ME-TECH 2012 to Focus on Improving Operational Efficiency Through Technology Innovations

The Middle East downstream sector is facing numerous challenges including low margins, overcapacity and increasingly stringent quality environmental regulations, and the role of technology companies is now more important than ever to look for ways to improve efficiency and process heavier, sourer crudes.

“The demand for cleaner fuels and increasingly strict regulations on refined petroleum products  requires refiners to adapt to new operating environments.  In addition to these pressures, greater use of heavy crude requires innovative technologies, explains Colin Chapman, Founder and President of Euro Petroleum Consultants (EPC).

Innovation is key to realizing greater downstream potential”

Technology will help plant operators to improve margins and get ahead of the competition in this ever-changing market environment.

Following a highly successful inaugural event in January 2011 that attracted 300 attendees including the major regional operating companies, the 2nd Middle East Technology Forum (ME-TECH 2012) will run 14-15 February in Dubai, bringing together all the key players across the gas processing, oil refining, residue upgrading and petrochemical sectors. 

Over two days of parallel sessions delegates will hear first hand presentations from leading NOCs and IOCs on their latest projects and strategies.  

Fareed Mohamed Al-Jaberi,  Business Development Manager with TAKREER will be speaking on TAKREER’s world-class refining strategies, Fuad Mohammed Mosa, Manager, Chemicals Technology Development at SABIC will present on optimum plant operations and Sreeramachandran Kartha, General Manager, Refining Business at Reliance will address delegates on the important topic of refining and petrochemical integration principles and how they have employed them in Jamnagar. SIPCHEM and SAMREF will also be presenting on their recent projects and experiences.

Consultants from Purvin & Gertz, Wood McKenzie and CMAI will be evaluating the market trends across all the downstream sectors, best investment opportunities and examining the challenges and opportunities ahead.

Leading specialists from Shell Global Solutions, UOP, Axens, Foster Wheeler, KBR , ExxonMobil and over twenty other technology, catalyst and equipment providers will be sharing their knowledge and offering their best solutions to meet operating challenges.

An exhibition will run alongside the event in the networking area, allowing delegates to maximize their attendance by visiting up to 40 stands where suppliers will be holding demonstrations and displaying their latest products.

“ME-TECH gives innovators and end-users a platform to exchange views on cutting-edge downstream oil and gas technology solutions to improve margins and achieve operational excellence” said Suzanne Costello, Head of Events at Euro Petroleum Consultants (EPC).

Prior to the main conference on 13 February Criterion Catalysts and Foster Wheeler will host concurrent complimentary half day seminars on their latest technologies and solutions.

ME-TECH will be followed directly by EPC’s high level strategy event,  Russia & CIS Executive Summit on 16 & 17 February.

For more information contact conferences@europetro.com / Tel +44 20 7357 8394

www.europetro.com

2012 Outlook on the Oil&Gas Market in the Middle East

Special contribution of Mr. Colin Chapman, President, Euro Petroleum Consultants for the Q1 issue of PTQ Magazine

In the  Refining and Petrochemical Industry it is true to say that “ the only constant in the Industry is Change”  
Over the past decades  Refiners and Petrochemical companies have had to meet Challenges posed by legislation  such as

• Refiners:to continuously improve product qualities for transportation fuels

• Petrochemical producers: to produce higher valued products to differentiate from Competitors

In the Gas sector the introduction of Shale Gas on the global horizon is having a major impact on the future Global Gas Markets and in particular in the Middle East and Russia.

To meet these challenges Technology improvements have played a  key role. We have seen very significant improvements in Catalysts, Plant designs and Equipment.

This overview will focus  on the Middle East  Gas and Petrochemicals  markets and impact on the global markets

This overview will focus on the Petroc37%

 As the Middle East region looks to produce and export more refined products, predominantly ultra low sulphur diesel (ULSD) that meet the latest environmental specifications, radical changes are taking place in the established refining infrastructure and also produce more higher valued speciality products in the Petrochemical Sector. Instead of commodity products.

Investment  for new Refineries  and Petrochemical facilities and new process technologies are being extensively reconsidered as the economic climate has changed drastically in the last few years and Middle East producers are taking a fresh look at their existing assets and the options open to them in order to meet the increased production and product quality demands for the future.   Projects are being scaled back to meet the new global situation.

However we have recently seen the announcement about the project for the largest integrated Refinery Petrochemical Complex in the world  “SADARA” the Complex will benefit from the low cost  Ethane and Propane   feedstock from the adjacent Satcorp Complex and also from economy of Scale. The Complex will produce a variety of Propylene  based products and Aromatics. Project is estimated to cost 20 bln usd. About 45% of the products are destined for the Asian markets  and 25% for other countries in the Middle East.

