Petroleum-Coke Overview - ACS Symposium Series (ACS

10 Petroleum-Coke Overview

Downloaded by RUTGERS UNIV on March 14, 2016 | http://pubs.acs.org Publication Date: April 14, 1986 | doi: 10.1021/bk-1986-0303.ch010

James H. Waller, Gary W. Grimes, and John A. Matson The Pace Consultants, Inc., 5251 Westheimer, Houston,TX77056

Petroleum coke markets are complex due to coke's status as a refinery by-product and its use in a myriad of product applications, each influenced by unrelated economic forces. Heavier crude oils containing higher sulfur levels will increase the amount of 1,000+ Fahrenheit material available for coker feed, although coking units must compete with other bottom-of-the-barrel dispositions. However, the economic incentive to operate existing coking capacity will decrease and reduce coker operating rates at least through 1985. Petroleum coke markets are developed around a demand hierarchy that consists of several end-uses. Premium markets, including the use of calcined petroleum coke, will continue to be cyclical. As such, demand patterns for petroleum coke will remain volatile. Fuel grade petroleum coke will continue to experience incremental demand in Western European markets. As such, prices will closely follow steam coal sold in European markets. Petroleum coke will continue to be priced at a discount to coal.

Since the early 1950s, petroleum coke markets have changed radically. Once treated only as a refinery by-product by refiners, petroleum coke is now a permanent feature of several end use markets that are influenced by a variety of economic variables. Many refiners have begun to commit corporate resources to marketing their petroleum coke in hopes of realizing incremental revenues. Marketing was formerly left to a few specialized marketers who contributed to market viability by developing new customers and new uses of petroleum coke that are now considered as permanent market fixtures. In 1983, over 17 million short tons of petroleum coke were produced in the United States, where approximately two-thirds of the world s coking capacity is located. Pace estimated the value of this production to be over $650 million before further processing. T

0097-6156/86/0303-0144$06.00/0 © 1986 American Chemical Society

Bacha et al.; Petroleum-Derived Carbons ACS Symposium Series; American Chemical Society: Washington, DC, 1986.

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This presentation will focus on three basic market components: supply, demand (markets), and pricing. For petroleum coke, these components are not as straightforward as other petroleum product markets. Also, the following will discuss the use of petroleum coke by the utility power industry and new markets on the horizon.


Supply Coking is the most economical method used to convert heavy residual fuel oil and heavy crudes to lighter, more valuable refined products. The buildup of coking capacity in the United States has resulted from economic forces that dictated a balance of light and heavy products. Coke production increases have generally followed increasing trends for light refined products such as gasoline and declining demand for residual fuel oil, as natural gas became a preferred fuel. Similar to other refining and industrial processes, the decision to construct and operate a coking unit is dependent upon unique economic factors. The price differential between residual fuel oil and crude oil is a major variable, although the relative prices of light and heavy crude, the demand for refined products, as well as the amount and type of conversion unit capacity also affect coking economics. Notice the value of petroleum coke was not included. Cokers have been justified in most cases even though the coke product was assumed to have zero value. Since petroleum coke is a by-product, normal supply/demand analysis of coke markets are insufficient to forecast production. The methodology used at Pace for forecasting both the quantity and quality of coke production (Figure 1) is: 1.

2.

3.

4.

5.

Forecast the demand for refined products using relationships tied to our economic forecasts and expected efficiency factors (such as miles per gallon of gasoline). Forecast the crude slate that would likely be used to meet the forecast demand. This is determined by an analysis of domestic reserves, historical production trends, and estimates of new production. The shortfall between domestic production and refinery crude runs is met by imported crudes which are selected on the basis of production/export capabilities, logistical factors, and historical trends. Once the crude slate is established, the supply of 1,000+ material is determined from our database of crude assays. 1,000+ material is that part of the barrel of crude oil which has a boiling point of 1,000°F or greater. This is typically the feed material to a coker. Forecast the quantity of 1,000+ material required to meet the demand for other products such as residual fuel oil and asphalt. The remaining 1,000+ material is assumed to be coker feed. Use the coke yields typical for each forecast crude to determine the total production and quality of green coke.

Our forecast is developed on a regional basis and then consolidated to a total U.S. forecast. We have computerized this forecasting methodogy, building a model that allows us to examine the effect of varying economic growth, product demands, and new crude discoveries on coke production and quality. The Pace forecast for refined products is shown graphically in Figure 2. The most notable features are increasing demand for middle distillates (diesel


