Episode Transcript
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Speaker 1 (00:00):
Welcome to the nationally syndicated Energy Mix Radio Show, produced
by the Energy Network Media Group. The Energy Mix Radio
Show will give you an inside look at the energy
industry and how it affects you by talking with industry leaders, experts,
and government officials on the Energy Mix Radio Show.
Speaker 2 (00:16):
Welcome to another exciting episode of the Energy Mix Radio Show.
I'm your host, Kimbalato, and today we have a great
guest joining us. I welcome back the editor in chief
of SHEW Magazine, Robert Rapier. Robert, it's a pleasure to
have you back with us.
Speaker 3 (00:29):
Thanks Kim.
Speaker 2 (00:31):
Well, today is a great show because you and I
talk a lot about some of the stuff that comes
into your figed in my feed on social media, and
it appears as though there's a lot of requests for
just basic level information on energy. We all know that
it's quite difficult to understand the topic of energy, which
(00:51):
is why I actually do what I do for a living,
is it's a very hard topic to understand to the
average consumer how energy really applies to their life because
we really don't understand where utilities. You know, why we
have lights and heat in our home, Why is gas
prices fluctuating? Things that really matter. Even how much we
(01:14):
are charged at the grocery stores really apply back to
energy and basic energy demand needs. Plus there's also a
whole global issue that's very misunderstood and we won't even
talk about on today's show, climate change. So you and
I talked, and you tell me a little bit about
You had some requests coming in online that gave us
(01:35):
an idea to let's do a show that basically is
just breaking down different topics on energy at a very
basic level, not elementary, but a basic level for the
average person to understand. And one of the biggest ones
that came up was refineries. Tell us a little bit
about that.
Speaker 3 (01:51):
Okay, So I get a lot of questions about refineries
and refining, and there's a tremendous amount of misinformation around
the topic. So I thought, hey, let's do a show
on refining. And so I went out on social media
and I asked people, what are your refining questions? And
I got a lot of questions in but a lot
of them had nothing to do with refining. So I thought, well,
(02:12):
first of all, maybe people don't understand what refining is
and how it fits in the whole energy sector. So
let's start there. Let me start by explaining what refining is,
and then I will tell you why I'm qualified to
talk about refining so well.
Speaker 2 (02:28):
And now, yeah, I was going to ask you go
into the background of how you know a lot about refinery.
We know that your background is in oil and gas
as a petrochemical engineer, so this is kind of right
up to alli, but a lot of people don't really
realize that.
Speaker 3 (02:42):
Right And I have worked in a refinery and doing
the things that I'm going to talk about. So I'll
drill down a little bit here. Like I said, there's
a tremendous amount of misinformation around refining, and I try
to set the record straight as much as I can,
and that's what I will do today. So let's start
with what is refining. Refining is the process of taking
(03:03):
crude oil and converting it into finished products. So a
lot of people ask me questions around oil production that's
not refining, or they asked me about transport and that's
not refining. Refining is taking the oil in and breaking
it down into finished products like gas, sline, diesel, jet fuel.
(03:24):
Depending on the complexity of the refinery, they may make coke,
they may make you know, different products. They may make wax,
so there's a lot of different things, and it depends
on the refiner complexity. But that is refining. It's not
the gas station selling the gas. It's not the oil producer,
but that is refining. And so around refining there are
(03:46):
a tremendous number of questions. So I used to be
a chemical engineer at the conical Phillips at the time
refinery and billing's Montana. It's now Phillips sixty six Refinery.
I worked in the Optimus Process and Economics group, and
my boss was the director of Optimization Process Economics. Dope
(04:08):
is the acronym there, so he called himself the dope.
We would look at the crude oils that were available
to us, we'd figure out how those are going to
break down into various products, and then look at the economics.
So we'd look at, you know, heavy Canadian sour crude
costs forty dollars less than the baking crew that's actually
(04:31):
in Montana where we were. How did the economics play
out here? Which crews should we buy? And then how
should we run the refinery? And that also swings seasonally.
Seasonally we run the refinery a little bit differently. Seasonally,
we have things we have to do, so I did
that for several years. I blended gasoline, so one of
(04:54):
my jobs was to make sure gasoline met all the specifications.
So we'd break down, you know, the diferent products and
you have to meet certain specifications. That was one of
my jobs and I did that for several years before
being assigned a job in management in the north in
the North Sea in Scotland. So from that job I
(05:15):
went to the North Sea. But for several years I
worked in the refinery and really got to know refinery operations.
And you know, at that time, the government, the state
government of Montana was trying to enforce an ethanol mandate
on the state and that the refinery sent me to
the government, to the to the capital to testify about
(05:38):
that mandate. And it was at that time that I
actually started to write about energy because I saw so
much misinformation around that. That was about two thousand and five,
and that really is what started me on the on
the track of communicating with people about energy. Was a
little blog I started just to address some of the
ethanol misinformation and gasoline, so that that really kicked off
(06:01):
my career. I was at the refinery when I started
putting myself out there in the public domain.
Speaker 2 (06:06):
Very very experienced in this, and I want to say,
this is such a large topic that a lot of
people that might be listening right now think that they
kind of understand refinery, but then they may not understand, well,
if we have refineries here, then why are other countries
and other parts of the world so important to us?
And we're going to get into that later on in
(06:26):
the show, because actually refineries are not quite like people think. Here.
We have to look at refineries and look at the
global picture. And you're going to explain that a little
bit later on in the show that it's not quite
that simple. But before we get into what happens as
we drill down into the refineries and then the different operations,
which you've covered a little bit of that, I don't
know if you want to drill down more into it.
(06:48):
Can you just kind of briefly back up a little
bit and talk about a lot of people understand they've
heard the terminology up mid and downstream when we talk
about oil and gas. Quickly go through what is the up,
mid and downstream part in the oil and gas sector,
so that way the listeners understand where refineries fit in.
Speaker 3 (07:09):
Sure, that is a great question. I get that question
a lot. So upstream is where oil and gas are produced,
and why is it upstream because from there everything flows
down and they flow through midstream. Midstream is the transportation
and the storage of oil and gas, and then downstream
(07:30):
is the refineries where the products are made. And sometimes
marketing and distribution are lumped into downstream. But you know,
mainly upstream production, midstream transportation, downstream is refining. That is
how they break down.
Speaker 2 (07:43):
And there's a lot in these sections sections alone, like
up alone, we're talking about looking at leases, lands, contracts, deeds.
There's all kinds of things that's not including the drilling
and the permitting. I mean, it's a huge, huge thing
when we talk about upstream. Same thing with midstream, and
the same thing with the downstream. Refinery is just one
In the downstream section as well, you're also talking about
(08:05):
petrochemicals and a lot. So just want the listeners to
understand this is a very very complicated and large topic.
Speaker 3 (08:11):
I would add to that that some companies specialize. Some
companies are only upstream, some are only midstream, some are
only downstream, but you're integrated super majors, Chevron, Shell, Exon
Mobile BPD, they have it all. They do upstreaming, they
do midstream, they do downstream, theywn the refineries. But they
don't do generally is on the gas stations. So you
(08:32):
see an Exon Mobile branded gas station. Exon Mobile doesn't
own any of those gas stations. That's mom and pop
operators that own those stations. But so you know, a
conical Phillips is just an upstream operator. They produce oil
and gas. You know, Energy Enterprise Products Partners. They're only
a midstream they're only transporting and storing the oil and gas.
(08:55):
And then Valero is just a downstream they're just refining it.
But then you know Chevron does all three.
Speaker 2 (09:01):
Right, right, So let's drill down a little bit into
a little bit deeper into refineries, because it turns out
that there are different refinery operations. So talk to a
little about what happens in a refinery.
Speaker 3 (09:13):
You mentioned a few, right, So the simplest refinery basically
your first thing, well, I say, the first thing is
when your crude oil comes in, it may have some
water in it, it may have some things that have
to be separated out. It may have some solids in it,
so you may have some processes there. But the first
really important operation is your crude distillation tower. So you've
(09:37):
got distillation, which separates the different components of oil. Oil
consists of things that are very light, and by light,
I mean short chain hydrocarbons, buttane that's a C four,
that's four carbon molecules, up to very complicated, you know,
hundreds of carbon molecules. Crude will consists of all of that,
(09:59):
and so you've got to separate it out, and you've
got to crack it, and you've got to recombine it.
But the first step is to separate out these different
cuts in a distillation tower. And so from there, some
of those cuts, you know, light straight, there's light straight gasoline.
