May-2024

Integrating refining/petrochemicals for increased chemicals production

Case study of HMEL’s refinery and petrochemical integrated complex.

Narendra Verma
HMEL (HPCL-Mittal Energy Ltd.)

Article Summary

Petrochemicals are expected to be the largest driver of world oil demand growth, surpassing gasoline or diesel by 2030.¹ Integrating refining and petrochemicals increases the gross refining margin (GRM) from value-added products produced by petrochemical units. In addition, advantages such as feed security and reliable petrochemical units facilitate the blending of petrochemical byproducts into refinery fuel products, leading to lower cost of conversion and reduced Opex due to shared utilities, services, and infrastructure.

Major refining and integrated oil and gas players reconfiguring their plants to maximise more petrochemicals, rather than just fuel, can extract more value from new products rather than just augmenting the existing product slate. While standalone refineries are gradually exploring integration opportunities with petrochemical complexes, new refineries should feature such integration from the start. The extent of integration depends on technical feasibility and the resulting economic benefits. This is a complex discussion and requires further detailed study on a case-by-case basis.

On the one hand, the energy transition will reduce demand for oil products due to hybrid and energy-efficient vehicles, along with switching from fossil fuels to renewables and carbon footprint minimisation. On the other hand, it increases opportunities to capture the growing demand for petrochemicals. Forward-looking refiners are already looking for opportunities to adjust or modify their production modes to capture growing demand for petrochemicals, such as by increasing output of naphtha, propylene, and reformate. Against this backdrop, a case study of HMEL’s refinery and petrochemical integrated Bathinda complex is reviewed.

The Bathinda base refinery has a capacity of 9.0 MMTPA and 5% crude oil-to-chemicals processing capability. Integration with a new petrochemical complex comprising a steam cracker and downstream polymer block will increase this to 20%. Moreover, plans to increase chemicals to 25% include diesel cracking as one option besides fuel gas, naphtha, LPG, and kerosene as feed to the cracker. 

Existing refinery challenges
Analysts forecast that the world’s energy transition will soon peak in the use of oil-based fuels, followed by a decline. The transportation sector is at the forefront of this trend, with total global demand expected to peak in the next one to two years and then gradually decline. Gasoline will experience the greatest impact because it is primarily used for light-duty passenger vehicles, and the market for these vehicles is shifting toward electric.

In contrast, demand for petrochemical feedstocks will continue to grow. The major oil-derived petrochemical feedstocks are ethane, liquid petroleum gas (LPG), and naphtha. These are primarily used in the production of polymers for plastics, synthetic fibre, and other petrochemical intermediates. Demand for these products will continue to grow with rising global wealth.

These two developments pose a dual challenge for the world’s 600 plus refiners. Lower overall demand means less need for refining capacity. At the same time, remaining refining capacity must evolve to match a shift in product mix to meet petrochemical demand. Refiners will need to find ways to make much less gasoline, marginally less diesel, and more jet fuel and petrochemical feedstocks.

The world’s refiners must fundamentally rethink how refineries are designed and operated. Globally, refiners have the capacity to process nearly 100 million barrels of crude oil per day. As global demand declines, refinery utilisation is expected to drop in the key markets of Western Europe and Asia. By the middle of this decade, utilisation in those markets could drop from the current rate of 85% to percentages in the low 70s.4 Refinery utilisation in North America will be slightly stronger due to location advantages for export markets and crude supply. However, all markets will see a significant contraction in profit margins due to the general decline in utilisation.

Overall, the drop in utilisation and profitability could result in capacity closures that will affect the least efficient plants and those less able to adapt to new demands. This scenario leaves most current plants operating but with growing pressure to adapt to new conditions despite narrow margins and decreased cash flows to fund changes. As demand declines for traditional refined crude oil products, refiners and chemical companies should consider how to take advantage of the growing oil-to-chemicals opportunity. To develop the right strategy, refiners and chemical incumbents will have to reflect on their current strengths, capabilities, and positioning.

Internal competition for higher GRM due to uncertainty in product cracks, fluctuating crude oil prices, and the geopolitical situation remains challenging. Also, stricter emission norms have been regulating refinery processes. Today, most brownfield projects are solely driven by these regulations. While costs are associated with these projects for improving fuel quality, only a small fraction can be recovered from fuel product price hikes. Besides, market demand and new technologies are setting a platform for refineries to integrate with petrochemical units to generate more value-added products.

Petrochemicals industry status
Petrochemicals will likely remain the mainstay of all industrial and consumer-based products consumed by the world daily. To maintain sustainable profitability, the refinery of the future must respond quickly to challenging market conditions, switching from one strategy to another as profit margins change. Figure 1 shows a huge gap between ethylene and propylene production (installed capacity) vs demand in India, which calls for petrochemical capacity additions.

When considering the projected strong demand for petrochemical products in India (vs installed capacity), Table 1 shows that by 2025/2030, there will be a shortfall in demand by as much as 8/31.8 MMTPA (vs installed capacity).³

Major challenges

Major petrochemical industry challenges in India include:
• Lack of advantageous feedstock, like ethane and propane, due to limited gas production. India still imports 55% of required feedstocks and depends upon other countries.
• Surpluses that include ‘scattered’ liquid feedstock, like naphtha and kerosene. Currently, there is no common pool.
• Alternate route via gasification demands high Capex.
• High utility and fuel cost; even fuel is required for generation of utilities.
• Non-allocation of depleting domestic gas, and there is no new allocation of reservoirs.
• Logistics, especially for cryogenics and natural gas liquid (NGL), currently through ships only.
• Plastic disposal remains a major concern since it is not biodegradable. There is a need to educate people, and more effort is required to recycle the waste.