Petrochemical plants and refineries have developed

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1 There is also a growing acceptance that climate change due to global warming could have radical effects on all aspects of the hydrocarbon chain. This paper questions the potential effect on the petrochemical and refinery interface, if some of the changes discussed come to fruition. It also discusses the ways in which refinery/petrochemicals synergies can be realized - Andy Allen Refinery/petrochemicals integration: Past, present and a look into the future Petrochemical plants and refineries have developed for many years in close co-operation and there is an increasing focus on maximizing the synergies between the two operations. This has been given added impetus as new technologies provide new or enhanced options for refineries to produce petrochemical feedstocks and integrate the various operations. Whilst the pace of development of new technologies is unlikely to slow, there are now developments and new thinking in the identification of advantaged feedstocks that have the potential to radically alter the structure of the petrochemicals industry in certain geographies. There is also a growing acceptance that climate change due to global warming could have radical effects on all aspects of the hydrocarbon chain. This paper questions the potential effect on the petrochemical and refinery interface, if some of the changes discussed come to fruition. It also discusses the ways in which refinery/petrochemicals synergies can be realized. All shook up We are living in a changing world. Despite many people believing that the petrochemicals industry is mature and slow to change, we might be about to witness what could be the most significant developments yet. Historically much chemistry was based on coal: now industry is now used to chemistry based on hydrocarbons sourced from oil refining activities and natural gas. There is a global search for what are termed advantaged feedstocks advantaged being primarily a function of how cheap they are and secondly of availability. The recent surge of investments in the Middle East based on low-cost ethane is the latest example of this and the domination of methane-based chemistry by low cost gas producers is another. Is this about to change? Whilst the Middle East ethane is a classic example of advantaged feedstock, China is now looking to make large investments in their advantaged feedstock low-cost coal. Much of the technology for coal to chemicals exists but nobody should be in any doubt that we will see a wide range of new technologies introduced to improve economics and environmental performance (methanol to olefins being an example) to maximize coal s potential as a chemicals feedstock. There has been increasing interest in the potential for coal to chemicals in the USA. Many key players are seriously looking at coal as a potential feedstock in contrast to the situation only a couple of years ago. A similar situation exists in Canada with their extensive tar sands deposit. Will these prove to be the basis for petrochemicals in the years to come? Fuel cells are another example of an emerging technology though there have been many false dawns regarding its largescale introduction. But fuel cell cars are unlikely to be looking to diesel as their fuel source methanol and hydrogen being the logical options. A successful introduction of fuel cells will change the face of fuels refining and retailing. Many countries have now started to introduce legislation Offshore World 29 DECEMBER JANUARY 2008

2 on fuels to mandate the use of biomass sources blending components in diesel and gasoline. Biodiesel and bioethanol are therefore two key growth markets. Much of this legislation is a response by governments to global warming but there has also been significant lobbying by the farming communities in certain countries to push for these changes. Some countries also see this as a way of reducing their dependency on imported crude. Newer technologies in development such as second generation bioethanol using biomass or biomass gasification are certain to significantly change our industry perhaps in a ten-year time frame. Based on environmental and security concerns, the pace of introduction of many of the new technologies will be as dependent upon legislation as much as on technology development - conventional economics might be turned on its head. It is likely that some countries will instigate climate change legislation that could form the basis for radically different technology answers creating a range of challenging geography-specific responses. The role that biomass based materials have to play is still in its infancy. products are also ideally suited as petrochemical feedstocks (e.g. for Linear Alkyl Benzene). There is also development of a new Dimethyl Ether (DME) industry based on cheap coal and methane to help supplement LPG markets. Where will DME fit in with the refineries of the future? All the above conform to conventional economics but two areas have disruption potential and both are in the hands of governments: security of supply issues and the current and growing dependency on the Middle East hydrocarbons might encourage national answers to feedstock sourcing legislation concerning the reduction of carbon dioxide emissions to atmosphere particularly if backed by consumers Both these scenarios are quite possible (or even probable) and, if implemented, could introduce radically new economics and processes. My personal view is that moves on product legislation or taxation based on global warming concerns will start to change the face of our industry within five years. Conventional progress There is a tendency for people to think that technology change is all about IT and high-tech gadgets but our industry is seeing both significantly enhanced technologies and dramatic breakthrough technologies being introduced. Virtually all of these are based on the application of conventional economics. Petrochemicals investments have