Truths about future energy supplies and the refining industry

Oil Industry

Oil and gas companies are facing increasing demands for their products and, at the same time, need to meet those demands in an environmentally responsible way. The reality of accelerating demand is one of the three hard truths that Jeroen van der Veer, Shell Group chief executive, has recently stated will generate turbulence in the global energy system in the decades ahead.

►    More demand. By 2050, some analysts believe that energy usage may be twice as high as it is today, or even greater. The main causes for greater demand will be global population growth— from six billion to more than nine billion people—and higher levels of prosperity.

►    Access to energy resources. The second hard truth is that the growth rate in supplies of "easy oil," i.e., conventional oil and natural gas that are simple to extract, will struggle to keep up with accelerating demand. Unconventional resources, such as oil shale and oil sands, may provide a solution. However, less than half of these hydrocarbon resources can be recovered with existing technology.

►    Carbon footprint. The third truth is that increased coal use will cause higher carbon dioxide (C02) emissions, possibly to levels deemed unacceptable. The International Energy Agency predicts that coal use could grow by approximately 60% over

the next 20 years. China and India will continue to exploit their domestic coal reserves to be less dependent on oil and gas imports, as will the US, which now generates more than half its electricity with coal.

The future. Mr. van der Veer emphasized the importance of energy efficiency and recommended that we should aim to become twice as efficient in our energy use by mid-century. He also believes that we should broaden the global energy mix as quickly as we can by including more unconventional oil and gas, alternative energy sources, coal and nuclear energy.

For instance, the Shell Group (Shell) believes that blending of synthetic fuels—such as those derived from biomass, gas or coal—will become more frequent. These sources can also be used to produce other fuels such as hydrogen for fuel cells. Shell is developing several alternative energy sources; it is the largest distributor of first-generation biofuels and one of the largest investors in wind energy. Shell is also investing in new technology such as second-generation biofuels, thin-film solar cells and hydrogen cells.

Shell is one of several organizations that has developed low-temperature Fischer—Tropsch gas-to-liquids (GTL) technology for producing synthetic fuels. The latest GTL process uses a more active and selective catalyst than earlier processes, and new catalyst systems enable producing a range of finely tailored liquid fuels in a fully commercialized system. GTL fuels can be used in conventional diesel engines and provide significantly lower emissions of local pollutants such as particulates, carbon monoxide, hydrocarbons and nitrogen oxides, even when compared with ultra-low-sulfur diesel.

Shell is committed to reducing the carbon footprint of its refineries. The Shell Global Solutions carbon and energy management program is designed to help improve energy efficiency in large, energy-intensive operations. The program combines structured management processes and monitoring tools linked to real-time plant data systems to continuously reduce energy costs, bottlenecks and emission levels.

New solutions. Applying technology to accelerate C02 mineralization is another solution that may help cut emissions. Mineralization, which occurs naturally over millions of years, involves chemical reactions between CO2 and common silicates to produce silica and stable carbonates. Scientists at Shell Global Solutions have discovered a way of accelerating this reaction—from millennia down to minutes. This makes an industrial process technically feasible.

However, as Bill Spence, Shell's vice president C02, has recently commented, the carbon-emissions challenge cannot be met by one company or the energy industry alone. There will be a need for public and private partnerships and a strong policy framework in creating carbon capture and storage infrastructure. The period post-2012, when the current Kyoto protocol expires, will be critical in determining how the world responds to these opportunities.

Totally Integrated Automation in the Process Industry

Totally Integrated Automation in the Process Industry

 

 

Integrated solutions for automation by Siemens

The biggest single investment in 15 years. This project also allowed Totally Integrated Automation (TIA) to prove its strengths yet again.




The Austrian company AMAG rolling GmbH manufactures special aluminum for customers such as the aircraft industry. One of the company's new continuous strand furnaces has been automated with the SIMATIC PCS 7 process control system and now demonstrates how SIMATIC® PCS 7, as an integral component of TIA, can also benefit the metalworking industry. The Ansaldo Sistemi Industriali GmbH implemented the automation of AMAG rolling GmbH's plant. Ansaldo Sistemi is a Siemens Solution Partner that is also active in the metalworking area.