Some of the light stuff and crude oil may go
(10:20):
straight into gasoline blembing. But then some of the heavier
and heavier cuts, they will go to some of the
different operations in the refinery. So you'll have a catalytic cracker,
a cat cracker that will break down some of the
heavier oils. You'll have a cocher that will crack some
of the really heavy oils. And convert it into you know,
(10:40):
lighter components and petroleum coke which is used in steel
making and things like that. So lots of different refinery
operations that all tie together. Refineries are really complex, but
the really simple refineries can only handle the best, lightest,
sweetest crew. And that gets into a question that comes
(11:03):
up a lot that we'll want to talk about, is
can US refineries process shale oil? Because there's a misconception
that I see all the time. People say US refiners
can't process the shale oil we produce, so we export it,
and that is not accurate.
Speaker 2 (11:20):
Well that's very interesting because I know that in past
shows there's been some discussion of that, and really we
didn't drill down to it in pass shows. So I'm
looking forward to just drilling down into that. But I
want to kind of try to stay in order of
explaining the refinery. So we're going to stay when we
return from break back on what kind of main products
(11:41):
derived from refining crude oil? And then I do promise
the listeners we're going to move a little bit further
into the suite, the sour, the light, the heavy, What
does that mean for us and why do we need
other countries, what are we importing from them, what are
we exporting to them? And how are our refineries here
being used? And then I also want to talk about
(12:02):
the history of the refineries because that's very interesting too,
that we seem to be very antiquated when we look
at refineries, right and how old are they versus how
many refineries have we built here in the United States
and when. So let's take a quick break. You're listening
to the Energy Mix radio show and we'll.
Speaker 3 (12:20):
Be right back.
Speaker 1 (12:23):
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Speaker 2 (13:02):
And we're back. You're listening to the Energy Mix radio show.
My guest today is editor in chief of Shell Magazine,
Robert Reepier. Robert, thanks for explaining the overall big picture
of US refining here in the United States. I want
to drill down though, to understanding that the refineries are
processing crude oil, what are the main derivators or products
(13:24):
that are being refined and crude oil itself? So you
said they separate them and there's some solids in there,
and so then what are we creating once we get
it into the products the derivative of crude oil.
Speaker 3 (13:36):
So it depends somewhat on the crude that you're bringing in,
but typically a forty two gallon barrel of oil, and
I'll point this out first, a barrel of oil will
swell as it goes through processing because you break bombs
and you decrease the density of the different components. So
(13:56):
a forty two gallon barrel of oil will actually make
about forty four gallon of products. So that's refinery swell
or refinery gain as it goes through the refinery. But
just under half of a barrel of oil will turn
out to be gasoline twenty gallons twenty two gallons out
of the forty two gallons in a barrel will turn
(14:18):
into gasoline, and some people have asked me, why can't
you just turn it all into gasoline. In theory, you could,
but it would be very, very expensive because naturally, about
a quarter of that barrel of oil is heavier oils
that end up producing diesel and fuel oil and things
like that. If you wanted to convert those into gasoline,
(14:41):
you'd have to further crack than down, and you'd have
more refinery operations that would have to happen, and you'd
lose some inefficiency. Some would end up as light asses.
So it just wouldn't be efficient and it would be
horrendously costly if you wanted to try to turn most
or nearly all of a barrel of oil into gasoline.
(15:01):
So we end up with a quarter that's diesel and
other fuels like that, and there's a big demand for that,
so it's not like you know, these are useless byproducts.
You know, close to ten percent ends up as jet fuel.
There's a big demand for that. And then beyond that,
it sort of depends on how the refinery is configured
and the refinery complexity. We'll get asphalt, which big demand
(15:23):
for asphalt. We'll get lubricants, we'll get coke, we'll get waxes,
again depending on the refinery. But those are just some
of the products in a barrel of oil. And some
big oil companies Exon Mobil for instance, may have a
petrochemical facility in their oil refinery that ends up taking
you know, some of those products and converting them into
(15:44):
plastics or converting them into petrochemicals that are derived from
the oil.
Speaker 2 (15:50):
Right, So let's talk about terms, because we hear a
lot of sweet, crude, sour, light, heavy, what meaning? What
are the meanings respect Yeah, let me start over again.
What did the term sweet, sour, light, and heavy mean
with the respect to crude oil? And how do the
(16:11):
refineries deal with the different crude oil quantities?
Speaker 3 (16:15):
Okay, so that's a good question. Sweet oil refers to
oil that has little to no sulfur. Sulfur is a
problem to deal within a refinery. We have sulfur specifications
on gasoline and diesel, and so any crude oil that
has sulfur has to be dealt with. So it's costlier
to deal with sulfur, and sulfur containing oils are called sour,
(16:38):
and the higher the sulfur content and the more sour
that oil is light and heavy refer to the composition
of the molecules in the crude oil. Heavy oil has
more longer chain, more complex molecules. Lighter crude has simpler molecules.
Lighter crude is easier to process. Heavier crude requires more
(17:00):
cracking and more reforming and things like that. And so
the easiest crude to deal with is light sweet crude.
And that's what we get out of the shale formations
is light sweet crude. So what is the problem. The
problem is that's also more expensive. And before the shale boom,
refiners have been getting heavier and more sour crudes for
(17:23):
decades and so they have made many, many billion dollars
of investments to process those cruds. So now they have
a lot of process operations that can deal with the
sour and the heavy and they get those at a
steep discount, and the light sweet and the heavy sour
they make about the same product spectrum. It's just they
(17:44):
require the heavy sour requires more processing. So what does
a refiner want. They want to be able to use
the equipment they've invested in, and so they prefer to
get the deeply discounted heavy sour, and so that is
fly the US will export the crude we make and
import heavy sour crude. So you know, back when I
(18:05):
was doing economics at the refinery in Billings, Montana, I
would look at the economics of heavy sour Canadian crude
versus baking crude we could get in and there was
just no contest the margins, the difference in the cost
of the crude oil and cost of the products. The
margins were far better on the heavy salar. So I
tell people, it's not that we can't process light sweet.
(18:28):
Any heavy crude oil refinery can process light sweet. The
economics for doing so are poured because they're not utilizing
all the equipment that they've invested in and they're paying
a much higher price, so their margins are not very good.
So they a heavy sour crude refinery does not want
to process light sweet crude.
Speaker 2 (18:47):
That makes sense. Is it true that US refineries that
they can't process shell oil? And if that's the case,
then why is it that we are exporting oil even
though we import oil as well? But I want to
leave that on a cliff note. When we return from break,
you're listening to the Energy Mixed for radio show, and we'll.
Speaker 3 (19:06):
Be right back.
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Speaker 2 (21:22):
And we're back. You're listening to the Energy Mix radio show.
My guest today is editor in chief of Shell Magazine.
Robert Rapier. Robert, we discussed in the previous segment the
different eight hour light and heavy and how some of
our refineries here are processing that crude oil and what
they prefer to refine. This is going back a long
(21:45):
time ago though, before the shell revolution, which is what
about fourteen years old maybe or so fifteen years old might.
Speaker 3 (21:54):
Be a little bit older, but it's approaching twenty. I mean,
the natural game.
Speaker 2 (21:58):
Jesus started about by well.
Speaker 3 (22:01):
Natural guests did start about twenty years ago, and then
and then crude oil followed about two or three years later.
Speaker 2 (22:07):
Thank you for that clarification. So we were used to
the refineries in the United States doing things a certain
way for a very long time, and then this process
came in. Now there seems to be a lot of
misunderstanding in the way of is it true that US
refineries can't process shell oil? So we all know that
the shell plays are going on in all of North America.
(22:28):
They can't. The word is, or what belief is, is
that US refineries can't. And then if that's so, well,
then why why are we exporting oil? Or even though
we are importing oil? It seems like we're sending our
stuff out and they're sending their stuff in. Can you
explain some of this?
Speaker 3 (22:49):
Right? So I saw a viral YouTube video one day
where this guy is confidently explaining to everybody the US
refineries can't process shell oil, and I had to comment,
I said, that is absolutely not true. True. They can
process it, they prefer not to, and it's all a
matter of economics. So you know what happens is and
so we had a crude oil ban, a crew will
(23:11):
export ban in place for like forty years. And so
as the shale boom continued and US production grew and
grew and grew, that oil was trading at a big
discount to Brent crude oil. Historically, West Texas Intermediate is
a better quality than Brent, and so it traded at
a premium. But once it was a surge of the
(23:33):
light sweet crewed in the US, the price differentials flip
flopped and you could get West Texas Intermediate for cheaper.
