RL Blogs
By Optimization Specialist Robert
Jul 10, 2017Exploring 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.
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:
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:
Value of H2 is worth: 50 $/kscf H2
Refiner B value of H2:
Value of H2 is worth: 3.0 $/kscf H2
Refiner C value of H2:
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. |
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