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and jet A), continued weakness in gasoline demand through 1990 followed by a slight upturn, and continued decline in demand for residual fuel oil through the remainder of this century. Figure 3 shows the crude runs necessary to meet our refined product demand forecast. The forecast includes two scenarios: one of normal trendline growth portrayed by several industry observers and Pace's own outlook for refinery crude runs based on a "cyclical" economic forecasting model. Our forecast shows runs to crude stills will remain below 12.5 million barrels per day for the remainder of the decade. The expected origin of crude oils to be processed in the future is shown in Figure 4. The crude oil actually processed, as mentioned earlier, has a pronounced effect on both coke quantity and quality, since individual crudes vary in terms of viscosity, sulfur content and other contaminants such as trace metals. As shown in Figure 5, average crude gravity is expected to drop another degree API by the end of the century. This is a less dramatic change than the almost two degree drop of the last six years. Sulfur content is expected to increase from about one percent to 1.2 percent by 2000. That portion of the average crude mix with a boiling point greater than 1000 degrees Fahrenheit is expected to increase approximately one percent by 2000. These and other factors are incorporated into Pace's coke production model. Our original forecast indicated peak coke production in 1982 of approximately 17 million short tons, followed by a sharp decline to 1985. The predicted decline never occurred for several reasons. We believe the major reason was the production momentum that occurred following the completion of several coker projects in late 1983. Many of the projects, originally planned at a time of attractive coking economics but started up under less favorable conditions, were operated regardless of the economics. It is difficult to complete an expensive refinery upgrade and let it sit because the economics no longer justify its operation. Figure 6 represents our current forecast of coke production and average sulfur content. Coke production through the first half of 1984 occurred at an annualized rate of 19.7 million short tons (about 86 percent of calendar day capacity basis). However, monthly production rates have recently dropped considerably. From April s rate of about 56,000 short tons per day, which was the highest ever incurred by the United States refining industry, production has slipped to 52,000 short tons per day. Coke production should continue to follow a downward trend throughout 1984 and 1985 before increasing through the remainder of the century. The basis for the forecast in the near term is an expected narrow price differential between both heavy crude and residual fuel and light crudes. Although several factors may be cited for narrow price differentials over the next 18 months to two years, the most obvious is the refining industry's (both at home and abroad) increased ability to process heavy crude oil into lighter refined products. Between 1980 and 1983, approximately 1.5 million barrels per day of new capacity was installed throughout the free world to destroy heavy oil; currently, another 1.9 million barrels per day of capacity is either announced or under construction. The buildup in heavy oil processing operations has been detrimental to coker economics. Figure 7 shows expected coke production levels in the United States by sulfur content category. Shown is Pace's current petroleum coke production forecast. Most of the additional coke production will be in the category of four percent sulfur or greater. T



WALLER ET AL.

CRUDE

OIL

CRUDE

LIGHT P R O D U C T S ^(GASOLINE,DIESEL, LPG.ETC.)

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R E S I D U A L F U E L OIL ( 2 5 - 1 0 0 % 1000+) ASPHALT/WAX

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FORECAST DEMAND/PRODUCTION OF RESID, A S P H A L T F O R E C A S T CRUDE

SLATE/1000*PRODUCTION

10004· A V A I L A B L E FOR COKER FEED C A L C U L A T E D BY DIFFERENCE AFTER OTHER DEMANDS ARE MET C O K E PRODUCTION FROM T Y P I C A L YIELDS Figure 1. Methodology.

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Figure 4. U.S. crude oil supply.

°API

1977 1979 1981 1982 1985 1990 2000

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Figure 5. United States crude quality.


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This figure also indicates the expanded coke capacity base and how under-utilized this equipment will be in the mid-1980s. No additional coking units are expected for 1986 through the end of this century. Demand. Several characteristics of petroleum coke markets should be recognized to fully understand market behavior. Succinctly, these include:


• • • • •

Price inelastic supply Coke is a refinery by-product Marketing functions are performed by specialized marketers Several distinctive end uses exist Demand follows an identifiable price hierarchy.

The first two characteristics of today's coke markets were alluded to earlier. Coke prices rarely, if ever, influence the decision to produce coke or construct a coking unit. Therefore, the entire coke marketing scheme has been one of maximizing revenues from coke disposal requirements. Figure 8 illustrates 1983 coke markets according to consuming indus tries worldwide. Most of the petroleum coke consumed by the steel industry occurs outside of the United States, since metallurgical coal is widely available here. Most calcined coke is consumed by the aluminum industry in the production of primary aluminum. Cement producers burn a coke/coal mix in their cement kilns. Finally, utility coke consumption is relatively a small portion of total demand. Figure 9 describes petroleum coke markets in terms of consuming world regions. Western Europe consumes the largest share of United States petroleum coke. The European steel and cement industries are consistent customers. In fact, the European fuel market (cement, ceramics, glass, utilities) can be considered as the market sump. If the price of coke declined to a hypothetical level, the European fuel market alone could probably absorb all of the United States coke production. Several combined factors lead to this conclusion. They include: • •

•

• •

Europe is a net importer of solid fuels. The European market is price sensitive and flexible enough to switch much of the consumption to the cheapest available source. The low ash, high BTU characteristics of petroleum coke complement the high ash, low BTU characteristics of local coal. Most installations have fuel blending equipment to take advan tage of economical fuels. The volume of coke consumption is small relative to coal consumption.

Petroleum coke consumption by the utility power industry has been minor, even though another solid fuel, coal, has become the industry's major source of fuel. Domestically, only 630,000 short tons of petroleum coke was consumed by the United States utility industry in 1983, or approximately three percent of total domestic petroleum coke production. Four United States utilities burned petroleum coke in 1983: Delmarva Power and Light, Pennsylvania Power and Light, Northern States Power and Wisconsin Power and Light. The common incentive for burning petroleum coke was the reduction of fuel costs. Petroleum coke's high BTU content can




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Petroleum-Coke Overview - ACS Symposium Series (ACS

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