The oil producers didn't like that. They wanted to be
able to export their oil and get a better price
for it, and the refiners. The refiners were okay with
it because they were getting good West Texas Intermediate for
a discounted price. But in twenty fifteen, Obama made a
(23:56):
deal with Republicans where they gave him some green energy
things and he gave them a repeal of the crude
ol export ban, and then crue all exports started to surge.
And so now our crude oil producers prefer to send
their crewe oil out on the world markets where they
get better price for it, and our refiners and they
(24:16):
process some you know, if the economics are right, they'll
process you know, shale oil. But at the end of
the day, they're looking to make the most money they
can make, and that usually is buying discounted crudes and
using the equipment that they bought to process those into
finished products. Like I said, you get this, you get
(24:37):
about ninety percent liquid finished products from a barrel of oil.
That's the numbers I remember for being at the refinery.
Ninety ninety two percent. And that number doesn't change a
lot if you've got light sweet crude or heavy sour crude.
It's just there's more processing with the latter.
Speaker 2 (24:53):
So well about some listeners are probably curious, well, why
why can't refineries just produce only gasoline? Since that's what
we need the most of Right, everybody's concerned about prices.
Why are we not just producing our own gasoline here
in the United States and not worrying about what the
rest of the world needs, and we need it first.
Speaker 3 (25:14):
Well, so we've tooled our refineries to meet the product
demand of the United States. A European refiner is tooled
to produce more diesel, and a US refinery is generally
tool to produce more gasoline because that's the demand here.
If you only had demand for gasoline, a US refinery
could tool to produce only gasoline, but it would be
(25:37):
horrifically expensive because you don't want to turn diesel into gasoline.
I mean, that's really really expensive to do. You've got
to crack the diesel, and then you're going to lose
some to inefficiencies, and then you've got to reform it
and so forth, and it would not be economical. The
gasoline would cost a lot more money if you weren't
making all the side products out of a refinery. So
(25:59):
we produce what we because that is the most economic
thing to do, and that is the demand in the US.
You know, we have demand for jet fuel, We have
demand for diesel on fuel oil and so forth.
Speaker 2 (26:09):
Well, we're going to get ready for break. But I
know that a lot of people are aware, especially in
areas where there's a lot of refineries, they are very
used to understanding why refineries shut down occasionally, why they
need to, and it has something to do with summer
blends and things like that. But I don't want to
get ahead of ourselves because we have to go to
(26:29):
break when we return, I want you to explain to
us why refineries occasionally need to shut down, and then
we're going to get into the differences between the blends
and the complexity. And that you're listening to the Energy
Mix radio show. We'll be right back.
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Speaker 2 (27:22):
And we're back. You're listening to the Energy Mix radio show.
My guest today is the editor in chief of Shell Magazine,
Robert Rapier. Robert, thank you for explaining how the refineries
are not able or the desire to not want to
just produce gasoline even though that is what most Americans need,
and a lot of terminology between sweet sour light heavy crude.
(27:45):
What does that mean? But I want to switch gears
and I want to talk a little bit about So
now we've moved into an area where they're shutting down
and a lot of people don't understand why refineries shut down.
I don't think that most people even pay attention to
when they go and fill up their gas tank. They
just know what their vehicle takes leoded a regular diesel.
(28:11):
They don't quite understand how they get to market through
the refined product part and what's the back end of
that too. So I want to talk a little bit
about refineries, how they occasionally need to shut down in
between these different seasons. Can you explain that also of
why do they do this and how does it impact
us for how does it change with us?
Speaker 3 (28:31):
Sure? And before I answer that, I'll tell you I
went and filled my wife's car up yesterday and I
was sitting there filling up and I've looked around off.
How amazing is this. I mean, you pull up and
in five minutes or so you filled up with gasoline
and you can continue to motor on. And people don't
think about that. They don't think about all the complexity
that led them to this. And only when there is
(28:54):
a shortage or outages do people really think about, Hey man,
this gasoline is very important for me. It allows me
to be mobile. So the question why do they shut down?
They shut down for the same reason you take your
car in for maintenance refineries. You know, there's a lot
of moving equipment. There's a lot of things going through pipes,
(29:17):
Corrosion happens, Valves have to be tested. You know, you
in a in a distillation tower, for instance, accidents can
happen if the tower pressured up, and they've got relief
valves on there that are designed to relieve if if
pressure builds up in a tower. They need to take
those off and test them every once in a while.
So you know, they'll they'll clean equipment, they'll take things out,
(29:40):
they'll inspect, they'll change parts in pumps and so forth, compressors,
and that's why they have to they have to do
regular maintenance. Now, if demand is really high and the
situation is uh, you know, prices are high, sometimes refineries
will defer maintenance. But they can't defer it forever. I mean,
(30:01):
I've seen people say, oh, how convenient this refinery just
went down for maintenance. Well, no, they plan those things
months and months of advance. And sometimes the refiner will
go down because of an accident or because something unexpected happened,
but they plan turnarounds, you know, maybe maybe a year
ten months in advance, because they have to bring in
(30:22):
crews of people to do certain things, and they have
to go through a distillation tower and clean it out,
and you have to have a crew in to do
all those things. Now, when did they do this. They
usually do it in the spring and fall. And the
reason they do it then is because that is sort
of shoulder season. In the spring, the weather is starting
(30:43):
to warm up. So in Montana we do a turnaround
in the spring it was starting to get warmer. You
don't want to do a turnaround in midwinter, you want
to you want to have a little bit better weather,
and it's before summer high demand season kicks in, so
we do it then. Places I was in in Texas
(31:03):
the Gulf Coast will often do their turnarounds in the fall,
so that's after a high demand season, so spring or fall.
Usually people don't do them in the summer because it's
too hot and because that's when demand is high, and
that's when you want to be producing as much as
you can possibly produce to meet the demand.
Speaker 2 (31:22):
Is there a different I guess I'm thinking about it
in a way of the seasons, right, So as a woman,
you know, there's definitely a different attire that I wear
in the summer sun dresses and sandals, and in the
winter is boots and coats. Is there a season for
in different things pertaining to gasoline that they also switch
(31:44):
out to?
Speaker 3 (31:45):
There are? And that's another thing about the seasonal the
spring and summer turnarounds. There are two major blends of gasoline.
There's a winter blend and there's a summer blend, and
the difference in those is the winter blend. So you
don't want gasoline evaporating you know, when people are filling
(32:07):
up and evaporating out of your tank and so forth,
you don't want that to happen because it leads to smog.
And so in the winter, temperatures are cooler and so
the gasoline tends to evaporate less, and that allows us
to put more buttane and gasoline in the winter. So
your winter blends will have more gat and will buttane
(32:28):
in them, and that gives it a higher pressure, but
the temperature is lower and off that compensates for it.
If you take a winter blend in the summer, it'll
evaporate a lot faster. So in the spring they switch over,
they get the buttane out of there and they so
major specifications is a gasoline b winder, you have to meet.
(32:50):
One's called the RVP, the reed vapor pressure, and that
is essentially a function of how fast the gasoline evaporates
at a certain temperature has to go down in the summer,
and so that's one thing, and the other is the
octane number. You know, you look at the different grades
at your at the gas station, and octane is a
function of whether the fuel will try to pre ignite.
(33:14):
So as you're compressing in an engine. Fuel that ignites
easily has a low octane number, so you don't want
that to happen. You don't want pre ignition happening. And
the higher the octane, the more resistant to early ignition. Now,
most cars can run fine on the regular gasoline, and
if your car runs on regular gasoline, you should run
(33:36):
it on regular gasoline. You're not giving it a treat
by putting premium in there. You're you're gaining nothing. In fact,
your gas milage may be worse if your gas If
your car is designed for regular gasoline, you're putting premium
in it, you're wasting money, but you also maybe getting
worse gas milage. So use the green that is that
your car is designed to run on. You know, there
(33:57):
was a study by Triple A a couple of years
ago showed Americans waste about two billion dollars a year
buying gasoline that they don't need of a higher grade.
So in the spring we flip over to the spring
blends and the summer blends, and then in like September,
we start to switch back over to the winter blends,
and that's often the time that they start. They drained
(34:19):
tanks and during the switchover that's often a time that
they'll do main let's set those times because you've got
those two things going on. You're trying to get your
tanks down, you know, in the spring, you want to
get your winter gasoline tanks drained down and all that
product out before the deadline, and then in the winter
you want to flip back, flip back over the other way.
