he Impact of Costs Associated
With New Environmental
Standards Upon the Petroleum
Part II
structure of the industry
Stephen Sobtoka and Company
November 1971
Distributed By:
National Technical Information Service
U. S. DEPARTMENT OF COMMERCE
5285 Port Royal Road, Springfield Va. 22151
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THE IMPACT OF COSTS
ASSOCIATED WITH N^W ENVIRONMENTAL
STANDARDS UPON THE PETROLEUM
REFINING INDUSTRY
PART TWO
STRUCTURE OF THE INDUSTRY
Prepared for the
Council on Environmental Quality
New York, N. Y.
November 23, 1971
Stephen SoLoiLa & Company
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TABLE OF CONTENTS
INTRODUCTION AND SUMMARY
SECTION I. DEMAND
A. The Products
B. Market and Distribution,
C. Government Influence on Market
S3CTI0N II: 'SUPPLY
A. (Industry Operations -
1. The production process
2. Tyne and location of rav; materials
3. Number and location of firms and
of plants
4. Types of firms
5. Types of plants
6. Employees
B. Financial Structure and Trends/
1. Costs - fixed and variable
2. Profits
3. Caslr f lows
C. ,Refinery/Technology and Technological
Trends,
D. Industry Utilization Plates
- .Competition]^
APPEHDI" The Viability of Small Refineries
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St
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TABLE OF CONTENTS
(Cont.)
EXHIBITS
1. Petroleum Administration for Defense
(PAD) Districts
2. Domestic Consumption of Petroleum Products
a) U.S. Sales of Distillate Fuel Oil by Usee
b) U.S. Sales of Residual Fuel Oil by Uses
3. Refinery and Terminal Prices
4. Functional Characterization of Petroleum
Refining Processes
5. Schematic Flow Diagram of Petroleum Refininr -
A. Petroleum Product Manufacturing
6. Refinery Environmental Control Processes
7. Schematic Flow Diagram of Petroleum Refining -
B. Pollutant Collection and Treatment
8. Number and Capacity of Refineries by States
9. Refineries - Distribution by Size - 1971
10. Refineries - Distribution by Size - 1966
11. Number of Refineries by Size Classes
12. Refinery Capacity by Size Classes
13. Employment, Earnings and Payrolls
1L. Average Operating Costs of U. S. Refineries
15. Rate of Return on Net Worth
a) Estimated Investment in Fixed Assets
b) Estimated Financial Data
]j. Estimated Petroleum Refinery Capital
Requirements 1972-1921
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INTRODUCTION AIJD SUMMARY
This is Part Two of a three-part report. In this Part
v/g presentMata and background information relevant to a consider-
tion of the economic impact of pollution abatement costs on the
petroleum refining industry.
In our analysis wo have throughout assumed a normal
functioning of market forces. We assume that price controls, if
existent, will not affect the flow of investment funds to the oil
industry and will operate so ls to allow price fluctuations which
reflect cost changes.
Our choice of data and our description of the refining
industry are influenced by two considerations. First, to present
information valuable to persons who guide the making of public
policy for this industry. Secondly, to discuss those aspects of
the industry's relations with other industries which would be
useful in assessing the impact of pollution abatement costs in the
economy generally.
The petroleum refining industry in the United States
consists of some 250 plants owned by about 130 firms and located
in 39 of the 50 states. The refineries have a replacement value
at current prices in excess of $15 billion. The refining in-
dustry employs about 150,000 persons.
The bulk of refining is done by firms which also market
refined products or produce crude oil, or do both. In most firms
the refining portion of the business is not its major activity.
Refinery investment is less than 25 percent of total investment in
the domestic oil industry, and refinery employment is a similar
fraction of total employment.
With the exception of residual oil there is little
foreign competition. There also is only limited competition from
products of other industries.
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The industry has experienced a fairly steady rrov/th
rate which approximates the frowth in real GNP. This is expected
to continue-
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SECTION I
DEMAND
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A. The Products
The industry manufactures hundreds of distinruishnbly
different products. From the viewpoint of environmental control
costs these may be rrouped into four broad product classes:
gasoline, intermediates, residual, and other.
Gasoline accounts for about JU-5 oercent of industry output.
It is typically priced at about 12 cents per gallon1^ in cargo
lots on the Gulf Coast. Although other materials- can be used as
gasoline substitutes (propane, methyl and ethyl alcohol, electric
batteries) their use is negligible for cost reasons.
Intermediates include military and commercial jet fuel,
kerosene, space heating oil, also called No. 2 fuel or furnace
oil, and diesc-1 fuel. These products are typically priced at
about 10 cents per gallon and make up about 33 percent of industry
output. No substitutes exist for the transportation fuel portion
of the intermediates market. Natural gas is used extensively in
the space heating; market and may be more or less expensive than
oil, depending on user location. Some heating oil is imported,
using a "quota" system, into the Northeast and reduces the demand
for domestic product.
Residual is currently priced at from about 6 cents to about
12 cents per gallon or even more, depending on sulfur content and
location. Residual amounts to about 6 percent of domestic petroleum
production and 17 percent of domestic demand for oils. The dif-
ference is accounted for by imports. Because there are ro limits
on residual imports into the Easter states, the price of residual
in the U.S. is based on the international market. Through most of
1) Average of 100 octane "premium" at 13 cents per gallon and 9U
octane "regular" at 11 cents per gallon. Piatt's Oil Price
handbook.
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the 1900's residual was priced sufficiently below crude oil to
prompt increased investment in refineries in order to reduce
reridual yields. In large volume installations natural gas and
coal compete directly with residual oil.
Other products include asphalt, lubricants, liquefied
petroleum gas (mostly propane), naphthas and solvents, coke,
petrochemicals and petrochemical feedstocks. (Asphalt and lu-
bricating oils are important products for many small refineries.)
These products account for about 16 percent of the domestic
industry's output. They are priced from 4 cents to $1.00 per
gallon. Most lubricants and liquefied petroleum pas (LPG) have
no significant economical substitutes from outside the industry.
On the other hand, petroleum solvents face direct competition
from the chemical industry. Some of the "other" products, like
asphalt on the East Coast and petrochemical feedstocks generally,
are subject to international competition. Non-metallurgical
petroleum coke is exported in significant amounts. The market
for this product depends in part on emission rules in customer
countries.
B. Market and Distribution
The U.S. petroleum market has traditionally been divided
into five geographic regions called "PAD Districts." (See Exhibit _
Within each district product consumption is classified by individus'
commercial (including government), industrial and export use.
Market data for 1966 through 1970 by product and district are shov.M
in Exhibits 2, 2a, and 2b.
Oil products are distributed from refineries primarily
by pipeline and tankers oV barges to terminals. From there local
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deliveries are made by truck. Some rail distribution is utilized.
The impact of new environmental standards on the distribution and
marketing of oil products does not fall within the scope of this
study. But the costs of meeting new standards in moving the
product from the refinery to the final consumer and in the asso-
ciated storage facilities may be important.
From the viewpoint of dollar volume gasoline accounts for
50 percent of the refining industry's value of output. Inter-
mediates account for 31 percent and residual for only 4 percent.
Well over one-half of total refinery output sold is through dis-
tribution and marketing facilities which refining companies own or
in which they have a financial interest. In general, sales of
higher-unit-value products (lubricants, gasoline, jet fuel) are
more highly integrated than those of low-unit-value products.
Most large companies operate their refining, distribution and
marketing functions in an integrated manner. Assigning product
prices at various points within the operation is an internal
matter to most companies. Nevertheless, considerable product is
sold by refiners directly to customers at published prices. Thus,
conclusions adequate for this study can be drawn about the costs
associated with new environmental standards.
Over the past five years the volume of gasoline produeec
has increased at an average annual rate of l+. 7 percent. Inter-
mediates consumption has grown at 5.2 percent rcer year. Residual
production in domestic refineries has been stable but consumption
has increased at about 6.5 percent per year.
Oil product prices have increased at a slower rate than
either consumer or wholesale price indices, largely because the
1) Because of residual imports the relative contribution of the
various products to domestic refiners1 gross dollar revenue
is different than the relative contribution at the consumer
level.
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industry has been able to utilize improved technology to offset
cost increases. In the short term however important price changes
do occur, mostly associated with changes in refinery utilization
and with seasonal factors. Also, as crude oil accounts for over
Wo-thirds of the cost of oil products at the refinery pate, produc ,
prices change with the price of crude. Since 1966 there have be-r.
several increases in the price of crude oil. In Exhibit 3 repre-
sentative major product prices for a five-year period are tabulated.
C. Government Influence on Market
Federal, state and local governments all influence the
oil product market. The Federal Government's main influence is
through its indirect support of the price of domestic crude oil.
