Many indicators point to current success and prosperity for U.S. petroleum refineries, but simultaneously, the industry is facing a future of massive changes in energy and transportation
By many measures, the U.S. petroleum-refining industry is succeeding and prospering. According to the American Fuel and Petrochemical Manufacturers (AFPM; Washington, D.C.; www.afpm.org), U.S. refining capacity topped 18.6 million barrels per day (bbl/d), and capacity utilization averaged over 93% last year, and the U.S. has become a net exporter of refined products. AFPM president and CEO Chet Thompson struck an optimistic tone to open the 2019 AFPM Annual Meeting in March in San Antonio, saying that the state of the petroleum refining industry is strong and touting the industry’s safety record and reduced emissions, but also warning that the industry’s “continued success is not guaranteed.”
Even as the petroleum refining industry thrives in the near term, it is being forced to reckon with a long-term future in which power generation and transportation may look dramatically different than they have in past decades. The environmental and climate externalities associated with the burning of fossil fuels have forced the world to find ways to lower carbon emissions, increasing pressure to move toward renewable energy sources, electrification of the transportation fleet and an embrace of circular economy concepts. Large-scale changes to the transportation fuel and energy system are costly and complicated, so they will take time. But trends in these areas are already forcing refiners to change the way they approach their businesses and manufacturing, and the product slate they offer. Many of these issues were explored at the recent AFPM Annual Meeting, where the theme revolved around sustaining the future of the petroleum refining industry.
Refining in a low-carbon future
Framing the issues concerning the future of petroleum refining are a relatively understudied, but crucially important, set of questions about how to manage a drastic reduction in carbon dioxide (and other greenhouse gases) emissions to avoid the worst effects of climate change, while still realizing benefits from petroleum products that do not have non-fossil-fuel alternatives. Two researchers that have been exploring these questions are Deborah Gordon, senior fellow at the Watson Institute for International and Public Affairs at Brown University (Providence, R.I.; watson.brown.edu) and Madhav Acharya, a technology-to-market advisor at the U.S. Department of Energy’s Advanced Research Projects Agency-Energy (ARPA-E; Washington, D.C.; arpa-e.energy.gov).
In a recent interview, Acharya observed that, to date, efforts aimed at de-carbonizing the economy have been approached largely in a patchwork fashion, without sufficient consideration of the interplay among all the sectors of the economy.
“By making shifts in one part of the economy, you will inadvertently upset the balance that has existed for the past century, which could bring about some interesting dilemmas,” he says. As a case in point, he asks, “how do you achieve a situation where gasoline as a fuel is phased out, but lubricants (to run wind turbines, for example) are still necessary? Today, they are made at the same facility, so how do you achieve that?”
The question is, Gordon says, “under the constraints of climate change, how can we re-draw the refining roadmap to manufacture net-zero-emission products while shrinking the refining sector’s carbon footprint? Although the future energy supply mix is not expected to resemble the past, we are still going to need sulfur for many chemical products, asphalt and jet fuel, which are not easily replaced by non-fossil-fuel alternatives. But do we really need high-carbon petroleum coke and heavy residual fuels?”
The refining industry, and society as a whole, will have to reckon with the fact that dozens of products are produced from crude petroleum, some of which, such as gasoline and diesel, are facing declining demand, while others, such as para-xylene and propylene, will see increased demand. Such an end state, where some petroleum products are devalued, while others remain necessary, is not feasible given how refineries are configured and operated today, Acharya says. “Either new pathways will have to be devised [to produce] all the other byproducts, or their price will go up as refiners have to absorb the cost of making fuels that can no longer be sold.”
A short-term response to this is the emergence of “crude-to-chemicals” plants, where a greater portion of the barrel (~50%) is converted into higher-value petrochemical feedstock. “Crude to chemicals is designed to make specific refineries more profitable. However, it still falls short in the long run, as far as producing a tailored product slate needed for a low-carbon economy,” says Acharya.