Speaker 2 (34:40):
Absolutely well, you know, there's no doubt that I think
that by now we have one more segment left on
this show, on this segment, but I think by now
the listeners understanding really the complexity of refineries and the
real position that they play in the United States and
how we really need them and the purposes you know
(35:02):
that they play. But it's very interesting to think about
how they're so misunderstood. And that's why this show, you know,
was important, and I'm glad you brought it, you know,
to my attention that there's just so much or you
know that we thought it would be a good idea
to like look at it and say maybe we should
be doing some educational series, and so all being decided
(35:23):
to do you and I is we're going to start
taking on topics right that are important for just kind
of general information on the different topics. Rather it's up, mid,
or down and drill down like this, And so I
mentioned it because I want our listeners to write in
and let us know if they're enjoying, if they're learning.
You can YouTube all you want and try to find
(35:44):
things you know to piece it together, but why when
you can just listen to the show gets straight from
an expert and you know it's accurate. So just a
shameless plug for us, Robert about we're doing this show
to teach people about refineries and the importance of it.
But we're going to take a quick break. When we
come back. We're not done. There's a difference between simple
and complex refinery, so we're going to talk about that
(36:05):
when we return. You're listening to the Energy Mixed Radio Show.
And we'll be through right back, and we're back. You're
listening to the Energy Mixed Radio Show. My guest is
the editor in chief of Shell Magazine, Robert Rapier. Robert.
Before the break, we discussed all things refinery on the
top end of it of explaining it. Now we're going
(36:27):
to get into more detailed explanation. But as I mentioned
before we went to break that you and I have
committed some time into producing some educational shows on talking
about different areas of interest in between the up, mid,
and downstream of energy. So the first one was refineries,
(36:47):
and that was explain to the listeners why it came
to your attention, because it's a pretty interesting story.
Speaker 3 (36:54):
Yeah. A listener sent in a question and he said,
you know, his understanding was that whether our refineries can
refine WTI And he said it was his understanding that
we could only refine the heavy sour crews that come
from overseas.
Speaker 2 (37:10):
And I answer, was my understanding too for a long time.
Speaker 3 (37:14):
Well, and that's a very common misunderstanding. And I thought,
this is so common. I get this question so often.
And you know, like I said, there was a viral
YouTube video making this claim and it's not accurate. And
people should understand this is all about economics and it's
about where they can make the most money. It's not
about whether they can refine it. You know, I've seen
(37:35):
people go, well, we should invest more into being able
to refine the light sweet that's not it. You invest
more into being able to process the heavy salt. It's
the simplest refineries that can only refine the light sweet.
Speaker 2 (37:51):
So these are the ones that I'm not even even
sure if I'm using the right word retooled, if you
will to reap, Yeah.
Speaker 3 (38:00):
Retooled, upgraded, updated, you know, modified, Those are all okay.
Speaker 2 (38:06):
So what is cracking because that's a very common terminology
as well, and what is the importance in the process
of refining.
Speaker 3 (38:15):
Yeah, so there's several different ways. You know, you've got
a fluid catalytic cracker. You've got a cokeer which does cracking. Basically,
you are adding heat and sometimes a catalyst to a
long molecule. So let's say you've got something that is
thirty carbon atoms long, that's very heavy. That would be
(38:38):
a heavy oil, like a heavy fuel oil or something
like that. If you cracked that, so instead of a
one molecule that's thirty carbons long, you crack it into
three molecules that are each ten long. Well, now you're
in the gasoline range. So you've cracked something that was
a heavy oil now into gasoline. And so that's what
(39:01):
cracking does. Cracking is breaking a molecule down into a
smaller molecule because you know, you need gasoline and you've
got a heavy oil, or you need diesel and you've
got a heavy oil.
Speaker 2 (39:14):
Okay, so that's how it's refined in the process, and
I want to move into refineries that are managing byproducts.
We hear a lot about this as well, like sulfur
or even in the petrochemical area feedstock. Explain all of
that to us.
Speaker 3 (39:34):
Yeah, so you know, depending on where a refinery is
and whether they've got a good outlet for it a refinery.
May you know that I've talked about sour crudes. Sour
CRUs come in, they have sulfur, and a refinery has
to be able to remove that sulfur. And I've flown
over places in Canada where they literally just have mountains
(39:56):
of the sulfur. You'll see yellow mountains because they don't
have a good outlet. So literally they're just piling the
sulfur up. But gulfer goes into the production of sulfuric
acid and things like that. So if you're on the
Texas Gulf Coast and you're desulfurizing crude oil or natural gas,
you've potentially got an outlet for the sulfur. You know,
(40:18):
sulfur goes into you know, sulfuric acid is one of
our most important industrial chemicals, and that is produced from
sulfur and sulfur that can be produced from a refinery.
There are so many things in crude oil that if
you've got a really large petrochemical complex, some of the
smaller components might go into producing specialty chemicals. And you
(40:44):
know some of the off gases. For instance, if you're
at a refinery and you're producing say fane and propane
off of your off of your refining process. All refiners
produce ethane and propane. Some of them use that for
fuel gas. If you have a large enough scale, you
might turn those ethane and propane and ethylene and propylene
(41:08):
which now can be used to make plastics. So that
happens all along the Gulf coast. You've got big ethane crackers,
which they an ethane molecule that kicks off a couple
of hydrogens, is now an ethylene molecule, and now it
can be used to make polyethylene and things like that.
So a lot of this depends on where the refinery
(41:30):
is at, how big it is, and so forth, how
they deal with their byproducts.
Speaker 2 (41:35):
And I'm curious, are in the petrochemical area are these
cracker plants are they also under the subtitle as refineries as.
Speaker 3 (41:46):
Well technically, so like an ethane cracker would not be
considered a refinery, although from a layperson driving by it
it might look like a refinery, seem like a refinery,
but it's a little bit differ. But a lot of
times these will be next order refinery, or you know,
if you had a big petrochemical complex, maybe you're doing
(42:06):
it within the refinery. So you know, for a lay person,
there's really not much difference between that and refinery. But
there are plastics companies that you know, do this and
then like plastics, and you wouldn't consider them a refinery.
You'd say that's a that's a.
Speaker 2 (42:21):
Plast and thinks that because they're not processing crude oil.
I wasn't sure because it was like, well, I don't know, Okay,
let's talk about gas prices again, because I think that
I want to come back and revisit that real quick.
Why are gas prices in different regions? They're so different
in their prices, And I think it is some of
(42:43):
it is common sense to most of us that like, well,
some have regulations that are a lot stricter, like California
and Marcello's Shell area has different regulations that they're dealing
with that causes an increase over there. But why are
there give different grass prices in such different regions. Is
(43:03):
it strictly just that or is it other things as well?
Speaker 3 (43:07):
So there's two things. It depends on the specifications and
it depends on what kind of refineries are in the area.
Along the East Coast, there were refineries that were going
bankrupt even when Midwest refineries were making enormous profits because
they didn't have access to oil from the Mid Continent
(43:28):
from the shale bone, so they were still having to
buy expensive oil and they weren't getting the prices for it.
So you'd see East Coast refineries struggling, while you know,
mid Midwest refineries were making more profits than ever before.
But then you've got so California is a good example
of a state that has passed their own very tight
(43:50):
regulations that other refineries in other states don't have to meet.
And so what happens is if there is a shortage
in California and that can happen unplanned maintenance or something,
other states cannot send send gasoline in there to fill
that void. And so you see very volatile prices in
(44:12):
California and very high prices in California because they have
created a fuel island there that can only be met
by producers in California. Or sometimes you know, Singapore will
produce gasoline specific for California, then they have to ship
it all the way from Singapore. So all that leads
to high gasoline prices in in California.
Speaker 2 (44:35):
That's strange. Well, Robert, that's all the time we have
for this show. However, for our listeners, what a treat
in the sense that we've decided we're going to continue
on with the show, and so next week we'll have
the continuation of this show where we close out everything refineries.
Thank you for listening to the Energy Mix Radio Show.
Speaker 1 (44:54):
The Energy Mix Radio Show is where we explore topics
that affect us all in the oil and gas industry.
Every week, our whole will interview the movers and shakers
in this fast paced industry. You'll hear from industry experts,
elected officials, and many more on the Energy Mix Radio Show.
