‘From Bottom-of-the-Barrel to Bottomless Refineries’

Anil Kumar Sarin
Managing Director, CB & I
It is certainly an age of transformation for refining industry. The line between refining and downstream petrochemical industry is diluting, and there in an increased focus on improving the Gross Refinery Margins (GRM). Refiners today want to move from bottom-of-the-barrel to bottomless refineries by investing in gasification projects, says Anil Kumar Sarin, Managing Director, CB & I. In an exclusive interview with Mittravinda Ranjan , he further talks about the latest trends and technologies, future challenges for refiners, exploring the coal resources, etc. Sarin provides in-depth insights into the Gas-to-Liquid and Coal-to-Liquid technologies, and elucidates how India can make the most of the new methods.

Industry has witnessed significant consolidation in the last decade, particularly in the refining and downstream petrochemical sectors which have seen a significant increase in the demand of new technologies. Will you please comment on these changing technology trends and key drivers for the industry?

In India, there is an increase of participation of private sectors in the refining and petrochemical industry, which was dominated earlier by public sectors. This has led to strong domestic competition with respect to quality and production cost. Also, decontrolling of refining product prices, in India, has led to healthier competition. Under such an environment, all refiners and downstream producers are looking for technologies which can best enhance profitability and product quality, which ultimately becomes easy to sell.

The main focus in the refining and downstream petrochemicals sector today is to improve the gross refinery margins (GRM) by processing heavy crudes and utilising each and every molecule to a usable component while maintaining the environmental norms. Since 2004 the spread between heavy crude and West Texas Intermediate (WTI) has roughly doubled, giving refiners even more reason to invest in heavy crude processing. Refiners today want to move from bottom-ofthe-barrel to bottomless refineries by investing in gasification projects, so that they can produce syngas with their own petcoke feedstock .

On the petrochemical front, shale gas has changed the entire landscape of the industry. Cheaply available gas-based feedstocks for crackers led to reduced production of C3s and C4+. Today, companies are looking for on -purpose technologies to compensate for the deficit in C3s and C4+.

Unless refiners and downstream petrochemicals producers continuously upgrade their processing scheme, it will become increasingly difficult for them to remain competitive.

Technology selection is based on a number of factors specific to each refiner and project, including return on investment, the specific product slate desired, refinery location, refinery configuration, feed and product pricing and type of crudes available.

In summary, we see a major global shift of more demand for integrated refinery/petrochemicals complexes to both upgrade to higher valuable products and increase market diversification.

The recently concluded international conference on refining highlighted maintaining the GRMs as the most critical issue for the refiners , which in adverse cases could even result in shutting down of the refinery - a common situation that most of the old refiners have faced globally that has resulted in shut down of almost 70 refineries so far world over. May we have your comments on what are the future challenges that the refiners need to prepare for right now and the key technologies that the refiners need to adopt now for long term sustainable growth?

Like many other refiners worldwide, Indian refineries were severely affected by the global economic downturn. India is heavily dependent on the import of crude oil and because of the depreciation of the Rupee by more than 20% in the last year, the problem has been compounded. Also, some of the old refineries in India are below the threshold limit of 9 mmtpa, threatening competitiveness unless they can diversify into some speciality products. However, a large investment is required to upgrade these aging units. The principal challenge is the squeeze on gross refining margins. These refineries are under enormous stress because crude prices are on an upward trend but margins are not. The enormous upsurge in diesel demand has meant that refineries have to find ways to increase the diesel production. In addition, India's products pecifications are becoming more stringent -- specifications equivalent to Euro IV are being rolled out in 50 cities by 2015 and Euro V is to be introduced by 2017. Meanwhile, environmental regulations continue to tighten.

Indian refiners have to look into use of opportunity crudes for which resid upgrade technologies like the LC-FINING® and delayed coking technologies are available. Margins from petcoke can be increased by gasification and the use of synthesis gas for fuel and to produce hydrogen or power for the refineries. There is also a lot of synergy resulting from integrating the refinery and petrochemical complexes.

What are the opportunities for the refining to produce high value feedstock? May we have your comments on feedstock substitutions and new capacities that are coming up globally (especially from the shale gas in USA )?

The availability of large quantities of shale gas in U.S., has led to several new crackers being built using low cost associated ethane gas as a feedstock replacing naphtha. This has proved to be a game changer in the US. We need to explore similar opportunities in India.

It is becoming increasingly evident that countries with large reserves of coal will need to explore utilisation of coal not simply for power generation but also as a feed stock for valuable petrochemicals. What kind of potential do you see for coal based technologies in the Indian market and how do you compare this with China, which has already set up projects on CTL technology?

The economics of using coal for power generation is based on the availability of cheap and abundant coal in India. With huge coal reserves, coal shall remain India's most important energy source into the future.

Gasification technology for producing power is economic in markets where gas is expensive or gas is imported in places like India, Korea, China and Japan where the FOB price of LNG is more than $14-16 per MMBTU. This is my understanding, depending on various factors, that the threshold price of LNG is approximately $9 per MMBTU for using coal gasification to produce power, and India and China fall into that threshold price of LNG. Similarly, the use of coal as feedstock for petrochemicals will be based on the price of crude oil. A major similarity between the Chinese economy and Indian economy is that both countries are heavily dependent on the import of crude oil. Developing coal-based liquid fuel and chemicals is more of strategic issue for the Chinese economy as China seeks to reduce its use of imported oil.

