Supply of crude oil, NGL, refinery feedstocks

additives and other hydrocarbons

General information

A flow chart of the various feedstocks from production to refinery input is shown in the diagram below. This flow chart is voluntarily simplified in order to give an overall view of the supply chain for crude oil, NGL, refinery feedstocks and other inputs.

Figure 4.3 ● Supply of Crude Oil, NGL, Refinery Feedstocks, Additives and Other Hydrocarbons

From Other

Sources

Exports Direct Use

Stock Build

Indigenous

Production

Refinery

Imports

Backflows from Petrochemical Industry

Stock Draw

Products

Transferred

Petrochemical

Industry

A number of the flows illustrated above require further explanation:

Indigenous Production: Before describing the production process of crude oil, it is necessary to mention that oil production has two meanings, depending on whether referring to primary or secondary products. For primary products, Indigenous Production of crude oil, natural gas liquids and condensates refers to the process

of extracting these oils from the earth. In the case of secondary products, Refinery Output refers to the production of finished products at a refinery or blending plant (see section below on Supply of finished products).

Crude oil can be produced from different locations, onshore or offshore fields or from different types of wells, in association with natural gas or not. Any gas extracted from associated oil wells may be flared, vented, reinjected or form part of natural gas production.

When crude oil is produced from the well, it is a mixture of oil, water, sediment and dissolved gases (methane, ethane, propane, butane and pentanes). In the first instance, all gases are separated from the oil/water mixture. The gases are extracted because of their higher value and readily marketable state, such as propane and butane which are liquefied petroleum gases (LPG). In a later stage, the sediment and other unwanted substances are removed in treatment plants.

Figure 4.4 ● Simplified Flow Chart for Indigenous Production

Associated

Gas

Annual Gas

Questionnaire

Treatment

Crude

Oil

Extraction of

CrudeOiland

Separation

NGL

Associated Gas Indigenous

Production

Blending Products from Outside the Refinery Sector

Other Inputs not already included in energy balances

e.g.tarsands,orimulsion

Additives/ Oxygenates

Other

Hydrocarbons

The gases are separated in a wellhead separation plant from onshore wells; from offshore wells, this happens through a separator on the platform. The methane will form the constituent of natural gas, while the other constituents form the natural gas liquids (NGL). Natural gas liquids, however, can also be produced in conjunction with natural gas.

Crude oil is very diverse; its characteristics can vary widely. Economically, the most important characteristics are its specific gravity and the sulphur content, as these will be instrumental in determining the price of the crude oil.

To complete the supply balance, other inputs such as additives, oxygenates and other hydrocarbons also need to be included in the production data. Additives and oxygenates are those substances (usually non-hydrocarbon compounds) which are added to fuels to improve their properties, e.g. oxygenates increase the amount of oxygen in motor gasoline.

In the Other Hydrocarbons category are included the production of products such as emulsified oils (e.g. orimulsion) and synthetic crude oil from tar sands. This product category also covers shale oil, liquids produced from the coal liquefaction process, hydrogen and other such products.

Refinery Intake is the total amount of oil (including additives, oxygenates and other hydrocarbons) to have entered the refinery process. Refinery throughput refers to this intake and the corresponding output of refined products, described below as refinery gross output in the section Supply of finished products. The difference between this intake and output is the losses that occur in the refining process, such as evaporation during distillation.

Supply of finished products

General information

A simplified flow chart of the supply chain from the refinery to the end-user is shown below.

Figure 4.5 ● Supply of Finished Products

Crude oil as it comes out of the ground is a raw material with limited use. Although it can be used as a burning fuel, the real potential of crude oil is reached when it is refined into a range of products, which will be useful for specific purposes to the final consumer (e.g. gasoline for transportation). The objective of refining is to add value to the raw material, as the total of the refined products should be more valuable than the feedstock.

There are many refinery processes used to transform crude oil. The first basic phase, however, in the refinery process is distillation. Crude oil is heated and fed into a fractionating column at atmospheric pressure, resulting in a separation of the crude oil into 4-6 broad cuts. Beyond the atmospheric distillation unit are more complex units, in which each stream is redistilled to provide a better yield and more precise cut of the final products.

Imports and exports

General information

One of the basic economic realities of oil is that it is often found in areas far removed from the consuming markets. Two-thirds of the reserves of crude oil are either in the Middle East or in Russia, while almost 90% of the oil is consumed in other areas.

This is why oil needs to be shipped from producing zones to consuming regions. As oil is a liquid and compact form of energy, transportation is made relatively easy. Oil can be transported in tankers, pipelines, railways and trucks, and a vast transportation network exists between producing and consuming regions.

The information required on origins and destinations of the imported and exported oil is of prime importance. Indeed it is important for a country to know from which export country it is dependent for its oil supplies, as in case of an export supply crisis, it can determine how much is imported from that particular country. Similarly, although slightly less important, it is useful to know what the destinations are of the oil exports, so that in case of disruption it is known which export countries will be affected.

Stock levels and changes

General information

Oil stocks are a critical element of information in an oil balance. The majority of oil stocks are essential to keep the global supply system operating. Stocks allow for the balance between supply and demand; stocks are drawn to help meet demand

when supply falls short, while a stock build offers an outlet for oil products to flow

when supply exceeds demand. Not to include stock data in the oil balance leads to

a lack of transparency in the market. The trend in stocks is important for many oil analysts when making an evaluation of the oil market situation.

Stocks are a leading indicator of prices: the level of oil stocks often determines the price, e.g. when oil stocks are low it means that there may be a shortage or a need for replenishing, which indicates that prices might be rising. On the other hand, if the industry is amply supplied with the right oil, there may be a price reduction expected. This is why it is important to have information on the situation of oil stocks

in the world.

Information on product stocks can be as important as crude oil stocks. For example, crude oil stocks give an indication of the availability of crude to refineries in each country, and therefore are evidence on how well the refineries might provide the domestic market. On the other hand, information on low gasoline stocks before the driving season, or low heating oil stocks before the winter can be a warning signal to refineries, oil companies and governments that not only prices could rise, but shortages might possibly occur – e.g. heating oil problems experienced in autumn 2000.

Data on oil stocks are of particular importance for strategic decisions made by governments or larger oil companies. Aggregate and timely stock information is needed in order to look at longer-term planning so as to ensure adequate supplies

to meet demand. Governments require extensive stock information so that they can react appropriately when oil supply disruptions occur (both nationally and internationally). Oil stocks are a critical element of information in an oil balance.

Primary stocks are held by the various companies supplying the markets: ranging from producers, refiners to importers. They are held in refinery tanks, bulk terminals, pipeline tankage, barges and coastal tankers (if they stay in the same country), tankers in port (if they are to be discharged at port) and in inland ship bunkers. Additionally, stocks held for strategic purposes by governments (e.g. US Strategic Petroleum Reserve) or by stockholding organisations (e.g. EBV in Germany) are included in the primary stock category.

Secondary stocks are stocks in small bulk plants (marketing facilities below a certain capacity, e.g. 50 000 barrels in the United States, which receive their products by rail or truck) and retail establishments.

Tertiary stocks are stocks held by end-consumers; these can be power plants, industrial entities or consumers in the residential/commercial sector.