‘Demand of Innovative Technologies was never Greater’

Doug Kelly
Vice President - Refining Technology, KBR,
"It is almost impossible to predict the way industry would behave," says Doug Kelly, Vice President - Refining Technology, KBR, while sharing his experience of nearly three decades in the refining industry on the sidelines of KBR's annual technology conference in Mumbai with Mittravinda Ranjan.

Past few decades have been the fastest period of growth for oil and gas industry, says Kelly. He recalls his conversation with one of his dear friends and industry veteran Billy Kleese, former Chairman & CEO, Valero Energy Corp, who once said, "We live in extraordinary times … the rapid increase in production of domestic crude oil and natural gas is the most significant development that I have seen in my more than four decades in the energy business."

Kelly started his career with one of the leading energy companies and witnessed the changes from very close quarters during the last thirty years of his career.

In his over three decades of career, Kelly feels, application of advanced IT solutions has emerged as a real boon for both the E & P and downstream refining industries; it has given access to the real-time data and helped industry integrate the overall operations and take quick decisions to respond to the fluctuating market dynamics.

The oil and gas industry has seen dramatic shifts, when they are least expected and it is almost impossible to predict the way industry would behave, Kelly expresses. "If you see, shale gas and oil have been there for ever since the hydrocarbon industry started to flourish, but five years back no one could predict what shale would do to the downstream oil and gas industry in the USA and the way it would impact the global oil industry dynamics," he adds.

Presently, shale gas is being looked upon as the US phenomenon and attracted major investments, but Kelly believes that this phenomenon will gradually spread over to rest of the world where shale gas reserves have been discovered. Russia, for example has the reserves which are close to 75 billion barrels which is a greater number than the available shale gas reserves in the USA. Some of the other countries include - China, Argentina, Libya, Mexico, Pakistan, Canada and Indonesia.

If one looks at the bigger picture of oil supplies, shale gas availability has partially displaced the Latin American heavy crude oil which is now finding its way into China and India. Availability of light African crudes in the market is also resulting in additional supplies to the global crude basket. The oil supplies from the Middle East - that were earlier directed to North America - are now getting redirected to the Asian markets where the refiners are setting up new capacities with higher complexities to handle the crude mixes ranging from heavier to lighter crudes with economies of scale which has further escalated the competition.

Maintaining high GRMs continues to be the biggest challenge that the refiners are facing world over which will compel them to invest in new technologies. "I do not think that there is a single solution that will fit all refineries, but there are refineries that have made investments based on their current crude slate and there are ones who have long term vision and invested in technologies to allow them flexibility to handle diverse feedstocks. I feel that the need of innovative solutions and technologies has never been greater," he observes.

Kelly cites the example of some of the developed nations where many refiners are facing the challenge of declining margins as the refineries are getting older. Many refiners in Europe are facing closure because of their inability to compete with the refiners in the US and their inability to maintain the Gross Refining Margins (GRMs) amidst increasing feedstock costs. Kelly notes that globally, more than 70 refineries have shut down and he reiterates that a study has indicated that one out of five refineries may cease to operate within next five years if they do not choose the right operating model.

Across the world, refiners have continued to adopt different growth models like backward integration, vertical integration, undertaking downstream expansions, etc. Historically, tighter integration of refinery and petrochemicals - which were run as two separate businesses, has worked very well and allowed refiners to maximise value creation. In the scenario of refinery and petrochemical integration, it is critical for the refiners to invest in right kind of technologies which allow them to process complex crudes, respond to product demand and meeting the product and environmental specs.

Owing to growing product demand, refiners in Asia and the Middle East have set up greenfield refineries which have the ability to process highly complex crude mixes and invested in high-end technologies foreseeing the future trends and changing compliance norms.

Indian refining capacity is surging from the existing 215 MMTPA as the country aims to get into the league of becoming next exporter of petrochemicals. Already the refiners have capability to process heavy/medium sour crudes and new refineries - with the ability to process complex crude mixes - are likely to be on-stream in next couple of years. Indian refiners are enhancing their capacities to cater to the growing fuel demand in the domestic market and comply with the auto fuel policy which mandates all the automobiles to be BS IV compliant by 2017 and BS V by 2020. Globally, we see lot of increase in demand of bottom of barrels technologies and we see lot of interest in VCC technology as the technology enables refiners to convert heavy bottom of barrel products to low diesel products in compliance with the environmental specs as per the auto fuel policy. The regulation further mandates the refiners to produce low sulphur fuels and KBR's hydroprocessing plays right into that. Kelly is very optimistic about the strong demand of KBR's coal gasification technology in the near future as it takes low value coal and converts into syn-gas. "I think coal can be a very good cost-effective alternative route for producing syn-gas and further producing downstream petrochemicals instead of using natural gas which the country has to import," he explains.

We are working very closely with most of refiners in India and some of the challenges that they need to gear up for include being cost competitive especially while competing with the imports from the Middle East at a time when the subsidies on gasoline have already been removed and the same is likely to follow for diesel.

In addition to the refining processing technologies, KBR has a very strong portfolio of automation technologies that allow the refiners to optimise the overall operations.