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Technical
Newsletter
#34 - November 2016
PETROLEUM REFINING AND INSURANCE
PART I
Crude Oil Refining - a constantly evolving industry
Introduction
th
Refining can be considered by many as a mature and stable industry but it has changed drastically since the 19 century,
adapting to its ever-changing and challenging environment. Insurers have had to follow this transformation and adapt
their way of underwriting these risks.
Part I of this Technical Newsletter takes us on the journey the refining industry has had to travel.
In the beginning was the crude oil…
Of interest to refiners and insurers is that petroleum has been
known and used in various ways (adhesives, flaming projectiles, ”GET UP EARLY, WORK LATE - AND
boat coating, lighting...), since ancient times. The first users of STRIKE OIL.” JOHN D. ROCKEFELLER’S
petroleum were located in the Middle East (Egypt, Babylon,
Mesopotamia, Persia...) and China. RECIPE FOR SUCCESS.
Many types of crude oils are produced around the world.
The main components, primarily hydrocarbons, can be Sulfur and TAN(1) are good indicators of potential corrosion
differentiated by their properties, the most important of which problems and are therefore of interest to insurers.
is the boiling temperature as it allows for the primary separation
by distillation (see figure 2). Today oil is still the primary source of energy with 32% vs 30%
for coal and 24% for gas according to the BP statistical review
The price of a particular crude oil depends on its characteristics, 2015 (see figure 1).
two of the most important of which are density and sulfur
content. Density ranges from light to heavy, while sulfur Figure 1: World Energy Consumption
content goes from sweet (low sulfur) to sour (up to 6% sulfur).
Coal
The density and concentration of contaminants such as sulfur Coal
Renewables 14000
are good indicators of how easy to process the crude is and of Renewables 14000
Hydroelectricity
Hydroelectricity
its price. The most well-known references for crude oil prices are Nuclear energy 12000
Nuclear energy 12000
Natural gas
Brent (North Sea) and West Texas Intermediate (WTI) however Natural gas
Oil 10000
over 150 crudes are traded. Oil 10000
8000
8000
6000
Did you know? 6000
Barrel comes from the French Baril. Before it became 4000
4000
standard in 1860 during the Pennsylvnia oil rush
2000
the 42 Gallon (159 liters) barrels were first used for 2000
petroleum in Pechelbronn, Alsace where the first Million tonnes oil equivalent per year 0
1989 1993 1997 2001 2005 2009 2013
89 91 93 95 97 99 01 03 05 07 09 11 13 0
oil sands were mined and refined from 1745.
Source: BP Statistical Review 2015
(1)
Total Acid Number which is a measurement of acidity
1
Refining 1.01
A petroleum refinery is an industrial process plant where ”TURNAROUNDS AND OTHER
crude oil is processed into more useful products such as (by MAINTENANCE ACTIVITIES ARE
order of volumes produced): IMPORTANT FOR THE INTEGRITY OF THE
› Transportation fuels (gasoline, kerosene, diesel) PLANT AND THEREFORE OF PARTICULAR
› Heating fuels (fuel oil) INTEREST TO INSURERS.”
› Petrochemical industry feedstocks (naphtha, propylene)
› Liquefied Petroleum Gas (butane, propane) Due to the evolution of technology and automation, the
› Lubricants number of employees has decreased from several thousands, for
example the Whiting Refinery in the US employed 3000 people
› Bitumen in the early 1900’s, to a few hundred in developed countries
depending on the level of contracting. In some cases, the number
› Coke of employees could be higher, as it can be used by governments
› Sulfur as a means of employment. The skills of the employees have
significantly changed and the level of knowledge has increased
considerably.
Figure 2: Distillation of crude oil, Gas
first step of refining 20°C
150° C Finally, the complexity of refinery operations is such that they can
Gasoline be fully optimised to produce the highest possible margins, only
200° C through the use of Linear Programming (LP) models to respond
Kerosene to changes in market environment and to the introduction of
300° C new (usually more stringent) product specifications and new
Crude Oil Diesel crude slates.
370° C
Fuel Oil Refineries are composed of three main areas:
400° C
› PROCESS UNITS : where crude oil is actually transformed into
Lubricating Oil, final products.
Paraffin Wax,
FURNACE Asphalt › UTILITIES: produce all the utilities required by the process
Source: SCOR units such as power, steam, hydrogen, nitrogen, air, water…
Basically crude oil undergoes physical and chemical processes. › STORAGE (feedstocks and products): required to store the
Figure 3 shows a typical refinery process flow diagram with usual crude oil and final products before they are expedited.
process units and final products. By nature, hydrocarbons
are flammable products and they are processed at high
temperatures and pressures in the presence of hydrogen,
which exacerbates their flammability and explosivity.
Hence, the safe operation of refineries requires a broad
range of highly trained and specialised personnel
(instrumentation, electrical, mechanical, process, safety...).
Refinery capacity is defined by the crude throughput and is
generally expressed in barrels per day (bpd). Refineries operate
continuously, 24 hours a day, 365 days a year, except when they
are shut down for the general maintenance of the units known
as turnaround. These take place every 4 to 5 years, usually lasting
5 to 6 weeks, during which time maintenance activities that
cannot be performed during normal operations are carried out.