“We need to think about the energy transition toward low or zero carbon holistically — it cannot be achieved by first decarbonizing electricity generation, and then moving to other sectors,” Acharya says. “Most pathways to deep decarbonization gloss over how challenging it will be, and leave it up to future innovation to solve the problem.”
Last year, Acharya and Gordon outlined the practical realities — for both the refining industry and for society as a whole — associated with shifting toward renewable electricity generation, and electrified vehicles in a paper  for the Carnegie Endowment for International Peace (CEIP; Washington, D.C.; www.carnegieendowment.org), where Gordon is former director of the CEIP Energy and Climate Program.
Going forward, both Acharya and Gordon stressed the continued importance of the petroleum refining industry, but said large changes are likely because of the climate and environmental imperatives mentioned. “The refining sector also has not come to terms with a future where large parts of their product slate are valueless,” Refineries might well become stranded in the same way as oil reserves, Acharya says.
Gordon agrees: “Thinking holistically, how to transition the refining sector away from fossil fuels is an analytic question, one that must be modeled according to engineering, economic, and environmental constraints. What happens if society no longer needs a growing proportion of a refinery’s products?”
The need for communication among all stakeholders is critical to work out how to manage the transition to a low-carbon economy and how to help each industry sector adapt. “We need a dialogue where all stakeholders are at the table and talk about the gaps in technology that need to be filled in to have a fully decarbonized economy, and how each sector can adapt to that new world,” Acharya says.
Petroleum refining has to be part of every discussion, because it makes products that touch every other sector, even if that link is not evident at first glance,” Acharya points out.
Gordon further comments: “petroleum refiners need to be at the table to help puzzle through the future of refining in a low-carbon world. A durable energy transition will require major modifications to the well-honed petroleum system. Refiners need to be a big part of the solution if we’re going to completely de-carbonize our energy future.” There will need to be a great deal of research support in this area, she adds.
In addition, the story must be global — the solution is not to electrify vehicles in wealthy nations and simply export displaced gasoline along with “dirtier” residual products to poorer countries, Gordon says. “We want a safer, better world overall, not only in certain places.”
At the AFPM meeting, leadership spoke of engagement on climate-related policy questions, which have taken on renewed urgency over the past year. Although as an organization, AFPM has traditionally taken relatively conservative positions with regard to climate change, Thompson acknowledged that the industry needs to be involved with other stakeholders in looking ahead. “We have to continue to collaborate and do our part, along with other stakeholders, to find an appropriate path forward,” he said. “Doing our part means ensuring we have a seat at the table. It means engaging in rational and balanced conversations about the value of our products to society and reasonable measures to address climate change.”
Thompson also mentioned that the industry should continue its efforts in R&D of renewable diesel or algae-based fuels, and continuing the work in carbon capture and sequestration and further improving process efficiency and making products that promote efficiency in other systems. While Gordon agrees, she believes that the “industry needs to avoid ‘greenwashing’ by tinkering at the margins, when entirely new processes and capital are needed to make the necessary shifts a reality.”
Mentions of climate change notwithstanding, Royal Dutch Shell (The Hague, the Netherlands; www.shell.com) recently left the membership organization reportedly over the fact that the company’s views on climate change, renewable fuels and other policy areas did not align with AFPM’s.
Several prominent research reports, including one late last year from 13 U.S. Federal Agencies, provide blunt warnings on the negative effects of climate change in areas from public health and human habitation to food security, biodiversity and economic activity. The situation is generating considerable political pressure to address the issue. Climate-related legislative proposals affecting energy and transportation are likely to be prominent political issues in years ahead (Figure 1).
Brown’s Gordon commented that “if and when policy makers dial up the environmental pressure on the industry, they will have to adopt a sophisticated approach to the tightly-integrated oil supply chain, so we get the intended outcomes and don’t cause unintended consequences.”
