in light of accelerating trend of crude switching worldwide.

Individual Unit Revamps and Operation Changes when Processing LTO with Other Crudes

The arrival of LTO has impacted US refiners' competitiveness as they are required to continue revising processing strategies amid crude and product changes. Their experiences can provide valuable lessons to other refiners around the world.

Increasing use of tight oil in the US has forced refiners to "rework" their units including desalters, crude distillation towers, FCCUs, hydrotreaters, hydrocrackers, and isomerization units. The light, sweet nature of tight crudes can make these grades easier to process in some instances, though tight oils can also present a number of processing challenges.

The quality of tight oils can vary greatly in terms of API gravity and sulfur content. The light nature of these tight oils may necessitate the addition of a preflash tower and/or revamp of an existing CDU, and tight crudes also lack VGO and resid material which can lead to inadequate feed material for refinery cracking and coking units. Blending tight oil with heavier grades to obtain a look-alike blend can create blends with dumbbell properties that lead to incompatibility issues. Metals such as Ca and Fe are found in tight oils and can act as poisons to catalysts in downstream units such as the FCCU. The paraffinic nature of tight oil will also lead to an eight-to-ten number reduction in FCC gasoline octane. Furthermore, refiners processing tight oils have reported an inability to maintain the FCCU heat balance due to the low coke produced by these feeds due to their light nature.

Thanks to the latest advances in alkylation technology, refiners can modify their FCCUs to produce more butylenes as feedstock to make high-octane alkylate. An increasing trend of steam crackers using ethane and LPG from shale gas has reduced availability of propylene and BTX for petrochemical production. That means opportunities to revamp FCCUs and catalytic reformers. Given the preference of US refiners to run existing isomerization capacity to manage gasoline benzene, the unit must be flexible to accommodate the benzene content of tight oil which varies depending on which play it is sourced from.

This upcoming conference will identify solutions to crude contaminant, fouling, corrosion, incompatibility in blending, and catalyst poisoning. It will also discuss advancements in revamps and/or operation adjustments in refinery units when processing LTO and other unconventional crudes.

Advanced Digital Technologies and IoT to Take Advantage of Changing Crudes

With widespread deployment of relatively inexpensive, often battery-powered and wireless sensors ("the things") to monitor and collect operation data in a manufacturing facility, advances in communication equipment and media (e.g. multimedia, internet, Wi-Fi) to improve connectivity, one can couple with the latest process control know-how to greatly improve enterprise efficiency and productivity. The core part of the IoT is big data mining or analytics—taking advantage of massive computing power (e.g. cloud storage technology)—that can predict and project upcoming events based on past experiences and anticipated market movements. Most importantly, the data are turned into actionable information. In a refinery setting, the concept is to marry the latest information technology (IT) and the "existing" operation technology (OT) to propel to the next level of operational excellence in terms of productivity, reliability, and safety.

Because of changing crudes, it is important for refiners to be flexible and responsive. Big data analytics based on historical data and real-time information via online monitoring are allowing operators to predict and also prescribe future events with high confidence. Some of the known applications include analyzing the impacts of varying feedstocks and other market factors on equilibrium FCC catalysts, monitoring of wall thickness or corrosion rate via a wireless network of ultrasonic measurement sensors, deploying machine learning to predict the impact of sulfur in various opportunity crudes in different hydrotreating units, making better decisions by using crude management analytics to assess risks in crude buying, blending, and processing requirements, and so on.

This upcoming conference will show case studies of data analytics coupled with modeling, real-time data of monitoring unit and equipment performance, IoT applications in crude assay, managing, and blending, and other refinery operations in conjunction with advanced process controls and enterprise resource planning (ERP) to achieve higher level of operation excellence and superior return on investment.

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