become increasingly focused in areas of advantaged feedstocks. The Middle East is the prime example of this but North Africa and the Former Soviet Union will have a growing and significant role in the years to come. Investments are also determined by market demand and the low-cost environment coupled with high demand has lead to total investments in China and India rivaling those in the Middle East, although on a far wider range of chemical products. The introduction of the new olefins and aromatics biased FCC units (discussed later in more detail) in refineries is providing a much stronger feedstock linkage between the refinery and petrochemical plant and represents a significant enhancement of an existing technology. The development of commercial methanol to olefins technology will however open a new route from methane and coal to olefins and has the potential to compete with other advantaged traditional feedstocks economics. The developments of breakthrough technologies also open up new markets that blur the refinery chemical interface. Gas to Liquids (GTL) is mainly targeted at the high quality diesel market but is hardly a conventional refining process it has far more in common with chemical plant technology. GTL What and where are advantaged feedstocks? An advantaged feedstock is one that has sufficient availability and low pricing such that it provides an advantaged position for an investor to produce product below the prevailing market price. Crude oil is still the primary source of petrochemicals and there is a well understood pricing position for the crude. Nominally there are no locational advantages for petrochemicals based on crude. As a result a naphtha cracker in India should have has the same feedstock position as one in Singapore, Al-Jubail or Houston. The one significant advantage that can be gained from crude is the choice of crude current pricing has significant discounts for heavy sour crudes. Methane, ethane and, to a lesser extent, propane and butane can all demonstrate locational advantages. Ammonia and methanol production have migrated to low-cost methane locations. Hardly a month goes by without a plant in Europe or North America closing down. Ethylene production from Middle East ethane offers knock out economics but the availability of the advantaged feedstock is limited. This will help preserve ethylene plants in other locations. Propane and butane is also available in certain areas at small discounts but C5 and heavier materials have effectively no price advantaged locations. Looking further a field, there is growing interest in solid fossil fuel resources to search for economic advantage. The growth plans of using coal to chemicals in China are being mirrored by increased interest in this technology route the major coal deposits being in the USA, China, India, South Offshore World 30 DECEMBER JANUARY 2008

3 Africa, the FSU and Australia. The USA in particular has a huge hydrocarbon trade deficit and could regard its national coal as being a strategic investment attracting tax breaks/subsidies. But the steady improvement in economics and reliability of gasification of refinery residues (asphalt, petroleum coke) does offer some interesting economics petroleum coke is zero value in some markets and, though currently targeted at power, this is likely to change. In Brazil the ethanol industry has been founded on substituting imported crude and is government mandated. We also see the rapid spread of biodiesel based on legislation or tax incentives. Are there materials in the market place that could be favoured as chemical feedstocks, such as biomass? It may not be wise to bet against it. Glycerol, a by-product from biodiesel production, has already destroyed the value of traditional production and looks set to become a valuable feedstock for a variety of chemicals. What is the potential for biomass to influence chemical plant or refinery location? There is little biomass in the Middle East but elsewhere there is potential. Ethylene from biomass is a little hard to imagine. Certainly, world-scale ethylene facilities would present hugely difficult logistics with biomass but it might be possible to imagine some small-scale production tied into existing ethylene plants in a similar manner to the biodiesel developments. The key message is that what constitutes an advantaged feedstock will increasingly be influenced by legislation, national security issues and taxation/subsidies making feedstock identification potentially more difficult, more uncertain and more risky. Propylene a key building block Propylene has been a key interface between the refinery and petrochemical processes. A look at the sources of propylene quickly establishes that the refinery FCC is an integral part of propylene chemistry. The source of the majority of propylene is from the steam cracking of C3 and higher feedstocks for olefins naphtha cracking being the principal source propylene in steam cracking is a by product of the quest for ethylene. With the exploitation of low-cost ethane in the Middle East and other geographies, ethylene is produced in its most cost-effective way but virtually no propylene is coproduced. There is therefore a growing disconnect between the production of propylene and its demand which is rising faster than that of ethylene. To help meet the demand for propylene a new industry of on-purpose propylene production developing, with new process technologies being unveiled on a regular basis. The dehydrogenation of propane is not in itself new. The process has been around for many years but all of a sudden the economics are starting to attract far more investments. This is leading to the development of newer and improved Offshore World 31 DECEMBER JANUARY 2008