This control is exercised by limitinr, in the interest of national
security, the amount of lower-priced foreign oil that can be
imported into the U.S.^
All levels of government purchase large quantities and
a wide range of oil products. One of these purchases, military
grade jet fuel (JP-i+), is important to some small refiners. A
srasoline-like material, JP-iV requires little processing beyond
separation from crude. In contrast, automotive gasoline is
produced in a complex processing scheme.
Government also influences the market for petroleum
products through imposition of environmental standards. This
1) Because importation of crude oil is limited by a quota
system and" foreign crude prices have typically been lower
than domestic, import rights normally have considerable
value. These rights are allocated among refining firms
according to their size. Although large firms have bigger
quotas than small ones the latter are given more "tickets"
per unit of throughput.
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can take the form of direct specification of product character-
istics, e.7., sulfur content in residual oil. Cr it may take
the form of imposing environmental standards on petroleum users
which in turn affect the nature of the product, e.g., control of
auto emissions . In either case, the potential costs of changes
in product characteristics far exceed the cost of bringing refinery
operations up to environmental standards.
Government policy in pricing and regulation of natural
pas, an important refinery fuel, also affects refining costs.
This will be further discussed below.
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SECTION II
SUPPLY
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A. Industry Operations
1. The production process.
Although a typical oil refinery is technically
complex, the manufacturing process is conceptually simple.
Crude oil is the primary raw material used in
refining. Crude oils are liquid mixtures of many carbon-
containing chemical compounds. Crudes differ from one another
in the relative concentration of the various compounds. In
refining, crude oil is first separated into several groups of
varying molecular size known as cuts. The chemical composition
of some of these cuts is then altered by changing the average
molecular size. Some cuts are further processed to alter the
shape or structure of the molecules. Most of the original and
the altered cuts are "treated" to make innocuous or to remove
impurities, notably sulfur. Treated cuts are then blended to
produce finished products. To these may be added various sub-
stances, known as additives, to impart certain desirable properties.
Exhibit U classifies various refinery processes according to their
principal function in the refining of petroleum: separation,
alteration of molecules by size or shape, or treating. A schematic
flow diagram of a refinery is shown in Exhibit 5.
In refinery operation certain polluting materials
may be released into the environment. The pollutants are by-
products of the various refinery processes. (See Exhibit 7 of
Part Two) The principal ones arise in operations as follows:
a) Hydrogen sulfide (H^S^the gaseous precursor of
sulfur oxides, is formed in hydroprocessing (catalytic reforming,
hydrotreating and hydrocracking) and cracking (catalytic and
thermal, including coking). Only trivial amounts, which can be
ignored, are formed in other processes (distillation, asphalt
manufacture, lubricating oil manufacture, alkylation, etc.).
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Sulfur oxidos are also formed in the combustion of sulfur-
containine liquids. (Also, when liquid fuels containing; nitroren
compounds are burned, the resultant nitrogen oxides may cause an
opaque stack "plume.M)
b) Hydrocarbon vapors can escape from tanks
containing rasoline or crude oil.
c) Carbon monoxide (CO) is a by-product of catalytic
crackinr. Also some catalyst dujt occurs.
d) Substances which create a biolop-ical oxyrren
demand (BOD) in waste water are formed in catalytic and thermal
cracking, and in sulfuric acid treatment of petroleum products
(notably naphthenic and Pennsylvania lubricating oils). Also
most of the solvents (phenol, furfural, etc.) used in manufacturen^
solvent-refined lubricating oils create BOD.
e) Waste water from every refinery may contain oil
or the water may not have a neutral pH.
Processes used to control the emission of these
pollutants are shown in Exhibit 6. The schematic flow diagram
in Exhibit 7 shows the collection and treatment of pollutants
produced in each process.
EPA has assumed certain technolopical devices to be
necessary and sufficient to meet proposed new environmental
standards. They are:
(1) Hydrogen sulfide removal from refinery fuel /ras
and conversion to elemental sulfur in plants equipped with tail-
gas scrubbing. The entire sulfur control system is to be paral-
leled vith a redundant facility.
(2) Floating roofs on gasoline and volatile crude
oil storafe tanks with more than ^0,000 gallon capacity.
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(3) Catalyst removal from catalytic cracker re-
generator flue gas by electrical precipitation and incineration
of the flue gas in carbon monoxide boilers. An important EPA
assumption was that both particulate and carbon monoxide emissions
from catalytic crackers with fresh feed capacity below 10,000
barrels per stream day were so low that no equipment would be
needed in these units.^
(4) BOD removal in an effluent treatment plant
including equipment for water flow equalization, oil separation,
neutralization, flotation, sedimentation, coagulation and bio-
logical treatment.
(5) Oil and suspended solids removal and neutraliza-
tion in a water effluent treating plant simpler than that needed
for BOD removal.
The forefoinf classification can be summarized as
follows:
Refining Processes Installed Effluent Control Required
Large Thermal or Hydro Lube Air Uater
Cat. Small Cat. Proces- Mfg. H?5 Co &
Cracker Cracker ses " Cat. BOD
X XXX
X XX
X x
X x
In addition, all refineries will have to have floatinr
roofs on specified tanks and a water effluent treatinp facility
for removing oil and suspended solid: and for neutralizing
1) The assumption that small catalytic crackers will not need
control equipment is an important one. There are 27 catalytic
crackers in 25 refineries (10$ of the industry) vith catalytic
crackers of less than 10,000 barrels per stream day capacity
(Oil and Gas Journal, March 22, 1971» PP 9S-1?0). A 7500
barrels per day -analytic cracker emits perhaps three tons
of sulfur oxides and 70 tons of carbon monoxide per day.
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The imposition of environmental controls on the
quality of refinery products will add additional processing
complexity to refineries. For example much more catalytic
reforming, as well as some other processes, will be introduced
to make lead-free gasoline. Intermediates will require hydro-
desulfurization. The manufacture of low-sulfur residual will
require installation of considerable equipment. At the moment,
the low-sulfur residual picture is complicated by wide variations
in crude oil composition and varying sulfur content restrictions.
Residual desulfurization is expected to be expensive. These
matters, though of compelling economic importance to many refinerr,
lie outside the scope of our study.
2. Type and location of raw materials
Crude oil is the most important raw material used by
the refining industry. Natural gasoline, a liquid product of the
natural gas industry, furnishes about 7 percent of refinery intakcr
There are no other significant raw materials. About 39 percent of
industry raw material is of domestic origin, 11 percent is importec
from Canada, I-'.exico, South America (largely Venezuela), Africa,
Indonesia and the Middle East. It appears likely that the U.S.
will in years to cone import an increasing fraction of its crude
oil requirements.
The major crude-producinp- states are Texas, Louisiana,
California, Oklahoma, 'ivyominp and New Mexico, although 30 of the
50 states have some production. Texas and Louisiana together
1) U.S. Bureau of Mines, Mineral Industries Surveys - Petroleum
Jan. 1971 - Table 23.
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account for about U& percent of the domestic industry's crude
oil production. Large Alaskan deposits will be exploited when
a transportation system for them is built.
3. Number and location of firms and of plants
There are about 130 firms in the oil refining industry.
They own some 250 refineries. Refinery locations are concentrated
along the Kississippi-Louisiana-Texas Gulf Coast, near Los Angelas
and San Francisco, in the Pacific Northwest, near Chicago, near
Philadelphia and in New Jersey, in Ohio, and in Oklahoma. Exhibit
& shows the number of refineries and refinery capacity by state.
U. Tynes of firms
Firms in the oil refining industry can be classified
according to size, extent of integration, and the number and size
of refineries owned. All refineries are necessarily multi-product
and all perform the entire process of converting crude oil into
salable products. All large and medium size firms, and some email
or.es, have diversified into chemical manufacturing. A very few
have further diversified into other industries but the fraction of
total capital employed in non-oil or chemical activities generally
is small.
5. Types of plants
Oil refineries are categorized by size and by the
ranp-e of their products. There is also considerable variation in
age of refineries. But classificatior by age is not useful because
additions to and modifications of plants are the industry's orincioal
form of expansion.
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Exhibit 9 shows the distribution of refineries by
size. Refineries of over 100,000 barrels per day capacity account
for 55 percent of U.S. refinery capacity (a barrel is 42 U.S.
gallons). They number 36 out of a total of about 250 plants. Very
few new refineries have been built in the last five years and few
have been abandoned. Of a total population of about 260 five years
25 plants appear to have been shut down and 15 new ones built
Exhibit 10 shows the distribution of refineries by size in 1966.
Those newly built plants which appear to be fairly complete refiner-
ies vary in size from 10,000 to about 150,000 barrels per day of
throughput. It appears that size is not a characteristic which in
itself accounts for turnover. Exhibits 11 and 12 depict the dis-
tribution of industry capacity by numbers of plants and by plant
size in 1966 and 1971.
