(John Kemp is a Reuters market analyst. The views expressed arehis own)
By John Kemp
LONDON, Oct 10 (Reuters) - The shale boom has left some ofthe most sophisticated refineries in the United States huntingacross Europe and Africa for more of the heavy residue left overfrom other refiners' crude distillation units, as they try tofind a use for all the expensive coking units built in the lastdecade.
U.S. refineries invested heavily in delayed coking units,anticipating they would be processing increasing quantities ofheavy crude from sources such as Venezuela, Canada and SaudiArabia. Instead they have found themselves processing lightcrudes from shale plays such as North Dakota's Bakken and theEagle Ford in Texas.
The result is that many cokers are underutilized. U.S.refineries are therefore turning to imports of residuum fromrefineries in Russia and Africa to earn a return. But it hasup-ended the economics of the refining business.
Expanding coking capacity in the United States, as well asat a number of other refineries, such as India's giant RelianceI and II plants at Jamnagar, has supported prices for heaviercrudes, even as the premium for light sweet oils has been erodedby soaring output from shale formations, throwing a lifeline tosome of the simpler refineries along the U.S. East Coast and inEurope.
SCRAPING THE BOTTOM OF THE BARREL
Cokers convert the ultra-heavy molecules with boiling pointsabove 1,000 degrees Fahrenheit, left over from the atmosphericand vacuum distillation units of a refinery, which wouldotherwise be sold as low-value residual fuel oil, to morevaluable gasoline, naphtha and gas oil, as well as with coke forsale to cement manufacturers and power producers.
In the process they unlock value from heavy and ultra-heavycrudes, which contain a large proportion of high-boiling pointmolecules that would otherwise have to be sold at a discount foruse in marine boilers and power plants.
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Between 2002 and 2012, U.S. refineries increased theirmaximum coking capacity by 450,000 barrels per day (20 percent)from 2.224 million to 2.737 million barrels per day. But theamount of fresh feed actually put into their cokers remainedunchanged at around 2 million barrels per day.
Coker utilization has dropped from around 89 percent to just77.5 percent (Chart 1). It would have dropped even further ifU.S. refineries had not increased the amount of residuumimported from older and less sophisticated refineries in theformer Soviet Union, North and West Africa to reprocess it.
PROCESSING OTHER REFINERS' WASTE
Because the crude oils processed at U.S. refineries are notproducing enough residuum, U.S. refineries have been forced tosource more from other refineries overseas that process heaviercrudes or lack their own coking facilities.
U.S. refiners have built a side business buying residuum ata discount from other refiners and reprocessing it into morevaluable products and saleable coke.
Residuum imports have more than tripled, from just 100,000barrels per day in 2002 to 343,000 last year, and 320,000 in thefirst seven months of 2012.
Imports have risen, even though many of the traditional usesfor residuum, such as in power generation and marine boilers,have been declining.
In June 2012, U.S. refiners imported a near-record 12.5million barrels (418,000 barrels per day), according to theEnergy Information Administration (EIA), the independentstatistical arm of the U.S. Department of Energy. It was beatenonly by the 12.8 million barrels imported in October last year(Chart 2).
More than two thirds of the imported residuum comes fromRussian refineries. The rest comes mainly from Algeria, Angolaand Kazakhstan, with more smaller and less frequent shipmentsfrom refineries elsewhere.
The sudden rise in the availability of light (often sweet)crude oils from shale formations, coupled with the big expansionin processing capacity for heavier (more sulfurous) feedstock,has sharply narrowed the price discounts for heavier crudes, asmore refineries chase heavy oils and residuum to keep theircokers busy.
But it has also prolonged overcapacity in the globalrefining system, by making it hard for the most complexrefineries to exploit their advantages over their simplerrivals.
(Editing by James Jukwey)
Keywords: COLUMN KEMP/USA COKERS