NB 201/31739-01/Swedish Government/96/Lon 1 Contents of presentation report 1Background 2Scope of...

NB 201/31739-01/Swedish Government/96/Lon 1

Contents of presentation report

1 Background

2 Scope of Refinery Work

3 Methodology for Refining Costs

4 Summary of Results and Comparisons with Earlier Work

5 Diesel Sulphur Reductions

6 Gasoline Sulphur Reductions

7 Sensitivities

8 Appendices


Following the Auto-Oil programme the EU recently recommended maximum sulphur contents for gasoline and diesel to apply from 2000

Background 1

ProductProductProductProductMaximum sulphur contents

of proposed EU fuel package

Maximum sulphur contents of proposed EU fuel

packageSwedish maximaSwedish maxima

GasolineGasolineGasolineGasoline 200 ppm200 ppm 100 ppm100 ppm

DieselDieselDieselDiesel 350 ppm350 ppmMK I 10 ppm

MK II 50 ppm

MK I 10 ppm

MK II 50 ppm

• The recommended sulphur levels were above those which are currently in force in Sweden and Finland

Finnish maxima(Reformulated)

Finnish maxima(Reformulated)

100ppm100ppm

50ppm50ppm


The costs to refiners for sulphur removal developed by Arthur D. Little for Auto-Oil were based on previous studies adjusted to a 1995/6 cost basis

Background 1

TitleTitleTitleTitleIntegrated approach for sulphur and sulphur dioxide limits in the

European refining industry

Integrated approach for sulphur and sulphur dioxide limits in the

European refining industry

Modifying European gasoline composition to meet enhanced

environmental standards and its impact on EC refineries

Modifying European gasoline composition to meet enhanced

environmental standards and its impact on EC refineries

DateDateDateDate 19921992 19931993

Client(s)Client(s)Client(s)Client(s)Governments of Holland, France,

Spain, Italy and GermanyEuropean Commission

Governments of Holland, France, Spain, Italy and Germany

European CommissionGovernment of GermanyGovernment of Germany

Key Previous StudiesKey Previous StudiesKey Previous StudiesKey Previous Studies

• The cost curves developed relied on extensive interpolation and extrapolation of previous work. No new detailed refinery analysis was undertaken


The costs for sulphur removal for EU12 developed by Arthur D. Little for the Auto-Oil program were as follows in 1995/6 costs

Background 1

Gasoline Sulphur Removal

Sulphur (1)

ReductionStep

Capital InvestmentMillion ECU

Net Present (3)

CostMillion ECU

200ppm to 150ppm 875 1320

200ppm to100ppm 1750 2630

200ppm to30ppm 3340 5240

Diesel Sulphur Removal

Sulphur (1)

ReductionStep

Capital InvestmentMillion ECU

Net Present (3)

CostMillion ECU

350 to 200 4560 6980

350 to 100 9230 15380

350 to 50 11570 19580

(1) Cost curves were originally developed from a base gasoline sulphur level of 300ppm. The results shown have been interpolated from the original analysis(2) Cost curves were originally developed from a base diesel sulphur level of 450ppm. The results shown have been interpolated from the original analysis(3) All future cash costs (investment and operating costs) were discounted back to 1996 at 7% per annum


The Swedish and Finnish Governments wish to know how recent developments might influence the costs of sulphur removal . . .

• What developments have occurred in process plant and catalysts?

Background 1

Technology for Technology for DesulphurisationDesulphurisationTechnology for Technology for

DesulphurisationDesulphurisation

Three Factors Could Effect CostsThree Factors Could Effect CostsThree Factors Could Effect CostsThree Factors Could Effect Costs

Crude Oil Diet Crude Oil Diet for EU Refineriesfor EU RefineriesCrude Oil Diet Crude Oil Diet

for EU Refineriesfor EU Refineries

General Oil General Oil Industry TrendsIndustry Trends

General Oil General Oil Industry TrendsIndustry Trends

• What impact would be made by recent North Sea production developments?

• Would refiners have to invest in associated technologies for other reasons?