Multiple plant operations are commonplace in the
industry. The 16 largest firms, each of which has over 200,000
barrels per day of total capacity, operate 105 refineries. These
105 plants account for 80 percent of the industry's capacity. A
few of these refineries have capacities of less than 25,000 barrels
per day. Half of all industry refineries (125 plants) are smaller
than 25,000 barrels per day. They account for only 6 percent of
industry capacity.
Technological progress in the past 20 years has
induced construction of larger, lower-unit-cost process units.
Consequently there has been a trend toward larger plants. Although
no new plants of over 200,000 barrels per day have been built, the
industry's net growth in capacity has been the result of smaller
plants' expansion to this very large size class.
1) In the Appendix we discuss the characteristics of the shut-down
plants.
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The trends in the industry most significant to this
study are that the number of refineries has decreased slightly
and their average size has increased.
In general, very small refineries with intakes below
about 10,000 barrels per day have few units and manufacture only
a narrow range of products. Some small refineries in Pennsylvania,
southern Arkansas, Oklahoma, and South Texas take advantage of
local crude quality to manufacture lubricants. Asphalt is also
an important product for many small refineries. Over a third of
plants with capacities below 10,000 barrels per day produce asphalt
as a principal product. Asphalt is costly to transport, especially
ovorland. Therefore a relatively large fraction of the industry's
asphalt output is produced in small refineries.
As regards refinery differentiation by product slate,
a small refinery may be designed to process low-sulfur crude oil
into the naturally occurring volumes of gasoline, intermediates
and rosidual, or asphalt which is essentially a special grade of
residual. Such a refinery requires only a crude oil distillation
unit, a catalytic reformer with feed pretreater, two or three
additional distillation columns and treating units. Some small
refiners in Southern California due to the characteristics of local
crude oil manufacture military jet fuel and residual with only a
crude oil unit. On the other hand a large refinery manufacturing
a full range of fuel products plus lubricants, industrial solvents,
liquefied potroloum gas and a few common chemicals will have a score
or more of process units.
A common technology is ur ^d throughout the industry.
The differences that do exist are small and probably not sipnificant
in terms of a plant's ability to meet environmental standards
economically. There are important differences in the extent to
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v;hich environmental control equipment has been installed to date.
6. Employees
Data on employment and earninfs are presented in
Exhibit 13• About 60 percent of petroleum refining employees are
production workers"^. Their hourly and weekly earnings are con-
siderably above the average for all manufacturing. Hourly earninrs
in 1971 in petroleum refining are estimated at $4.22 versus $3.5*
? 1
for all manufacturing, weekly earnings $205.00 versus $1Z|.2.00 .
Refinery employment as a whole has been fairly stable.
In 1964 there were 150,000 employees and in 1968, 151,000. By 1970
employment had risen to 153>000^'. In the same period tho industry''
capacity rose about 17^ mostly as a result of capacity increases
in existinr refineries. A great many refineries, about 2/3 of the
total, have been expanded in the last 5 years. It is likely that
the bulk of the net employment increases have taken place in very
larp;e refineries, those over 100 or even 200 thousand barrels per
day of throughput which also account for almost the entire net
growth in output.
Perhaps one-third of refining industry employees have
skills which are not readily transferable to other industries.
While it was clearly beyond the scope of this study to make an
analysis of the transferability of the skills required by the
industry, an examination of the occupational titles indicates that
two-thirdc of the employees have skills which are not special to
the industry, or they are unskilled.
1) Source: Chemical & Engineering News, Sept. 6, 1971» p. 33A
2) ibid.
3) Statistical Abstract of the U.S. Bureau of the Census, Dept.
of Commerce, p. 221. (Some refineries are operated in con-
junction with transportation and/or terminallinp facilities.
It is not clear whether their employees are included in the
refinery worker count.)
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Detailed occupational data for the petroleum refining
industry are available for the year 1965. In that year 148,000
people we re employed in the petroleum refining industry, £9»000
of whom were production workers.^ These figures include employ-
ment in central offices, research laboratories, etc. of refining
firms as well as in refineries. Refinery employment was about
106,000 including about 77>000 production workers. A Bureau of
Labor Statistics study^ of a representative sample of 4^,000 of
the 77»000 showed that almost 1/3 of refinery production workers
wero maintenance workers and &5f<> of these were skilled craftsmen,
such as welders, mechanics, machinists, electricians, etc. One
half of production workers were skilled refinery operators such
as stillmcn, treaters, compounders, testers, etc. These r.en's
skills arc probably transferable only to other similar industries,
such as chemical manufacturing or food processing. The balance
of the oro^uction workers are either unskilled, or are helpers,
or have feneral ckillls such as stock clerks or truck drivers.
Thus it appears that about one-third of the people
in the industry (probably a smaller fraction in small plants)
are skilled workers whose job opportunities at a comparable skill
level are dependent on re-employment in the "process" industries.
The other two-thirds are employable in other industries at their
present skill levels if job opportunities exist for them.
1) Statistical Abstract of the U.S., 1971 Bureau of the Census,
Dept. of Commerce, p. 221
2) Industry Warce Survey, Petroleum Refininp, Dec. 19^5,
3ulletin #1526, U.S. Dept. of Labor. Bureau of Labor
Statistics, p. 12.
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B. Financial Structure and Trends
It is impossible to analyze the financial structure of
the petroleum refining industry usin/f published data. Too few
firms and none that are typical of the industry are exclusively
or even primarily in the refining business. To discuss the
financial characteristics of the industry we shall use price data
which reasonably reflect the values of products made by typical
refiners, and we sha!3 assume cost rfata we consider appropriate
for crude oil.
Sales volume in the oil industry has risen almost with-
out interruption and at a fairly steady rate for many years. The
history of bulk prices of major products is shown in Exhibit 3."^
1. Costs - fixed and variable.
No data are published which break down refinery
costs in a manner useable for this study. \'h have therefore made
such an estimate for a plant manufacturing; fuel products (no lub-
ricants). V/e caution the reader that no actual refinery will
2)
exactly match these figures. Refining costs are characterized
by a very hirh ratio of raw material costs to total cost. Fixed
costs make up most of the balance. Our illustrative estimate of
costs follows. (See next pajre)
1) There is considerable variation in prices due to transport
costs.
2) Our estimate closely approximates that of W. L. Nelson.
See Exhibit 1J+.
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Costs - Fixed and Variable
Item Cost/barrel of Percent of total costs
refinery intake Fixed Variable
Raw materials
$
3.50
737°
Fuel and utilities
.30
If*
ofo
Labor
.25
5%
Chemicals, catalysts,
additives & materials
.20
Insurance and taxes
Capital charges^
, .05
If,
.50
10fo
Total
$
if.30
17?°
1) Basis &fo per year cost of capital.
2. Profits
No data on refinery profitability are available.
But we can assume that refining operations are, on the marpin,
neither more nor less profitable than the rest of a tyoical oil
company's business. Exhibit 15 rives some relevant financial
data for the oil industry. While profitability of the business
as a whole has been subject to some variability, industry eamin.-r
have been adequate to attract capital to finance growth and
replacement.
3. Cash flows
Exhibit 16 shows our derivation of an estimate of
the rsfininr industry's capital needs in the 10 years berinninr
with 1972. This estimate indicates :hat roughly $15 billion
dollars will be used for expansion and normal replacement in tro
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decado. Substantial amounts of additional capital will be required
for equipment to manufacture environmentally "clean" products.
Capital requirements for this purpose are expected to be about
$5 billion (EPA estimate). Finally, $1 billion will be needed to
conform refinery operations to environmental standards. We shall
discuss this further in Part Three.
It is useful to puv our estimates of capital require-
ments for refineries in perspective with oil company capital ex-
penditures for all purposes. Data on a group of 28 large oil
companies show that roughly 22 percent (about $1.5 billion of
$6,6 billion) of domestic capital expenditures by this group
represents investment in refineries and chemical plants in 1970.^
Total domestic investment in that year for the same group of
companies is about 58 percent of worldwide investment.2^
C. Refinery Technology and Technological Trends
Petroleum refining has been a high-technology industry
since V/orld War I. The technology of the industry has steadily
improved. A few major breakthroughs, notably thermal and catalytic
cracking, catalytic reforming, and solvent extraction of lubricating
oils have had profound effects. But of almost equal importance in
the long run has been the improvement in existing processes. Tech-
nological improvements are utilized industry-wide because industry
members traditionally license the use of significant new technology
to competitors. There are no important trade secrets in the
refining industry.
1) Financial Analysis of a Group of Petroleum Companies 1970,
Chase Manhattan Bank, p. 19.
2) ibid, p. 13
Step lien SoLotlta & C'oni j
par -
-------
- 24 -
A combination of product quality competition and
economies of building and operating larger plants has served to
push oil refining firms toward bigger and more complex refineries.