Sadara is the reincarnation of the $28 billion Dow/Aramco Ras Tanura Integrated

Project (RTIP). The project was abandoned in 2010 due to escalating costs and a lack of agreement between the parties. Nearer term, Petro Rabigh’s $10 billion expansion on the Red Sea is being reconfigured from its original plan to produce 17 products in a $6.7 billion investment. Major quantities of speciality liquid chemicals will still feature. And in the immediate future, the $10 billion Saudi Kayan complex. Kayan has been producing major quantities of liquids and polymers for some time and will eventually manufacture 18 products.

These projects are based on low cost feedstock and benefit from economies of scale Middle East prices are usually fixed at favourable rates . The Saudi price for natural gas, by far the dominant feedstock for the petrochemical industry in the Middle East, is $0.75/million British thermal unit (Btu).  This compares with much higher prices in other regions  where prices can vary from 3-10 $/million BTU.

The  objective  of the low Saudi price level was to guarantee  very attractive Internal Rates of Return for the potential international partners whose technology was required to develop the petrochemical sector. The price level has been fixed for decades however the price is due to be revised at the end of 2011 and is the subject of much debate in the region and beyond.

Saudi Arabia is in the leader of the move  towards  differentiated, higher valued specialty liquid chemicals. Other countries in the region are also moving into speciality, liquid chemicals. The move to downstream specialty liquids is a   strategy to stimulate economic diversification in the ccountry leading to greater employment prospects by creating locally available chemical and polymer ‘building blocks’ for local conversion industries. This enables addedvalue to be captured in the region. Eg  Why ship acetone from the Middle East to China, where it is converted into acrylic glass and then ship it all the way back to the Middle East for use in signs and windows?

GAS MARKETS: The Global gas markets are expected to change over the next decades with the production  of  non conventional gas such as Shale Gas in USA and other regions. This will mean that major Gas producers  such as those in the Middle East  and Russia will be looking to alternate options for use of the natural Gas eg for production of Chemicals and Petrochemicals and also liquid fuels and for Power Production. Recent developments in the unconventional gas sector are having an important impact on the global gas market – and the LNG market in particular – and are likely to continue doing so for the foreseeable future.

The emergence of Shale Gas production in the USAs is helping to transform the Gas and Petrochemical sectors in the USA. The processing of Shale gas has turned around the decline of US gas reserves and significantly changed the gas supply outlook for the United States. According to recent reports estimated US reserves of natural gas were 35% higher than those estimated two years ago.

As a result the US has reduced its LNG demand and this has affected the global LNG markets.This low cost feedstock compared with previous feedstocks such as Naphtha is allowing to now produce Petrochemicals more efficiently hence reducing the need to close the previously considered inefficient plants. The USA is now looking to become a LNG exporter. This of course impacts other regions such as Russia which was planning large LNG plants targeting such regions as the USA. Such projects have now to be reevaluated.

A sign of its growing importance is the support that these Shale Gas developments are getting from many of the major oil companies, with the likes of ExxonMobil, BP, Total & Petronas already involved in these unconventional hydrocarbon opportunities. 

In Europe, Shale and other unconventional gas resources have been identified in France, Germany, Hungary, Italy, Netherlands, Poland, Romania, Spain, Sweden, Switzerland and the UK.

The long-term growth in Shale Gas production is expected to play an important role in shaping North American, European and Asian natural gas demand.

Australia’s intention of developing its CBM resources is likely to have a significant impact on the Pacific Basin LNG market. These exports would predominantly head towards Asia and therefore directly compete with Qatar’s main export routes.

Both Shale Gas and CBM are susceptible to add considerably more volume to domestic and regional gas supply and as a result could potentially create opportunities for LNG export by the US and Australia.

So  more Changes are on the horizon in Refining Petrochemicals and Gas Sectors in the Middle East

Many of these topics will be presented and debated at our upcoming ME-TECH 2012 to be held in Dubai on February 13^th and 14^th

This overview was prepared with assistance from Leslie McCune Managing Director of Chemical management Resources Ltd

Challenges facing the European Refining Industry

Stefan Cahpman, Vice President, Euro Petroleum Consultants for Hydrocarbon Engineering November 2011

Not so long ago, oil refining was considered a profitable business in Europe, companies were competing with each other to take ownership of plants or to invest heavily in existing refineries. Today the situation has changed as the economic recession and resulting fall in demand has put pressure on the European refining sector.

