Apr-2013

Tackling the gasoline/middle distillate imbalance

An oligomerisation technology can produce a significant increase in middle distillate production. The varying constraints on the refining industry result in a market that is in constant evolution.

MARIELLE GAGNIÈRE, ANNICK PUCCI and EMILIE ROUSSEAU
Axens

Article Summary

Regulations on low-sulphur gasoline and diesel fuel, curbs on refinery emissions and the increase in heavy crudes over the past years have influenced the refiner’s market. Today, new forces have emerged, with improvements in light vehicle fuel economy, the prevalence of emerging markets, and the rise of shale oil and gas shifting the outlook. In this article, we present the market trends and outlook ahead to 2020 and 2030, and foresee that the current thirst for middle distillates will be accentuated in the US and Europe, but also in emerging markets. In the second section, the oligomerisation technology, PolyFuel, which can adjust refinery output towards middle distillates, is presented. Finally, an economic evaluation of the performance of PolyFuel assesses its value to the refinery based on 2012 prices and costs.

Market outlook
In 2012, global oil demand was around 89.7 million b/d according to the latest IEA estimates, driven by growth in emerging countries. Broken down by product, global growth in demand for oil is driven by middle distillates, comprising kerosene and diesel, unbalancing the product slates in some regions.

World’s appetite for middle distillates
From 2000 to 2010, growth in world consumption of middle distillates exceeded growth in demand for gasoline and total oil products: the annual average growth rates (AAGR) were 1.6%/year and 1.3%/year, respectively. In 2020, continued robust global demand for distillate is expected, with a growth rate still at 1.6%/year, above total growth in demand for oil. By contrast, growth in demand for gasoline is forecast to be weak, with an increase of 0.7%/year. From 2020 to 2030, while global growth in demand for oil is expected to be restrained at 0.6%/year, middle distillates still stay a primary driver with an annual growth above that of oil (see Figure 1).

Atlantic basin gasoline / distillates balance
Since 1998, Europe has experienced excess volumes of gasoline production. Much of the excess European gasoline has been exported to North America, a light vehicle gasoline market. Today, however, gasoline production within the US has increased, while demand for gasoline from petroleum has reduced. Consequently, European gasoline exports to the US have decreased. With a gasoline surplus exceeding 800 000 boe/d (see Figure 2), European refiners have found other export destinations in Latin America, Africa and the Middle East.

Accounting for half of the total oil demand, diesel remains the principal product consumed in Europe (EU-27) mainly due to the transportation sector. The mismatch between gasoline and diesel supply and demand increases the pressure on European refineries that cannot satisfy their market. As a result, net diesel imports remain significant, reaching a maximum of 560 000 boe/d in 2010, originating mostly from the CIS and the US. Furthermore, Europe is short of kerosene, with a strong and stable deficit of around 300 000 boe/d, heightening the European thirst for middle distillates (see Figure 2).

The North American situation is completely different (see Figure 3):
•  US diesel net exports have increased considerably since 2008, reaching more than 1 million boe/d in 2012
•  Kerosene imports and exports are balanced
•  North America gasoline imports have reduced by 75% when compared to 2006 and should be about 230 000 boe/d for 2012.

With world growth in middle distillates and reduced domestic demand for gasoline, US refiners have developed diesel exports over the past few years, increasing distillate yields by changing distillation cut-points or adapting their refinery units’ operational mode with small-scale capital investment.

US petroleum-based gasoline imports have collapsed since 2011, due to a reduced demand for finished motor gasoline, which has been declining by 1.6%/year since 2007 because of economic conditions and improved engine energy efficiency for new light duty vehicles (CAFE standards) and ethanol blending requirements.

On the crude supply side, a game changer is also modifying US refining dynamics: rapid growth in shale oil production. US crude production is surging in states where shale oil is available. The Bakken field in North Dakota and Eagle Ford field in South Texas are the largest, but many other finds are spread across the country. This development has transformed the US refining industry. Refiners in the US Gulf Coast, where 44% of the US refining capacity is located, benefit from this cheap crude.

Yet, there are some disparities: refiners on the East Coast struggle and experience closures. In PADD (Petroleum Administration for Defe-nse District) 1, refiners cannot easily access the new shale oil supplies; they remain dependent on crude imports and face competition from European gasoline imports. Nevertheless, imports of crude and oil products are collapsing and the US has become a net exporter of oil products. Furthermore, US Gulf Coast refineries that run shale oil will produce more light products due to this light sweet crude supply, and natural gas liquids (NGLs) associated with shale production will increase in the coming years. All of these factors will weigh on the whole light ends complex and may lead to a naphtha surplus in the US.

Non-OECD economies dominate global oil demand growth
Predictions point to the non-OECD share in demand for oil rising from 48% to 60% in 2030, most of this concentrated in Asia, the Middle East and Africa (see Figure 4).

Emerging countries, particularly non-OECD Asia, are forecast to dominate growth in demand for middle distillate, with a significant shift towards diesel in the passenger vehicle market in India and a demand growth driven by commercial freight in China.

In conclusion, with a global surplus of gasoline reducing export opportunities and a growing deficit in middle distillates regionally, either in OECD countries or emerging economies, refiners are led to rebalance their product slates. New technologies are needed to respond to these trends, producing more middle distillates and compensating for a reduction in demand for gasoline in OECD countries and a potential over-supply of light products and gasoline in the US.