Product quality competition has been achieved by the use of ad-
ditives and of quality-improving processes like catalytic reform?n~
to increase gasoline octane number, and ty catalytic hydroren
treatment to reduce sulfur content of intermediates. This has led
to an increase in the amount and value of processing equipment oer
unit of output. Relatively low residual prices which have encouraged
investment to reduce residual yields also raise the value of
equipment ner unit of output.
Thus, larger refineries and larger units within ex:'stirr
refineries mark the industry's development. Once the capability
exists to build and operate larger plants there is a stronr economic
incentive to do so. Large plants cost less to build per unit of
intake than smaller ones. Typically it only costs 50 nerccnt r.oro
to build a plant with 100 percent more capacity (the "two-thirds
power rule").
This does not mean that an existinp small plant is
necessarily unviable. Existing small plants are effective compe-
titors. But new small plants are not being built, except for an
occasional asrhalt plant.
D. Industry Utilization Rates
If. S. refineries are currently processing crude oil at
an averare annual rate of about percent of reported capacity.
This is a fairly typical long-run fi; ure for the industry. But
it is important to differentiate between a refinery's canacity
Stephen SoLotLa & Company
-------
to procoss crude oil and its capacity to manufacture a particular
product.
Almost all refineries have the flexibility to alter their
product mix. They can to some extent increase the output of
trasoline at the expense of intermediates or they can nroduce more
intermediates at the expense of gasoline. Nearly all refineries
could increase residual manufacture above the design level but
this is uneconomic while the pri^e of residual is below the cost
of crude oil. Published data on capacity utilisation cannot
reflect the industry's ability to alter yields. Hence they are
not useful in estimating the industry's ability to increase output
of specific products. We believe that at present there is excess
capacity to produce gasoline at current octane numbers and lead
content."1"^ 3v 1973 or 1974» however, more capacity will be needsr
than is now available.
Requirement to manufacture products with specific nron-
ertiec further influences capacity. A refinery that car manufactu
100 volumes of 94 octane leaded gasoline mirht be abls to make on]
70 volume? of lead-free 94 octane.
Producing low-sulfur residual also presents special
problems. Residual is essentially a by-product of the refining
process. Its sulfur content is predominantly dependent on the
sulfur content of the crude the refinery uses. It follows that.
most refineries have no "capacity" to produce low-sulfur resicuf"'
from the^r normal cruie stream.
Availability of fuel of acceptable quality for internal
refiner:/ use also affects refinery capacity. Refiners normally
burn in thiir internal operations the lowest valued material
1) ::o data are available to prove this assertion but prices on
the "car,'ro" and "bid" markets indicate that this must be the
case. These prices are too low to provide an incentive to
increase capacity. This is discussed elsewhere in the renort.
Stephen So Lotlca &
-------
- 26 -
available. They first use the pases produced ?s a by-nroduct
of refinins: operations because these gases generally have no
market. The next choice is purchased natural gas, if available,
because it is priced below residual (per BTTJ) in most Darts of
the U.S. and the facilities needed to burn pas are cheaoer than
those needed to bum liquids. The remaining requirement, about
120,000 barrels a day"^ currently, is met largely with residual
fuel. A small amount of coal is also used. Residual and coal
normally contain considerable sulfur. Thus, if low sulfur rules
are imposed some refinery capacity will depend on availability of
low-sulfur residual.
Similarly, the availability of ,Tas in some instances
affects capacity. Refineries with no facilities for burning
liquid or solid fuels would have to install new equipment if pas
were not available in sufficient quantity. This would be expensive
as well as time consuming.
3. Competition
The market for wholesale oil products is competitive in
the economist's meaninp of the term. That is, the price elasticity
of demand facinr individual firms is hifrh. Despite a strong and
continuing- industry effort to establish brand differentiation for
retail consumers, the wholesale market operates on a commodity
2) ~
basis. Perhaps one-third of gasoline , about 50 percent of
intermediates and almost all residual are sold as commodities,
with such lar'-c volumes sold by many refiners an active brokerage
businesc e::ists. Non-branded marketers maintain arrrressive Durch-;n-
in.rc staffs, and oil companies compete viforously on various "bid"
markets.
1) Minerals Industry Surveys, op. cit.
2) So-called unbranded sales at retail by independent oil
companies, commercial sales direct to users and sales to
government arrrerptc to somewhat over 30 percent of total
gasoline sales.
eplien SolotLa & C ompanv
-------
- 27 -
Prices on the various unbranded markets typically are
close to short-run marginal costs. This indicates that the
industry is highly competitive. Because the competitive nature
of the refining industry affects its ability to pass cost increases
on to consumers in the short run, we shall discuss it in some
detail.
"Did" prices, appearing in various industry publications,
give the price at which product is sold, usually to governmental
agencies or to other large buyers. For example, for the year
starting November 1970 a major oil company bid 10.74 cents per
gallon on 94 octane rasoliiie to be delivered in Dallas, Texas.
This delivery is in small lots by truck. In order to estimate
realization at the refinery gate we must deduct the following costs:
dalivery, terminalling in Dallas and pipeline transportation from
the refinery. Typical delivery costs are about 1/2 cent oer rc.llon,
terminalling about 1/4 cent, pipeline costs also about 1/4 cent.
Thus the refinery netback on the C-ulf Coast on this sale v;as at
least 9 3/4 centi: per gallon. It might but was unlikely to have
been as hi<~h as 10 1/4 cents if eurolus capacity was present in
the distribution system.
Eesides raw material costs the marginal cost of manu-
facturing gasoline includes cost of additives, mostly lead, which
is roughly 1/2 cent per gallon, plus refinery fuel, catalyst ana
a few minor items which together cost about another one cent per
rallon. Since considerable spare capacity to make gasoline existed
durin~ the period covered by this sale, it is reasonable to assumr
that the bidding company could, on the margin, convert crud": oil
with only a small by-product output. Thus we need only to add
1) Piatt's Oilgram, October 4, 1971.
Stephen SoLotka & Goni|>urr
-------
- 28 -
the cost of crude oil to manufacturinr costs, then deduct the sum
from ths refinery netback to arrive at a differential over marginal
costs. During the bid period crude oil delivered to a Gulf Coast
refinery was priced at 6 cents per gallon, or slightly more. Thus
the marginal cost of pasoline manufactured for this bid was about
9 1/2 cents per gallon, or somewhat more. Since the refinery
netback may have been as low as 9 3/U cents per gallon, and surely
was no higher than 10 l/l+ cents, it seems clear that short-run
marginal refinery cost and the revenue received from this sale
were close together.
V.:e believe this example to be typical of the current
market conditions. It shows together with our estimate of typical
refining costs (see B.l above) that current prices are inadeauatc
to provide an incentive to increase refining capacity. Hence some
price increases are to be expected quite apart from those which
will be caused by the costs associated with the impact of environ-
mental standards.
As was discussed earlier, foreign competition is essentially
non-existent except in the case of residual oil sold primarily on
the eastern seaboard. This product is sold almost entirely with-
out brand identification and on a specification basis. Prices .ire
determined by supply and demand on the international market.
Stephen SoLotLa & G ompanj
-------
APPENDIX
The Viability of Small Refineries
Unfortunately no data are available on the economic
viability of small refiners. In order to make a useful guess
at^ut their operations we examined the small refineries which
have discontinued operations in the last five years. Due to
changes in ownership it was not possible to be sure that we
correctly identified all plants. Hence our analysis may not
be completely accurate. We identified, from the total refinery
population of about 260*^, 25 refineries operating in 1966 which
ha4 ceased operating by 1971. Of these about 1$ apparently made
fuel products and the balance were primarily asphalt plants and
lube plants.
The viability of an asphalt refinery is greatly dependent
upon the local asphalt market. A reduced local demand may be met
more economically by shipment of product into the area. All of
the closed asphalt plants except one were very small. The ex-
ception was on the Eastern Seaboard. That plant may have become
uneconomic due to the imposition of crude oil import limitations.
On the 18 fuel producers, 5 reported no equipment except
a crude distillation unit. ¦ Of the other 13, seven were closed as
a result of consolidations with other plants, in almost all cases
ovmed by the same firm. These refineries tended to be the larger
of the group of closed plants. Several were located in metro-
politan areas, and the resultant consolidated units had larger
throughputs than the sum of the previously separate plants. It
appears that some of the consolidations were instigated by land
limitations.
1) Oil and Gas Journal, March 28, 1966, pp. 15/*-172.
