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Resilience in Refining Infrastructure and Maintaining Future Objectives

By Kay A. Modi, JHCGA's Energy Analyst in Residence

On July 21, 2022, Kay Modi and Dr. Mark Barteau discussed the topic of resilience in petroleum refining, energy, and power systems for the United States (US). Dr. Barteau has a doctorate in chemical engineering and is a member of the National Academy of Engineering with contributions to their publications on carbon capture and waste utilization. Dr. Barteau has focused on energy systems and has also advised groups on state strategies to target reasonable renewable policies. Dr. Barteau is a national leader in chemical engineering university programs.

The discussions repeatedly referred to the concern for “resilience” in the US energy infrastructure. Resilience: an ability to recover from or adjust easily to misfortune or change.

“The public wants our energy systems to keep running no matter what — weather, natural disasters, pandemic, supply chain disruption, power outages, and geo-political events,” initially remarked Dr. Barteau. “Extreme weather events are becoming increasingly more common. The US alone has experienced hurricanes, wildfires, and artic winter conditions that have resulted in significant impacts and failure to critical human infrastructure while simultaneously eroding the confidence of the customer.”

As a result, both community and economic stakeholders demand that critical infrastructure owners be forward-thinking with planning and implementation to ensure asset reliability in future events. Aligning the objectives of climate change, greenhouse gas (GHG) emissions and the state of the energy business will be an essential challenge for the US.

“The consumer is too accustomed to cheap and reliable energy infrastructure and electricity production, and this has been taken for granted,” said Dr. Barteau. “With aging refineries, electrical power plants and transmission lines, significant investments are overdue and limitations are currently felt. Refining capacity is one bottleneck in gasoline and diesel supplies, and there are no immediate remedies for their non-elastic capacity and processing rates.”

“Limitations on capacity are routinely felt during turnarounds typically scheduled during spring and fall for switching product distributions (e.g., summer vs. winter gasoline formulations; increased heating oil production) and major maintenance activities,” continued Dr. Barteau. “Global oil supplies are down 10% and yet the swings in prices have been tremendous with over-projected pricing in the markets.”

The 2021 refining capacity for the US shows a loss of 1 million barrels per day of crude processing compared to 2019. This is a significant factor in price increases of gasoline and other fuels. However, there are no shortages in gasoline supplies, so the market pricing has many influences (1) (2).

Refining Capacity Limitations and Lack of Investment Can Lead to Loss of Resilience

Investors and owners of petroleum refineries have not consistently been willing to pay for resilience. Aging facilities require significant investment to maintain them at high reliability levels. “In some cases, the deep-pocket original owners of refining facilities are no longer responsible for maintaining these assets,” notes Dr. Barteau. Some refineries have been sold twice in recent years, which can lead to potential impacts on reliability (3).

Refinery capacity is evolving with pluses and minuses. Refineries have been idled in recent years and some are in the process of conversion to biodiesel production with significant reductions in output. Initially, refineries planning to produce biodiesel will produce less than half the amount of historical diesel and zero production of gasoline and other non-fuel related products such as asphalt and chemical feedstocks. Production of biodiesel is expected to grow as the industry grows more familiar with the technology (4). Three of the largest refiners in the US are currently working on capital projects that will partially offset the effect of recent closures by late 2023 or early 2024 (5). Additional global refining capacity is under construction, but it will also come online in late 2023 (6).

“With 20 years needed to turn over the fleet of US vehicles to alternative energies, gasoline supplies will continue to be important to the US economy. When gasoline prices are low, experience shows that consumers tend to purchase vehicles with poorer fuel economy. This occurs even when the lifetime of the vehicle exceeds the typical duration of low fuel prices. In other words, consumers make decisions with long-term effects based on short-term prices. Conversely, higher gasoline prices in the future may help drive improvements in vehicle performance and the transition to electric vehicles,” says Dr. Barteau. Simultaneously, the US infrastructure of electrical power and transmission needs to be significantly expanded to meet the rising demands of electrification.

“Sustained oil supplies are important and so are increasing renewables. The political football games that are played over issues such as drilling rights or transmission expansions for electricity and oil and gas pipelines can impact long term progress but may have limited effects in addressing short-term fluctuations that often intensify the debate. For example, decisions made by the current administration regarding pipelines and drilling have not contributed measurably to current high oil prices, nor could such policy changes mitigate them in the near future,” says Dr. Barteau. “However, while we still need investments in the infrastructure of fossil fuels (valuing the need for petrochemical products), operating lifetimes may be less than in the past because of need to significantly reduce GHG emissions over a shorter timeframe.”

Carbon pricing in the form of a tax on carbon has been proposed by several in the oil industry, as have traditional “cap and trade” measures for carbon dioxide and other GHGs (e.g., methane) as analogous to those currently implemented with nitrogen oxides. “This incentivizes new initiatives as well as market-based solutions,” concludes Dr. Barteau.

In conclusion, the petroleum refining industry is a keystone infrastructure for the US economy. Its resilience in the face of increasing political pressure for the US to make progress with climate change initiatives presents challenges in policy and public understanding.



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