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Crude Oil Topping Units: A Pattern In the U.S. Refining

Vital Notice: This text will not be an investment advice or analysis report. It’s to not be relied upon when making funding decisions – traders ought to conduct their own complete research. Please read the Disclaimer at the tip of this article.

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Previously two decades, the general pattern in U.S. refining has been towards rationalization of low-complexity capability and build-out of excessive-complexity capability able to processing a heavier and extra sour slate of crudes. The refining business was successfully responding to the changing world production combine and the increase in the price of crude that made deep processing economic.

The success of shale oil in the U.S. has created the obvious problem – the U.S. refining system is near maxing out its capacity to process light and tremendous-light crude grades. With the domestic refining capacity more and more performing as a bottleneck which will limit crude oil manufacturing progress within the U.S. and Canada, a partial solution to the issue within the type of crude oil topping facilities may lend significant help.

The benefit of mild and tremendous-light crude grades is that they’re typically simpler and cheaper to process than heavy and bitter grades and have high yields of premium products. On condition that new full-scope refining capability takes important lead time to develop, due to allowing points and high capital price, the much less-costly topping items could present a bridge answer, changing industrial refinery companies unexportable crude right into a slate of exportable merchandise and intermediate feedstocks for U.S. refineries or petrochemical plants.

Topping models have been a solution broadly used in rising markets with restricted refining capacity but current local demand for diesel, gas oil, jet gas (kerosene), atmospheric gasoline oil, LPG and asphalt. Within the context of the U.S. market the place refining capacity is usually extremely advanced, topping items could also be organically integrated into the general system, with the less worthwhile by-products absorbed by refiners for deeper processing, without financial loss. It is no shock that the biggest U.S. refiners are taking steps to develop such topping capability.

Valero Energy (NYSE:VLO) is presently constructing two giant topping items – one at its 165,000-b/d Houston refinery (present crude processing capacity is ninety,000 b/d) and one at its 325,000-b/d Corpus Christi refinery (present crude processing capability is 205,000 b/d). The two new models could have a combined capacity to process 160,000 barrels per day of gentle and tremendous-gentle crude produced in the Eagle Ford, with each items anticipated to be operational within approximately one year. Valero’s whole investment in the two initiatives is expected to be $750 million (the slides below).

(Supply: Valero Energy, January 2015)
(Source: Valero Power, March 2015)

As one can see from Valero’s slide, not all products from the units will likely be export-ready. Certain finished merchandise might should be bought within the U.S. market, whereas the intermediate products will displace feedstocks that Valero’s current refining plants are currently purchasing in the market. The net capacity gain is, due to this fact, less than the 160,000 b/d, and the net acquire within the exported volumes will likely be even decrease. Nonetheless, regardless that the resulting relief to the oversupply of domestically-produced gentle crude within the form of export-ready processed merchandise will not be large, it’s going to arrive quickly (and each little bit actually helps).

As shown on Valero’s slide, the items may be highly financial – Valero estimates the incremental EBITDA from these two projects at $500 million a yr, a ~1.5x Capital/EBITDA a number of. The quick payout mitigates the financial danger to refiners from the potential lift of the U.S. industrial refinery companies crude oil export ban which will considerably alter refiners’ economics by reducing the home crude price discount.

Valero can be adding a crude unit enlargement at its 170,000-b/d McKee, Texas, refinery to increase throughputs of crude provides from the nearby Permian Basin. That challenge, which Valero expects to be completed by the end of first-quarter 2015, would enhance the refinery’s crude processing capability to just over 185,000 b/d.

What’s A Crude Oil Topping Unit
Crude oil topping models are basically atmospheric distillation units that produce hydrocarbon boiling level cuts from resid Development to LPG. A topping unit might be an affordable, technically simple means to reinforce the worth of crude oil near the source of manufacturing.

Crude oil distillation is an vitality-intensive course of that requires crude oil heaters with cross heat exchangers. Desulfurization and desalting are needed to achieve product specs and in addition to protect the topping unit from fouling and corrosion. A diesel unit is a simplified topping unit that concentrates on diesel range parts without the full vary of merchandise available in an atmospheric crude oil distillation column.

Hydrocracking, hydrotreating and fluidized catalytic cracking (FCC) are downstream processes that require a posh refinery.

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