Study scopes cleaner diesel fuel costs in Asia-Pacific region

Diesel Fuel News, Dec 23, 2002 by Jack Peckham

A Hart Downstream Energy Group study for the multi-country Asia-Pacific Economic Cooperation (APEC) group shows that at least $10 billion will be needed for cleaner gasoline/diesel fuels as projected by 2006.

However, this $10 billion excludes additional costs that might be required for future output of ultra-low sulfur fuels (<50 or <15-ppm sulfur) in most APEC member economies beyond 2006.

Ultra-low sulfur diesel (ULSD) is only beginning to be introduced in Japan, Australia and New Zealand during the next few years, whereas Hong Kong pioneered Asian ULSD via hefty tax incentives to fuel importers nearly two years ago.

Besides Asia, APEC also includes the West Coast of North America, as well as Mexico, Peru and Chile. California has already introduced ULSD in certain fleet markets; Canada, the Western U.S. and Mexico are moving toward ULSD by 2006, and Chile is converting to ULSD for its largest market (Santiago) in 2004.

The year-long APEC study by refining technical consultants in the Hart group includes numerous "cases" for various sulfur targets, potential changes to other fuel parameters, potential World-Wide Fuel Charter limits, incremental demand forecasts, and the possible utilization or exclusion of components such as MTBE (gasoline blendstock).

Cost estimates for the various "cases" depend upon the severity of the fuel specifications, and the relative complexity of individual refining centers in APEC member economies also would affect costs. Different refining centers also have differences in typical crude slates, different national/regional demand factors for gasoline and distillates, and differences in petrochemicals demand.

The study includes regional and individual APEC member economy fuel supply/demand forecasts for gasoline, diesel and jet fuel over the next 10 years, up to 2012. Initial results of the study were presented to the Hart World Fuels Conference/Asia region, in Singapore, earlier this year.

For APEC region as a whole, diesel demand is expected to climb from about 5.8 million barrels/day in 2002, to about 7.6 Mmb/d by 2012. Over the same period, jet fuel demand is expected to climb from about 1.5 Mmb/d to about 2 Mmb/d. China, Japan and Korea dominate the diesel demand for the region, whereas the western U.S. dominates the gasoline demand.

Although the study didn't assume that refining investment costs would vary due to regional differences among APEC economies, study authors caution that refining investment costs can be higher than those of the big refining centers in the U.S. Gulf Coast or in Europe. That's due to a relative abundance in U.S. Gulf Coast/Europe of available equipment and skilled technicians that can be used for relatively lower-cost revamps or debottlenecking projects.

The study defined diesel desulfurization in five steps, including a base case at 5,000-ppm sulfur (as in a couple of APEC countries today). "Step four" would take diesel sulfur to 50-ppm, while "step five" would cut sulfur below 15-ppm.

The initial study showed an APEC-wide investment cost estimate (inside battery limits, ISBL) of about $2,400 per barrel for grass-roots diesel hydrotreating (<600 psi) or about $l,300/bbl for debottlenecking projects. Diesel aromatic saturation (1,100 psi) would be more expensive: About $2,800/bbl for grass-roots construction, or about $1,500/bbl for debottlenecking.

A cost savings of approximately 20% is recognized for larger grassroots plants due to economy of scale considerations (e.g., a 35,000 b/d diesel hydrotreating unit versus a 20,000 b/d unit). The study didn't assume a reduction in investment costs for debottlenecking projects regardless of the magnitude of the project.

The study indicates that hydrocracking projects would be far more costly and thus probably not feasible for many APEC refiners due to return-on-investment concerns and distant deadlines for "zero-sulfur" fuels. The study sees grassroots hydrocracking costs (including offsite and hydrogen costs) at about $13,500/bbl for a 23,000 b/d unit, or $7,600/bbl for a retrofit (<30,000 b/d).

However, many Asia-Pacific refiners likely could slash hydrotreating and hydrocracking costs substantially below APEC's "extremely conservative" investment-cost forecasts, refining technology expert Art Suchanek said at the Hart World Fuels Conference/Asia meeting.

Suchanek, formerly of Criterion Catalyst (and now a consultant to Hart Downstream Energy Group, points out (as an example) that some distillate hydrotreating projects today are being accomplished for as little as $700/bbl.

What's more, some APEC refiners may have high-pressure resid hydrotreaters that could be converted to hydrocracking or other processes. A coking unit could be used for the resid, with subsequent cogeneration from the coke, he said. Such projects would be far less costly than many grass-roots hydrocracking projects, he said.

For more information on the APEC study, contact Nick Economides at: neconomides@chemweek.com.