4 technologies. Most propane is sourced from gas but propane from the refinery allows an upgrade from fuel to chemical value. The next most important source of on-purpose propylene is even more interesting though of little impact to the refinery; metathesis where ethylene is used to produce propylene. Impacting on the refinery is the newly commercialized high olefins FCCs. These new variations on catalytic cracking can produce 9% ethylene, 25% propylene (compared to less than 10% for more conventional technologies) and high volumes of aromatics plus some C4 olefins. This moves the FCC from a gasoline machine into a petrochemical feedstock producer. There are a growing number of such installations being planned and built. With such ethylene yields, ethylene recovery starts to look attractive compared to traditional fuel value or gas flaring. The common recovery of ethylene and propylene from refinery and steam cracker operations can now be carried out giving significant advantages of scale and thus economics. All of the above is conventional, but what of the chances that Methanol to Olefins (MTO) processes will start to affect the industry? This provides a route to olefins from coal, methane and biomass. Predictions are that methanol to propylene technology will be operating in the next few years and this could herald a new age in the propylene industry. Its effects on the refinery are likely to be slight over the next decade but thereafter much will depend on the likely crude oil/ methane and coal pricing ratio and carbon legislation. Will there be opportunities for biomass sourced propylene aided by tax breaks in the future? C4 Integration Most of C4 chemistry is built around C4 material from refineries and steam crackers. Few changes in this area are anticipated in the next few years. It should however be noted that Butene-2 is a potential feedstock for the metathesis process for ethylene production. Biobutanol has been identified as a potential fuel suited to blending with in gasoline what technologies might be developed in the future to create a petrochemicals market? Aromatics It s not often that you see an aromatics complex anywhere else but close by a refinery. The synergies are strong and growing as technology develops the new high olefins FCC technology produces significant amounts of aromatics as was highlighted under propylene. A review of the sources of benzene a basic of the aromatics industry highlights that catalytic reforming on the refinery or using refinery sourced naphtha as a feedstock is the key source of benzene. The second major source is the steam cracking of naphtha which (as also already highlighted) is under threat Offshore World 32 DECEMBER JANUARY 2008

5 by the trend to ethane cracking for ethylene. The reliance of aromatics on refinery sources is therefore set to grow in the next few years. The aromatic contents of various streams are noted above. emerging interest is synthetic natural gas. The more recent large-scale gasification applications are typically centered on bottom of the barrel destruction using visbroken residue, asphalt or petroleum coke as the feedstock. The synergy with refining is clear. The many proposed coal to chemicals projects in China are based on gasification of coal, whilst there are also developments being made to gasify biomass particularly in Europe. The variety of potential feedstocks opens up many non conventional opportunities for access to advantaged feedstocks, or use of carbon neutral feedstocks. Biomass for gasification is not yet developed and proven at commercial scale but significant efforts are being made to develop the technologies. It is very possible that within a decade biomass sourced fuels and chemicals via syngas are a new addition to the petrochemical and refinery interface. Gasification Gasification has been around for a long time but has the age of gasification really now arrived? The attractions of gasification are that it can handle a wide range of poor quality feedstocks and produce a wide range of products as illustrated below. As a company Foster Wheeler has had a wide exposure to many aspects of the central product of gasification syngas. This flexible feedstock has many applications in C1 chemistry and power but that is changing with the development of the new technologies for GTL, olefins and DME. An area of Size Matters It s an old joke but size really does matter! The reason why valuable by-products and off specification materials are frequently used for their fuel value rather than their intrinsic chemical value is down to the cost of recovering the material and transferring it to a process that can extract its chemical value. Ethylene from an FCC is traditionally used in the fuel gas stream on a refinery because it is not worth recovering. Co-locate with a steam cracker and increase the ethylene production by using high olefins technology and you have a valuable product. The increase in scale of newer investments is helping with the economics of recovery. In a similar matter to heat integration, having the producing and consuming units located close together is a prerequisite for favourable economics so the refinery and petrochemical interface benefits once again. Most investments are however in what might be termed investment hubs. Such areas such as Antwerp, Singapore and the rapidly growing Al-Jubail provide a much wider range of opportunities to maximize the value of each stream. There is however a problem with exchanging streams. Whilst stream exchange within an integrated refinery/ petrochemicals complex with a single owner is usually (but not always) straightforward, using the advantages of location in a petrochemical hub to work with other owners is seldom easy. Who pays? Each party wants at least a fair share of the benefits (and preferably a bigger share than that). There is much value to be released in the exchange of streams that is never realized due to an inability to reach agreement. This applies to the sharing of infrastructure and utility costs, though these are outside the scope of this paper. So value identification and sharing is the way forward - a sort of dating agency with distressed streams on offer to the best suitor! Fundamentally, structured analysis will identify opportunities Offshore World 33 DECEMBER JANUARY 2008