Welcome to the nationally syndicated Energy Mix Radio Show, produced
by the Energy Network Media Group. The Energy Mix Radio
Show will give you an inside look at the energy
industry and how it affects you by talking with industry leaders, experts,
and government officials on the Energy Mix Radio Show.
Speaker 2 (00:16):
Welcome to another exciting episode of the Energy Mix Radio Show.
I'm your host, Kimbalato, and today we have a great
guest joining us. I welcome back the editor in chief
of SHEW Magazine, Robert Rapier. Robert, it's a pleasure to
have you back with us.
Speaker 3 (00:29):
Thanks Kim.
Speaker 2 (00:31):
Well, today is a great show because you and I
talk a lot about some of the stuff that comes
into your figed in my feed on social media, and
it appears as though there's a lot of requests for
just basic level information on energy. We all know that
it's quite difficult to understand the topic of energy, which
(00:51):
is why I actually do what I do for a living,
is it's a very hard topic to understand to the
average consumer how energy really applies to their life because
we really don't understand where utilities. You know, why we
have lights and heat in our home, Why is gas
prices fluctuating? Things that really matter. Even how much we
(01:14):
are charged at the grocery stores really apply back to
energy and basic energy demand needs. Plus there's also a
whole global issue that's very misunderstood and we won't even
talk about on today's show, climate change. So you and
I talked, and you tell me a little bit about
You had some requests coming in online that gave us
(01:35):
an idea to let's do a show that basically is
just breaking down different topics on energy at a very
basic level, not elementary, but a basic level for the
average person to understand. And one of the biggest ones
that came up was refineries. Tell us a little bit
about that.
Speaker 3 (01:51):
Okay, So I get a lot of questions about refineries
and refining, and there's a tremendous amount of misinformation around
the topic. So I thought, hey, let's do a show
on refining. And so I went out on social media
and I asked people, what are your refining questions? And
I got a lot of questions in but a lot
of them had nothing to do with refining. So I thought, well,
(02:12):
first of all, maybe people don't understand what refining is
and how it fits in the whole energy sector. So
let's start there. Let me start by explaining what refining is,
and then I will tell you why I'm qualified to
talk about refining so well.
Speaker 2 (02:28):
And now, yeah, I was going to ask you go
into the background of how you know a lot about refinery.
We know that your background is in oil and gas
as a petrochemical engineer, so this is kind of right
up to alli, but a lot of people don't really
realize that.
Speaker 3 (02:42):
Right And I have worked in a refinery and doing
the things that I'm going to talk about. So I'll
drill down a little bit here. Like I said, there's
a tremendous amount of misinformation around refining, and I try
to set the record straight as much as I can,
and that's what I will do today. So let's start
with what is refining. Refining is the process of taking
(03:03):
crude oil and converting it into finished products. So a
lot of people ask me questions around oil production that's
not refining, or they asked me about transport and that's
not refining. Refining is taking the oil in and breaking
it down into finished products like gas, sline, diesel, jet fuel.
(03:24):
Depending on the complexity of the refinery, they may make coke,
they may make you know, different products. They may make wax,
so there's a lot of different things, and it depends
on the refiner complexity. But that is refining. It's not
the gas station selling the gas. It's not the oil producer,
but that is refining. And so around refining there are
(03:46):
a tremendous number of questions. So I used to be
a chemical engineer at the conical Phillips at the time
refinery and billing's Montana. It's now Phillips sixty six Refinery.
I worked in the Optimus Process and Economics group, and
my boss was the director of Optimization Process Economics. Dope
(04:08):
is the acronym there, so he called himself the dope.
We would look at the crude oils that were available
to us, we'd figure out how those are going to
break down into various products, and then look at the economics.
So we'd look at, you know, heavy Canadian sour crude
costs forty dollars less than the baking crew that's actually
(04:31):
in Montana where we were. How did the economics play
out here? Which crews should we buy? And then how
should we run the refinery? And that also swings seasonally.
Seasonally we run the refinery a little bit differently. Seasonally,
we have things we have to do, so I did
that for several years. I blended gasoline, so one of
(04:54):
my jobs was to make sure gasoline met all the specifications.
So we'd break down, you know, the diferent products and
you have to meet certain specifications. That was one of
my jobs and I did that for several years before
being assigned a job in management in the north in
the North Sea in Scotland. So from that job I
(05:15):
went to the North Sea. But for several years I
worked in the refinery and really got to know refinery operations.
And you know, at that time, the government, the state
government of Montana was trying to enforce an ethanol mandate
on the state and that the refinery sent me to
the government, to the to the capital to testify about
(05:38):
that mandate. And it was at that time that I
actually started to write about energy because I saw so
much misinformation around that. That was about two thousand and five,
and that really is what started me on the on
the track of communicating with people about energy. Was a
little blog I started just to address some of the
ethanol misinformation and gasoline, so that that really kicked off
(06:01):
my career. I was at the refinery when I started
putting myself out there in the public domain.
Speaker 2 (06:06):
Very very experienced in this, and I want to say,
this is such a large topic that a lot of
people that might be listening right now think that they
kind of understand refinery, but then they may not understand, well,
if we have refineries here, then why are other countries
and other parts of the world so important to us?
And we're going to get into that later on in
(06:26):
the show, because actually refineries are not quite like people think. Here.
We have to look at refineries and look at the
global picture. And you're going to explain that a little
bit later on in the show that it's not quite
that simple. But before we get into what happens as
we drill down into the refineries and then the different operations,
which you've covered a little bit of that, I don't
know if you want to drill down more into it.
(06:48):
Can you just kind of briefly back up a little
bit and talk about a lot of people understand they've
heard the terminology up mid and downstream when we talk
about oil and gas. Quickly go through what is the up,
mid and downstream part in the oil and gas sector,
so that way the listeners understand where refineries fit in.
Speaker 3 (07:09):
Sure, that is a great question. I get that question
a lot. So upstream is where oil and gas are produced,
and why is it upstream because from there everything flows
down and they flow through midstream. Midstream is the transportation
and the storage of oil and gas, and then downstream
(07:30):
is the refineries where the products are made. And sometimes
marketing and distribution are lumped into downstream. But you know,
mainly upstream production, midstream transportation, downstream is refining. That is
how they break down.
Speaker 2 (07:43):
And there's a lot in these sections sections alone, like
up alone, we're talking about looking at leases, lands, contracts, deeds.
There's all kinds of things that's not including the drilling
and the permitting. I mean, it's a huge, huge thing
when we talk about upstream. Same thing with midstream, and
the same thing with the downstream. Refinery is just one
In the downstream section as well, you're also talking about
(08:05):
petrochemicals and a lot. So just want the listeners to
understand this is a very very complicated and large topic.
Speaker 3 (08:11):
I would add to that that some companies specialize. Some
companies are only upstream, some are only midstream, some are
only downstream, but you're integrated super majors, Chevron, Shell, Exon
Mobile BPD, they have it all. They do upstreaming, they
do midstream, they do downstream, theywn the refineries. But they
don't do generally is on the gas stations. So you
(08:32):
see an Exon Mobile branded gas station. Exon Mobile doesn't
own any of those gas stations. That's mom and pop
operators that own those stations. But so you know, a
conical Phillips is just an upstream operator. They produce oil
and gas. You know, Energy Enterprise Products Partners. They're only
a midstream they're only transporting and storing the oil and gas.
(08:55):
And then Valero is just a downstream they're just refining it.
But then you know Chevron does all three.
Speaker 2 (09:01):
Right, right, So let's drill down a little bit into
a little bit deeper into refineries, because it turns out
that there are different refinery operations. So talk to a
little about what happens in a refinery.
Speaker 3 (09:13):
You mentioned a few, right, So the simplest refinery basically
your first thing, well, I say, the first thing is
when your crude oil comes in, it may have some
water in it, it may have some things that have
to be separated out. It may have some solids in it,
so you may have some processes there. But the first
really important operation is your crude distillation tower. So you've
(09:37):
got distillation, which separates the different components of oil. Oil
consists of things that are very light, and by light,
I mean short chain hydrocarbons, buttane that's a C four,
that's four carbon molecules, up to very complicated, you know,
hundreds of carbon molecules. Crude will consists of all of that,
(09:59):
and so you've got to separate it out, and you've
got to crack it, and you've got to recombine it.
But the first step is to separate out these different
cuts in a distillation tower. And so from there, some
of those cuts, you know, light straight, there's light straight gasoline.