For Ansaldo CEO Giacomo D'lgnazio, the project is an example of how it pays off for the customer when the system integrator and the technology supplier work in partnership: "We develop tailor-made solutions based on the Siemens range of products. Users benefit here in particular from the uniformity of TIA." He also values the positive support provided: "The Siemens Service Portal with its FAQs, facilities for downloading documentation and software updates, and especially the personal enquiry function significantly facilitates start-up and later maintenance for the customer."

According to Giacomo D'lgnazio, SIMATIC PCS 7 is characterized by transparency and simplicity: "Use of the standardized PCS 7 interface and the messaging system significantly reduces the training overhead since operators and maintenance engineers do not require any basic introduction to the system provided they are already familiar with PCS 7. Thanks to the level of integration of the automation, we can use up to 15 percent of savings potential compared to our competitors."

Pietro Gallone, Operations Manager at Ansaldo, points to further benefits of PCS 7 that contributed specifically to the acceleration of the project: "The Safety Matrix accelerated start-up of the safety functions by at least 15 percent. Graphical sequencer visualization proved to be an advantage in process optimization. We saved up to 10 percent of the engineering overhead in this often time-consuming process.

Oil sands: Vision resource for the energy industry

The Alberta government is working with industry on ways to diversify the markets for increasing oil sands output to include the export of gasoline, diesel and petrochemical products

Development of Alberta's oil sands (bitumen) reserves are now the center of international media attention. More importantly, the refining industry is seriously investigating the processing scenarios for utilizing oil sands as a refinery feedstock (Fig. 1). High prices for crude oil and security concerns on oil supplies provide more momentum for the industry to investigate and invest in the infrastructures and technology improvement to upgrade bitumen and refine it into transportation fuels and petroleum products.

Alberta's oil sands reserves are 174 billion barrels (Bbbl) of economically recoverable reserves—second only to Saudi Arabia. With the tightening global supply/demand balance for crude oil and the economic expansions of China and India, elevated demand and high oil prices could remain the norm over the long term. The government of Alberta, as owner of 97% of this resource, has a proprietary interest in developing its oil sands resources and maximizing the economic benefits from this hydrocarbon resource. Determining the optimum path for this resource is difficult and urgent. Oil sands reserves are changing from an economically challenged feedstock to a desired feed for several US refineries. Fig. 2 shows the available technologies and relative recovery rates to extract bitumen from different depths, ranging from near the surface for mining to deep underground for steam assisted gravity drainage (SAGD).

Resource vision. The government of Alberta has a vision for its oil sands reserves. The explosive growth of oil sands development over the last five years has initiated a scramble for labor and materials, severely testing the capability of Alberta's current 3.3 million population base. To catch up with this new reality, the government is running crash programs to increase the flow of immigrants and temporary foreign workers, open new supply chains for materials,

fill infrastructure gaps, update royalty and fiscal regimes, and devise measures to ensure that citizens of Alberta participate in the economic boom of the energy industry.

For many years, oil sands projects were in the slow-growth mode; the first small plant started operations in 1967. The second unit came onstream in 1978, and the third oil sands unit started up in 1985. Over this period, prices were low and margins tight, and operators relied on continuous improvement to remain in business.

Current bitumen production is just over 1 million bpd (MMbpd). Many major expansion phases for existing plants and

new projects are under development. In the government's Vision for oil sands development, bitumen production is projected to reach 3.6 MMbpd by 2020 and 5 MMbpd by 2030 as shown in Fig. 3. Fig. 4 shows the mining operation at Syncrude's Fort McMurray operation. If the current pace for oil sands project announcements continues, production could substantially exceed these levels.

Role of the Hydrocarbon Upgrading Task Force.

The Vision began in 2001 and has progressed through a series of studies and conferences by a partnership of industry and government. Following a period of rapidly increasing prices for Alberta's natural gas production, a small group of three energy companies and three government departments began a collaborative effort to find an alternative feedstock that would sustain the viability of the local petrochemical industry.

A study of bitumen-derived feedstocks in 2002 demonstrated the technical feasibility of an integrated bitumen upgrading, refining and petrochemical facility in Alberta. This study concluded that successful integration required "commitment by different levels of government and industry to a common vision and a long-term strategic plan to facilitate profitable integration of the different plant complexes and infrastructure services."

