Low-complexity Asia refiners face higher ULSD costs: study

Diesel Fuel News, Jan 20, 2003 by Jack Peckham

A study commissioned by Asia Development Bank (ADB) shows that (except for Japan) most Asian refiners lack diesel hydrotreating and hydrocracking capacity, making the cost of ultra-low sulfur diesel (ULSD) a bigger financial hurdle than in "advanced" countries.

Preliminary results of the ADB study (presented by Enstrat International to the "Better Air Quality in Asia" conference in Hong Kong last month) show relative complexity of 145 refineries in 12 Southeast Asia, China and Indian subcontinent nations. Results were compared to advanced "benchmark" refinery complexity in U.S., Europe and Japan.

These "benchmark" countries have already brought diesel fuel to well below 500-ppm sulfur with 25% to 45% of hydrotreating plus hydrocracking capacity. For this study, desulfurization percent "capacity" means the percent of installed crude distillation capacity, not including vacuum distillation.

Most of the Asian refineries studied were in China (95). India had second-most, with 17, while Indonesia had eight. Malaysia accounted for six refineries; Thailand and Pakistan, four; Singapore and Philippines, three; Myanmar, two; Brunei, Bangladesh and Sri Lanka, one each.

Of the 145 refineries studied, 113 had no hydrotreating or hydrocracking capacity whatever. Fifteen had hydrotreating units with capacity in 10-18% range; nine had hydrocracking in 12-30% range; and five refineries had both hydrocracking and hydrotreating with total capacity of about 25%, the study found.

Enstrat calculated diesel desulfurization costs for both "average" and "typical" refinery configurations in these 12 countries. To compare cost results fairly, the study assumed that each refinery would produce 2 million tons/year of diesel.

To calculate the cost of meeting various desulfurization targets (500-ppm, 350-ppm and 50-ppm ULSD), Enstrat analyzed three processes - low-to-medium-pressure hydrotreating; high-pressure (above 70 bar) hydrotreating; and distillate hydrocracking.

It assumed refinery process vendor costs typical of Western Europe or U.S. Gulf Coast would cost 1.5 times as much in Asia. Ten-year capex assumed a 7% discount factor; associated opex was assumed to be 10% of annualized capex.

Additional utilities, pumps, tanks and related equipment added 20% to desulfurization capex. Hydrogen units were added "as required," Enstrat Executive Director Mario Camarsa explained.

The study analyzed both high-sulfur (2%) and low-sulfur (1%) crude slates, and assumed benefits of higher yields with low-sulfur crudes.

To hit a 500-ppm sulfur target ("Euro 2"), the study found that "average" Asian refineries would face about $135-182 million capex if processing high-sulfur crude (about 3.2 to 4.3 cents/gallon), or $119-180 million if processing low-sulfur crude. Refineries that already have 30% hydrocracking capacity would have the lowest capex, while refineries lacking any hydrocracking/hydroprocessing have the highest cost.

To hit a 350-ppm sulfur target (Euro-3), "average": Asian refiners face $145-184 million capex (3.4-4.4 c/gal.) for high-sulfur crude, or $137-182 million for low-sulfur crude.

Hitting 50-ppm ULSD limits ("Euro-4 ") would about double the investment cost compared to Euro-2/Euro-3 limits, the study shows.

High-sulfur crude refiners would face $376-450 million capex (about 8.9-10.8 c/gal.), and low-sulfur crude refiners face virtually identical capex for ULSD. Only refiners with existing hydrocracking capacity could avoid the highest capex costs, this analysis shows.

Note: The study didn't assume refining industry rationalization or restructuring, Camarsa told us in a post-conference interview. For example, it probably makes more sense to shut down many small, low-conversion refineries and refocus investment on larger, higher-complexity refineries, both for fuel quality improvement and capacity expansion.

So, the cost calculations and assumptions would change if the study included a refining industry rationalization assumption, Camarsa points out.

State-owned refineries also face investment constraints that differ from private refiners, since governments have competing priorities for state funds, he pointed out. India, for example, has an urgent need to expand clean water supplies in rural areas, so the government possibly could take revenues from refining to subsidize rural development rather than accelerating ULSD projects.

Refinery Structure by Country, % Capacity

Country      Thermal   Coking  Catalytic  Hydro-    Hydro-
             cracking          Cracking   cracking  treating

Singapore    16.4      --      5.1        7.4       20.7
Malaysia     --        3.7     --         5.5       6.1
Thailand     2.6       --      11.8       2.9       14.3
Philippines  5.2       --      5.8        --        23.7
Indonesia    5.9       3.3     10.2       10.0      1.2
Myanmar      --        16.3    --         --        --
Brunei       --        --      --         --        --
India        4.4       2.1     7.9        2.6       3.8
Pakistan     --        --      --         --        --
Bangladesh   30.3      --      --         3.6       --
Sri Lanka    26.7      --      --         --        4.2
China        --        6.7     20.5       2.8       1.1

Source: Enstrat International