Some of the light stuff and crude oil may go
(10:20):
straight into gasoline blembing. But then some of the heavier
and heavier cuts, they will go to some of the
different operations in the refinery. So you'll have a catalytic cracker,
a cat cracker that will break down some of the
heavier oils. You'll have a cocher that will crack some
of the really heavy oils. And convert it into you know,
(10:40):
lighter components and petroleum coke which is used in steel
making and things like that. So lots of different refinery
operations that all tie together. Refineries are really complex, but
the really simple refineries can only handle the best, lightest,
sweetest crew. And that gets into a question that comes
(11:03):
up a lot that we'll want to talk about, is
can US refineries process shale oil? Because there's a misconception
that I see all the time. People say US refiners
can't process the shale oil we produce, so we export it,
and that is not accurate.
Speaker 2 (11:20):
Well that's very interesting because I know that in past
shows there's been some discussion of that, and really we
didn't drill down to it in pass shows. So I'm
looking forward to just drilling down into that. But I
want to kind of try to stay in order of
explaining the refinery. So we're going to stay when we
return from break back on what kind of main products
(11:41):
derived from refining crude oil? And then I do promise
the listeners we're going to move a little bit further
into the suite, the sour, the light, the heavy, What
does that mean for us and why do we need
other countries, what are we importing from them, what are
we exporting to them? And how are our refineries here
being used? And then I also want to talk about
(12:02):
the history of the refineries because that's very interesting too,
that we seem to be very antiquated when we look
at refineries, right and how old are they versus how
many refineries have we built here in the United States
and when. So let's take a quick break. You're listening
to the Energy Mix radio show and we'll.
Speaker 3 (12:20):
Be right back.
Speaker 1 (12:23):
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and social media. Shale also provides specialized web services from
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Visit our website shalemag dot com once again, that's Shale
(12:45):
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Shale is your one stop shop for growing your business.
Pick up the phone today and call two ten, two
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Speaker 2 (13:02):
And we're back. You're listening to the Energy Mix radio show.
My guest today is editor in chief of Shell Magazine,
Robert Reepier. Robert, thanks for explaining the overall big picture
of US refining here in the United States. I want
to drill down though, to understanding that the refineries are
processing crude oil, what are the main derivators or products
(13:24):
that are being refined and crude oil itself? So you
said they separate them and there's some solids in there,
and so then what are we creating once we get
it into the products the derivative of crude oil.
Speaker 3 (13:36):
So it depends somewhat on the crude that you're bringing in,
but typically a forty two gallon barrel of oil, and
I'll point this out first, a barrel of oil will
swell as it goes through processing because you break bombs
and you decrease the density of the different components. So
(13:56):
a forty two gallon barrel of oil will actually make
about forty four gallon of products. So that's refinery swell
or refinery gain as it goes through the refinery. But
just under half of a barrel of oil will turn
out to be gasoline twenty gallons twenty two gallons out
of the forty two gallons in a barrel will turn
(14:18):
into gasoline, and some people have asked me, why can't
you just turn it all into gasoline. In theory, you could,
but it would be very, very expensive because naturally, about
a quarter of that barrel of oil is heavier oils
that end up producing diesel and fuel oil and things
like that. If you wanted to convert those into gasoline,
(14:41):
you'd have to further crack than down, and you'd have
more refinery operations that would have to happen, and you'd
lose some inefficiency. Some would end up as light asses.
So it just wouldn't be efficient and it would be
horrendously costly if you wanted to try to turn most
or nearly all of a barrel of oil into gasoline.
(15:01):
So we end up with a quarter that's diesel and
other fuels like that, and there's a big demand for that,
so it's not like you know, these are useless byproducts.
You know, close to ten percent ends up as jet fuel.
There's a big demand for that. And then beyond that,
it sort of depends on how the refinery is configured
and the refinery complexity. We'll get asphalt, which big demand
(15:23):
for asphalt. We'll get lubricants, we'll get coke, we'll get waxes,
again depending on the refinery. But those are just some
of the products in a barrel of oil. And some
big oil companies Exon Mobil for instance, may have a
petrochemical facility in their oil refinery that ends up taking
you know, some of those products and converting them into
(15:44):
plastics or converting them into petrochemicals that are derived from
the oil.
Speaker 2 (15:50):
Right, So let's talk about terms, because we hear a
lot of sweet, crude, sour, light, heavy, what meaning? What
are the meanings respect Yeah, let me start over again.
What did the term sweet, sour, light, and heavy mean
with the respect to crude oil? And how do the
(16:11):
refineries deal with the different crude oil quantities?
Speaker 3 (16:15):
Okay, so that's a good question. Sweet oil refers to
oil that has little to no sulfur. Sulfur is a
problem to deal within a refinery. We have sulfur specifications
on gasoline and diesel, and so any crude oil that
has sulfur has to be dealt with. So it's costlier
to deal with sulfur, and sulfur containing oils are called sour,
(16:38):
and the higher the sulfur content and the more sour
that oil is light and heavy refer to the composition
of the molecules in the crude oil. Heavy oil has
more longer chain, more complex molecules. Lighter crude has simpler molecules.
Lighter crude is easier to process. Heavier crude requires more
(17:00):
cracking and more reforming and things like that. And so
the easiest crude to deal with is light sweet crude.
And that's what we get out of the shale formations
is light sweet crude. So what is the problem. The
problem is that's also more expensive. And before the shale boom,
refiners have been getting heavier and more sour crudes for
(17:23):
decades and so they have made many, many billion dollars
of investments to process those cruds. So now they have
a lot of process operations that can deal with the
sour and the heavy and they get those at a
steep discount, and the light sweet and the heavy sour
they make about the same product spectrum. It's just they
(17:44):
require the heavy sour requires more processing. So what does
a refiner want. They want to be able to use
the equipment they've invested in, and so they prefer to
get the deeply discounted heavy sour, and so that is
fly the US will export the crude we make and
import heavy sour crude. So you know, back when I
(18:05):
was doing economics at the refinery in Billings, Montana, I
would look at the economics of heavy sour Canadian crude
versus baking crude we could get in and there was
just no contest the margins, the difference in the cost
of the crude oil and cost of the products. The
margins were far better on the heavy salar. So I
tell people, it's not that we can't process light sweet.
(18:28):
Any heavy crude oil refinery can process light sweet. The
economics for doing so are poured because they're not utilizing
all the equipment that they've invested in and they're paying
a much higher price, so their margins are not very good.
So they a heavy sour crude refinery does not want
to process light sweet crude.
Speaker 2 (18:47):
That makes sense. Is it true that US refineries that
they can't process shell oil? And if that's the case,
then why is it that we are exporting oil even
though we import oil as well? But I want to
leave that on a cliff note. When we return from break,
you're listening to the Energy Mixed for radio show, and we'll.
Speaker 3 (19:06):
Be right back.
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Speaker 2 (21:22):
And we're back. You're listening to the Energy Mix radio show.
My guest today is editor in chief of Shell Magazine.
Robert Rapier. Robert, we discussed in the previous segment the
different eight hour light and heavy and how some of
our refineries here are processing that crude oil and what
they prefer to refine. This is going back a long
(21:45):
time ago though, before the shell revolution, which is what
about fourteen years old maybe or so fifteen years old might.
Speaker 3 (21:54):
Be a little bit older, but it's approaching twenty. I mean,
the natural game.
Speaker 2 (21:58):
Jesus started about by well.
Speaker 3 (22:01):
Natural guests did start about twenty years ago, and then
and then crude oil followed about two or three years later.
Speaker 2 (22:07):
Thank you for that clarification. So we were used to
the refineries in the United States doing things a certain
way for a very long time, and then this process
came in. Now there seems to be a lot of
misunderstanding in the way of is it true that US
refineries can't process shell oil? So we all know that
the shell plays are going on in all of North America.
(22:28):
They can't. The word is, or what belief is, is
that US refineries can't. And then if that's so, well,
then why why are we exporting oil? Or even though
we are importing oil? It seems like we're sending our
stuff out and they're sending their stuff in. Can you
explain some of this?
Speaker 3 (22:49):
Right? So I saw a viral YouTube video one day
where this guy is confidently explaining to everybody the US
refineries can't process shell oil, and I had to comment,
I said, that is absolutely not true. True. They can
process it, they prefer not to, and it's all a
matter of economics. So you know what happens is and
so we had a crude oil ban, a crew will
(23:11):
export ban in place for like forty years. And so
as the shale boom continued and US production grew and
grew and grew, that oil was trading at a big
discount to Brent crude oil. Historically, West Texas Intermediate is
a better quality than Brent, and so it traded at
a premium. But once it was a surge of the
(23:33):
light sweet crewed in the US, the price differentials flip
flopped and you could get West Texas Intermediate for cheaper.
