Petroleum Refining
Description
Companies in this industry refine crude oil to produce fuel and other products. Major companies include Chevron, Exxon Mobil, and Valero (all headquartered in the US); BP (the UK); and Royal Dutch Shell (the Netherlands).
Worldwide, the petroleum refining industry processes about 96 million barrels of crude oil each day, according to Statista. About 13.9 million barrels per day are refined in the US, according to the Energy Information Administration (EIA). The Middle East, China, and India, are some of the countries with the fastest growing refining capacity.
The US has about 150 petroleum refineries with an annual revenue of about $500 billion. Variations in the price of crude oil can cause revenue to fluctuate significantly.
COMPETITIVE LANDSCAPE
Demand is driven by consumption of gas and diesel fuel. The profitability of refineries depends on feedstock prices, efficient operations and the best mixture of products. Although there are significant economies of scale in refinery operations, a small refinery can compete effectively with large ones if it's located in a favorable market area, or if it produces specialty products that are in high demand. The US industry is highly concentrated: the eight largest companies account for about 70% of revenue.
Imports of refined petroleum products account for about 10% of the US Market. Major sources of refined products are Canada, Russia, South Korea, and India. Major export markets for US refined petroleum products include Mexico, Canada, Brazil, and Chile. Exports account for about 17% of US production.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major products include motor gasoline (regular and premium combined), which accounts for about 45%, followed by distillate light fuel oil, accounting for about 25%. Jet fuel accounts for about 10% and refined petroleum products account for about 5%. Other products account for about 15%.
The output of a particular refinery depends on the grade of crude oil it uses and the downstream processing operations it has installed. A typical refinery has a capacity of about 100,000 to 250,000 barrels per day, according to McKinsey Energy Insights.
Crude oil is composed mainly of hydrocarbons of various weights. When the crude oil is heated, the different hydrocarbons boil at different temperatures and can therefore be drawn off and re-liquefied. Refineries are rated according to their crude distillation capacity. Since lighter hydrocarbons are usually more valuable than heavy ones, most refineries further process the middle and heavy distillates in various "downstream" operations that extract further light hydrocarbons ("cracking" long hydrocarbons into smaller pieces) and turn heavier ones into usable products. Common downstream operations include vacuum distillation, catalytic cracking, hydrocracking, and coking. In addition, to remove the sulfur that is a common contaminant in crude oil, many refineries use a hydro desulfurizing process. All of these processes occur in separate production units that are interconnected and that generally operate on a continuous-flow basis. Most refineries also operate gasoline-blending processes and have significant storage facilities. Small refineries may run only a distillation operation, with no downstream processing.
Crude oil may arrive at a refinery by pipeline, oceangoing tanker, barge, truck, or tank car. The composition of the crude oil (gravity and sulfur content) partly determines its cost. Light (high-gravity) and intermediate crude oils, like West Texas Intermediate (WTI) and Nigerian Bonny Light, have a high natural yield of light and middle distillates. Crude oils from the Middle East, including Saudi Arabian Light, have a lower yield of light and middle distillates. Crude oils from Mexico and Venezuela are generally heavy and have a high sulfur content. (Low-sulfur crude oil is called "sweet"; high-sulfur oil is "sour.") The difference in price between light and heavy crude oils is the "light/heavy spread," and is important to refineries that can efficiently process heavy crude oil.
Crude oil costs vary according to origin because of transportation costs and the grade of the oil. Crude oil costs can significantly change within a 12-month period.
While large integrated oil companies, like Exxon Mobil and BP, supply their refineries with oil from their own exploration and production operations, many refiners must buy oil from other producers or wholesalers. To ensure adequate supplies, anticipated need is filled under short or long-term supply contracts (that typically contain a price adjustment mechanism) and through purchases on the spot market. In view of the volatility of crude oil prices, refiners may engage in futures contracts on commodity markets like the New York Mercantile Exchange (NYMEX). Refiners are very sensitive to market prices of crude oil and can adjust their refineries to accept oil of varying grades, depending on availability and comparative prices.