Real-time corrosion monitoring reduces costs

Oil and natural gas pipelines carry toxic and often volatile hydrocarbons to refineries and markets. Recent high-profile pipeline failures have brought an increased emphasis on preventing corrosion, the chief culprit in these failures, which can result in lost production, equipment replacement and regulatory fines. Traditional corrosion monitoring methods often identify problems when it is too late to deploy preventive measures, resulting in widespread energy disruption across the supply chain. As a result, pipeline operators are looking for ways to improve their systems for detecting and preventing corrosion. The good news is that today's corrosion monitoring systems are capable of detecting corrosion in real time without interrupting the process, and provide an effective predictive solution to reduce corrosion-related costs.

Corrosion can be costly to manage. It is estimated that corrosion costs the process industries roughly $300 billion each year in lost production, equipment failure and fines for environmental and safety violations. BP, the poster child for the perils of pipeline corrosion, was fined $12 million for the pipeline leak on the North Slope in Alaska in 2006. The company must also replace 16 miles of pipeline at a cost of nearly $150 million. Clearly, corrosion poses significant risks, and the costs for poor corrosion management can be catastrophic.

While pipelines have gotten most of the press recently, refineries are also quite susceptible to corrosion. They have miles of metal pipe, vessels and tanks, and are governed by strict regulations on emissions and safety. Unfortunately, corrosion problems will only increase as the world begins to rely more heavily on heavy oil, which has a higher acid content. Replacing plant components with more corrosion-resistant metals is not feasible, given the recent explosive increase in the prices of nickel, chromium, zinc and many other constituents used in manufacturing these metals. Plant operators must become more vigilant by adopting robust corrosion monitoring methods. Run-to-failure is not an option with the worlds increasing appetite for energy. If corrosion can be measured in real or near real time in an automated way, the operators can take operational steps to minimize acceleration of corrosion and extend equipment life.

Traditional monitoring methods no longer suffice.

ARC Advisory Group's Plant Asset Management (PAM) Systems Worldwide Outlook estimates that manufacturers spend over $50 million on corrosion monitoring annually, and that this amount will nearly double over the next five years. Corrosion monitoring predicts the health of all metal equipment, virtually every piece of equipment in a process plant. Major suppliers of corrosion monitoring solutions include Cormon, CorrOcean, Honeywell, Pepperl+Fuchs and Rohrback Cosasco.

The traditional method for monitoring corrosion in pipelines is by using metal coupons. The coupons are weighed, inserted into the process stream, then periodically removed and weighed

to determine if corrosion has occurred. Pipeline operators also use ultrasonic testing modules on smart pigs to measure the pipe thickness. Because they are periodic, these measurement methods, while accurate in detecting corrosion, merely confirm that corrosion has taken place. Damage is documented, but it is difficult to take a proactive approach to prevent it.

¡Real-time corrosion monitoring. Newer corrosion monitoring methods such as electrical resistance and linear polarization resistance probes provide more timely corrosion data. These devices measure resistance across wires that are exposed to the process stream; if the level of resistance increases, corrosive conditions are present. While this is an improvement over the coupon method, the probes do not detect localized corrosion, or pitting, the cause of most pipeline failures. Solutions such as Honeywell's SmartCET and Pepperl+Fuchs' CorrTran MV devices get around this problem by adding harmonic distortion analysis to calculate more accurate corrosion rates and electrochemical noise measurements to detect localized corrosion. Emerson and Rohrback Cosasco systems added wireless corrosion monitoring to the mix with the Mircocor wireless transmitter.

With these new technologies, refinery and pipeline operators can measure and pinpoint corrosion in real time, and in essence can treat corrosion as another process variable as they do with more familiar field instruments such as pressure transmitters, temperature sensors, flowmeters and level devices. It will be possible to install corrosion instrumentation on plant assets such as pipes, vessels and heat exchangers, giving operators a way to check for corrosion without manual inspections. Wireless technology will enable measurements in remote or hard-to-reach plant areas.

