Refining An Overview

Refining – An Overview

Refining Sector –

Technical Jargons

Refining Sector – Some

Facts

Global Refining –Business Dynamics

Domestic Refining -

Profile

Domestic Refining –Business Dynamics

Outlook on the Sector

September 2012

Petroleum Industry – Technical Jargons

Upstream - It involves the exploration for and extraction of petroleum crude

oil and natural gas. The upstream oil sector is also known as the exploration and production

(E&P) sector. The upstream sector includes the searching for potential underground or underwater oil

and gas fields, drilling of exploratory wells, and subsequently operating the wells that recover and bring

the petroleum crude oil and/or raw natural gas to the surface.

Midstream - The midstream involves storing, marketing and transporting petroleum

crude oil, natural gas. Midstream operations are sometimes included in the downstream category.

Downstream - The downstream sector includes petroleum refineries, petroleum

product distribution, retail outlets and natural gas distribution companies.

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



http://en.citizendium.org/wiki/Petroleum_crude_oil





http://en.citizendium.org/wiki/Natural_gas











http://en.citizendium.org/wiki/Petroleum_refining_processes



Petroleum Industry – Technical Jargons

Light Distillates Liquefied Petroleum Gas

Naptha

Gasoline

Medium Distillates Jet Fuel

Kerosene

Diesel

Gasoil

Heavy Distillates Residual Oil – Furnace Oil

Others (Bitumen, lubricants, waxes, etc)

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Refining Process

Process: Complex chemical engineering processes used to transform crude oil into useful

petroleum products.

Petroleum refineries are very large industrial complexes that involve a great many different

processing units and auxiliary facilities such as utility units and storage tanks. Each refinery has its

own unique arrangement and combination of refining processes

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Brief Refining History Industry begun in 1846 in Canada - discovered how to produce kerosene from coal.

Shortly thereafter, in 1854 began producing kerosene from hand-dug oil wells in Poland.

The first large petroleum refinery was built in Romania in 1856 due to abundant oil

In North America the first oil well was drilled in 1858 in Canada.

In US petroleum industry began in 1859 after oil was found near Pennsylvania. The industry grew

slowly in the 1800s, primarily producing kerosene for oil lamps.

In the early 1900's, the introduction of the internal combustion engine and its use in automobiles

created a market for gasoline that was the impetus for fairly rapid growth of the petroleum

industry.

The early finds of petroleum like those in Ontario and Pennsylvania were soon outstripped by large

oil "booms" in Oklahoma, Texas and California.

All of the many other refining processes were developed during the war or within a few years

after the war. They became commercially available within 5 to 10 years after the war ended and

the worldwide petroleum industry experienced very rapid growth. The driving force for that

growth in technology and in the number and size of refineries worldwide was the growing

demand for automotive gasoline and aircraft fuel.

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Raw Material – Crude OilOver 160 different types of Crude Oils

West Texas Intermediate: also known as Texas Light Sweet is a light crude oil.

API Gravity of 39.6 degrees, 0.24% sulfur content

Brent Blend: a combination of different oils from 15 fields throughout the Scottish Brent and

Ninian systems located in the North Sea. “API Gravity” is 38.3 degrees, 0.37 percent sulfur content

OPEC Basket: The acronym OPEC stands for “Organization of Petroleum-Exporting

Countries” which is an organization that was formed in 1960 in order to create some common policy

for the production and sale of oil within its jurisdiction. Comprises 11 member countries crude

stream. API Gravity” is 32.7 degrees, 1.77 percent sulfur content

API Gravity: American Petroleum Institute Gravity, which is a measure that compares how light

or heavy a crude oil is in relation to water. If an oils “API Gravity” is greater than 10 then it is

lighter than water and will float on it. If an oils “API Gravity” is less than 10, it is heavier than water

and will sinks.

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Types of RefineriesTopping - The topping refinery just separates the crude into its constituent petroleum products by distillation,

known as Atmospheric Distillation. Topping Refinery produces naphtha but no gasoline.

Hydroskimming - The hydroskimming refinery is defined as a refinery equipped with Atmospheric

Distillation, naphtha reforming and necessary treating processes. Hydroskimming refinery is more complex

than a topping refinery and it produces gasoline. Hydroskimming refinery produces a surplus of fuel with

unattractive price and demand.

Cracking - The cracking refinery is, in addition to the above, equipped with vacuum distillation and catalytic

cracking. The cracking refinery adds one more level of complexity to the hydroskimming refinery by

reducing fuel oil by conversion to light distillates and middle distillates.

Coking - The coking refinery refers to the one which is equipped to process the vacuum residue into high

value products using the Delayed Coking Process. The coking refinery adds further complexity to the

cracking refinery by high conversion of fuel oil into distillates and petroleum coke.