The oil producers didn't like that. They wanted to be
able to export their oil and get a better price
for it, and the refiners. The refiners were okay with
it because they were getting good West Texas Intermediate for
a discounted price. But in twenty fifteen, Obama made a
(23:56):
deal with Republicans where they gave him some green energy
things and he gave them a repeal of the crude
ol export ban, and then crue all exports started to surge.
And so now our crude oil producers prefer to send
their crewe oil out on the world markets where they
get better price for it, and our refiners and they
(24:16):
process some you know, if the economics are right, they'll
process you know, shale oil. But at the end of
the day, they're looking to make the most money they
can make, and that usually is buying discounted crudes and
using the equipment that they bought to process those into
finished products. Like I said, you get this, you get
(24:37):
about ninety percent liquid finished products from a barrel of oil.
That's the numbers I remember for being at the refinery.
Ninety ninety two percent. And that number doesn't change a
lot if you've got light sweet crude or heavy sour crude.
It's just there's more processing with the latter.
Speaker 2 (24:53):
So well about some listeners are probably curious, well, why
why can't refineries just produce only gasoline? Since that's what
we need the most of Right, everybody's concerned about prices.
Why are we not just producing our own gasoline here
in the United States and not worrying about what the
rest of the world needs, and we need it first.
Speaker 3 (25:14):
Well, so we've tooled our refineries to meet the product
demand of the United States. A European refiner is tooled
to produce more diesel, and a US refinery is generally
tool to produce more gasoline because that's the demand here.
If you only had demand for gasoline, a US refinery
could tool to produce only gasoline, but it would be
(25:37):
horrifically expensive because you don't want to turn diesel into gasoline.
I mean, that's really really expensive to do. You've got
to crack the diesel, and then you're going to lose
some to inefficiencies, and then you've got to reform it
and so forth, and it would not be economical. The
gasoline would cost a lot more money if you weren't
making all the side products out of a refinery. So
(25:59):
we produce what we because that is the most economic
thing to do, and that is the demand in the US.
You know, we have demand for jet fuel, We have
demand for diesel on fuel oil and so forth.
Speaker 2 (26:09):
Well, we're going to get ready for break. But I
know that a lot of people are aware, especially in
areas where there's a lot of refineries, they are very
used to understanding why refineries shut down occasionally, why they
need to, and it has something to do with summer
blends and things like that. But I don't want to
get ahead of ourselves because we have to go to
(26:29):
break when we return, I want you to explain to
us why refineries occasionally need to shut down, and then
we're going to get into the differences between the blends
and the complexity. And that you're listening to the Energy
Mix radio show. We'll be right back.
Speaker 1 (26:44):
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Speaker 2 (27:22):
And we're back. You're listening to the Energy Mix radio show.
My guest today is the editor in chief of Shell Magazine,
Robert Rapier. Robert, thank you for explaining how the refineries
are not able or the desire to not want to
just produce gasoline even though that is what most Americans need,
and a lot of terminology between sweet sour light heavy crude.
(27:45):
What does that mean? But I want to switch gears
and I want to talk a little bit about So
now we've moved into an area where they're shutting down
and a lot of people don't understand why refineries shut down.
I don't think that most people even pay attention to
when they go and fill up their gas tank. They
just know what their vehicle takes leoded a regular diesel.
(28:11):
They don't quite understand how they get to market through
the refined product part and what's the back end of
that too. So I want to talk a little bit
about refineries, how they occasionally need to shut down in
between these different seasons. Can you explain that also of
why do they do this and how does it impact
us for how does it change with us?
Speaker 3 (28:31):
Sure? And before I answer that, I'll tell you I
went and filled my wife's car up yesterday and I
was sitting there filling up and I've looked around off.
How amazing is this. I mean, you pull up and
in five minutes or so you filled up with gasoline
and you can continue to motor on. And people don't
think about that. They don't think about all the complexity
that led them to this. And only when there is
(28:54):
a shortage or outages do people really think about, Hey man,
this gasoline is very important for me. It allows me
to be mobile. So the question why do they shut down?
They shut down for the same reason you take your
car in for maintenance refineries. You know, there's a lot
of moving equipment. There's a lot of things going through pipes,
(29:17):
Corrosion happens, Valves have to be tested. You know, you
in a in a distillation tower, for instance, accidents can
happen if the tower pressured up, and they've got relief
valves on there that are designed to relieve if if
pressure builds up in a tower. They need to take
those off and test them every once in a while.
So you know, they'll they'll clean equipment, they'll take things out,
(29:40):
they'll inspect, they'll change parts in pumps and so forth, compressors,
and that's why they have to they have to do
regular maintenance. Now, if demand is really high and the
situation is uh, you know, prices are high, sometimes refineries
will defer maintenance. But they can't defer it forever. I mean,
(30:01):
I've seen people say, oh, how convenient this refinery just
went down for maintenance. Well, no, they plan those things
months and months of advance. And sometimes the refiner will
go down because of an accident or because something unexpected happened,
but they plan turnarounds, you know, maybe maybe a year
ten months in advance, because they have to bring in
(30:22):
crews of people to do certain things, and they have
to go through a distillation tower and clean it out,
and you have to have a crew in to do
all those things. Now, when did they do this. They
usually do it in the spring and fall. And the
reason they do it then is because that is sort
of shoulder season. In the spring, the weather is starting
(30:43):
to warm up. So in Montana we do a turnaround
in the spring it was starting to get warmer. You
don't want to do a turnaround in midwinter, you want
to you want to have a little bit better weather,
and it's before summer high demand season kicks in, so
we do it then. Places I was in in Texas
(31:03):
the Gulf Coast will often do their turnarounds in the fall,
so that's after a high demand season, so spring or fall.
Usually people don't do them in the summer because it's
too hot and because that's when demand is high, and
that's when you want to be producing as much as
you can possibly produce to meet the demand.
Speaker 2 (31:22):
Is there a different I guess I'm thinking about it
in a way of the seasons, right, So as a woman,
you know, there's definitely a different attire that I wear
in the summer sun dresses and sandals, and in the
winter is boots and coats. Is there a season for
in different things pertaining to gasoline that they also switch
(31:44):
out to?
Speaker 3 (31:45):
There are? And that's another thing about the seasonal the
spring and summer turnarounds. There are two major blends of gasoline.
There's a winter blend and there's a summer blend, and
the difference in those is the winter blend. So you
don't want gasoline evaporating you know, when people are filling
(32:07):
up and evaporating out of your tank and so forth,
you don't want that to happen because it leads to smog.
And so in the winter, temperatures are cooler and so
the gasoline tends to evaporate less, and that allows us
to put more buttane and gasoline in the winter. So
your winter blends will have more gat and will buttane
(32:28):
in them, and that gives it a higher pressure, but
the temperature is lower and off that compensates for it.
If you take a winter blend in the summer, it'll
evaporate a lot faster. So in the spring they switch over,
they get the buttane out of there and they so
major specifications is a gasoline b winder, you have to meet.
(32:50):
One's called the RVP, the reed vapor pressure, and that
is essentially a function of how fast the gasoline evaporates
at a certain temperature has to go down in the summer,
and so that's one thing, and the other is the
octane number. You know, you look at the different grades
at your at the gas station, and octane is a
function of whether the fuel will try to pre ignite.
(33:14):
So as you're compressing in an engine. Fuel that ignites
easily has a low octane number, so you don't want
that to happen. You don't want pre ignition happening. And
the higher the octane, the more resistant to early ignition. Now,
most cars can run fine on the regular gasoline, and
if your car runs on regular gasoline, you should run
(33:36):
it on regular gasoline. You're not giving it a treat
by putting premium in there. You're you're gaining nothing. In fact,
your gas milage may be worse if your gas If
your car is designed for regular gasoline, you're putting premium
in it, you're wasting money, but you also maybe getting
worse gas milage. So use the green that is that
your car is designed to run on. You know, there
(33:57):
was a study by Triple A a couple of years
ago showed Americans waste about two billion dollars a year
buying gasoline that they don't need of a higher grade.
So in the spring we flip over to the spring
blends and the summer blends, and then in like September,
we start to switch back over to the winter blends,
and that's often the time that they start. They drained
(34:19):
tanks and during the switchover that's often a time that
they'll do main let's set those times because you've got
those two things going on. You're trying to get your
tanks down, you know, in the spring, you want to
get your winter gasoline tanks drained down and all that
product out before the deadline, and then in the winter
you want to flip back, flip back over the other way.