- 29 -
eplien SoLotLa & Company
-------
- 30 -
Appendix (cont'd)
Deducting the eipht consolidated plants, there remained
a »roup of five fuel producing refineries which were
closed in the five year period. The larpest of them had a throufh-
put of less than 15»000 barrels per day. Their total throughput
was 3&»500. These five refineries account for about .1$ of industry
capacity. The closinp of 17 refineries, including seven asphalt
plants, in five years out of a population of 260 refineries is a
small percentage. Consequently we conclude that small firms are,
on the whole, viable business enterprises. However, their viability
is enhanced (or even made possible) by the value of import tickets
1'
they are granted.
Refineries
Operating
on l/i/66
All Ref's
Closed
Since '66
All Fuel
Ref's
Closec'
Simple
Fuel Ref's
Closed
260
10,200
KSY
Ho. of Refineries
Combined Capacity
Thousands of
Barrels per Day
Asphalt
Plants
Closed
IB
292
t
13
280
V
LT\ 1 CO
;
Other Fuel
Ref's Closed
2L2
Fuel Ref'p
Closed -"uo
to Consoli-
dations
Stepken SoLotlca & Company
-------
31
EXHIBITS
Steph
en
SoLotlca & C
-------
r-
9
CO
o
w
o
«¦*
O
c
SB
3
PETROLEUM ADMINISTRATION FOR DEFENSE (PAD) DISTRICTS
ME
N OAK
MINN
MICH
One/. Alaska
and Hawaii)
8 MK
WIS
C " "
; *tL
IOWA
i OHIO
(NO
COLO
MO
KY
NC
OKLA
8C
i AL*-
• 1 188
co
M
X
rr
-------
oo
DOMESTIC CONSUMPTION
000'b Barrels Per Day
Exhibit 2
Automotive
Gasoline
Product Year
f1965
\ 1966
j 1967
\ 1968
J 1969
\ 1970
(\ 965
1966
Jet Fuel ) 1967
Naphtha TypeS 1968
1969
(1970
P. A.
D. ^DISTRICT
U.S.
I I
II
in
IV
v i
1,578
1,635
566
141
673
4, 593
1,649
1,695
607
148
709
.4,808
1, 706
1, 748
621
151
732
4, 958
1,817
1,833
660
164
787
5,261
1,904
1,930
705
170
817
i5,526
2,000
2,008
729
186
86 V
5, 784
94
- 47
40
7
80
26fe
88
47
50
7
86
278
81
51
53
7
114
v 306
93
51
70
8
124 .
34 6
80
46
59
8
104
297
66
43
37
7
94
247
ri965
119
71
33
9
102''
334
1966
148
82 ^
31
12
118
391
Jet Fuel j
1967
205
\ 107'
V 128
37
16
153
. 518
Kerosene *
1968
238
43
19
181
609
Type
1969
. 265
145
50
19
215
694
1970
^ 284
150 -
50
20
212
716
N
r 1965
\ 141
82
34
7
3
1 267
1277
1966
155
80
32
6
4 ,
(Ex Jet) >
1967
145
85
37
5
2
274
Kerosene i
1968
153
84
38
4
I
281
1969
144
83
39
6
3
275
1970
126
83
43
/ 6
5
26 3
Residual
Distillates <
1965
1966
1967
1968
1969
1^1970
{1965
1966
1967
1968
1969
1970
1,077
636
139
59
215
2, 126
1, 102
661
134
62
225
2, 184
1, 164
669
127
60
222
2, 242
1, 250
685
157
71
226
2, 389
1,272
715
176
72
231
2, 466
1, 308
738
191
71
232
2, 540
1,070
192
68
30
248
1, 608
1, 173
177
64
29
273
1, 716
1,250
171
75
29
261
1, 786
1,277
170
68
31
280
1, 826
1,412
173
78
35
281
1, 979
1,643
190
87
25
257
2, 202
Stephen Go
lit|1i %
-------
U. S. SAL.ES OF DISTILLATE FUEL OIL, BY USES 1964 - 1969
(Thousands of Barrels)
Gas and
Electric
Fuel for
Public-Utility
Oil
Power
Company
Industrial
Year
V essels
Plants *
Railroads
Use
Use
1969
, . , 18,877
12, 158
86,429
13, 867
42,456
1968
18,235
8,509
84,030
9, 975
45,795
1967
. . 17,478
2, 858
88,688
8, 997
44,997
1966
16, 642
3, 612
89,104
10,485
47,108
1965
15,532
3, 661
86,436
10,430
42,484
1964
. . 16,001
3, 849
88, 198
10,576
36,007
Total Domestic Sales
n
>
»
i
n
1969.
1968.
1967.
1966.
1965.
1964.
'Excluding
Fuel for
Mis cel-
Oil
Heating
Military
laneous
Company
Oils
Use
Uses
Use
All Uses
511,768
13, 958
200, 787
886,433
900,300
510,682
12,593
183, 281
863, 125
873, 100
501,026
17,325
147,831
820,203
829,200
472,778
16,303
153, 681
799,228
809, 713
475,992
14,953
137,403
776,461
786,891
451,860
13, 609
127,451
736,975
747,551
CO
* Beginning in 1967, represents use by electric public-utility power plants only,
includes data for gas turbine plants.
Beginning in 1968,
Authority: Bureau of Mines, Mineral Industry Surveys, "Shipments of Fuel Oil and Kerosine," Annual.
M
X
£
CT
p
-------
U. S. SALES OF RESIDUAL FUEL OIL, BY USES, 1964 - 1969
(Thousands of Barrels)
Gas and
Electric
Fuel for
Public-Utility
Oil
Power
Company
Industrial
Year
Vessels
Plants*
Railroads
Use
Use
1969
. . 85,581
247,634
3, 381
36,559
130,654
1968
. . 87,575
184,956
4,296
39, 329
135,664
1967
. . 80,680
158,417
5,494
37,880
131,819
1966
. . 73,641
140,642
3, 792
35, 177
141,050
1965
. . 73,639
114,884
4,001
34,354
140,602
1964
. . 83,024
97, 595
5, 350
43, 098
157,176
Total Domestic Sales
K
ns
sr—
o
9
cn
o
o—
o
Sr-
a>
O
c
3
»
s
r-
* Excluding
Fuel for
Mis cel-
Oil
Heating
Military
laneous
Company
Oils
Use
Uses
Use
All Uses
1969
. . 178,095
31,750
8, 875
685,970
722,529
1968
. . 174,326
34, 990
8, 348
630,155
669,484
1967
. . 175,990
40,465
8, 794
601,659
639,539
1966
. . 167,471
41,861
10, 338
578,795
613, 972
1965
. . 156,254
40,380
10,004
539,764
574,118
1964
. . 126,215
35,568
8, 606
513,534
556,632
Co
cn
Beginning in 1967, represents use by electric public-utility power plants only.
Authority: Bureau of Mines, Mineral Industry Surveys, "Shipments of Fuel Oil and Kerosine,11 Annual.
M
X
sr
ts)
O"
-------
36
Exhibit 3
REFINERY AND TERMINAL PRICES1, 1966-1970
- CARGOES -
1966
1967
1968
1969
1970
Cents Per Gallon
Motor Gasoline 100 Octane
Motor Gasoline 94 Octane
13. 26
11. 37
13. 18
11. 31
12. 63
10. 64
12. 99
10. 99
12. 58
10. 5 r
No. 2 Fuel oil - Gulf 8.74 9.48 9.40 10.13
No. 2 Fuel oil - New York harbor 9.51 10.16 10.34 10.30
10. 25
Bunker C - Gulf
Bunker C - Gulf (Max. 0. 6% S)
2. 10
2. 35
$ Per Barrel
1. 98
2. 22
1. 67
2. 24
1. 47
2 03
2. 44
3 01
^Annual averages of high and low posted price.
Note: Posted prices are not always transaction prices.
Source: Piatt's Oil Price Handbook and Oilmanac, 1970 prices.
Stephen SoLotLn C i
oinpanv
-------
37
Ujxnioxo
FUNCTIONAL CHARACTERIZATION
OF
PETROLEUM REFINERY PROCESSES
HYDROCARBON REFINING PROCESSES
PRINCIPAL PROCESS PURPOSE
Separation
Distillation (atmospheric
and vacuum crude frac-
tionation, naphtha split-
ting, depropanizing, de-
butanizing, vacuum flashing)
Absorption (recovery of ethane-
or propane-and-heavier from
saturated or cracked gas)
Extraction (deasphalting)
Alteration (Conversion)
Thermal Cracking
(visbreaking, coking)
Catalytic Crackinp
Hydrocracking
Alkylation
Polymerization
Extraction (solvent extraction Catalytic Reforming
for separating aromatics
from naphtha, lube oil, etc.) isomerization
Crystallization (dewaxing of
lube oil)
TREATING PROCESSES
Hydrotreating
Caustic Treating (Merox,
Bender, etc.)