Worldwide, the petroleum refining industry processes about 96 million barrels of crude oil each day, according to Statista. About 13.9 million barrels per day are refined in the US, according to the Energy Information Administration (EIA). The Middle East, China, and India, are some of the countries with the fastest growing refining capacity.
The US has about 150 petroleum refineries with an annual revenue of about $500 billion. Variations in the price of crude oil can cause revenue to fluctuate significantly.
COMPETITIVE LANDSCAPE
Demand is driven by consumption of gas and diesel fuel. The profitability of refineries depends on feedstock prices, efficient operations and the best mixture of products. Although there are significant economies of scale in refinery operations, a small refinery can compete effectively with large ones if it's located in a favorable market area, or if it produces specialty products that are in high demand. The US industry is highly concentrated: the eight largest companies account for about 70% of revenue.
Imports of refined petroleum products account for about 10% of the US Market. Major sources of refined products are Canada, Russia, South Korea, and India. Major export markets for US refined petroleum products include Mexico, Canada, Brazil, and Chile. Exports account for about 17% of US production.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major products include motor gasoline (regular and premium combined), which accounts for about 45%, followed by distillate light fuel oil, accounting for about 25%. Jet fuel accounts for about 10% and refined petroleum products account for about 5%. Other products account for about 15%.
The output of a particular refinery depends on the grade of crude oil it uses and the downstream processing operations it has installed. A typical refinery has a capacity of about 100,000 to 250,000 barrels per day, according to McKinsey Energy Insights.
Crude oil is composed mainly of hydrocarbons of various weights. When the crude oil is heated, the different hydrocarbons boil at different temperatures and can therefore be drawn off and re-liquefied. Refineries are rated according to their crude distillation capacity. Since lighter hydrocarbons are usually more valuable than heavy ones, most refineries further process the middle and heavy distillates in various "downstream" operations that extract further light hydrocarbons ("cracking" long hydrocarbons into smaller pieces) and turn heavier ones into usable products. Common downstream operations include vacuum distillation, catalytic cracking, hydrocracking, and coking. In addition, to remove the sulfur that is a common contaminant in crude oil, many refineries use a hydro desulfurizing process. All of these processes occur in separate production units that are interconnected and that generally operate on a continuous-flow basis. Most refineries also operate gasoline-blending processes and have significant storage facilities. Small refineries may run only a distillation operation, with no downstream processing.
Crude oil may arrive at a refinery by pipeline, oceangoing tanker, barge, truck, or tank car. The composition of the crude oil (gravity and sulfur content) partly determines its cost. Light (high-gravity) and intermediate crude oils, like West Texas Intermediate (WTI) and Nigerian Bonny Light, have a high natural yield of light and middle distillates. Crude oils from the Middle East, including Saudi Arabian Light, have a lower yield of light and middle distillates. Crude oils from Mexico and Venezuela are generally heavy and have a high sulfur content. (Low-sulfur crude oil is called "sweet"; high-sulfur oil is "sour.") The difference in price between light and heavy crude oils is the "light/heavy spread," and is important to refineries that can efficiently process heavy crude oil.
Crude oil costs vary according to origin because of transportation costs and the grade of the oil. Crude oil costs can significantly change within a 12-month period.
While large integrated oil companies, like Exxon Mobil and BP, supply their refineries with oil from their own exploration and production operations, many refiners must buy oil from other producers or wholesalers. To ensure adequate supplies, anticipated need is filled under short or long-term supply contracts (that typically contain a price adjustment mechanism) and through purchases on the spot market. In view of the volatility of crude oil prices, refiners may engage in futures contracts on commodity markets like the New York Mercantile Exchange (NYMEX). Refiners are very sensitive to market prices of crude oil and can adjust their refineries to accept oil of varying grades, depending on availability and comparative prices.
Table of Contents
- Industry Overview
- Quarterly Industry Update
- Business Challenges
- Business Trends
- Industry Opportunities
- Call Preparation Questions
- Financial Information
- Industry Forecast
- Web Links and Acronyms
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