. . . and commissioned Arthur D. Little to undertake a detailed refinery analysis of EU15



1 Background






7 Sensitivities

8 Appendices


Perform refinery analysis

Crude oil diet changes

The scope of our refinery work was to update our cost curves for sulphur removal

Scope of Refinery Work 2

Scope of AnalysisScope of AnalysisScope of AnalysisScope of Analysis

Examine costs of removing sulphur from gasoline and

diesel in stepwise approach from Auto-Oil

recommended levels

Examine costs of removing sulphur from gasoline and

diesel in stepwise approach from Auto-Oil

recommended levels

Revisit previous analysis (which was EU 12) for

EU 15

Revisit previous analysis (which was EU 12) for

EU 15

Compare new cost curves for EU 15 with old cost

curves for EU 12

Compare new cost curves for EU 15 with old cost

curves for EU 12

Gasoline from 200 ppm

Diesel from 350 ppm

Assess significance of updated analysis

Changes in industry demand trends

Technology improvements Comment on key sensitivities



1 Background






7 Sensitivities

8 Appendices


Simulation of complete industry systems requires a compromise approach

• Study of each individual EU refinery for a variety of scenarios would involve a massive work effort and take much longer elapsed time to complete

• Study of the EC refining industry as a single system would result in over-optimisation and under-assessment of financial and other implications

• A compromise was adopted for our previous studies which was generally considered acceptable–Three regions simulated–Typical refinerines simulated

• We have adopted the same methodology, to enable meaningful comparisons to be made

Methodology for Refining Costs 3

Results aggregated to represent EU system


EU refining industry has been dividied into three regional groupings


Belgium, Netherlands, Luxembourg, Germany and Denmark

Northwest Europe (Old)Northwest Europe (Old)Northwest Europe (Old)Northwest Europe (Old)

3434

Northwest Europe (New)Northwest Europe (New)Northwest Europe (New)Northwest Europe (New)

4242

United Kingdom, Ireland, France (Atlantic), Portugal and Spain (Atlantic)

Atlantic ZoneAtlantic ZoneAtlantic ZoneAtlantic Zone

3030

Additionally includes Sweden, Finland and Austria

Italy, Greece, France (Mediterranean) and Spain (Mediterranean)

Mediterranean ZoneMediterranean ZoneMediterranean ZoneMediterranean Zone

3232

RefineriesRefineries





Six typical European refining configurations have been evaluated to emphasise the differences faced by individual refineries


• Hydroskimming

• Fluid catalytic cracking

• Hydrocracking

• Fluid catalytic crackingand hydrocracking

• Hydroskimming


• Hydrocracking

• Fluid catalytic crackingand hydrocracking

• Hydroskimming


• Hydroskimming


Predominantly SourCrude Oil Refineries

Predominantly SourCrude Oil Refineries

Predominantly SweetCrude Oil Refineries

Predominantly SweetCrude Oil Refineries

North Sea Crude Oilfeedstocks have been adjusted to

reflect recentshifts in typical qualities in both regional

and individual refinery analysis

North Sea Crude Oilfeedstocks have been adjusted to

reflect recentshifts in typical qualities in both regional

and individual refinery analysis


Refinery industry simulation has followed two parallel paths

Methodology Revisited 3

Regional Group EvaluationRegional Group EvaluationRegional Group EvaluationRegional Group Evaluation Typical Refinery EvaluationTypical Refinery EvaluationTypical Refinery EvaluationTypical Refinery Evaluation

• Demand on refineries developed for each group

• Refinery capacity data reviewed with industry – still discussing minor points

• Reflects industry changes in demand barrel

• Results aggregated

• Solutions will be over optimised

• Six typical EU refinery configurations used for similar analysis reflecting wide range of feedstock sulphur content

• Actual refinery population assigned to typical refinery types and feedstock sulphur content. (Details of refinery assessments are given in the appendix)

• Results aggregated

• Solutions will be under optimised

Final results based Final results based on a blend of the on a blend of the two approachestwo approaches

Final results based Final results based on a blend of the on a blend of the two approachestwo approaches



1 Background






7 Sensitivities

8 Appendices


The new cost curves indicate lower costs for sulphur removal than the previous studies