At the AFPM annual meeting in March, AFPM’s Thompson mentioned the “Green New Deal (GND),” a concept that has been discussed by environmental activists in past years but that has become widely known in 2019 as a set of (as yet undefined) policy ideas from Democratic lawmakers aimed at achieving net zero-CO 2 emissions and transitioning to carbon-neutral energy infrastructure. While Thompson criticized the GND as “unrealistic,” he said the industry needs to take such initiatives seriously and engage the public, lawmakers and policy makers to communicate the far-reaching value of the industry, for fuels and a wide-ranging set of products that are essential to modern life. Initiatives such as the GND are elements of the new political reality and Thompson said would be a mistake for the industry to dismiss or ignore them.
For the moment, discussion of the GND is largely partisan and devoid of specific policy proposals. The GND failed to garner sufficient votes in a recent Senate procedural vote on a resolution to consider GND legislation, but the vote was protested by Democrats as a partisan attempt by Senate Republican leaders to force moderates to take a position on the issue, rather than a serious attempt to consider the ideas.
Emerging changes in the transportation sector, and the effects that they will have for the refining industry, were a key topic at the AFPM meeting in March. Demand for liquid fuels in the developed world is facing serious headwinds — not necessarily in the near-term, but further into the future — from increasing fuel economy standards, pursuit of electric drivetrains, and forthcoming shifts away from personally owned cars to mobility-as-a-service models. The current business model of selling oil-powered cars to consumers for personal use will change dramatically in the future, according to Blake Eskew of IHS Markit Ltd. (London, U.K.; www.ihsmarkit.com). “Electric vehicle technology is advancing, with China as the leader in this area,” Eskew says. Declining battery costs and policy support from governments are driving sales of EVs,” he adds (Figure 2).
It will take time, however, and likely additional technology advancements in vehicle batteries, for the share of EVs to approach the share of internal-combustion-powered vehicles. In the meantime, fuel economy standards for existing internal-combustion engines will become more widespread and more stringent.
“In the coming years, 90% of new vehicles sold will be in countries with fuel economy standards,” Eskew says.
Alan Gelder, vice president for refining, chemicals and oil markets at global energy consultancy Wood Mackenzie (Edinburgh, U.K.; www.woodmac.com) says that fuel efficiency standards for cars, along with others for commercial trucking, “serve to decouple demand for refined products from economic activity.”
Analyst forecasts, such as that from Wood MacKenzie, expect petrochemical feedstocks to make up a growing portion of oil demand: from 13% in 2018 to 20% by 2035. Refining industry players are reacting by investing in production configurations that generate higher levels of petrochemical feedstock and lower levels of transportation fuels, especially gasoline and diesel.
Refinery-petrochemical integration (RPI) is becoming standard, and the model is evolving. In the traditional approach to refinery-petrochemical integration, the refinery arm of the business hands off materials to the petrochemicals arm, explains Stanley Carp, senior manager for configurations at Honeywell UOP (Des Plaines, Ill.; www.uop.com) “The movement is toward a model where the two areas are acting as a single business unit — operating as a system, with integration of heat and utilities, rather than as two independent entities of the business.” As refinery configurations change, Carp says the key is to look at petrochemicals as primary products at every new configuration, rather than as secondary to fuels.
The evolving model for RPI allows refining facilities to make up to 70% or more of petrochemical feedstocks, such as propylene and para-xylene, while making much smaller amounts of transportation fuels, as the forecast demand slip for gasoline and diesel and growth for petrochemicals takes hold. New facilities in China are minimizing fuel production and maximizing petrochemical production, Carp notes. Each configuration will differ, depending on which petrochemicals are desired and will depend heavily on geographical considerations.
In a talk at the AFPM meeting, Carp emphasized the importance of refinery flexibility as the expansion from refining into petrochemicals progresses. “Refiners need to be able to move where the market moves, and respond quickly to changing conditions — Don’t design yourself out of the ability to make profits,” he says. Digital connectedness is also an important aspect of the future refinery, Carp says. “How quickly can I turn process data into operational adjustments?” UOP suggested that it might be possible to design a plant where the entire crude stream is converted to chemicals.