SCOR GLOBAL P&C - TECHNICAL NEWSLETTER #34 - NOVEMBER 2016
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Figure 3: Refinery process flow diagram
Crude Oil
Tanker Pipeline
Gas Gas
Liquid Atmospheric
Distillation Distillation
Atmospheric Residue Kerosene Gas
Function:
Separates the
Sour GasSour Gas different products
Vacuum Naphtha Gas Steam based on boiling
Distillation Plant Reforming points
Examples:
Butane / PropaneFuel GasHH -Atmospheric
22 distillation
Vacuum Residue
-Vacuum distillation
Sour GasSour Gas
Distillates HDS Sour GasSour Gas
Treatment
Visbroken Gasoline Function:
Amine Removes the
Delayed Visbreaking MEROX contaminants such as
HDT Washing
Coker Sour GasSour Gas sulfur and nitrogen
HH Sour GasSour Gas from the feeds
22
Distillates Prepares streams for
additional processing
CokeLight Coker GasoilHeavy Coker GasoilCoker GasolineVisbroken ResidueVisbroken GasoilVisbroken Gasoline Examples:
2H -Distillate and
rich gas gasoline
hydrotreatments
HDS Naphtha Claus Unit/ (HDS, HDT)
HDS Splitter Tail Gas
Light Naphtha
Sour GasSour Gas
HH Heavy Naphtha
22
Light FCC Gasoil Upgrading
Function:
Rearranges the
molecules to
improve the
Catalytic properties of the
Hydrocraking Heavy Naphtha feed
Cracking FCC Examples:
-Catalytic reforming
Heavy FCC GasoilFCC GasolineButenesPropyleneGasoilKeroseneLight Naphtha -Alkylation
Catalytic -Isomerisation
Reforming Isomerisation
Butane / Propane
Lube Oil Conversion
Plant
Function:
Methanol / Ethanol Breaks down the
heavy crude
Isobutene fractions into lighter
Butane products, such as
middle distillate.
Sour GasSour Gas Examples:
HH
22 -Fluid Catalytic
Cracking (FCC)
-Hydrocracker
-Coker
HDT MTBE-ETBE Alkylation
Blending
Vacuum Residueacuum ResidueVAsphaltAsphaltLube Oils / Parafins / WCokeVisbroken ResidueHeavy FCC GasoilGasoilGasoil Kerosene FCC GasolineMTBE / ETBEAlkylateLight NaphthaReformateIsomeratePropyleneBenzeneNaphthaCommercial Butane / PropaneFuel GasSulfur
Function:
Mixes the various
hydrocarbon
components
manufactured in the
refinery to meet the
axes final product
specifications
Examples:
-Blending areas with
pumps and
intermediate storage
tanks.
Blending Lube Oil Blending / Blending / Blending / Blending /
Blending Tank Farm Tank Farm Tank Farm Tank Farm
Additives Additives Additives
Bitumen Waxes Coke Own Heavy Fuel Heating Diesel Kerosene Gasoline Petro- Liquefied Fuel Sulfur
Coke Parrafins Refinery /Bunker Oil chemicals Petroleum Gas
Lube Oils Fuel Gases Source: SCOR
SCOR GLOBAL P&C - TECHNICAL NEWSLETTER #34 - NOVEMBER 2016
3
The complexity of refining processes has been increasing
dramatically
The refinery process has been Table 1: From simple to complex refineries
improved over more than 100 years
with the addition of new, more CONFIGURATION NELSON DESCRIPTION
complex units. COMPLEXITY
INDEX
The Nelson Complexity Index
(NCI), which allows to measure the
conversion capacity in comparison to Topping < 2 This type of refinery simply separates crude oil into
the primary distillation capacity of any light gas, refinery fuel, naphtha and distillates (final
products) by atmospheric distillation. There are no
refinery, is used to compare refineries. chemical reactions involved.
It is an indicator of the investment
intensity or cost index of the refinery Hydroskimming 2-6 Upgrades naphtha into gasoline with catalytic
but also the potential value added of a reforming and removes sulfur with hydrotreating units.
refinery (see table 1).
Conversion 6-12 Converts heavy crude oil fractions (fuel oil, asphalt low
The trend of increasing conversion value product) into lighter products (such as gasoline
capability will pull up the complexity and diesel).
index as the world’s demand for lighter
products increases. Deep Conversion >12 Converts the heaviest and least valuable crude oil
fractions (residual oil) into lighter more valuable
The complexity index has increased products.
over the years (see figure 4).
A short history of the petroleum and refining industry
The modern history of petroleum started when James In 1870, the US were the largest oil exporter and J. D Rockefeller
Oakes discovered how to produce kerosene from coal in founded the Standard Oil Company which by 1879 controlled
1847 in England. 90% of US refining capacity.
In 1857, Michael Dietz invented a flat-wick kerosene lamp that The demand for petroleum was relatively stable until the early
th
replaced whale oil and created a new market for crude oil. 20 century. The invention of electricity progressively replaced
kerosene lamps. The invention of the automobile and its mass
The advancement of crude oil production began when Colonel production shifted the demand to gasoline and diesel.
Edwin L. Drake developed a new technology to extract oil from
the ground near Titusville, Pennsylvania, using drilling, with a
steam engine, through a pipe. The first drop of oil came out
from the ground when the well depth reached 69ft, on Monday Did you know?
th
29 August 1858, later producing 30 barrels per day. This
marked the beginning of the Pennsylvania oil rush. Colonel Drake was to end
The conjunction of those events triggered the oil and then the up as an impoverished man.
Pennsylvania voted an annuity
refining industry boom. In 1860-1861, seven refineries were of $1,500 to the “crazy
built in Pennsylvania and Arkansas. By the end of the 1860s, man” whose determination
58 refineries were in operation in Pittsburgh, primarily to recover founded the oil industry.
kerosene.
SCOR GLOBAL P&C - TECHNICAL NEWSLETTER #34 - NOVEMBER 2016
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