KELLOGG SERVES Eggar for breakfast
15 Jan 2000
Promptly at 8.30am, on 10 July, the former UK energy minister Tim Eggar addressed MW Kellogg's European Refinery Technology Conference, in his more recent incarnation as company chairman.
`I am often told that refining is the Cinderella sector of the oil business, squeezed as it is between massive projects of exploration and production upstream, and the glamour of marketing challenges downstream.'
But refiners should not be living in fear of the liquidators, he implied. Employment and environment constraints make refinery closures difficult and unlikely. So, what are the real challenges facing the refinery industries?
`The most obvious challenge comes from environmentalists. We should welcome sound environmental pressures and rules and regulations. The problem is that, far too often, the environmental debate is not based on sound science.
`Policy issues relating to the oil industry are almost all focused on the upstream, where the majority of oil industry investment occurs. That is where the greatest environmental and technical challenges are perceived to be.'
He admitted that when he was energy minister (April 1992-July 1996) he spent only a very small portion of his time on downstream or refinery issues, and he noted that resources devoted to the downstream were `totally dwarfed' by upstream activity. Now, he urged the Government to pay more attention to the refinery industry.
`There are few areas more sensitive to the politician than the use of the car or the lorry. There are few more lucrative sectors for raising revenue than petrol prices. We have just seen evidence of this.' Gordon Brown's 2 July budget put 4p per litre on petrol and diesel prices.
Insulated refineries
According to Eggar, the Government thinks the refinery sector to be well insulated. Refineries attract very little political attention; nobody out there understands what goes on in all those pipes; and they are clearly a safety and environmental hazard.
`The bottom line,' he told the multinational gathering of industrialists, `is that you have no political constituency.'
To cap it all, recent headline news from the sector has been closures, mergers, and capacity reductions, despite increasing competition and persistent over capacity.
He noted that in the US, the power of lobbyists combined with complex legislation variations from one state to another have made sound investment decisions particularly difficult.
Lobby lobby lobby...
Fresh from the horse's mouth, he gave the industry a piece of advice: `It is difficult to exaggerate the importance of understanding the political decision taking process. Failure to make sponsoring ministry and the ministry of finance aware of the practical implications of tax and environmental changes can mean major unnecessary expenditure - to no good cause,' he said.
Over-capacity, competition and arbitrary governmental decision making all make for a pretty bleak outlook. So what messages does that give to refinery owners and contractors?
`First, look at the broad trends,' he said. `Cleaner fuels, cleaner refineries and the potential for greater mismatch between refineries and crude sources, combined with governmental directives which will lead to problems such as the disposal of high sulphur fuel oil.'
These changes will require treatment - with minimal capital expenditure.
Eggar's company MW Kellogg is responding to these challenges by developing technological solutions, notably the Rose and Magnicat processes.
Belt-tightening is on the agenda.
`We are going to have to make our living off lower capital spends but with higher technical skills. There is a need for reassessment of the traditional cultural approaches of contractors. Early involvement of our technical experts with a client to address the issues is critical to optimise solutions.'
Eggar told the meeting that he would like to see more enthusiasm from industry for the ACTIVE project `on a similar scale to your upstream colleagues' commitment to the CRINE initiative. We think that more radical approaches might yield interesting results.'
One example of this approach would be the simple processing of crudes at point of production. Breaking down the boundaries between the chemical business and the refinery business could provide significant benefit, particularly in ammonia and ethylene production.
`Flexibility,' he said, `must be the name of the game if existing refineries are to stay in business or become competitive. Traditionally, flexibility has often been associated with massive capital investment.'
Kellogg believes that, particularly in the large refineries, there exist many opportunities to process low value crudes, to reduce operating costs, and to improve yields, all at the same time.
Kellogg's LCO Mac is a new medium pressure hydroprocessor which can provide the means of reducing aromatics in diesel with lower hydrogen consumption than the conventional hydrocracking de-aromatisation process.
The Magnicat process, which was also demonstrated at the conference, is a new means of improving fluid catalytic cracker yields while reducing the costs of catalysts.
He concluded: `Traditionally, contractors have carried out their business at arms' length from their clients, expecting to earn their living on major investments. In refining, at least, we see that situation changing.'