Several recent examples highlight the petroleum refining industry’s expansion of its current chemicals portfolio. In April, Saudi Aramco (Dharhan, Saudi Arabia; www.saudiaramco.com) announced the purchase of a controlling stake in SABIC (Saudi Basic Industries Corp.; Riyadh, Saudi Arabia; www.sabic.com). Aramco acquired 70% of SABIC from the current holder, the Public Investment Fund (PIF) of Saudi Arabia. The deal is valued at $69.1 billion for the 70% stake. The remaining 30% of SABIC is publicly traded on the Saudi stock exchange. Saudi Aramco has said it wants 3 million bbl/d of crude oil to be petrochemical-focused. The acquisition of SABIC can allow wider collaboration and avoid competition, as the two companies more recently have been overlapping into the natural positions of the two separate businesses, particularly around petrochemicals, Saudi Aramco says.
In China, Hengli Petrochemical Group recently completed its refinery and petrochemical complex near Dalian. The facility is geared toward flexible petrochemicals production, as well as fuel refining. The Zhejiang petrochemical project near Zhoushan is also starting up. Analysis by Wood MacKenzie anticipates a new wave of refining capacity in China in 2020, driven by several mega crude-to-chemicals projects.
For more on the issues discussed at the AFPM meeting, see the online version of this article at www.chemengonline.com for additional coverage of a panel discussion on the future challenges for the refining industry.
Panel discussion from AFPM
In keeping with the theme of the future sustainability of the industry, the AFPM hosted a panel discussion that touched on a number of challenges with which the industry will have to grapple in coming years. Most of the topics mentioned fell into one of three categories: environment, workforce and public perception of the industry. Provided here are some comments from the discussions.
Public perception. To combat the generally poor reputation of the industry among the general public, AFPM President Chet Thompson emphasized the positive progress the industry as a whole has made over the past several decades in environmental performance and safety. AFPM members have cut plant emissions and sulfur levels in gasoline over the past four decades, Thompson says, over a period when the country’s population and gross domestic product have grown significantly. Petroleum refineries have reduced emissions by 70% over the past 30 years, while increasing refining capacity. And the rates of injury and illness has decreased by a factor of 10 over the same period, Thompson says, making refineries statistically safer than the U.S. manufacturing sector as a whole, Thompson says.
Workforce and diversity. The aging workforce is a concern for the refining industry, as it is in other sections of the chemical process industries, and several panelists brought up the need to increase workforce diversity in the industry by recruiting a more diverse talent pool. Others made the point that diversity should be a conversation about competitive advantage, rather than about human resources and demographics.
Energy supply and environment. Loic Vivier, senior vice president for fuels at ExxonMobil Fuels and Lubricants, says society needs to both increase energy supply to support population growth and movement into the middle class, and simultaneously reduce the environmental footprint of the industry. Energy efficiency investments, carbon capture and storage are required, he mentioned.
Plastic waste. The issues created by plastic waste also come up several times during the discussions. Jim Becker, vice president, polymers and sustainability at Chevron Phillips Chemical Co., commented that plastic waste is a huge problem, and the industry needs to step up a make a difference. It is important to acknowledge the challenges that plastics create, he said, advocating the creation of circularity in the enterprise and the expansion of chemical recycling processes. Several panelists mentioned the Alliance to End Plastic Waste (http://endplasticwaste.org), and said that the effort is deserving of support. Panelists also discusssed the need for industry players to make plastics more recyclable from the initial design stage.
Other sustainability-related topics mentioned during the discussions inlcuded algae biofuels, carbon capture and storage (CCS) and cellulosic material feedstocks. ExxonMobil’s Vivier said his company was planning for an algae biofuel plant in 2025. He also advocated research into new separations methods using membranes as alternatives to distillation processes.
1. Gordon, D. and Acharya, M., Oil Shake-up: Refining Transitions in a Low-carbon Economy, April 2018, https://carnegieendowment.org/2018/04/03/oil-shake-up-refining-transitions-in-low-carbon-economy-pub-75954