We are now seeing oil companies redefining their refining strategies by selling refining assets across Europe or in some cases, considering closing refineries altogether due to rapidly decreasing profit margins and heavy losses.

These new strategies coupled with weak margins and surplus capacity has meant that the following European refineries have already been shut down or have been tagged for possible closure in the near future:

COUNTRY	COMPANY	REFINERY	CAPACITY (B/D)
UK	Petroplus	Teeside	117 000
Germany	Shell	Hamburg	110 000
Italy	Tamoil	Cremona	80 000
France	Total	Dunkirk	135 000
France	Petroplus	Reichstett	85 000

(SOURCE: REUTERS)

In addition to the plants listed above, there are also a number of refineries that have been put up for sale due to the difficult climate and shift in company directives:

COUNTRY	COMPANY	REFINERY	CAPACITY (B/D)
Romania	OMV	Arpechim	70 000
UK	Total	Lindsey	221 000
UK	Murphy	Milford Haven	105 000
UK	Chevron	Pembroke	220 000
Lithuania	PKN Orlen	Mazeikiu	190 000

(SOURCE: REUTERS)
 
This year’s summer period has seen European refiners leave a fifth of their capacity offline as high oil prices and a general feeling of economic pessimism affected demand. 

However, looking at the released figures by Euroilstocks data for July, we have seen refining margins on the up slightly due to an increase in Gasoline demand notably from Middle East & North Africa as well as continued support from Middle Distillates.

In Germany, early buying for the winter season also meant an increase in Heating Oil demand.

Overall, production in Europe reached 82 percent of running capacity, but remained considerably lower than the 86 percent seen during the same period last year.

There is also the worry caused by the faltering demand from the United States, the world's largest gasoline consumer. Average U.S. gasoline demand fell sharply at the end of July and this has meant an increase in motor fuel inventories at the peak of the northern hemisphere's summer driving season.

Another contributing factor to the downturn is that the Euro Zone business confidence is currently low with even Germany, the strongest economy in the Union, experiencing a slowdown in economic activity.

Add to that, high oil price having a negative effect on the global economic activity, problems due to the loss of Libya’s light sweet crude – traditionally an important regional provider meaning that we are facing an uncertain market and ultimately less optimistic forecasts for the business.

*

The European Refining sector also needs to contend with certain specifics of their market. These include having to invest to comply with new emissions legislations, with the first mandated reductions in CO2 emissions under the European Union Emissions Trading Scheme due to come into effect from 2013.

Another important point that should not be underestimated is the additional competition – these refineries have been built primarily to meet the forecasted demand of their internal markets, but in the meantime those that are already online in India & China are presently geared to exporting products to other markets. As the cost of freight and transportation are relatively cheap in comparison with additional costs incurred by European refiners then these producers represent serious competition. 

So, in light of the current challenging times what are the options open to the European refining industry?

As mentioned previously, one trend we have seen in recent months is that a number of oil companies have sold European refining assets to Asian, Indian and Russian buyers.

New Strategies by a number of oil majors such as Total SA, Shell and BP PLC have taken the decision to downsize their European refining portfolios and turn their attentions to investing in emerging markets and higher-margin areas.

A combination of factors has led to relatively low prices for these assets and this has attracted interest from a diverse range of buyers, including new emerging-market refinery owners, sovereign wealth funds and fuel-marketing companies.

The primary interest for emerging-market refinery owners is to gain a foothold into the European market. Recent examples of this strategy include: 

• US major ConocoPhillips has sold the Wilhelmshaven refinery (260,000 BPD) in Germany to private Dutch company Hestya Energy. 

• Shell's Stanlow oil refinery, the U.K's second-biggest, was bought for $350 million by Essar Energy, a subsidiary of the giant India-based Essar conglomerate.

The arrival of Essar into the European market comes at a time when many in the industry feel that the business of refining is unlikely to improve in Europe for the foreseeable future.

Nevertheless, over the next few years, Essar plans to invest in the region of $100 million a year. This investment is to be used for necessary upgrades to meet environmental regulations but also to increase throughput and flexibility by processing heavier crudes. These modifications aim to increase efficiency, flexibility and result with improving profit margins.

An added incentive for Essar to purchase Stanlow is the plant’s refinery's storage capacity and market access which can be utilized to good export effect.

What we can see is that these new owners are from diverse backgrounds and they are looking at available assets which best suit their specific needs and type of business.