Real-time corrosion monitoring helps to extend the life of key plant assets and pipelines. Operators can use it to manage corrosion more effectively, optimizing the effectiveness of corrosion prevention measures. Production losses are minimized, and maintenance costs go down with fewer manual inspections and a reduction in the amount of corrosion inhibitors used. Plant operators can shift from unnecessary preventive or reactive maintenance strategies to a proactive, reliability-centered approach. More importantly, real-time corrosion monitoring reduces their exposure to the risk of catastrophic failures and the associated environmental and safety repercussions.

The commons: Revisiting the tragedy

Adam Smith, the famous economist, remarked that, in a free market, an individual pursuing self-interest also tends to promote the good of the society. He called this principle "the invisible hand." However, Smith's commentary does not hold true for "the commons"—resources such as air, land, water and other natural resources that are shared by multiple groups or nations.

Tragedy of the commons. Garrett Hardin, another economist, recognized the conflict over shared resources and put forth the discussion in a paper entitled, "The Tragedy of the Commons."1 Hardin explained the tragedy by using a pasture as the "common" shared by herdsmen. To raise income, each herdsman has an incentive to increase the number of animals within their herd. Unfortunately, a herdsman will probably ignore the fact that the pasture will become home to more animals than the land can support, thus leading to disastrous results. While Hardin's "tragedy" is an interesting philosophical response to Smith's "invisible hand," several dynamics and practical implications of Hardin's view should be considered.

Cycle for tragedy. I suggest that it is most appropriate to view Hardin's model as a cyclic phenomenon. When cattle are first introduced into the pasture, there is initially a period of "plenty" where the cattle thrive, the herdsmen's fortunes increase and each herdsman adds more cattle to their herd. However, the cattle population exceeds the sustainability of the pasture—"the disaster point." At this point, some cattle will die of starvation. The system has entered a "tragedy" period. A natural equilibrium can follow the tragedy. Eventually, the number of surviving cattle is reduced to a level that can again be sustained by the pasture—"the recovery point." Hopefully, the herdsmen have learned the lesson.

From this cyclical view, obviously the tragedy is unavoidable. While one may believe that planting the pasture with a more prolific and nutritious species of grass is a reasonable policy. However, the effect simply lengthens the cycle and delays entry into the tragedy phase. Similarly, a sudden invasion of grass-eating rabbits could shorten the time to system failure.

This cyclical phenomenon appears repeatedly in issues such as world energy, climate change, atmospheric pollution and water rights. Like Hardin's hypothetical, the tragedy of the commons is a problem of population growth with limited resources. In global issues, the question to consider is not how to avoid the tragedy, but how to minimize the repercussions from it.

Energy. Let's look at energy policy issues. Today, almost 85% of global energy consumption is based on fossil fuels—oil, gas and coal. Experts note that oil production has likely peaked and that competition for this resource "common" is increasing due to explosive economic growth in Asia and elsewhere. For plan-

ning purposes, the petroleum common will be depleted within a few decades. The challenge for the US and other nations is how best to phase in alternative energy sources to continue economic growth (financial common) and to minimize the adverse impacts from the depletion of world's petroleum reserves.

For example, a significant decrease in per capita energy use (energy conservation) could lengthen the time to the disaster point for the petroleum cycle (in spite of population growth) and to provide more time to implement comprehensive energy programs. Similarly, increasing exploration for new deposits of crude oil and natural gas, as well as introducing new technologies for enhanced recovery, could give a reprieve. However, at some point, petroleum reserves will be depleted and will no longer be available to drive economic growth.

TBn© future. What will be the strategic energy mix in the US in 50 years? In 100 years? Based on what we currently know, it is clear that there isn't an alternate energy source that will replace fossil fuels and associated infrastructure in the near term. However, the quest for a solution must be systematic. A policy maker supporting pursuit of all potential solutions or diversification of energy sources will undermine the future due to a lack of specific direction—one cannot lay a wager on every available technology and expect extraordinary results.