Clay Treating
Stephen SoLolLi ( '*> in j
-------
SCHEMATIC FLOW DIAGRAM OF PETROLEUM REFINERY
A. PETROLEUM PRODUCT MANUFACTURING
REFINERY
FUEL GAS
* PROPANE (IPG)
NATURAL
BUTANE
GAS
GAS LIQUIDS
ALKYLATE
PREMIUM
GASOLINE
STRAIGHT RUM
STRAIGHT RUN
GASOLINE
GASOLINE
CATALYTIC
REGULAR
GASOLINE
REFORMATE
CAT. CRACKED
GASOLINE
STRAIGHT
RUN NAPHTHA
LIGHT STRAIGHT RUN GAS OIL
KEROSENE &
JET FUEL
HEAVY STRAIGHT RUN GAS OIL
STRAIGHT
fUN RESIDUE
-» DIESEL FUEL
r A
! LUBRICATING !
; oil !
{MANUFACTURE
I
i HYDRO- [
! CRACKING •
! V
TO GASOLINE BLENDING
""""J—» TO CATALYTIC REFORMING
CAT. CRACKED
"*• HEATING OIL
NAPHTHA
VACUUM
DISTILLATE
CAT. CRACKED
LIGHT GAS 00.
I
RESIDUAL
FUEL OIL
VACUUM
BOTTOMS
CAT. CRACKED
HEAVY GAS OIL
¦ COKING f
J OR !
THERMAL i
• CRACKING t
T"
¦> GAS
TO NAPHTHA HYDROGEN TREATER
~ TO CATALYTIC OR HYDRO CRACKER
+ COKE OR RESIDUAL FUEL OIL
BY
PRODUCTS
¦* ASPHALT
> LUBRICATING OILS
- OPTIONAL PRODUCTS
TREATING PROCESSES
(1) AQUEOUS LIQUID
TREAT
(2)
TREAT
TREAT
TREAT
TREAT
DESALT-
ING
ALKYL-
ATION
REMOVAL
HYDROGEN
TREATING
CATALYTIC
REFORMING
LIGHT
ENDS
PROCESSING
CATALYTIC
CRACKING
VACUUM
DISTILLATION
CRUDE
OIL
DISTILLATION
(1) AQUEOUS LIQUID
(7] AQ.LIQ.OR HYDROGtN
%
E
a*
H'
c-h
ui
L J
! OPTIONAL PROCESSES
-------
Exhibit b.
REFINERY ENVIRONMENTAL CONTROL PROCESSES
Environmental Problem
Control Process(es)
Hydrogen sulfide. Reacts to
form sulfur oxides if burned.
1. Gases containing hydrogen
sulfide (H2S) are treated with
a liquid (usually an amine
solution) which preferentially
absorbs H2S.
The H2S is re-
covered by stripping it from
the liquid. It is subsequently
converted to sulfur and recovere
2. Sour water stripping. Aqueous
effluents from refinery pro-
cesses which contain H2S are
steam stripped to remove the
H2s.
Sulfur oxides. Emitted to the
atmosphere with flue gases from
burning fuels containing sulfur.
Irritating to eyes and respira-
tory system. Also cause opaque
"plume
1. Hydrodesulfurization. The
sulfur-containing oil is
reacted with hydrogen at elevated
temperatures and pressures in
the presence of a solid catalyst.
Sulfur is converted to H2S.
[Hydroren for the hydrodesul-
furization process is generally
recovered as a by-product of
catalytic reforming or manu-
factured by converting either
natural gas or refinery by-
product gases].
Stephen SoLotL. Conij
junv
-------
40
Environmental Problem
Carbon monoxide. Present in 1.
stack gas from catalytic
cracking units. Poisonous
to animal life.
Smoke. Produced when in- 1.
sufficient air is used in
firing boileis and furnaces or 2
by incomplete incineration
of process materials vented
and flared because of upsets.
Soot and fly ash. Entrained 1.
in stack Eas from furnaces or
boilers fired with residual,
coal or coke.
Hydrocarbon vapors. Evaporated 1.
from tanks or small leaks and
spills. React in atmosphere
to cause smog. ~
Exhibit 6 (contj)
-2
Control Process(es)
Stack Gas Scrubbing. The
sulfur-oxide-containing
combustion gas is contacted
with a solid or liquid material
that preferentially absorbs the
sulfur oxides. Sulfur oxides
are then generally recovered
in concentrated form from the
absorbing material and convertec
to sulfur or sulfuric acid.
Combustion. The stack gas is
i
enriched with fuel gas and
burned. Useful heat is re-
covered and the carbon mono. ide
is burned to harmless carbon
dioxide.
Proper control of boilers
and furnaces.
Incinerate vented materials
in a "smokeless flare."
Electrical precipitation.
Install floating roofs or
vapor recovery system on
tanks.
Good housekeeping practices -
fix leaks, maintain pump seals,
clean up spills, etc.
epncn SoDotlca G onijjairy
-------
41
Environmental Problem
Oil (and water-insoluble non-
hydrocarbon liquid organic
compounds) entrained in
refinery waste water. Harm-
ful to aquatic life and dirty.
Water-soluble organic compounds.
Dissolved in refinery waste
viator. Many compounds toxic
to aquatic life. Also reduce
oxygen content of receiving
water body which leads to
aquatic life damage. May also
smell badly.
Phenolic compounds. Produced
in cracking processes and ex-
tracted from cracked products.
Toxic to aquatic life.
1.
2.
1.
1.
2.
3.
4.
5.
Exhibit 6 (co^t.)
-3
Control Process(es)
API Separator. Oil is allowed
to rise to the surface of tho
contaminated water and is
skimmed off.
Aeration. Air is blown throurh
the contaminated water. Oil
rises to the surface as froth
and is skimmed off.
Biological treatment.
a) Trickle filter. Contaminated
water is trickled through a pile
of rocks on which live colonies
of bacteria. The bacteria
convert the contaminants into
harmless compounds (mostly
water and carbon dioxide).
b) Activated sludge treater.
Contaminated water is contacted
with a suspension of bacterial
colonies, nutrients and air.
The bacteria convert the con-
taminants into harmless compounds.
Clean water is separated by
settling of bacterial sludge.
Sold to Chemical industry.
Incinerated.
Barged to sea and dumped.
Pumped into underground forma-
tion which is sealed to prevent
contaminating fresh water.
Hydrotreat the cracked product
to eliminate the need to ex-
tract phenols.
Stephen SoLotLu Coiiij
rnnv
J
-------
42
Exhibit 6 (cont.)
-k
Environmental Problem
Fluid catalyst. Entrained in 1.
stack gas from catalytic crack-
ing units.
Control Process(es)
Centrifugal separation. The
stack gas is passed through
a stationary centrifugal device
(cyclone) at high speed. The
resultant force throws the dust
to the outside wall from which
it is collected.
Electrical precipitation. The
stack gas is passed between
metal plates which are elec-
trically charged to a hirh
voltage. The dust is attracted
to, and settles on, the plai ?s
from which it is recovered.
Stenlien SoLotlca & C
Jomoanv
-------
SCHEMATIC FLOW DIAGRAM OF PETROLEUM REFINERY
B. POLLUTANT COLLECTION AND TREATMENT
C/3
a
-a
s—
ft
3
C/2
0
2?
SULFUR
SOUR GAS
h2s
REMOVAL
SULFUR
PLANT
LIGHT
TREAT
1)
ALKYL-
ATION
ENDS
SOUR
SOUR
WATER
STRIPPER
SOUR GAS
TREAT
(D
i WASTE
WATER
CATALYTIC
REFORMING
HYDROGEN
TREATING
TREAT
(1)
CRUDE
*
DESALT
ING
TREAT
(2)
DISTILLATION
SOUR
SOUR
WATER
WATER
TREAT
(2)
HYDRO
CRACKING
LUBRICATING
OIL
MANUFACTURE
CATALYTIC
CRACKING
VACUUM
DISTILLATION
^SOUR «
- ^*~GAS>
TREAT
(2)
WASTE WATER
SURFACE AND H
STORM DRAINAGE i
WASTE
WATER
TREATMENT
COKING
^ —_ V/ASTE WATER
C SOUR WATER
_ = SOUR GAS
COOLINO M
TOWER BLOWDOWNi WASTE
WeT
.CLEAN
WATER
M
X
£
o*
HYDROGEN SULFIDE (H2S)
-------
NUMBER AND CAPACITY Of REFINERIES. BY STATES. AS OF JANUARY ), 1969
Number of R«fin«net Capacity (Btneb Per Day)
TotaJ
Total
Operating
Total
Opera ung
Shutdown
Slate
Operating
Shutdown
Operaltng
and Shutdown
Operating
Shutdown
and
Shutdown
Budding'
and
Building
Alabama
5
1
6
27 870
6.500
34,170
0
34,370
Alaska
I
0
\
20.000
0
20.000
3.300
23.300
Arkansas
6
0
6
91 000
0
91.000
0
91,000
California
33
2
35
1.528.050
11300
1 J39.550
74 800
1.614 350
Colorado .