• The International Petroleum Investment Company (IPIC) - Abu Dhabi sovereign wealth fund purchased from Total a controlling stake in Spain's CEPSA. The total cost of the operation is thought to be around €4 billion and includes marketing and some production assets. 
• PetroChina invested into refineries via a JV (joint-venture) with major chemical producer INEOS (Switzerland) at Grangemouth in Scotland and at Lavera in France, 
• Lukoil has bought assets in both Italy and the Netherlands 

Another possible option that is being looked at by some owners is to convert existing refineries into strategically placed storage terminals.

Earlier this year, Shell announced that they had decided to close their Hamburg refinery in northern Germany and convert it to a storage terminal in 2012. This decision was taken following failure to find a suitable buyer for the plant.

So what do all these different challenges mean for the future of the European refining industry?
Firstly, let us not forget that refined products will continue to be a key part of the European energy makeup for the foreseeable future – This means that having a viable and efficient refining industry will be important to support the European economy and its competitiveness. 

As the European sector comes out of the downturn some recovery in demand is expected –but any significant growth will concern primarily jet fuel and diesel only.

Difficult times lie ahead due to lower gasoline demand from Europe’s major client; the US – combine this factor with the following;  

• new important refinery capacities coming on stream in Asia and the Middle East 
• improved car efficiency 
• EU environmental legislation

Subsequently pressure on the European refining industry is to be expected.

Looking at the positives, refining margins for more complex refineries could be given a helping hand by the changes to marine bunker fuel specifications – these will concern mainly Northern Europe in 2015.

The change in legislation is expected to mean an increase in demand for marine diesel and this at the expense of heavy fuel oil – the result would mean strengthened prices for middle distillates and refinery profitability.

To conclude, it will be important that the EU commission continues to develop a strategy that takes into account the important role of refining and supports the sector to face the key challenges that lie ahead.

Author:

Stefan Chapman
Vice President
Euro Petroleum Consultants Ltd.

Russian Refiners needs to be proactive in order to sustain fuels supplies

Interview Colin Chapman for Oil Market Magazine - September 2011

This year’s Russia’s Refining Technology Conference (RRTC) organized by Euro Petroleum Consultants brought together in Moscow unprecedented amount of participants. Ever growing interest is the best evidence of the very high conference level and the agenda appealing to both Russian and CIS companies as well as international technology and engineering providers. OILMARKET enjoyed an opportunity to ask several questions to Mr. Colin Chapman – a professional with over 40 years of experience in Refining & Petrochemicals, president and founder of Euro Petroleum Consultants.

OILMARKET: As the EPC’s Russia and CIS Oil and Gas Refining and Petrochemical technology week in Russia entered the final stage, could you please outline major trends in the industry?

Colin Chapman: We see that the gas industry is facing, let’s say, new challenges with the development of quite big reserves of shale Gas in the United States. This is replacing quite big imports from Russia of LNG and Russia is now looking for the new markets for the natural gas and LNG. This was one of the topics discussed at the conference as a lot of people in the business were interested in what will follow as a result of this trend. It is clear that if Shale Gas starts to be developed in Europe, Russia’s gas sector will be strongly impacted. This may be the required incentive to focus on other directions for monetization of Russian Natural Gas

OILMARKET: With the Russian natural gas industry likely to be affected by the Shale Gas development in the US and possibly in Europe, what impact will it have on the development of the natural gas refining and petrochemical industry in Russia?

Colin Chapman:Russia has great opportunity and need to develop gas to liquid (GTL) and gas to petrochemical (GTP)  and Gas to Chemicals technology projects. This was again a topic brought up at the conference. Taking into account what happens in the Middle East where there are many GTL, GTP and Gas to chemicals projects, the future looks bright for the Russian and CIS petrochemical developments.

OILMARKET: As far as I know the GTL technology development in Russia is lagging behind the global development trends?

Colin Chapman: Yes, it’s trying with some small units, but generally it is not in a rapidly developing stage, as there are no big projects at the moment compared to say in the Middle East.

OILMARKET: But still ,the potential to benefit from it is in place?

Colin Chapman: Definitely, depending on where the markets are it can be developed in the future. Also, Russia is well behind in developing modern petrochemical complexes. It has to be done at some point. This inexpensive feedstock  should be capitalized to provide the basis for a modern Petrochemicals Industry.

OILMARKET: Would it significantly raise the value generated by the oil and gas industry for the state budget, if Russia invests in the petrochemical technology and gas processing?

Colin Chapman: What it would do, it would help the development of the downstream industries and manufacturing industries, so that would release the need to import the finished goods. It would also significantly improve the situation with the employment in many remote regions of Russian Federation.

OILMARKET: What about the oil refining segment? The refining conference was probably, the busiest part of the Moscow Refining & Petrochemicals week organized by the EPC?