The energy policy should be sophisticated enough to recognize the depletion of the commons and to invest in technologies, research and associated infrastructure in a staggered and planned manner. For example, besides fuel, crude oil is used to produce thousands of petrochemical products that are consumed daily. Have we planned for an alternate feedstock for these products, in case of depleting petroleum reserves? In the short-term, we may have to accept damage to other commons, such as air and water, in favor of meeting energy demands; however, by having an integrated energy-environment policy that accounts for depleting resources, we can help diminish the tragedy and its associated consequences.

C02 capture part of one refiner's 'license to operate'

Slashing the C02 emissions of two North Sea coastal refineries is not just good business strategy, but also stay-in-business strategy, according to the former Conoco man who four years ago returned from a typically international oil career to run Swedish refiner Preem. When I met CEO and President Michael Loew at the Stockholm offices of the privately owned company, I was keen to find out how he justified rhetoric that in 2006 grabbed headlines across the country. The promises spoke of "green refining"—drastic emissions reductions, biofuels production, biocrude processing and carbon capture and storage.

Preem operates its facilities as a sea-linked complex. Products are shipped both ways between a simpler site at Gothenburg and Preemraif-Lysekil, the pioneering, zero-sulfur diesel manufacturer that some perhaps still know as Scanraff. In early 2006, Lysekil started up a new Isocracker and associated hydrogen production to convert 3.4 million metric tons of gasoil to diesel road fuel. The zero-sulfur diesel produced for domestic consumption is not just European standard, but the gold-plated, low aromatics Swedish Class 1. Preem intends to go further still with a zero-fuel-oil policy to be implemented through a substantial new coker project.

By at least one measure, this process intensity will severely disadvantage Preem. C02 emissions rose by 800,000 tpy after the commissioning of the Isocracker, although its engineers say net C02 emissions/passenger kilometer will drop by 200,000 tpy.

Nevertheless, even today Lysekil is a star of the Solomon study. In its 2006 annual report, Lysekil claims C02 emissions 40% below the average of Europe's 106 sites. S02 and NOx are 73% and 78% lower, respectively, according to the company.

Tom Jones. Somehow the conversation turns to Wales as we are settling into the comfy chairs around Michael Loew's office coffee table: Tom Jones, Las Vegas and the expansion of Welsh coal mines. Coal prices, like it seems any commodity you care to mention these days, are at record levels, I point out.

"The British coal industry was a big problem for us here in Sweden," says Mr. Loew, explaining that it was through acid rain that Swedes first began to understand that hydrocarbons contained sulfur. "We got millions of tons of sulfur from the UK in the old days." Having already removed lead from gasoline in 1986, the acid rain issue played a role in emboldening Swedish politicians to make strong policy on sulfur in road fuels. So in 1994, while European refining lobbyists argued with the European Parliament over the economic disaster that zero-sulfur fuels would visit upon the industry, the company called in ABB Lummus and Criterion Catalysts, built its groundbreaking SynSat units at both sites and—using a model of tax breaks that would later be adopted all over the continent—quietly did the impossible to diesel.

Like others who adopted clean fuels technology early, the 65%-export Lysekil refinery made a killing from its investment— first in Sweden, then England, Germany and other markets. A

year earlier in 1993, the company had started blending FAME in diesel at 2%, so that when Mr. Loew joined Preem in 2003, a strong environmental legacy already existed. In addition, Lysekil had retained a Solomon top-quartile ranking on net cash margin throughout the investment-heavy period.

Carbon capture. But that was then, the era of clean fuels. Now we have Kyoto, global warming and emissions trading. Mr. Loew begins speaking about the economics he's looking at. "We anticipate that from 2013, C02 emissions rights will be auctioned. Todays price is already €23/metric ton, so if you have to buy 2.5 million metric tons, as we would, you can see there is a business case for being efficient and being low-carbon emitters.

This math and the previously mentioned sense of corporate citizenship are behind a striking pledge from Mr. Loew: "We are committed now to C02 capture in refining .... We have to solve this problem," he says. "Sometimes you make statements without knowing how to do it, as Kennedy did when he said the Americans will get a man on the moon." Mr. Loew says that it may take the company some time to figure out how to do this, and he's aware that it's a promise that is going to make him unpopular with some of his peers. A second pledge is that by 2011,10% of the raw material for inland diesel production at Preem will be from nonfossil sources.

