Refiners tailor investment strategies to stay competitive: Honeywell UOP

Refiners are increasing capital spending slashed in 2020 by the coronavirus to modify their plants but visions of their refining operations have evolved since the beginning of the pandemic, a Honeywell UOP executive said at a conference.

Global GDP growth is expected to be about 4% this year. At this level, Honeywell UOP believes GDP will keep refined product demand relatively stable around most of the world, with the exception of emerging countries where it will grow.

"Because of this capital budgets have started to become active again. But our customers remain cautious about building new capacity. And are still careful about the types of investments they are making," said Bryan Glover, vice president of petrochemical and refining technologies at Honeywell UOP, speaking at the annual American Fuel and Petrochemical Manufacturers conference on April 12.

Honeywell UOP is a key developer and supplier of technology to petroleum refiners, petrochemical makers and natural gas producers, known for developing fifty years ago a key technology called platforming which removed lead from gasoline while preserving octane.

But in the post-coronavirus economy refiners are changing their investment strategies, looking for rates of return on investment between 15% and 20%, compared with the pre-coronavirus acceptable metric between 9% to 10%. This means they expect more for each dollar spent.

Three major routes

Broadly, Honeywell UOP sees refiners are taking three routes to achieve their financial objectives through the modernization and expansion of their facilities.

"Today, some refiners are investing in more efficient, environmentally sound technology and renewable fuels as part of the low carbon economy. Others are integrating their core operations with petrochemicals where long-term demand growth is stronger and margins are regarded as wider and more stable," Glover said.

And some opt to remain pureplay oil refineries, spending to upgrade traditional refining operations to make them more efficient and cheaper to operate.

Explosive petrochemical growth

The first prong is the integration of refining with petrochemicals as part of a "planned evolutionary capital", Glover said.

"This is what we call the refinery of the future," he said.

Petrochemicals are key because over the next 30 years, Honeywell UOP expects a 50% growth in petrochemical demand.

"Petrochemicals are the fastest growing category in the industry representing roughly a third of all capital investment today," Glover said, noting modern refineries are planning to achieve 50% to 80% petrochemical production without stranding existing process units.

"In fact, we are now designing the first refineries configured to produce only petrochemicals," he added.

Shell's decision to shutter its Convent, Louisiana, plant while keeping its Norco, Louisiana, plant running illustrates this strategy. The company's goal to maintain chemical manufacturing capability meant the 247,400 b/d Norco plant with two crackers was more viable than the Convent plant with none.

Rising renewables

The second route many refineries are taking is integrating or converting their refinery operations to make renewable fuels, reacting to expectations of stricter environmental regulations, changing government policies and incentives.

"Despite the huge drop in fuels demand last year there was unprecedented interest in making diesel and jet fuel from renewable sources," said Glover.

Incorporating renewables into existing fuels infrastructure allows refiners to meet their stated environment goals with minimal disruption as well as allows them to economically benefit from incentives offered by the federal government and states like California.

Many refiners have announced plans for renewable production. S&P Global Platts Analytics expects total Renewable Diesel and Sustainable Aviation fuel production capacity of 915 million gal/year in 2021 and 2.2 billion gal/y in 2022, with demand pegged at 770 million gal/y and 1.4 billion gal/y, respectively.

Traditional plant modernization

Finally, the third route Honeywell UOP sees ascending focuses on refiners who choose to remain crude-based producers.

"These refiners are investing in advanced technologies to produce the most valuable fuels at the lowest cost with the least waste," Glover said.

He said they use technologies that allow plants to anticipate and quickly switch product slates to meet changing product demand, with the ability to run a variety of feedstocks and produce refined products using new technologies to meet fuel specifications.

Honeywell UOP sees greater digital connection within refineries, allowing them to continuously analyze performance data, which then allows plants to operate at optimal levels by continuously analyzing performance data as well as monitor energy consumption and water use to limit waste.

"This will enable plants to operate closer to the peak performance capability. While maintaining higher onstream reliability," said Glover

"The refinery of the future isn't a configuration or a technology. It's an investment strategy that captures growth by providing the flexibility to profit from changing markets to ensure competitiveness," he said.