Nelson Complexity Index - The Nelson Complexity Index, captures the proportion of the secondary

conversion unit capacities relative to the primary distillation or topping capacity. The Nelson Complexity

Index typically varies from about 2 for Hydroskimming refineries, to about 5 for the Cracking refineries

and over 9 for the Coking refineries. Refineries, with high Nelson Complexity Index have the necessary

flexibility in processing a wide variety of crudes and are capable of achieving higher value addition.Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



World oil Production

0

600

1,200

1,800

2,400

3,000

3,600

4,200

0

200

400

600

800

1,000

1,200

1,400

2007 2008 2009 2010 2011

World Production - Region Wise - 2007-2011

North America South & Centeral America Europe & Eurasia Middle East

Africa Asia Pacific Total World Production

mln

tonnes

mln

tonnes

World Production (mln Tonne) 2007 2008 2009 2010 2011Total World Production 3928.8 3965 3869.4 3945.5 3995.6

YoY Change -0.01% 0.92% -2.41% 1.97% 1.27%

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



World Oil Consumption

0

600

1,200

1,800

2,400

3,000

3,600

4,200

0

200

400

600

800

1,000

1,200

1,400

2007 2008 2009 2010 2011

World Consumption - Region Wise - 2007-2011


Africa Asia Pacific Total World Consumption

mln

tonnes

mln

tonnes

World Consumption (mln Tonne) 2007 2008 2009 2010 2011Total World Consumption 4005.1 3987.2 3908.9 4031.8 4059.1

YoY Change 1.54% -0.45% -1.96% 3.14% 0.68%

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Global Refining Capacities

4,250

4,300

4,350

4,400

4,450

4,500

4,550

4,600

4,650

0

200

400

600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 2011

World Refining Capacity - Region Wise - 2007-2011


Africa Asia Pacific Total World Consumption

mln

tonnes

mln

tonnes

World Refining (mln Tonne) 2007 2008 2009 2010 2011Total Refining Capacity 4,407.1 4,448.3 4,529.1 4,562.5 4,631.6

YoY Change 1.31% 0.94% 1.82% 0.74% 1.52%

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Capacity Utilization In generally, capacity utilization of the refineries is a function

of demand for POL products, in turn gauged by healthy

economic activity of the world.

Lately, the global financial slowdown, led to a decline in

demand for petroleum products and has steered the global

refinery utilization towards a down slope.

Slow recovery in the developed world, the utilization stood at

81% in 2011.

Going forward, the global capacity utilization is expected to

remain on the lower side primarily owing to

Existing surplus capacity,

New refining capacity construction

Global demand shift from developed to emerging

markets.

However, the market will continue to experience

cyclicality due economic activity and refinery operation

disruptions i.e. Hurricanes, Wars and Demographics.

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Planned Capacity additions by Region

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



World Oil TradeIn mln tons

Imports Exports Imports Exports

US 445 1 114.8 122.1

Europe 464.2 12.9 132.2 86.4

Former Soviet Union - 319.3 5.1 108.9

Middle East 10.7 879.4 11.4 100.4

Asia Region 879.4 36.6 358.7 255.2

Rest of the World 95.4 645.5 168.5 117.7

World 1894.7 1894.7 790.7 790.7

Crude ProductsRegion

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Refining Marker Margins

USWC USGC USMW NWE Med S'pore

2007 23.93 20.78 14.70 14.43 13.04 14.96

2008 16.35 16.97 8.50 17.22 14.27 16.99

2009 13.40 9.16 6.02 8.95 7.93 8.51

2010 13.09 10.17 6.00 10.36 8.82 10.69

2011 11.06 9.92 6.59 12.32 9.26 14.29

Annual Regional RMMs $/bbl

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Domestic Refineries

Name Installed Capacities Expansion projects

Pak-Arab Refinery 4.50 -

National Refinery 2.71 0.25

Pakistan Refinery 2.10

Attock Refinery 1.92 0.52

Byco Petroleum Pakistan 1.70 5.98

Dhodak Refinery 0.11

ENAR Petrotech Refinery 0.11

Total Refining Capacity 13.15 6.74Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



The recoverable reserves in the country as at Dec-11 - 247.53mln barrels

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

FY07 FY08 FY09 FY10 FY11

Mil

lio

n T

on

nes

Crude Oil Processed

Local Imported Imports - POL Products

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Product Mix

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Petroleum Products Consumption by Sectors

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Aviation Fuel Motor Spirit HOBC E-10 Kerosene HSD LDO Furnace Oil Non-Energy Products

Mill

ion

To

nn

es

POL Products Consumption by Sector - FY11

Domestic Industry Agriculture Transport Power Others

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Industry Stage

Growing No. of Firms

Capacity Expansions

Profitability growing but

volatile

Stage of Refinery -

Hydroskimming

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Industry Competitiveness

High Supplier Power Limited availability of input material

(crude oil) owing to scare nature

Sizeable import of increasing dependence on international upstream oil industry

High Buyer Power Few large buyers

Low distinction among refined products

Easy access to imported refined products

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Demand Supply Dynamics

Products

Production Consumption Production Consumption Production Consumption Production Consumption Production Consumption