4
1
5
41.480
5 000
46.480
0
46.480
Delaware
1
0
1
140.000
0
140.000
0
140.000
Florida .
1
0
1
3.000
0
3.000
0
3.000
Georgia .
2
0
2
8.600
0
8.600
0
8.600
Hawaii
1
0
\
15,000
0
35.000
0
35.000
1 Knots . . .
12
13
706.220
6.330
712.550
51.000
763,550
Indaai. ...
11
0
11
579.000
1.500
S80.500
0
580.500
ran— . ....
12
0
12
392,010
0
392.010
0
392.010
Kentucky ...
1 owHnna ....
4
0
4
129.000
0
129,000
10.000
139 000
17
0
17
1.191 150
1.000
1 192.150
49.000
1.241.150
Mjrytaad
2
0
2
20.000
0
20.000
0
20 000
MJrhfcan ...
MouwMa
7
3
10
145 950
28.750
174,700
0
174.700
3
0
3
138 300
0
I3B 300
0
138 300
4
5
168 700
1.500
170 200
0
170.200
Missouri . .
1
0
1
83.000
0
83 000
0
83.000
Montana
9
2
11
125.500
5.550
131.050
1 000
132 050
o
Nebraska
1
0
1
4.000
0
4 000
0
4000
Nevada
0
t
1
0
1 250
1.250
1,200
2.450
New Jersey
6
2
8
523.500
35 000
558 500
0
558,500
New Mexico
6
0
6
42 700
0
42 700
0
42 700
New York
2
0
2
79 000
0
79 000
6.000
85.000
North Dakota
2
0
2
54.100
900
55,000
0
55.000
Ohio
9
1
10
476,200
12.500
490.700
13.000
503.700
OUakooM
14
1
IS
449.300
900
450.200
0
450.200
Onyw
I
0
1
12.000
0
12,000
0
12.000
PtORiylriaii
13
0
13
645 320
19 000
664 320
5.000
669,320
Rbodetrfaod
1
0
1
7.500
0
7,500
0
7.500
TeftMsaee • . .
I
0
1
27,500
0
27 500
0
27.500
Texas
48
3
51
3 126.679
16300
3 143179
140.200
3.283379
Utafc
3
0
5
112.600
0
112.600
0
112,600
VvgtftM
1
0
1
43.600
0
43.600
0
43,600
Wirfmigiiia. ..
s
0
5
219400
0
219.000
0
219.000
Waal Vnftta
2
0
2
9.200
0
9.200
0
9,200
Wbeonrin . . .
1
1
2
25 000
5.000
30 000
0
30.000
Wyog^ag
10
0
10
142.800
5.000
147.800
0
147.800
U. S. total
264
20
l84
11,575,629
I63£80
11.739,509
362.500*
12,102,0091
i "Bniidati** represents addrtionaJ capacity under construction at existing refineries. as well u raw plants being bwll
3 Tolab include 8.000 b/d refinery under comtrmuon in Arizona
Authority Bureau of Mum, "Pttroteuro Refrnenes in the Dotted States "
4*
0*
3
a>
3
00
-------
hxrwoj'
45
REFINERIES
DISTRIBUTION BY SIZE
1971
Refinery
Capacity
OOO'/B/CD*
REFINERIES
Per Cent Cum.
Number of Total
%
CAPACITY
000's
B/CD*
Per Cent
of Total
Cum
%
Below 4 38
4 to 6 9 35
7 to 14. 9 37
MEDIAN 25
15 to 29. 9 40
30 to 49. 9 32
50 to 69. 9 17
70 to 99. 9 22
100 to 199 22
200 and up M_
15
14
12
16
13
7
9
9
5
29
41
50
57
70
77
86
95
100
82
187
329
909
1306
970
1854
2940
4028
. 6
1. 5
2. 6
7 2
10. 4
7 7
14. 7
23. 3
32 0
2 1
4 7
8. 1
11 9
22 3
30. 0
44 7
68 0
100. 0
TOTAL
MEAN
251
100% 100%
12605
50
100% 100%
~ Thousands of barrels per calendar day.
Source: Oil and Gas Journal, 3/22/71, pp. 98ff
Data as of 1/1/71 - with minor adjustments.
Stephen SoLolL Oonip.ii
-------
Exhibit 10
46
REFINERIES
DISTRIBUTION BY SIZE
1966
Refinery
Capacity
OOO'/B/CD*
REFINERIES
Per Cent Cum.
Number of Total
%
CAPACITY
000's Per Cent Cum
B/CD* of Total %
Below 4 53
4 to 6. 9 25
7 to 14. 9 35
MEDIAN 20
15 to 29. 9 46
30 to 49. 9 38
50 to 69. 9 15
70 to 99. 9 20
100 to 199 20
200 and up 6_
20
10
14
17
15
6
8
8
2
20
30
44
50
61
76
82
90
98
100
111
122
371
1008
1512
860
1595
3018
1650
1. 1
1. 2
3 6
9. 8
14. 8
8 4
15. 6
29. 4
16. 1
1. 1
2. 3
5. 9
8. 7
15. 7
30. 5
38. 9
54 5
83 9
100. 0
TOTAL
MEAN
258
100%
10247
40
100%
~ Thousands of barrels per calendar day
Source: Oil and Gas Journal, 3/28/66, pp. 154ff
Data as of 1/1/66 - with minor adjustments
St
ep
lcn k
SoLoiL & (j
'oinp.niN
-------
47
NUMBERS OF REFINERIES
BY SIZE CLASSES
1966-1971
50 -
I I 1966
EZ2
40 -
CO
Lil
E
Ui
z
u.
UJ
oc
II.
o
a:
UJ
flD
30 -
20 -
10 -
< 4
4
to
6.9
n
7
to
14.9
15
to
29.9
im
30
to
49.9
50
to
69.9
REFINERY CAPACITY
70
to
99.9
I
100
to
199.9
>
200
THOUSANDS OF BARRELS PER CALENDAR DAY
-------
48
Exhibit 12
8800
REFINERY CAPACITY
BY SIZE CLASS
1966-1971
I
8000
§
.OS 2800
si
55
HO.
6
!? -i
£ UJ
^3
M
2000
I BOO
1000
800
JZbaJZ
ill
<4
4
to
6.9
7
to
14.9
15
to
29.9
30
to
49.9
50
to
69.9
CD 1966
wnxm\
70
to
99.9
REFINERY CAPACITY
THOUSAND BARRELS PER CALENDAR DAY
ff
100
to
199.9
200
Stephen SoLolL tSk G
Jompanv
-------
49
Exhibit I 3
EMPLOYMENT, EARNINGS AND PAYROLLS
IN PETROLEUM AND ALL MANUFACTURING, 1964-1968
Production and Related Workers
1
Total
Number of
Number of
Average
Average
Hours
Average
Employees ^
Workers
Weekly
Worked
Hourly
(Thousands)
(Thousands)
Earnings
Weekly
Earning1
YEAR
ALL MANUFACTURING
1968
. . . 19,740
14,485
$122.51
40. 7
$3. 01
1967
... 19,434
14,300
114. 90
40. 6
2. 83
1966
. . . 19,214
14,297
112. 34
41. 3
2. 72
1965 . . . \ .
. . . 18,062
13,434
107. 53
41. 2
2.61
1964
, . . 17,274
12,781
102. 97
40. 7
2. 53
PETROLEUM REFINING
1968 . .
151
92
$166. 27
42
2
$3
94
1967
148
90
159. 09
42.
2
3.
77
1966 . ...
148
89
151.56
42.
1
3.
60
1965
148
89
145. 05
41.
8
3
47
1964 ....
. . 150
90
139. 52
41.
4
3.
37
^Includes non-salaried workers.
^Includes both salaried and non-salaried employees.
Authority: Bureau of Labor Statistics, "Employment and Earnings. "
Reprinted in Petroleum Facts & Figures, API, 1971, pp. 526.
cplien SoLtLa & Con,| 1 k«
-------
50
Exhibit 14
AVERAGE OPERATING COSTS OF U. S. REFINERIES, 1965-1969
(Cents Per Barrel)
TEL,
Chemicals
Purchased
Total
Purchased
and
Year
Fuel
Labor
Power
Supplies
19691
15. 8
47. 7
3. 8
24. 6
1968
. . . 15.5
46. 1
3. 9
25. 5
1967
... 16. 3
46. 3
3. 8
26. 4
1966
... 14.5
44. 0
3. 3
26. 8
1965
... 13.2
44. 3
3. 5
24. 5
Main-
tenance ,
Materials
7. 6
7. 3
7. 1
7. 0
6. 9
1969 •
1968 .