Summary of the Results and Comparisons with Earlier Work 4

Capital Investment Million Ecu

Old

New

3340

2940

1750

1310

875

615

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

0 50 100 150 200 250 300 350

New

Old

DieselDieselNet Present Cost

Million Ecu

Sulphur ppm

Old

New

11570

5990

9230

3520

4560

820

GasolineGasolineNet Present CostMillion Ecu

Sulphur ppm

30

Old and New Costs on a 1996 Cost BasisOld and New Costs on a 1996 Cost Basis

30 100 150 50 100 200Sulphur ppm

• Both the old and new cost curves have been developed on the same basis as used in auto-oil– Assumes costs incurred from 1996 onwards– All capital and operating costs are included and a fifteen year cashflow is discounted back to 1996 at 7% per annum


We have compared the current estimates of the unit costs to remove sulphur with those used in Auto/Oil

Typical RefineryGate Value

Gasoline Diesel

$/tonne 250 150

ECU/liter* 0.148 0.101

Costs to lowersulphur levels fromAuto/Oil proposals

to target levels

Old Basis

(ECU/liter)

New Basis

(ECU/liter)

Old Basis

(ECU/liter)

New Basis

(ECU/liter)

200 ppm 0.0082 0.0014

150 ppm 0.0011 0.0007

100 ppm 0.0038 0.0027 0.017 0.0065

50 ppm 0.021 0.0098

30 ppm 0.0047 0.0039

*1 ECU =1.25 US$



There are three major reasons why our assessments of costs to remove sulphur are lower


Technology ImprovementsTechnology ImprovementsTechnology ImprovementsTechnology Improvements

Crude Oil DietCrude Oil DietCrude Oil DietCrude Oil Diet

Industry TrendsIndustry TrendsIndustry TrendsIndustry Trends

We have reduced our estimates of capital costs for the construction of middle distillate desulphurisation units. This reduces the capital costs required for removing sulphur from diesel

Availabilities of sweet (low sulphur) crude oils are now higher than previous expectations because north sea production (predominantly low sulphur crude oil) is higher. This reduces the amount of sulphur to be removed particularly for diesel components

Industry demand trends indicate a greater proportion of Jet fuel and diesel and a lesser proportion of gasoline than previous expectations. This implies that the industry would need to invest in significant new hydrocracking capacity. This increases the availability of sulphur free diesel components and reduces the cost of lowering diesel sulphur levels


Major improvements have been made in distillate desulphurisation technology


Capital Cost Assumptions (1)

(1997 $)

Capital Cost Assumptions (1)

(1997 $)

Distillate Desulphurisation (HDS)30,000 Barrels/day10,000 Barrels/day

Distillate Desulphurisation and Dearomatisation (HDS-HDA)

30,000 Barrels/day10,000 Barrels/day

8240

17787

Old Basis$ Million

5326

10250

New Basis$ Million

Sulphur removal 97%Aromatics reduction 10%

Sulphur removal 99.9%Aromatics reduction 66%

This technology improvement reduces the capital This technology improvement reduces the capital costs required to meet lower diesel sulphur levelscosts required to meet lower diesel sulphur levelsThis technology improvement reduces the capital This technology improvement reduces the capital costs required to meet lower diesel sulphur levelscosts required to meet lower diesel sulphur levels

(1) Include ISBL and all supporting offsites and utilities. Excludes financing charges

Capital costsfor all other refinery

processes have beenmaintained at levels

used in previous studies(Adjusted to 1997 basis)

Capital costsfor all other refinery

processes have beenmaintained at levels

used in previous studies(Adjusted to 1997 basis)


North Sea crude oil production has exceeded previous expectations


Previous Estimate Current Estimate

1995 2000 2005 1995 2000 2005

NorthwestEurope

1.09 1.14 1.20 0.98 0.90 1.02

Atlantic 0.93 1.02 1.13 0.88 0.75 0.96

Mediterranean 1.39 1.44 1.48 1.43 1.34 1.42

Total EU 1.10 1.16 1.24 1.08 0.98 1.12

Average Sulphur Content of Crude Oil Processed wt%Average Sulphur Content of Crude Oil Processed wt%Average Sulphur Content of Crude Oil Processed wt%Average Sulphur Content of Crude Oil Processed wt%

