NPRA Annual Meeting 2003

Effects of Feed Quality and Effects of Feed Quality and Product Specification Changes on Product Specification Changes on

Refined Product SupplyRefined Product Supply

Joanne ShoreJohn Hackworth

Energy Information Administration

NPRA Annual MeetingSan Antonio, Texas

March 2003

www.eia.doe.gov

NPRA Annual Meeting 2003

Petroleum Product Supply Affected By Petroleum Product Supply Affected By Numerous FactorsNumerous Factors

Changing Product Specifications

Changing Feed Quality

Capacity Changes Petroleum Refined Product Supply

Technology

Imports

NPRA Annual Meeting 2003

U.S. Refining Capacity: Where We Are TodayU.S. Refining Capacity: Where We Are Today

02468

10121416182019

73

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

Mill

ion

Bar

rels

Per

Cal

anda

r Day

U.S. Operable Capacity & Gross Inputs

Operable Capacity

Gross Inputs

Source: EIA

NPRA Annual Meeting 2003

Domestic Capacity Is Expected To GrowDomestic Capacity Is Expected To Grow

Source: EIA

Time PeriodAnnual Average

Shutdown Capacity(MB/CD)

Average Annual Growth of

Continuously Operating Capacity

(MB/CD)

1990-1995 139 76

1995-2000 96 324

2000-2007 60 346

Historical shutdowns are for years 1990-1994, 1995-1999.

NPRA Annual Meeting 2003

Gasoline Imports Are Important Source of Gasoline Imports Are Important Source of Supply for East CoastSupply for East Coast

0100200300400500600700800900

1990

1992

1994

1996

1998

2000

2002

Thou

sand

Bar

rels

Per

Day Other

WesternEurope

Canada

Venezuela

VirginIslands

Gasoline Imports to PADDs 1-3Jan-Nov

Source: EIA

NPRA Annual Meeting 2003

Changing Feedstocks: Any Signs of Supply Changing Feedstocks: Any Signs of Supply Impacts?Impacts?

• Growing use of heavier crude oils impact on light product yields

• Historical changes in the use of C4’s, C5’s and oxygenates in gasoline

NPRA Annual Meeting 2003

Heavier Crude Oils Accounted for Import Heavier Crude Oils Accounted for Import GrowthGrowth

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00019

86

1988

1990

1992

1994

1996

1998

2000

Thou

sand

Bar

rels

Per

Day

Approximate Quality Mix of U.S. Crude Oil Imports

Light Sweet

Mixed

Medium to Heavy Sour

Source: EIA

NPRA Annual Meeting 2003

U.S. Refinery Input QualityU.S. Refinery Input Quality

30.030.531.031.532.032.533.033.534.034.535.0

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

API

Gra

vity

, Deg

rees

0.85

0.97

1.09

1.21

1.33

1.45

Sulfu

r Con

tent

, Wt %

API Gravity Sulfur

Source: EIA

NPRA Annual Meeting 2003

Rapid Growth in Bottoms Processing for Rapid Growth in Bottoms Processing for Heavy Sour Crude OilsHeavy Sour Crude Oils

-10%

0%

10%

20%

30%

40%

50%

60%19

87

1989

1991

1993

1995

1999

2001Pe

rcen

t Cha

nge

from

198

7 C

apac

ity

CokingHydrocrackingFCCDistillation

Increases In U.S. Capacity Relative to 1987

Source: EIA – Capacity as of January Each Year

NPRA Annual Meeting 2003

Changes in Light-Product Yields at Changes in Light-Product Yields at Refineries with Coker and Heavy Crude Oils Refineries with Coker and Heavy Crude Oils

ProjectsProjects• Explored changes in refineries adding cokers

between 1998 and 2001

• Looked at two groups with different product yield impacts:

– Group A : Little change in crude gravity, reduction in residual fuel oil yield

– Group B - Large drop in crude gravity, little residual fuel oil to reduce

NPRA Annual Meeting 2003

Before & After Coker AdditionsBefore & After Coker AdditionsGroup A Group B Total

Before After Before After Before After

Crude API Gravity 28.0 26.2 33.1 25.7 29.7 26.0

As Percent Crude & Unfinished

FCC Input 35.0 35.9 36.9 35.4 35.7 35.7

Hydrocracker Input 5.6 5.0 8.1 13.5 6.5 8.2

Coker Input 11.0 21.0 7.5 23.1 9.8 21.8

Pentanes Plus Input 0.3 2.3 2.0 3.9 0.9 2.9

C4+MTBE Input 4.8 3.4 5.2 4.6 5.0 3.9

Yield Adj Mogas: % C+U 45.9 43.8 48.9 46.2 46.9 44.7

Yield Distillate: % C+U 31.2 35.8 36.0 35.4 32.9 35.6

Yield Light Prod: % C+U 78.8 81.2 88.5 84.1 82.3 82.2

Yield Residual: % C+U 8.1 3.1 1.7 1.2 5.8 2.4

NOTE: Group A: 4 refineries, 140 MB/D coking capacity added; Group B: 4 refineries, 130 MB/D coking added. Gasoline yield is adjusted by removing contributions from C4, C5 and oxygenate blend components so that yields reflect only gasoline product derived from crude oil and unfinished feedstocks (C+U).