Colin Chapman: The refining sector is undergoing important changes and faces new challenges. The taxation, new export duties levels for crude oil and fuel oil and other products – all it will have impact on the development of the oil refining industry. Hopefully, it will stimulate people to achieve higher conversion {at the refineries – OM}. That’s what is being discussed.

OILMARKET: So, what is the voice of Russia’s refining industry now, are they urged to achieve more conversion now or are they in confusion that causes lack of incentive?

Colin Chapman: I think, if the tax situation stays as it is they will have to increase conversion, because there will be less outlets for fuel oil. It depends on the regions and on the companies. Some companies, like Lukoil, have long term development plans, they are investing in the refineries, while others are moving very slowly and don’t have a clear vision on the way to increase conversion.

OILMARKET: would it be fair to say, that regardless of how strong the incentives were, Lukoil was the most conscious about the need to invest in the refining segment, possibly doing it more than any other vertically integrated company in Russia?

Colin Chapman: I think they have an easier decision making process. They decide on the long term plans, what the investment will be, and they are doing it both, inside and outside Russia, as well as in Europe, and now they have more flexibility because of the favorable market conditions, be it in West Europe, Russia, Ukraine, Romania, Bulgaria. This means that if the margins are changing in one region, they have the possibility to process crude oil in another.

OILMARKET: Getting back to the conference agenda, these recent changes in Russia’s technical regulations on motor fuels opened a lot of discussions.  What do you think is going to happen, what do people in the business say about it?

Colin Chapman: Yes, it’s been discussed a lot. Some companies are proceeding  with their investment plans, others at some refineries are relying on further delays in the deadline to meet the changing specifications.

OILMARKET: Russia suffered in recent years from diesel and gasoline shortages. Is Russia still prone to such troubles?

Colin Chapman: I think, in some regions - yes, there may be shortages. Predicted growth of gasoline demand is very large. So, where is it going to come from? It needs to be produced in the regions where there is consumption growth. Lukoil, for example, is now focusing on increasing production in Nizhny Novgorod, at the expense, of say other regions. If there is an incident in one of the large refineries in the Central region this could impact short-term supplies.

OILMARKET: This still requires very careful attention of both the government and the business. They have to focus on stabilizing the domestic market. I could see some analysis on wires, making parallels of motorfuel shortages in Russia and motor fuel troubles in other BRIC countries like China and India. Those countries have to invest heavily in the development of their refining sectors - billions of dollars, like for instance, India does.

Colin Chapman: Yes, Russia definitely has to be careful, as we could see in several cases as I said  one accident at one large refinery   may trigger shortages. If, say, Ryazan refinery goes down, it will be difficult for Yaroslavl, Norsi and Moscow refineries to satisfy growing market demands.

OILMARKET:Is it fair to say that the situation with the Ron92 (Ai92) blend in Russia makes it a very specific market? Will this blend be a major factor in the years to come and will it help to solve the motor fuels shortages in Russia? We heard some corporate top executives saying that they had no plans to stop Ron92 production at least until 2020, while Russia plans to have Euro-5 gasoline standard in place in 2015?

Colin Chapman: I think many companies do not have plans to eliminate Ron92, as they experience difficulties in meeting modernization deadlines. So, ultimately, gearing up to Ron95 production has to be flexible. There is a possibility that the Ron 92 grade will persist as long as all the other requirements are met eg Sulphur content and aromatics content.

OILMARKET: Now back to the events. It shows that more and more people in the industry are willing to attend the EPC conferences - both Russian & CIS companies as well as Western European and American suppliers interested in these markets. What are the next events that you are planning to hold and which topics will be discussed there?

Colin Chapman: The Moscow Refining & Petrochemicals weeks this year gathered more than 450 delegates in total for the 3 conferences, so it will for sure continue to be one of our annual events held each September.

We can see that this Forum is ideal for exchange of ideas between all participants and this always gives us new ideas for future events. This is also very important for our Consulting activities. It is important that EPC understand fully the specific challenges of this region.

Before that we will be having the Russia & CIS Executive Summit in Dubai in mid February for the second year. This event will be focused more on strategic topics rather than technical ones and will gather top-level executives of major producers and suppliers in the business. After that we’re going back to Moscow in April for The Projects Forum, which will focus on the challenges and accomplishments of actual ongoing and recently completed projects in this rapidly developing region. This conference will be directly followed by the Russia & CIS Bottom of the Barrel Technology Conference & Exhibition that we will be holding for the 6^th year in row covering the latest technology developments for upgrading crude oil residues.