Will Low Crude Prices Resolve VGO Deficits?

In December 2013, a Bloomberg report noted that by October 2016, Motiva Enterprises LLC (a refining and marketing joint venture of Saudi Refining Inc., a subsidiary of Saudi Arabian Oil Co., and Shell Oil Co., a unit of Royal Dutch Shell Plc) had plans to shut down the fluid catalytic cracking unit (FCCU) at the 225,000 bpd Convent, Louisiana refinery, 50 miles west of New Orleans. Speculating on last year’s announcement, perhaps the lack of vacuum gas oil (VGO) feedstock for the facility’s FCCU affected the unit’s utilization potential and profitability. This type of primary conversion unit is designed to operate at or near full utilization.

Apparently, the Convent facility has been processing shale based feedstock to the extent that there are noticeable deficits in VGO processed through the FCCU for production of diesel, LCO, etc. An accurate statistic on the volumes of shale feedstock or LTO processed at this facility is not available in the public domain, nor is there any information at the time of this blog posting as to whether one or both of the facility’s two crude vacuum distillation units have been shut down. Suffice it to say that refiners processing large volumes of feedstock from shale source rock are seeing proportional declines in VGO yield, and need to find ways to keep their VGO-starved FCCU operating. With less VGO yield, refiners are compelled to shut down the crude unit’s vacuum distillation column, leaving the atmospheric tower as the crude unit’s primary fractionator. The fractionated atmospheric gas oil, atmospheric tower bottoms and other cuts are typically fed to a catalytic hydrocracker and thermal conversion units, such as a delayed coker.

Back in December 2013, with crude selling at over $105 per barrel, the Bloomberg report noted that Motiva found it too costly to purchase additional feed (e.g., VGO). This is according to a person Bloomberg contacted and who asked not to be identified because the information isn’t public. This is when Motiva decided that it could be more profitable for the company to make and sell feedstock to other refineries, once (and if) the FCCU shuts down. The facility could also enhance process synergies with another nearby Motiva refinery located 13 miles west of New Orleans, the 250,000 bpd Norco refinery. But with crude prices approaching $50 per barrel going into 2015, will the Convent refinery, and other facilities with similar VGO deficits, take advantage of declining feedstock costs to keep their FCCUs operating?

Purchase of VGO feedstock from other Gulf Coast refineries or perhaps from overseas exporters is a viable option from a competitive cost consideration. Another option that has been making the rounds over the past year is substitution of VGO with waxy crudes from Utah’s Uinta shale basin. According to information available from Newfield Exploration, total waxy crude production from this region is 65,000 bpd, with Newfield’s share comprising 45%. Uinta crude deposits of 700 million boe have been reported in the region, which seems to indicate a reliable and long-term supply of the crude.

For those refining facilities with coker units, the waxy crudes’ low metals content makes them suitable for anode grade coke feedstocks. The crudes’ low content of light ends allows for blending with conventional FCC feeds, allowing for complete bypassing of the crude distillation unit (CDU). The low sulfur and low metals (Ni and V) contents results in lower sulfur FCCU fuels and longer catalyst life. FCCU catalyst suppliers, including Albemarle, have developed customized FCC catalyst formulations specifically for those refiners processing these waxy paraffinic feeds. Whether the Convent refinery is substituting VGO with Uinta feeds is unknown, but this option gives pause for some refiners with similar shale processing challenges to consider as a viable option.