6 to exchange streams and these opportunities will need to be prioritized. Price forecasting is central to assessing the full value of the exchange as is openness in the development of capital and operating costs. What effect might fuels quality and component legislation have on the availability of certain refinery streams? Fuels legislation has been with us for many years and will continue to develop. Looking back, it is only relatively recently that large quantities of benzene were an integral part of the gasoline blending pool. Refiners have had to adjust reformer operations to avoid producing benzene or have extracted this material for chemicals use. Is there potential for legislation to free up other refinery streams for potential chemicals use? Fuels legislation can of course work both ways and some by product streams from petrochemicals which refineries were able to accept have now have their value significantly reduced by fuel quality legislation. The growing difficulty in disposing of high sulphur refinery residues is helping to increase the attractiveness of gasification with its potential for chemicals use. Bioethanol addition to Europe s gasoline pool will increase Europe s surplus perhaps freeing up valuable naphtha streams whilst biodiesel will help meet the deficit. So how to progress? Before an investment decision is taken, it is important to ensure that a wide range of options have been rigorously assessed and the development has been optimized. Foster Wheeler undertakes a significant number of feasibility studies aimed at achieving the maximum returns on investments. The methodology is straight forward but needs a significant level of expertise to ensure that the right options are considered and the optimum developments are selected, based on robust cost data. Feedstocks are fundamental to any development - the right qualities, volumes and prices dictate the configurations and, in many cases, the location of the project. Where many project locations were dependent upon access to feedstock import by sea or pipeline access (market access is also an important issue), it must be expected that the wider feedstock options and tax/legislative positions will start to influence this thinking. Legislative changes and their implications on project returns are however likely to be as difficult to predict as the price of oil. The feedstock choice issue should in the future be reviewed against a much wider set of options and criteria and this might result in the choice of multiple different feedstocks. A fundamental issue for feasibility studies is the price sets of feedstocks and products. For chemicals we strongly advocate that the pricing information for the targeted chemicals is assessed independently. This is particularly important for potential producers with little current activity with the intended products. It s equally important that the market information also targets more detail on polymer production for example to ascertain which of the different polyethylenes should be targeted. With pricing information on feedstocks and products it is then possible to undertake a meaningful optimization of the configuration. Three industry trends are encouraging the formation of joint ventures (JVs): The industry is now truly global and many of the highest growth areas have few home grown competitors. This encourages the international companies to target investments with local companies Some of the companies are new to certain market areas and look to others to be able to provide both the technology and product marketing expertise. As projects increase in size and cost, there is a growing requirement to diversify funding sources. A well-executed feasibility study is an excellent method in ascertaining the interest of potential JV companies and we have been involved in a number of examples. The study clearly sets out the objectives of the investments and projected returns on investments as a basis for negotiation with potential JV partners. A key question for investors is that the newer technologies will, by their nature, not be well-proven at large-scale. If legislation develops at the expected rate then this is going to be a key issue needing strategic decisions if potential profits are to be maximized and risks minimized. Of course, a feasibility study is the right time to examine the many different options that could be available so the initial thinking has to be able to identify what might be an unlikely, but possibly profitable, option that conventional thinking might neglect. Conclusions It s clear that refineries and petrochemicals when co-located add mutual value. The ability to exchange many streams maximizes the potential value of each stream. The petrochemicals industry will increasingly rely upon the refineries to source propylene and aromatics in particular. New technologies continue to be developed and other technologies improved that will help ensure that the relationship between refineries and petrochemicals are tied ever closer together. All of this is conventional thinking. What is not clear at the moment is how unconventional feedstocks such as coal and biomass have the potential to influence configurations and investments. Neither is it clear what effect environmental legislation might have on product specification or on addressing the growing global warming concerns. Similar concerns are expressed regarding national security issues. The application of new legislation or adjustment of taxes and subsidies has the potential to drive some very unusual and non conventional economics. Decision-making, never easy, is going to get harder. This paper was presented by Andy Allen, Global Business Director, Chemicals, Petrochemicals & Polymers, Foster Wheeler, at the 9th International Conference & Exhibition (Petrotech 2007) held in New Delhi during January The author thanks Petrotech 2007 for permission to publish this work. An edited version of this paper was published in Hydrocarbon Engineering, July Andy_Allen@fwuk.fwc.com Offshore World 34 DECEMBER JANUARY 2008