1967 .
1966 .
1965 .
Insurance
and
Taxes
5. 4
5. 5
5. 2
5. 2
5. 1
Royalties
or
Research
9. 2
7. 7
6. 3
4. 8
4. 6
Obso-
lescence
and
Improve-
ments
1. 7
1.8
1.4
1. 3
1. 0
Interest
on Capi-
talization
11. 2
11.4
10. 9
10. 8
9. 4
Total
Costs
137
134
1 33
127
122
* Preliminary.
Authority: Wilbur L. Nelson, Petroleum Refinery Engineering Consultant
Source: Petroleum Facts & Figures, API, 1971, p. 209.
Stpnl>«" 'SoLol Ito ( 'oinooiiv
-------
51
RATE OF RETURN ON NET WORTH FOR PETROLEUM, MANUFACTURING,
AND ALL INDUSTRY IN THE U. S. , 1964 - 1969
(Per Cent)
A.
All
Petroleum Manufacturing All
Year Industry Industry Industry
1969 12. 1 12 5 10. 4
1968 13. 1 13. 3 10. 9
1967 12.8 12. 6 10. 6
1966 12.6 14.2 11.3
1965 11.9 13. 9 11.1
1964 11.5 12. 6 10. 3
Source: First National City Bank, "Monthly Economic Letter," April.
Reprinted in Petroleum Facts & Figures, API, 1971, pp. 513
Stephen SoLollta & ( Join jl.II
-------
ESTIMATED INVESTMENT IN FIXED ASSETS BY THE U.S. PETROLEUM INDUSTRY, 1969
(As of December 31)
Gross Per Cent Net Per Cent
Investment of Investment of
(Thousands of Dollars) Total (Thousands of Dollars) Total
Production:
Crude oil and natural gas $49,900,000 53.6 $24,800,000 51.3
Natural gasoline and cycling plants 3, 025, 000 3. 2 1.560. 000 3. 2
Total production 59, 925,000 56.8 26, 360,000 54.5
Transportation:
Pipelines 6,175,000 6. 7 3, 350,000 6.9
Marine 1, 150, 000 1.2 515,000 1.1
Tank cars and motor transport. . . 675,000 . 7 325,000 . 7
Total transportation 8,000,000 8.6 4, 190,000 8.7 C/T
ro
Manufacturing:
SI Refineries 11, 925,000 12.8 5,075,000 10.5
j Chemical plants 6,475.000 7. 0 3.750.000 7. 8
n
Total manufacturing 18,400,000 19.8 8,825,000 18.3
Marketing 11,550,000 12.4 7,600,000 15.7
Other. 2.250.000 2. 4 1. 350.000 2. 8
Grand total $93, 125,000 100. 0 $48,325,000 100.0
W
X
11 5
Gross investment minus accumulated reserves for depreciation, depletion, and amortization. g.
Authority: Energy Economics Department, The Chase Manhattan Bank.
ui
P>
-------
ESTIMATED FINANCIAL DATA FOR THE U.S. PETROLEUM INDUSTRY, 1965-1969
(Thousands of Dollars)
1969
Production:
Crude oil and natural gas $ 4, 525, 000
Natural gasoline and cycling plants . 225, 000
Total production 4, 750, 000
T rans po rtation:
Pipelines 300, 000
Marine 100,000
Tank cars and motor transport . . 50. 000
Total transportation 450, 000
Manufacturing:
Refineries 950, 000
Chemical plants 575. 000
Total manufacturing 1,525,000
Marketing 1,250,000
Other 200. 000
Total capital expenditures . . . .$ 8,175,000
1968 1967
Capital Expenditures
$ 4,675,000
250.000
4,925,000
425,000
50,000
35.000
510,000
800,000
650.000
1,450,000
1, 150,000
315.000
$ 3,750,000
275.000
4,025,000
360,000
40,000
40.000
440,000
775,000
825.000
1, 600, 000
1, 250,000
335.000
1966
$ 3,600,000
170.000
3,770, 000
275,000
25,000
60.000
360,000
775,000
800.000
1, 575,000
1,100,000
320.000
1965
$ 3,600,000
160.000
3, 760, 000
225,000
40,000
35.000
300,000
600,000 £
525.000
1, 125,000
1,000,000
190.000
$ 8,350,000 $ 7,650, 000 $ 7,125,000 $ 6,375,000
W
x
E
&
llncluties-tcost of drilling dry holes, and lease acquisitions but excludes exploration expenses and lease rentals charged to o*
income ta^cjpunt. Includes offshore lease purchases: 1968, $1.5 billion; 1967, $560 million; 1966, $260 million; 1965, ~
$100 muu«as?
in
cr
(Cont'd )
-------
ESTIMATED FINANCIAL DATA FOR THE U.S. PETROLEUM INDUSTRY, 1965-1969
(Thousands of Dollars)
1969 1968 1967 1966 1965
Gross Assets Employed*
Current assets $ 18,850,000 $ 18,250,000 $ 17,000,000 $ 15,750,000 $ 14,300,000
Fixed assets 93, 125,000 88,575,000 83,800,000 79,175, 000 75, 000,000
Other assets 3. 000. 000 2, 750, 000 1. 800, 000 1, 800, 000 1, 600, 000
Total gross assets employed . . $114,975,000 $109,575,000 $102,600,000 $ 96,725,000 $ 90,900,000
*As of December 31.
cn
Authority: Energy Economics Department, The Chase Manhattan Bank. ^
Reprinted in Petroleum Facts & Figures, 1971, pp. 508/9.
O
o
a
M
X
tr
CL i_>
. Ul
O"
-------
ESTIMATED FINANCIAL DATA FOR THE U.S. PETROLEUM INDUSTRY, 1965-1969
(Thousands of Dollars)
(Cont'd )
1969
1968
1967
1966
1965
Gross Investment In Fixed Assets
1
GO
(t
s—
a
s
cn
o
r
Si
Production:
Crude oil and natural gas^ . . $ 49, 900, 000
Natural gasoline and cycling plants . 3. 025. 000
Total production 52, 925,000
Transportation:
Pipelines ... 6, 175,000
Marine 1, 150,000
Tank cars and motor transport . . . 675. 000
Total transportation ... 8, 000, 000
Manufacturing:
Refineries ... 11,925,000
Chemical plants .... 6, 475, 000
Total manufacturing .... 18,400,000
Marketing 11,550,000
Other 2,251, 000
Total gross investment in
fixed assets $ 93, 125, 000
$ 47, 875, 000
2.875.000
50,750,000
5, 960, 000
1,115,000
650.000
7, 725, 000
11, 200,000
6. 050.000
17, 250,000
10, 700, 000
2.150.000
$ 45,915,000
2.510.000
48,425,000
5, 610,000
1,115,000
625.000
7,350,000
10,525,000
5, 550.000
16,075,000
10,000,000
1.950.000
$ 44, 265,000
2. 335.000
46, 600,000
5, 300,000
1, 100,000
600.000
7,000,000
9.875,000
4. 800.000
14, 675,000
9,200,000
1.700.000
$ 88,575,000 $ 83,800,000 $ 79,175,000
$ 42,500,000
2.200.000
44,700,000
5,100,000
1, 100, 000
550.000
6.750,000
9,525,000
3.975.000
13,500,000
8,550,000
1.500.000
$ 75,000,000
cn
cn
-
c
5
w
D
As of December 31
(Cont'd.)
fr
n r
§ F
CL ~
* i
<
-------
56
Exhibit lo
ESTIMATED PETROLEUM REFINING
CAPITAL REQUIREMENTS 1972 - 1951
Barrel/Day Billion $
Refinery capacity, 1/1/72 13,070,000
(Oil & Gas Journal, 3/22/71)
Growth in capacity will be
3i?$/yr. (estimated)
Resultant forecast capacity, 1/62 13,430,000
Increase in capacity, 1972/19&1 5,3°0,000
Unit capital cost of new capacity
is about $1400 per barrel per day
(Oil Daily, October 12, 1971)
Total capital cost for new capacity,
1972/1961 7.5
Avera-e capacity during the decade 15,750,000
Unit capital cost to replace and
modernize existing capacity is
$50/yr. per bbl/a. (from data
published by W. L. Nelson in
Oil & Gas Journal)
Total capital cost for maintaining 0
c::istinr capacity, 1972/1961 <•'
Total capital cost to conform to
environmental standards in
refinery operations 1972/197^ 0.9
(Environmental Protection
Arency, Oct. 1971) 1977/1921 C.l
Total cost to convert to no/low lead
rasoline, 1972/1961 (SPA 3-0
Total cost to convert to low sulfu]
fuels, 1972/1961 (EPA) 2.0
Total Capital Requirement $21.4
Stephen Sohollcn OonijMnv
------- |