NPRA Annual Meeting 2003

Oxygenates, C4’s and C5’s Contribute Oxygenates, C4’s and C5’s Contribute Significant Volumes to Gasoline Production Significant Volumes to Gasoline Production

0100200300400500600700800

1986

1988

1990

1992

1994

1996

1998

2000

Thou

sand

Bar

rels

Per

Day

Oxygenates

Pentanes Plus

RefineryButane

NGL Butane

Annual Average Refinery Inputs

Source: EIA

NPRA Annual Meeting 2003

Flat Crude-Based Gasoline YieldFlat Crude-Based Gasoline Yield

25

30

35

40

45

50

5519

86

1988

1990

1992

1994

1996

1998

2000

Perc

ent

TotalGasoline

Gasolinefrom C&U

Distillate,Jet, Kero

Yields as Percent of Crude and Unfinished Oils

Source: EIA

NPRA Annual Meeting 2003

New Regulatory Supply ImpactsNew Regulatory Supply Impacts

• MTBE/Ether Bans

• MSAT with MTBE Bans

• ULSD

NPRA Annual Meeting 2003

Losing MTBE – Not Just MTBE Volume Loss Losing MTBE – Not Just MTBE Volume Loss

• MTBE represents over 10% RFG, 3% total gasoline supply.

• But physical & chemical properties are critical factors.

• No other hydrocarbon or alcohol can equal the emission and engine performance characteristics of MTBE and other ethers.

NPRA Annual Meeting 2003

MTBE and Ethanol Property ComparisonMTBE and Ethanol Property Comparison

• Both good octane and clean relative to other gasoline components

• Issue is Ethanol relative to MTBE:– Higher oxygen content, so less volume needed for RFG

oxygen requirement (5.8% v. 11.2% for MTBE)– Higher blending RVP than MTBE (VOCs problem)– Higher toxics than MTBE (MSAT issue)– Higher NOx in California model, not Federal model

NPRA Annual Meeting 2003

2007 Loss of Volumes When Moving from 2007 Loss of Volumes When Moving from MTBE to Ethanol – Add Backs MTBE to Ethanol – Add Backs

(Constant Inputs, MB/D)(Constant Inputs, MB/D)

PADD 1(1)

PADD 2

PADD 3

PADD 5

Total U.S.

Loss of MTBE Volumes -100 0 -93 -113 -306

Addition of Ethanol to RFG

75 0 18 58 151

Refinery Increased Alkylate Production

9 10 71 17 107

Commercial Alkylate or Iso-Octane Production

0 0 25 10 35

Net Before Other Losses

-16 10 21 -28 -13

(1) Assumes MSAT volume issues are resolved and rule does not hinder RFG production.

Source: EIA

NPRA Annual Meeting 2003

2007 Loss of Volumes When Moving from 2007 Loss of Volumes When Moving from MTBE to Ethanol – Further Losses MTBE to Ethanol – Further Losses

(Constant Inputs, MB/D)(Constant Inputs, MB/D)

PADD 1(1)

PADD 2

PADD 3

PADD 5

Total U.S.

Net Before Other Losses

-16 10 21 -28 -13

Reduction in Light Ends for RVP

-25 0 -38 -50 -113

Reduce Heavy Ends for Distillation Points

-14 0 -9 -17 -40

Added Ethanol in Conventional

0 -20 0 0 -20

Total -55 -10 -26 -95 -186

(1) Assume MSAT volume issues are resolved and rule does not hinder RFG production

Source: EIA

NPRA Annual Meeting 2003

The MSAT Issue Concerning Ethanol The MSAT Issue Concerning Ethanol (Complex Model)(Complex Model)

BlendComponent Share

(Percent)

Emission Reduction from Industry Baseline

(Percent Reduction)

Volume Percent

Oxygen-ate

Hydro-carbons MTBE Ethanol VOC Toxics NOx Benzene

MTBE 88.8 11.2 0 25.9 33.4 8.1 0.3

Ethanol 1 94.2 0 5.8 15.5 28.3 7.2 0.4

Ethanol 2 90.0 0 10.0 18.6 28.8 7.9 0.3

Note: Fractions of specific components in the hydrocarbon blend are the same in all cases. Emissions reductions are based on comparisons to 1990 industry average baseline fuel composition.

