74OA said:

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Very informative, thanks.

You want to speculate how much longer US refineries will wait until investing in a switch to shale? Is there some sort of economic tipping point they're looking for?

Are foreign refineries set up for shale, if not, why are international customers buying it?

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I had a long post, but TA ate it. I'll try to retype.

If we take a refinery for example, Port Arthur (Shell), we can explain things. It is listed as 600,000 BB/day refinery (largest in the US). To feed it with trains, it would take 10 unit trains (100 cars long). If we get one ULLC ship, we can go about 5 days (3MM per load). Getting that much light oil to a refinery is hard. To put the numbers in a different light, 600,000 BBL per day is 25,200,000 gallons a day. 1,050,000 GPH. 17,500 GPM of oil.

One issue that plagued refineries in the past (mid-90's) was under utilization. A refinery can only turn down so much before things quit working. Usually this is the distillation column(s) in a unit. For packed columns (one type), the turn down can be 50-60% before it starts getting wonky. For a trayed column (the other type), you can get lower, some as low as 30%. BUT trayed columns are less efficient (require more height to do same separation) and usually have higher pressure drop over the column. So refineries changed to packed columns (more with the same column).

But as you run lighter crudes, you tend to make more of the lighter end of the crack. So slightly lightening up the incoming crude can cause your lighter units to run more, which is good. This can also take some of the load off the heavier end (tar/coker/vacuum resid). This is good as well. You could run more overall products through the refinery because you de-bottlenecked the lower end by switching to lighter crudes (assuming you have storage and cooling capacity).

But one issue is the lighter end units require higher temperatures to run to do this. This will destroy you catalyst faster and/or destroy the heaters faster (bent tubes). So a normal catalyst change out is $4-6 MM, usually every 18 months. You also will need more cooling to offset the heating you are doing. And potentially more compressor space (gases need higher pressure to go somewhere). If your equipment is undersized or constrained already, you cannot run more light crude.

One thing the US has done is stopped importing the light oil.


This re-affirms that most of the 'new' oil coming online in the US is lighter than traditional sources:



A few of the refineries that were shuttered in the 2000's and 2010's were East Coast refineries that were slated to run on lighter crudes (Kuwait light crude IIRC). When the price got to high (compared to the GC), they went under; they were also smaller than other US refineries. Now that domestic crude is cheaper, they have come back online and processing (Delta bought an old Philly refinery and is/was making Jet A for them). But since they are buying oil on the market and don't have long term contracts/supplies, their P&L swing with the market. The supply problem is/was making or breaking them.

To address that, one pipeline, the Dakota Access Pipeline, is 470,000 bpd. That would not even supply just Shell Port A, but it helps.

Another fun fact is that some Mexican refineries, IIRC, are slated to run on really light crude and the US/GC refineries are slated to run on heavy stuff. So the "Export Oil" was more of a swap for a while; we gave mexico they could use and they gave us oil we could use (Eagle Ford).


I think as major OC and IOCs get back into the US, refineries will start changing over to take/utilize more domestic crudes/lighter oils. I think IOCs getting into the US production side will show stability in the production side, which is what an operator of a refinery is looking for. Do you go with the shady looking guy on the side of the road that claims to be cheaper, but might not be there tomorrow or do you go with the slightly more expensive guy who has a respectable business front (think Saudis) and a guarantee (and ships)?

I think if refineries start changing over, they aren't going to go wholesale over to light crudes. They will open up their abilities and marginally improve equipment capabilities. Increase cooling tower size, add a small booster compressor, add reboiler/condenser to column(s).


Another example was a refinery in Africa. They wanted to run 3 different crude cuts (don't remember which ones). Essentially we would have to build almost 3 different refineries due to the differences in oil. But the main oil was the most stable, so it was designed to that one (obviously). The other 2 grades were nearby crudes, but the supply was HIGHLY unstable due to terrorism/sabotage. That changed the price from about $7 billion to $13-15 billion.

I would also see upgrades to refineries if there is an increase to demand (obviously). That would give the refiner cover to spend money on upgrades. But things now are status-quo, I doubt they would spend money unless they feel the tight oil supply is stable enough and would give a 'good' enough return (cost of new oil vs. cost of current oil and products of new oil vs. products of current oil over 3-5 year payback).


Hopefully this isn't too long and too boring. Lots of variables but an interesting market (of which I have a partial interest as my company works on refineries (and would love to start again!).


Edit #1 - I forgot something before. Before 2015-2016 (2008 till 2014), the WTI and Brent spreads were HIGHLY attractive to US refiners. The fracked oil (shale/tight/etc) was selling for WTI prices, but the refined products are based upon Brent prices. So as Brent stayed high, but WTI went down, it was in the best interest of the US refiners to run as much oil as they could. And seeing as they could replace (easily) imported light, sweet crude with US light sweet, bam! they did. If the spread starts going back up again and staying, (Brent rises, but WTI stays the same), I would see refiners starting to take the idea of re-tooling/changing the refinery seriously.


TL;DR - I think when supplies are stabilized, refineries will start converting. But not quickly and more on a case-by-case scenario. Ones that could convert quickly already have.

Anyone looking to hire a 3 year operations engineer with drilling, completions and production experience?