Speaker 2 (34:40):
Absolutely well, you know, there's no doubt that I think
that by now we have one more segment left on
this show, on this segment, but I think by now
the listeners understanding really the complexity of refineries and the
real position that they play in the United States and
how we really need them and the purposes you know
(35:02):
that they play. But it's very interesting to think about
how they're so misunderstood. And that's why this show, you know,
was important, and I'm glad you brought it, you know,
to my attention that there's just so much or you
know that we thought it would be a good idea
to like look at it and say maybe we should
be doing some educational series, and so all being decided
(35:23):
to do you and I is we're going to start
taking on topics right that are important for just kind
of general information on the different topics. Rather it's up, mid,
or down and drill down like this, And so I
mentioned it because I want our listeners to write in
and let us know if they're enjoying, if they're learning.
You can YouTube all you want and try to find
(35:44):
things you know to piece it together, but why when
you can just listen to the show gets straight from
an expert and you know it's accurate. So just a
shameless plug for us, Robert about we're doing this show
to teach people about refineries and the importance of it.
But we're going to take a quick break. When we
come back. We're not done. There's a difference between simple
and complex refinery, so we're going to talk about that
(36:05):
when we return. You're listening to the Energy Mixed Radio Show.
And we'll be through right back, and we're back. You're
listening to the Energy Mixed Radio Show. My guest is
the editor in chief of Shell Magazine, Robert Rapier. Robert.
Before the break, we discussed all things refinery on the
top end of it of explaining it. Now we're going
(36:27):
to get into more detailed explanation. But as I mentioned
before we went to break that you and I have
committed some time into producing some educational shows on talking
about different areas of interest in between the up, mid,
and downstream of energy. So the first one was refineries,
(36:47):
and that was explain to the listeners why it came
to your attention, because it's a pretty interesting story.
Speaker 3 (36:54):
Yeah. A listener sent in a question and he said,
you know, his understanding was that whether our refineries can
refine WTI And he said it was his understanding that
we could only refine the heavy sour crews that come
from overseas.
Speaker 2 (37:10):
And I answer, was my understanding too for a long time.
Speaker 3 (37:14):
Well, and that's a very common misunderstanding. And I thought,
this is so common. I get this question so often.
And you know, like I said, there was a viral
YouTube video making this claim and it's not accurate. And
people should understand this is all about economics and it's
about where they can make the most money. It's not
about whether they can refine it. You know, I've seen
(37:35):
people go, well, we should invest more into being able
to refine the light sweet that's not it. You invest
more into being able to process the heavy salt. It's
the simplest refineries that can only refine the light sweet.
Speaker 2 (37:51):
So these are the ones that I'm not even even
sure if I'm using the right word retooled, if you
will to reap, Yeah.
Speaker 3 (38:00):
Retooled, upgraded, updated, you know, modified, Those are all okay.
Speaker 2 (38:06):
So what is cracking because that's a very common terminology
as well, and what is the importance in the process
of refining.
Speaker 3 (38:15):
Yeah, so there's several different ways. You know, you've got
a fluid catalytic cracker. You've got a cokeer which does cracking. Basically,
you are adding heat and sometimes a catalyst to a
long molecule. So let's say you've got something that is
thirty carbon atoms long, that's very heavy. That would be
(38:38):
a heavy oil, like a heavy fuel oil or something
like that. If you cracked that, so instead of a
one molecule that's thirty carbons long, you crack it into
three molecules that are each ten long. Well, now you're
in the gasoline range. So you've cracked something that was
a heavy oil now into gasoline. And so that's what
(39:01):
cracking does. Cracking is breaking a molecule down into a
smaller molecule because you know, you need gasoline and you've
got a heavy oil, or you need diesel and you've
got a heavy oil.
Speaker 2 (39:14):
Okay, so that's how it's refined in the process, and
I want to move into refineries that are managing byproducts.
We hear a lot about this as well, like sulfur
or even in the petrochemical area feedstock. Explain all of
that to us.
Speaker 3 (39:34):
Yeah, so you know, depending on where a refinery is
and whether they've got a good outlet for it a refinery.
May you know that I've talked about sour crudes. Sour
CRUs come in, they have sulfur, and a refinery has
to be able to remove that sulfur. And I've flown
over places in Canada where they literally just have mountains
(39:56):
of the sulfur. You'll see yellow mountains because they don't
have a good outlet. So literally they're just piling the
sulfur up. But gulfer goes into the production of sulfuric
acid and things like that. So if you're on the
Texas Gulf Coast and you're desulfurizing crude oil or natural gas,
you've potentially got an outlet for the sulfur. You know,
(40:18):
sulfur goes into you know, sulfuric acid is one of
our most important industrial chemicals, and that is produced from
sulfur and sulfur that can be produced from a refinery.
There are so many things in crude oil that if
you've got a really large petrochemical complex, some of the
smaller components might go into producing specialty chemicals. And you
(40:44):
know some of the off gases. For instance, if you're
at a refinery and you're producing say fane and propane
off of your off of your refining process. All refiners
produce ethane and propane. Some of them use that for
fuel gas. If you have a large enough scale, you
might turn those ethane and propane and ethylene and propylene
(41:08):
which now can be used to make plastics. So that
happens all along the Gulf coast. You've got big ethane crackers,
which they an ethane molecule that kicks off a couple
of hydrogens, is now an ethylene molecule, and now it
can be used to make polyethylene and things like that.
So a lot of this depends on where the refinery
(41:30):
is at, how big it is, and so forth, how
they deal with their byproducts.
Speaker 2 (41:35):
And I'm curious, are in the petrochemical area are these
cracker plants are they also under the subtitle as refineries as.
Speaker 3 (41:46):
Well technically, so like an ethane cracker would not be
considered a refinery, although from a layperson driving by it
it might look like a refinery, seem like a refinery,
but it's a little bit differ. But a lot of
times these will be next order refinery, or you know,
if you had a big petrochemical complex, maybe you're doing
(42:06):
it within the refinery. So you know, for a lay person,
there's really not much difference between that and refinery. But
there are plastics companies that you know, do this and
then like plastics, and you wouldn't consider them a refinery.
You'd say that's a that's a.
Speaker 2 (42:21):
Plast and thinks that because they're not processing crude oil.
I wasn't sure because it was like, well, I don't know, Okay,
let's talk about gas prices again, because I think that
I want to come back and revisit that real quick.
Why are gas prices in different regions? They're so different
in their prices, And I think it is some of
(42:43):
it is common sense to most of us that like, well,
some have regulations that are a lot stricter, like California
and Marcello's Shell area has different regulations that they're dealing
with that causes an increase over there. But why are
there give different grass prices in such different regions. Is
(43:03):
it strictly just that or is it other things as well?
Speaker 3 (43:07):
So there's two things. It depends on the specifications and
it depends on what kind of refineries are in the area.
Along the East Coast, there were refineries that were going
bankrupt even when Midwest refineries were making enormous profits because
they didn't have access to oil from the Mid Continent
(43:28):
from the shale bone, so they were still having to
buy expensive oil and they weren't getting the prices for it.
So you'd see East Coast refineries struggling, while you know,
mid Midwest refineries were making more profits than ever before.
But then you've got so California is a good example
of a state that has passed their own very tight
(43:50):
regulations that other refineries in other states don't have to meet.
And so what happens is if there is a shortage
in California and that can happen unplanned maintenance or something,
other states cannot send send gasoline in there to fill
that void. And so you see very volatile prices in
(44:12):
California and very high prices in California because they have
created a fuel island there that can only be met
by producers in California. Or sometimes you know, Singapore will
produce gasoline specific for California, then they have to ship
it all the way from Singapore. So all that leads
to high gasoline prices in in California.
Speaker 2 (44:35):
That's strange. Well, Robert, that's all the time we have
for this show. However, for our listeners, what a treat
in the sense that we've decided we're going to continue
on with the show, and so next week we'll have
the continuation of this show where we close out everything refineries.
Thank you for listening to the Energy Mix Radio Show.
Speaker 1 (44:54):
The Energy Mix Radio Show is where we explore topics
that affect us all in the oil and gas industry.
Every week, our whole will interview the movers and shakers
in this fast paced industry. You'll hear from industry experts,
elected officials, and many more on the Energy Mix Radio Show.
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