India should also look into that approach, but such projects are very capital intensive. Many private players have shown an interest in setting up coal-to-liquids but because the allocation of coal blocks has become too political in India, such projects have taken a back seat.

Through the CB & I gasification route, with low ash coal as feedstock, this coal (and petcoke) can be converted to very useful products like hydrogen, syngas, power and other chemical products.

Gasification technology is taking centre stage globally as most of the refiners are now setting up the delayed coker projects and there is significant demand of these technologies from the power sector as well. To what extent can the GTL / gasification technologies bolster the growth of the Indian fertiliser sector?
Yes, it is true that refiners are adding delayed cokers while processing cheap heavy crude oils to improve margins. The coke generation potential from heavy crude oils processing is about 25% higher than that of normal sulphur crudes. In India alone, in the last five years, there is an addition of about 20 million tonnes of planned coker capacity (equivalent coke generation of six million tonnes) which are either commissioned or will be commissioned in the next couple of years. Syngas produced from gasification can be good feedstock for fertiliser plants, and it can be used to produce power, hydrogen and other products.

India's experience with gasification of liquid feedstocks dates back to the 1960s, when it was utilised for the production of hydrogen from naphtha for fertiliser plants. The fertiliser sector in India today faces the biggest challenge because of the availability of cheap gas, coal and pet coke gasification, which can replace liquid feedstocks in such a situation. In fact RCF, along with Coal India, GAIL and Fertiliser Corporation of India is contemplating setting up a fertiliser complex, comprised of a 2,700 MTPD ammonia plant, 3,850 MTPD urea plant, 850 MTPD nitric acid plant and 1,000 MTPD ammonium nitrate plant at Talcher, Odisha, through the coal gasification route as feedstock.

The advantage of Indian coal is relatively low sulphur content. The disadvantage is its extremely high ash content - often as high as 40% -- and the nature of the ash, which contains very high amounts of silica and alumina. Gasification is definitely an answer for gas crises in the fertiliser sector but what needs to be evaluated is whether India should use Indian coal, imported coal or pet coke.

Today, gasification provides about a quarter of the world's supply of synthetic ammonia and about one third of the world's methanol. With an estimated 750 gasifiers planned or under construction across the world, the technology is set to play a major part for at least another century.

Which are the CB & I technologies that you are typically targeted for the Indian market and please tell us about some of the ongoing and future projects in India? (Please highlight the scope and ongoing & future projects)
CB & I has more than 70 technologies in its portfolio which are available to our clients in India. Our portfolio spans technologies in olefins, petrochemicals, refining, gasification and gas processing. Through our Chevron Lummus Global joint venture (CLG) we provide technologies in hydro cracking, hyd roprocessing and heavy oils.

We also have a strategic alliance with IOCL's R & D centre in Faridabad to license jointly-developed Indmax high propylene FCC technology. CB & I has been providing technologies in India for residue upgrade like delayed coking and gasification.

For diesel maximisation we have been licensing our hydrocracker technology. On the petrochemical front, we have been actively licensing our crackers and polypropylene technologies in India. The table below gives a brief about our major ongoing projects in India.

CB & I can provide full participation in planned grassroots refineries like HPCL Refinery at Rajasthan, and various refinery expansions such as IOCL-Gujurat, IOCL-Panipat, HMEL, Essar, BORL, etc.

How do you see the future of Indian downstream chemicals & petrochemical industry given the situation country goes full throttle to explore the coal resources? As a result of ongoing consolidation, a decade down, how do you see the future of petrochemicals industry in India ?
There are number of technologies available to use our large reserves of coal . Through the gasification route, India can convert coal to synthesis gas for power and steam production and hydrogen production. Technologies are also available to convert coal to methanol to olefins and then to polypropylene and polyethylene. The main challenge is that India's coal has high ash content and requires a high investment.

Petrochemicals form the basis for various consumer products that vary from domestic plastics to engineered plastics, from pharmaceutical ingredients to industrial solvents, from fibres to textiles etc., and they have become an integral part of our daily lives. As we progress, the demand for plastics is going to be greater and greater. Today, India is the fourth largest economy in the word on a purchase price parity basis and one of the most populous countries in the world. India's 2013 population stood at 1.22 billion, but India's plastic consumption is one of the lowest in the word at 6kg/capita, in the U.S. it is 85 kg/capita and the world average stands at 40kg/capita. There is an immense potential for petrochemicals growth in India.

At some point of time, do you feel that the fertiliser sector which is also now going the syngas way could probably be integrated to the refining sector in the years to come? Large integration between the refining sector and fertiliser sector is always debatable, because of the dependency of various units - if one critical unit fails, the whole complex is shut down, leading to huge losses. If the design can alleviate such eventuality, it makes sense to build large industrial zones integrating refining, petrochemicals and fertiliser industries. This would enable value addition through interindustry stream sharing, and CAPEX and OPEX optimisation through common facilities such as utility generation, environment management, manpower resource utilisation, etc. while at the same time setting up economy-of -scale plants. This synergy can significantly bring down product cost.