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Background to the Study
The oil refinery sector faces significant challenges in response to the Paris Agreement’s 2050 projections for carbon emission reductions. Moreover, there is a global trend to process significant amounts of heavy, sour crude to produce high value products, such as ultra-low-sulphur diesel and gasoline, to achieve better refinery margins as well as meeting stringent environmental standards including green-house gas emission reductions. The option of CO2 emission free electricity generation within refineries can help to meet these goals.
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Key Messages
- The results of this study show that, in each of the three countries that were analyzed in this
study (India, Nigeria and Brazil), the most favourable refinery configuration is one based on
the conversion of opportunity crudes (high sulphur and extra-heavy crude oils), to the highest
added-value distillate products.
- Refineries that produce higher value products, and environmental standards including CO2
capture, will require policies that compensate for the extra costs of these measures.
The economic analysis conducted as part of this study shows that the price of CO2 needed to
match the same Investment Rate of Return (IRR) of equivalent configurations without
incorporated CO2 capture would need to reach between US$32 – US$79 / ton of CO2, depending
on the refinery configuration (see Table 4).
- On-site electricity generation with CO2 capture facilities can form part of the product portfolio,
for export to local grids, from a Clean Refinery as an alternative to less refined and less desirable
products. For example, in Brazil, fuel oil cannot be produced that meets the country’s market-
specification because of the very high viscosity of local crudes.
- As a common trend, and as expected, the yield in valuable distillates (LPG, gasoline, jet fuel
and diesel) is directly proportional to the complexity of the configuration and relevant Nelson
Index (which is a metric that allows comparison of the secondary conversion capacity of a
refinery with its primary distillation capacity). Differences between the yields in the three
countries are due to the very different nature of the processed crude oils.
- On the basis of the economic analysis of the refinery configurations developed in this study
only two large-complex Indian refineries have a positive payback in less than 10 years. The
other configurations have very unpromising paybacks of 16 – 20 years in three cases and
indeterminate in the case of all three Brazilian cases and one Nigerian case (i.e. all four cases
have negative Net Present Values (NPVs)). The Brazilian cases are penalized by the assumed
crude cost in relation to the local product prices that are governed by market conditions and the
relatively high Total Investment Cost (TIC).
- In a mature market, like the refining one, the key-drivers that still make a new refinery a
profitable investment are: access to infrastructures; secure crude supply; medium-to-large
capacity; and complexity.
- The economic analysis conducted as part of this study shows that the additional cost of CO2
capture results in a loss of profitability if the value and environmental benefit of captured CO2
is not credited.
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