October 10, 2012 / 3:01 PM / 8 years ago

To use cokers, U.S. refiners scour Europe and Africa: Kemp

LONDON (Reuters) - The shale boom has left some of the most sophisticated refineries in the United States hunting across Europe and Africa for more of the heavy residue left over from other refiners’ crude distillation units, as they try to find a use for all the expensive coking units built in the last decade.

A Chesapeake Energy Corp. worker stands beside a Chesapeake oil drilling rig on the Eagle Ford shale near Crystal City, Texas, June 6, 2011. REUTERS/Anna Driver

U.S. refineries invested heavily in delayed coking units, anticipating they would be processing increasing quantities of heavy crude from sources such as Venezuela, Canada and Saudi Arabia. Instead they have found themselves processing light crudes from shale plays such as North Dakota’s Bakken and the Eagle Ford in Texas.

The result is that many cokers are underutilized. U.S. refineries are therefore turning to imports of residuum from refineries in Russia and Africa to earn a return. But it has up-ended the economics of the refining business.

Expanding coking capacity in the United States, as well as at a number of other refineries, such as India’s giant Reliance I and II plants at Jamnagar, has supported prices for heavier crudes, even as the premium for light sweet oils has been eroded by soaring output from shale formations, throwing a lifeline to some of the simpler refineries along the U.S. East Coast and in Europe.


Cokers convert the ultra-heavy molecules with boiling points above 1,000 degrees Fahrenheit, left over from the atmospheric and vacuum distillation units of a refinery, which would otherwise be sold as low-value residual fuel oil, to more valuable gasoline, naphtha and gas oil, as well as with coke for sale to cement manufacturers and power producers.

In the process they unlock value from heavy and ultra-heavy crudes, which contain a large proportion of high-boiling point molecules that would otherwise have to be sold at a discount for use in marine boilers and power plants.

Between 2002 and 2012, U.S. refineries increased their maximum coking capacity by 450,000 barrels per day (20 percent) from 2.224 million to 2.737 million barrels per day. But the amount of fresh feed actually put into their cokers remained unchanged at around 2 million barrels per day.

Coker utilization has dropped from around 89 percent to just 77.5 percent (Chart 1). It would have dropped even further if U.S. refineries had not increased the amount of residuum imported from older and less sophisticated refineries in the former Soviet Union, North and West Africa to reprocess it.


Because the crude oils processed at U.S. refineries are not producing enough residuum, U.S. refineries have been forced to source more from other refineries overseas that process heavier crudes or lack their own coking facilities.

U.S. refiners have built a side business buying residuum at a discount from other refiners and reprocessing it into more valuable products and saleable coke.

Residuum imports have more than tripled, from just 100,000 barrels per day in 2002 to 343,000 last year, and 320,000 in the first seven months of 2012.

Imports have risen, even though many of the traditional uses for residuum, such as in power generation and marine boilers, have been declining.

In June 2012, U.S. refiners imported a near-record 12.5 million barrels (418,000 barrels per day), according to the Energy Information Administration (EIA), the independent statistical arm of the U.S. Department of Energy. It was beaten only by the 12.8 million barrels imported in October last year (Chart 2).

More than two thirds of the imported residuum comes from Russian refineries. The rest comes mainly from Algeria, Angola and Kazakhstan, with more smaller and less frequent shipments from refineries elsewhere.

The sudden rise in the availability of light (often sweet) crude oils from shale formations, coupled with the big expansion in processing capacity for heavier (more sulfurous) feedstock, has sharply narrowed the price discounts for heavier crudes, as more refineries chase heavy oils and residuum to keep their cokers busy.

But it has also prolonged overcapacity in the global refining system, by making it hard for the most complex refineries to exploit their advantages over their simpler rivals.

(John Kemp is a Reuters market analyst. The views expressed are his own)

Editing by James Jukwey

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