1995 2000 2005

1992 Estimate 5.2 4.8 4.6

Current Estimate 6.6 7.5 6.3

North Sea Crude Oil Production – Million Barrels/DayNorth Sea Crude Oil Production – Million Barrels/DayNorth Sea Crude Oil Production – Million Barrels/DayNorth Sea Crude Oil Production – Million Barrels/Day

Reduces base sulphur levelsparticularly in

diesel

“If recent North Sea production performances are repeated we may notsee a decline in North Sea availabilities until post 2005”


New capital investments required in hydrocracking to meet jet and diesel demand will also provide additional sulphur free diesel components

• Previous studies built on EU 12 demand expectations for 2000

• This study built on EU 15 demand expectations for 2005 to be consistent with any Auto-Oil 2 proposals


Previous EU 12 Demand

For Year 2000

Current EU 15Demand

For Year 2005

MillionTonnes % Million

Tonnes %

120.6 21.0 125.7 20.0Gasoline

143.3 25.0 184.5 29.4Jet/Kerosene/Diesel

574.3 100.0 628.1 100.0Total Demand

ImplicationsImplications

The reduction in the proportion ofgasoline and the significant increasein jet/kerosene/diesel indicate that theindustry requires significantly morehydrocracking and a little less catalyticcracking.

This industry basis shift helps to reduce thecost of lowering sulphur levels particularly in diesel. The base case has more sulphur free distillates produced from new hydrocracking capacity



1 Background






7 Sensitivities

8 Appendices


The base case for 2005 will have made significant contributions to aid diesel sulphur reduction

Diesel Sulphur Reductions 5

Key Base Case ParametersKey Base Case Parameters

• Product demand barrel – requires more hydrocracking

• Low sulphur crude oil slate from high levels of N. Sea production

• Auto-Oil 2000 product quality requirements already built-in

• Product demand barrel – requires more hydrocracking

• Low sulphur crude oil slate from high levels of N. Sea production

• Auto-Oil 2000 product quality requirements already built-in

Region

N.W. Europe

Atlantic

Mediterranean

Yes Yes Yes

Yes Yes Yes

Yes Yes No

Process Types

Hydrocracking DistillateDesulphurisation

BenzeneReduction

Major New Refining Investments in Base Case 2005Major New Refining Investments in Base Case 2005


Base case advantages and regional optimisation allow low cost initial reductions of sulphur levels

Diesel Sulphur Reductions Regional Results 5

0

1,000

2,000

3,000

4,000

050100150200250300350

New CapitalInvestment

$/Million (1997)

0.2

0.3

0.1

2.2

3.0

1.0

6.9

8.1

4.2

Sulphur Levelp.p.m

Base Case MainlyDesulphurisation

More DesulphurisationPlus Radical Shift inConversion Mode

3

5

2

AverageCosts

RegionalRange in

Costs

Close Catalytic Crackers Build New

Hydrocrackers

Unit Costs$/TonneDiesel


Individual refinery constraints result in much higher cost solutions

Diesel Sulphur Reductions Typical Refinery Results 5

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

050100150200250300350


$/Million (1997)

5.0

10.2

0.0

20.5

3.2

48.3

26.2

55.0

5.1

Sulphur Levelp.p.m.

Base Case MainlyDesulphurisation

More DesulphurisationPlus Radical Shift inConversion Mode

In general we found it very difficult to meet 50ppm in the sour refineries

without reprocessing of components. Levels close to

70ppm were the best achieved. The results shown for 50ppm are based on 50ppm for sweet refineries and

70ppm for sour.Sour refiners account for between

30% and 40% of the population

In general we found it very difficult to meet 50ppm in the sour refineries

without reprocessing of components. Levels close to

70ppm were the best achieved. The results shown for 50ppm are based on 50ppm for sweet refineries and

70ppm for sour.Sour refiners account for between

30% and 40% of the population

3

2

AverageCosts

Range ofTypical Refinery

Costs


5


We have weighted the regional and typical results to represent our best judgement for EU 15 refiners

Diesel Sulphur Reductions Aggregated Results 5

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

050100150200250300350


$/Million

2.1

9.6

14.6

Sulphur Levelp.p.m.

