How Refiners Decide to Make Gasoline vs Distillates | RefinerLink
Cor
Cor

RL Blogs

image
How Refiners Decide to Make Gasoline vs Distillates

By Optimization Specialist Robert

Jul 10, 2017
 

Exploring the different factors on when refineries transition between gasoline and distillate modes.

 
 

Many refiners err when making the transition between producing incremental gasoline vs incremental distillate. It’s not as intuitive as choosing one or the other for whichever price is higher - there are many other factors involved. 


To understand some of the basics behind when refiners make the decision, let’s first look at the crude unit where majority of the flexibility occurs. Most refiners decide how much gasoline or jet to make by adjusting the distillation between the naphtha/jet interface. 


To produce more gasoline one would distill deeper to draw heavier molecules  into the naphtha cut.  To produce more jet, one would drop those same heavy naphtha molecules into the jet pool.

 

The complexity of this decision heavily depends on finished product quality constraints of gasoline and jet fuel produced by the refinery. Let’s ignore that factor in this post to simplify the discussion.  Let's also treat Jet fuel and Diesel fuel as fungible distillates as another simplification.

 

 


Market Value of Gasoline vs Distillates:

 

Naturally the price of gasoline and distillates is going to be the leading factor on when refiners make the G/D shift. However, it’s not a straight-forward “Make distillates when distillate prices are higher than gasoline” call. 

 

  • This break-even point of market parity is rarely when refiners make the change
  • Many refiners actually start increasing distillate production while gasoline prices are still higher
  • A few refiners transition when distillate prices need to be a fair bit higher than that of gasoline

 

The remaining factors discussed determine the actual break-even point for each refiner based on refinery configuration and constraints.

 

 

 

Disposition of Incremental Naphtha:

 

Refiners typically have 3 dispositions of naphtha (gasoline precursor) once it is recovered from the crude unit:

 

  • Blend it directly to the gasoline pool
  • Sell it to another refiner
  • Process it in the Reformer

 

Whichever the scenario, the common reality is that this incremental naphtha recovery has a value lower than the price of gasoline.  If a refiner blends it to the gasoline pool, this naphtha has a very low octane number that requires a high octane component to offset


When routing naphtha to the Reformer, you reduce the net volume of salable products. The end result is that you discount the value of naphtha by $2 - $5 /bbl.

 

 

Refinery Octane Demand:

 

If a refinery is extremely octane limited and has spare reformer capacity (either capacity or severity), the decision to make incremental gasoline will depend on the available octane import options.  As discussed above, running rates through a reformer will result in net volume reduction and a typical discount of $2 -$5 /bbl.  Depending on the cost of importing octane (i.e. alkylate or toluene), a refiner may decide to make or buy the octane barrel.

 

 

Refinery Hydrogen Demand:

 

If you are a fortunate refiner that has excess hydrogen availability, your Gasoline vs Distillate economics rarely relies on refinery hydrogen demand.  But for the other majority of refiners, the value of incremental hydrogen has a strong influencing role.

 

Let’s compare 3 different refineries that have different alternatives for their incremental hydrogen:

 

Refiner A:  uses H2 to treat straight-run diesel

Refiner B:  uses H2 to increase cat-feed hydrotreater rates

Refiner C:  uses H2 to increase hydrocracker rates

 

Let’s also use the following assumptions to calculate the value of Hydrogen for each scenario.

 

 

 

Refiner A value of H2:

 

  • With incremental hydrogen used to treat SR Diesel, Refiner A will value hydrogen at equivalent crude capacity
  • Given:  20% diesel crude yield; $3/bbl crude incentive; 300 scf/bbl  Diesel treater H2 cons

 

Value of H2 is worth:  50 $/kscf H2

 

 

Refiner B value of H2:

 

  • With incremental hydrogen used to treat high sulfur gasoil, Refiner B will value hydrogen at the HS vs LS VGO market price differential
  • Given:  3 $/bbl HSVGO vs LSVGO diff;  1000 scf/bbl CFHT H2 consumption

 

Value of H2 is worth:  3.0 $/kscf H2

 

 

Refiner C value of H2:

 

  • Refiner C will value hydrogen at equivalent hydrocracking capacity
  • Given:  20 $/bbl  HCU incentive;  2000 scf/bbl HCU H2 consumption

 

Value of H2 is worth:  10.0 $/kscf H2

 

 

 

 

 

In summary, refiners will all have different factors to consider when deciding whether to make incremental Gasoline or Distillate.  We can see refiners transitioning when Gasoline prices are above Distillate prices by $5 /bbl, or we can see refiners transition when Gasoline is under Distillate by $5 /bbl. 

 

As highlighted above, refiners with different configurations will make the Gasoline vs Distillate transition at different market conditions. It's not easy to assume when one refiner will make that step without understanding their economics.

 
Enjoy this content? Join our Free Newsletter    
Do NOT follow this link or you will be banned from the site!

Blog Topics

 

People You May Know