View source for Economics of Oil Refining


The three main types of components extracted from crude oil are fuels, lubricants, and feedstock for other petrochemicals. Raw unprocessed crude oil is usually not usable directly, except for light sweet crude which is sometimes used as burner fuel in ships.

Within fuels, there are two main categories. Fuels used in transportation, like gasoline, diesel, and jet fuel, and fuel oils that are used for heating, power generation, etc. Another classification, used more commonly, is into four parts: 1. '''light distillates''' (LPG, gasoline, naphtha), 2. '''middle distillates''' (diesel, kerosene, jet fuel), 3. '''heavy distillates''', and 4. '''residuum''' (heavy fuel oil, lubricating oils, wax, asphalt).

== Architecture of an oil refinery ==

=== 1. Crude Oil Storage Tanks ===

* These large tanks store the incoming crude oil before it's processed, ensuring a continuous supply to the refinery.

=== 2. Desalter Unit ===

* Crude oil contains salt and other impurities that can cause corrosion and fouling. The desalter unit removes these contaminants using water and electrical charges.

=== 3. Distillation Units ===

* '''Atmospheric Distillation:''' The first stage in refining where crude oil is heated and fed into a distillation column. Here, it's separated into various fractions based on boiling points, such as naphtha, kerosene, diesel, and atmospheric residue.
* '''Vacuum Distillation:''' Further processes the heavier residues from the atmospheric distillation under vacuum to produce more fractions, such as vacuum gas oil, which can be further processed into valuable products.

=== 4. Conversion Units ===

* These units transform less valuable heavy fractions into more valuable light products. Common conversion processes include:
** '''Catalytic Cracking:''' Breaks down heavier hydrocarbon molecules into lighter molecules such as gasoline and diesel.
** '''Hydrocracking:''' Similar to catalytic cracking but uses hydrogen to produce higher-quality products.
** '''Coking:''' Converts very heavy residues into lighter products and a solid coke.

=== 5. Treatment and Blending Units ===

* '''Hydrotreating:''' Removes sulfur, nitrogen, and other contaminants from petroleum fractions to produce cleaner products.
* '''Blending:''' Various fractions are blended to meet specific quality specifications for the final products like gasoline, diesel, and jet fuel.

=== 6. Supporting Utilities and Infrastructure ===

* Includes steam and power generation units, water treatment plants, and storage facilities for the produced products. It also encompasses control systems, laboratories for quality control, and waste management facilities.

=== 7. Product Storage Tanks ===

* Store the finished products (gasoline, diesel, jet fuel, etc.) before they are transported to the market via pipeline, truck, ship, or rail.

=== 8. Safety and Environmental Control Systems ===

* Essential for managing emissions, monitoring for leaks, and ensuring the safety of the refinery operations. This includes flare systems for burning off excess gases and treatment systems for wastewater.




== Questions ==
* What is the average cost of setting up a basic oil refinery?
* How long does it take to set up a plant?
* How do you decide what products to produce. How does that affect (and is affected by) the kind of crude oil you process?
* What are the different kinds of crude and where do they come from? How is pricing decided for different kinds of crude?
* What kind of variation can you do in the output that your refinery produces, without making major changes to equipment?
* What are the determinants of the gross refining margin?