Results Weighting60% Regional

40% Typical

A wide range of unit costs for individual refiners have been used

in assessing the average costs

Sour typical refineries could not meet 50ppm without reprocessing of

components


in assessing the average costs

Sour typical refineries could not meet 50ppm without reprocessing of

components

3Average

Costs




1 Background






7 Sensitivities

8 Appendices


Sulphur removal to 100ppm can be achieved at low cost

Gasoline Sulphur Reductions Regional Results 6

0

200

400

600

800

1,000

1,200

1,400

1,600

050100150200


$/Million

0.1

0.2

0.10.6

0.1

1.1

3.3

5.4

2.4

Sulphur Levelp.p.m.

Base Case Sufficient Flexibilityin Existing Processes

Combination ofFCC Feed and

FCC Gasoline Desulphurisationplus replacement of lost octane

30

3

5

AverageCosts

Range ofRegional

Costs

Unit Costs$/TonneGasoline

ppm

180

Mediterranean

200

Atlantic

N.W. Europe

110

Base Case Sulphur Levels


Similarly typical refinery costs are much higher for gasoline

Gasoline Sulphur Reductions Typical Refinery Results 6

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

050100150200


$/Million

2.4

7.8

0.0

4.6

0.0

9.0

8.7

14.5

0.0

Sulphur Level

Base CaseOnly Refineries with FCC Require Investment but they constitute the majority.

Combination of FCC Feed and FCC Gasoline Desulphurisation plus replacement of lost octane

30

Major source of gasoline sulphur originates in FCC gasoline.

Typical refineries without FCC are already at sulphur levels below

30ppm

Major source of gasoline sulphur originates in FCC gasoline.

Typical refineries without FCC are already at sulphur levels below

30ppm

3

5

AverageCosts

Range ofCosts for

Typical Refinery



Aggregate gasoline costs were estimated for EU 15 refiners in a similar manner to that of diesel costs

Gasoline Sulphur Reductions Aggregated Results 6

0

1,000

2,000

3,000

4,000

050100150200


$/Million

1.2

4.5

6.6

Sulphur Level 30

Results Weighting60% Regional

40% Typical


in assessing average costs

Refineries without FCC units are already at levels below 30ppm


in assessing average costs

Refineries without FCC units are already at levels below 30ppm

3Average

Costs




1 Background






7 Sensitivities

8 Appendices


Based on additional analyses and interpolation we identified the following sensitivities

Sensitivities 7

Technical Technical ThresholdsThresholdsTechnical Technical ThresholdsThresholds

Results are fairly insensitive to the level of oil prices. The major portion of the costs are capital investment related

Availability of low Availability of low sulphur crude oilssulphur crude oils

Availability of low Availability of low sulphur crude oilssulphur crude oils

Synergies by reducing Synergies by reducing both gasoline and diesel both gasoline and diesel

sulphur sulphursulphur sulphur

Synergies by reducing Synergies by reducing both gasoline and diesel both gasoline and diesel

sulphur sulphursulphur sulphur

Range of costs toRange of costs toindividual refinersindividual refinersRange of costs toRange of costs toindividual refinersindividual refiners

Level ofLevel ofoil pricesoil pricesLevel ofLevel of

oil pricesoil prices

Although we have assessed aggregated costs for all EU refineries the variation by individual refinery is significant. The worst placed refiner could face costs up to four times the average and the best placed face costs as low as one quarter of the average

At the very low sulphur levels there are synergies if the sulphur level of both products are reduced simultaneously which would reduce total costs by around 15%

If North Sea crude oil availability declines to previous expectations the costs will increase by around 20%. If North Sea crude oil availability is the same in 2000 and 2005 the costs will be lower by around 15%

• Gasoline sulphur levels down to 30ppm are achievable

• Sour refiners may not be able to produce diesel below 70ppm without reprocessing (and therefore additional desulphurisation capacity and capital investment)

Sulphur in Transport Fuels Re-Analysis of the Costs to Reduce EU Sulphur Levels in Gasoline and Diesel

Final Report February 12, 1997

Swedish and Finnish Governments

Arthur D. Little LimitedBerkeley Square HouseBerkeley SquareLondon W1X 6EYTelephone 0171-409 2277Telefax 0171-491 8983

NB 201/31739-01/Swedish Government/96/Lon 1 Contents of presentation report 1Background 2Scope of...

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