The idea of biorefining, in which biomass is transformed to a liquid "biocrude" was put forward by UOP and Lurgi at the November 2007 ERTC meeting in Barcelona.

With ample forest land and wood waste, Sweden is a natural candidate for this new take on biofuels. And through its paper industry, it has a head start on countries that will construct purpose-built biomass liquefaction and upgrading plants. Sweden has Tall, or Pine Oil, a byproduct of paper manufacture, together with black liquor.

As Mr. Loew and I wrapped up our interview, I suggested that a Houston refiner might say to all this: "If some two-refinery outfit in Sweden wants to go and commit economic suicide using the Kyoto protocol, it can be my guest."

"Yeah, probably," he says. "We'll work on C02 capture and biorefining, while Bush is into biofuels because of energy security," he says. "But there's a moral problem with that. Two years ago, wheat was 0.80 Swedish krona/kilogram here, now it's 2.30 krona. That's partly because there are more people who need food, but it's also biofuels. There's a study that says that each time you increase food prices by 100%, hundreds of millions of people slip below the starvation level.

Improve gas interchangeability for LNG terminals

Liquefied natural gas (LNG) is increasingly important in meeting the US growing energy demand. The US Energy Information Administration (EIA) estimated domestic natural gas (NG) consumption at approximately 22 trillion cubic feet (Tcf) for 2004.1 The EIA also forecasts that NG consumption will increase to 26 Tcf by 2010 and further increase to approximately 31 Tcf by 2025. Imported LNG supplements domestic NG demand; LNG imports will increase from 0.65 Tcf in 2004 to approximately 6.4 Tcf by 2025.

The LNG supplies originating from different NG fields around the world are unique and different from US supplies. One common difference is higher hydrocarbon content. Also, the NG derived from LNG is very dry with minimal inert content. The total effect is a higher gas caloric value—also referred to as high heating value (HHV)—of the LNG delivered to receiving terminal and distribution pipelines. The changing supplies and quality characteristics associated with the higher hydrocarbon content do impact market (economic) and operational practices of interstate NG pipelines.

US pipeline gas quality. NG pipeline quality specifications in the US have evolved over the last 150 years as technical solutions were developed to resolve transportation problems, such as liquid dropout, hydrate formation, corrosion and improved mechanical design for higher pressure pipelines. Along with dew-point control requirements to avoid liquid dropout in the pipeline, the economic value for gasoline extraction (C5+ components) was recognized. Later, the economic value for liquefied petroleum gas (propane and butane or C3s and C4S) extraction and finally extraction of ethane or natural gas liquids (NGL) for petrochemical industry feedstocks gained importance in the US Gulf Coast regions.

The result was a gas specification for interstate pipelines, which was very lean with an HHV not exceeding 1,075-1,100 Btu/scf. This lean gas is delivered to industries and residential customers in various regions. According to the US Department of Energy (DOE), most of the NG flowing in interstate pipelines is preprocessed to strip out ethane and heavier components, thus leaving mostly methane in the NG.2 The existing infrastructure for gas processing and petrochemical industries in the Southern region supports these processing methods. But similar NGL pipeline and petrochemical infrastructures do not exist in the East Coast and Northeast region.

Gas quality—current trend. Due to tight NG supplies, pressure has mounted to allow NG with some ethane and heavier components to be imported. This "richer" gas with higher HHV is not desirable; when rich NG is combusted, the flames may be too large or too hot for certain applications and appliances.

Over the last three years, there has been a concerted effort to address this issue. The Federal Energy Regulatory Commission (FERC) hosted several public meetings. Current responsibility lies with the FERC to establish a formal set of gas-quality standards that address these issues. At the request of the FERC, the DOE has commissioned the National Energy Technology Laboratory (NETL) to conduct a detailed study regarding gas quality and interchangeability. The FERC is likely to resist issuing national standards due to geographic variation in gas compositions. They are more likely to issue a broad set of guidelines based on the SoCal and NGC white paper, the NETL study and findings based on cases such as AES v. FGT.3'4 It is likely that the final rule making will address some Wobbe Index (WI) characteristics, similar to the one utilized in Europe, to establish gas-pipeline quality standards for certain regions.