Source: EIA

NPRA Annual Meeting 2003

ULSD - The Lower the Sulfur and the Higher ULSD - The Lower the Sulfur and the Higher the Volume the Greater the Costthe Volume the Greater the Cost

0

2

4

6

8

10

12

14

0 500 1000 1500 2000 2500

Diesel Production (Thousand Barrels Per Day)

Cen

ts P

er G

allo

n

Refinery Production Cost Curve PADDs 1-480% Highway Demand in 2006

Source: EIA

NPRA Annual Meeting 2003

Potential Regulatory ChangesPotential Regulatory Changes

• More ULSD (off-road)

• More diesel light duty vehicles (diesel quality and volume issues)

• Increased ethanol use (mandated or otherwise)

• Other product clean up (sulfur reduction jet fuel, home heating oil)

NPRA Annual Meeting 2003

Increased U.S. Light Duty Diesel Fuel Use?Increased U.S. Light Duty Diesel Fuel Use?

U.S.

98%

2%

Gasoline Diesel

Europe

64%

36%

Gasoline Diesel

2001 New Retail Sales Light Duty Vehicles

Sources: US Chart -- ORNL Investigation of Class 2bTrucks, March 2002 & EIA Estimates; Europe Chart -- ACEA

NPRA Annual Meeting 2003

Proposed Renewable Fuel StandardProposed Renewable Fuel Standard1.

4

1.4 1.7 1.7 2.1

0.00.51.01.52.02.53.03.54.04.55.0

Bill

ion

Gal

lons

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Historical Ethanol Use and RFS Requirements

RFS Required Volumes

Source: EIA, Monthly Oxygenate Survey and H.R. 4

NPRA Annual Meeting 2003

Elimination of RVP Waiver Diminishes Elimination of RVP Waiver Diminishes Ethanol Supply ContributionEthanol Supply Contribution

Volume and Energy Effects to Adjust for RVP When Adding Ethanol to Make 10% Blend

RVP (psi)

Volume Increase (Decrease) By Adding

Ethanol

Energy Increase (Decrease) By Adding

Ethanol

With RVP Waiver

Without RVP

Waiver

With RVP Waiver

Without RVP

Waiver

9.0 11.1% 7.5% 7.5% 4.5%

7.8 10.3% 2.2% 6.8% -0.2%

7.0 8.3% -0.9% 5.1% -2.8%

Source: EIA

NPRA Annual Meeting 2003

Results of Tighter Product Specs and Results of Tighter Product Specs and Greater Refinery ComplexityGreater Refinery Complexity

• Increased likelihood of outages– Single unit outage has greater impact on product

production– Decrease in maximum achievable utilization

• Diminished yields of prime fuels per barrel of crude oil

• Greater “stay-in-business” investment hurdle for smaller refiners

NPRA Annual Meeting 2003

Summary: Impacts of Feedstock ChangesSummary: Impacts of Feedstock Changes

• Fewer heavy crude projects, but will result in some light-product yield loss

• Reduced ability to use light components (C4’s & C5’s) and MTBE will reduce gasoline yield per barrel of crude input

NPRA Annual Meeting 2003

Summary: Potential Regulatory Impacts on Summary: Potential Regulatory Impacts on GasolineGasoline

• Ether Bans Largest supply challenge with significant RFG production loss, exacerbated by MSAT (Loss of MTBE, C4’s C5’s exceeds ethanol additions)

• RFS Adds some volume, but loss of 1-lb RVP waiver reverses some of that gain

• Import streams meeting RFG specifications likely to become harder to find and more expensive

• More distinct gasoline types adding to distribution system stress

NPRA Annual Meeting 2003

Summary: Potential Regulatory Impacts on Summary: Potential Regulatory Impacts on DieselDiesel

• ULSD High and widely varying costs of production and new technology may cause some refiners to delay implementation & create shortages initially

• Possible increase in light duty diesel vehicles More ULSD volume and near-term quality improvements that increase refining challenges

• Distribution losses with ultra-clean products is a challenging unknown

NPRA Annual Meeting 2003

Conclusion: Challenging Environment Conclusion: Challenging Environment Implies Tight Market Years AheadImplies Tight Market Years Ahead

Light Product Yield• Feedstock changes – Loss

of light product yield

• Product spec changes – Net loss of light product yield

Capacity• Need more capacity to

meet demand, yield loss, potential lower utilizations

• Pressures to increase:– Demand growth– Higher import prices

• Pressures hindering expansion– Resources limited to spec

changes– Margins– Shutdowns