Motor Spirit 1.22 1.14 1.34 1.45 1.29 1.52 1.34 1.92 1.24 2.24

HSD 3.24 7.25 3.56 8.23 3.26 7.56 3.14 7.27 3.24 6.70

Furnace Oil 3.19 7.39 3.32 7.48 3.09 7.94 2.50 9.04 2.43 8.92

Other Energy Products 2.67 1.07 2.53 0.93 2.19 0.89 2.02 0.90 2.00 1.02

Non-Energy Products 0.55 0.60 0.56 0.45 0.52 0.41 0.54 0.43 0.50 0.33

Total 10.86 17.45 11.31 18.53 10.34 18.32 9.53 19.56 9.41 19.22

FY07 FY08 FY09 FY10 FY11

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Capacity Utilizations

Refinery Capacity (mln tpa) FY07 FY08 FY09 FY10 FY11 FY12

PARCO 4.5 82.7 86.0 81.4 79.0 74.6 70.2

NRL 2.7 103.0 100.9 89.4 78.9 89.3 84.4

PRL 2.1 94.4 103.8 89.9 76.0 76.2 77.0

ARL 1.9 98.8 104.1 88.4 90.8 95.8 99.5

Bosicor 1.7 47.5 54.5 63.0 41.5 26.9 -

Dhodak 0.1 84.1 53.5 15.2 7.4 4.5 -

Enar Petrotech 0.1 78.5 90.7 93.3 93.3 86.3 -

13.2 84.4 87.0 79.9 72.3 71.6

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Pricing Mechanism

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Impact of Regulatory Duty7.5% deemed duty allowed to local refineries for the purpose of

Hydrodesulphurization of HSD

Total Domestic HSD Production = 3.2mln tons

Conversion to Liters = 3.2*1194.90 = 3823.68bln liters

Avg. Ex-Ref Price of HSD = PKR77.1/liter

Gross HSD Collection of the Country = 3823.68bln liters *77.1/liter = PKR294bln

Gross HSD Deem Duty Collection = 7.5% * 294bln = PKR22bln

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Petroleum products Prices

0

20

40

60

80

100

120

140

160

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

US

D/

bb

l

PK

R/

Lit

er

Domestic Prices of Petroleum Products & Prcies of Brent Crude Oil

Crude HOBC HSD LDO Premium / PG SKO E10 Gasoline

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



Gross Refining Margins

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

-3.00

0.00

3.00

6.00

9.00

12.00

15.00

18.00

21.00

24.00

27.00

30.00

Bre

nt

Pri

ce

Ch

an

ge

(%

)

Do

me

sti

c G

RM

($

/b

bl)

Domestic GRMs Vs Brent Crude Oil Change

Key RisksVolatility in margins an outcome of fluctuating crude oil

prices and simpler technology

Unfavorable changes in pricing regime – removal of deemed

duty

Prevailing Inter-Corporate Debt – impacting throughput

levels

Exchange rate depreciation

Refining Sector –

Technical Jargons


Facts


Domestic Refining -

Profile



What’s the outlook | Stable

Bibliography

1. Pakistan Economic Survey 2011-12: Chapter 14 | Energy

2. Pakistan Energy Energy Year Book : 2010-2011

3. Oil & Gas Regulatory Authority (OGRA): www.org.org.pk | Pricing Mechanism

4. Pakistan State Oil Company Limited (PSO): www.psopk.com | Petroleum Product Prices

5. Planning Commission Annual Plan 2012-13

6. BP Statistical Review of World Energy 2012: bp.com

7. BP Refining Marker Margin 2011

8. Organization of the Petroleum Exporting Countries (OPEC) | World Oil Outlook 2011

9. OPEC Monthly Oil Market Report | December2011, June2012, August2012, September2012.

10. Oil-Prices.Net : www.oil-price.net | WTI Crude Oil & Brent Crude Oil data

11. International Energy Agency: www.iea.org | World Key Energy Statistics

12. US Energy Information Administration: www.eia.gov | Annual Energy Outlook 2012

13. Bain & Company: www.bain.com | Global Refining

http://www.org.org.pk/

http://www.psopk.com/

http://www.psopk.com/

http://www.oil-price.net/



http://www.iea.org/

http://www.eia.gov/

http://www.bain.com/

DISCLAIMERPACRA has used due care in preparation of this document. Our information has been obtained

from sources we consider to be reliable but its accuracy or completeness is not guaranteed.

The information in this document may be copied or otherwise reproduced, in whole or in part,

provided the source is duly acknowledged. The presentation should not be relied upon as

professional advice.

Analysts Rai Umar Zafar

+92 42 3586 9504

[email protected]

Adnan Rasool

+92 42 3586 9504

[email protected]

Muhammad Siddiq

+92 42 3586 9504

[email protected]

mailto:[email protected]

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Refining An Overview

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