{"id":1524,"date":"2015-01-24T21:44:48","date_gmt":"2015-01-25T03:44:48","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=1524"},"modified":"2015-01-24T22:20:04","modified_gmt":"2015-01-25T04:20:04","slug":"modeling-the-usgc-refining-market","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2015\/01\/24\/modeling-the-usgc-refining-market\/","title":{"rendered":"Modeling the USGC Refining Market"},"content":{"rendered":"

I had planned to continue to discuss the impact of oil prices beyond the obvious.\u00a0 In the first report on the impact of oil prices in the non-obvious areas<\/a>, I discussed the likely impact to the Renewable Fuel Standards.\u00a0\u00a0 I was hoping to follow up that report with the impact on condensate value as a result of the crude oil collapse.\u00a0 However, this has lead us into reviewing our refining models and also how the refining industry will likely have to evolve to handle the RFS.<\/p>\n

As with many things in the energy market, you start with a hypothesis and investigate it only to be compelled to look at other areas in the market place.\u00a0 We are almost ready to release our first oil product, Oil Market Analysis (OMA), but first we had to make sure the refining models represented the USGC and was designed to incorporate the impacts of RFS.\u00a0 In this article, I have decided to go ahead and give you a tour of my problem solving methods when it comes to modeling USGC Refining Markets.<\/p>\n

A key path for how I analyze the energy markets is to take a walk back in time.<\/p>\n

Historical Changes in Refining<\/strong><\/p>\n

The yields of the USGC refiners have changed.\u00a0\u00a0 Distillate yields rose while gasoline yields had the largest drop off.<\/p>\n

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This was not a result of refiners\u2019 strategy from the 90\u2019s nor was it because of the crude slate changes.\u00a0\u00a0 The primary driver for this change came from the market price change starting in 2005.<\/p>\n

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The EIA Annual Energy Outlook \u00a0(AEO) was forecasting distillate spread to gasoline to be negative until the 2010 AEO release. The current AEO 2014 shows the spread averaging over $0.3\/gallon.\u00a0\u00a0 As with all free markets, they adapt to the pricing incentive.\u00a0 This change necessitates the adaption of the USGC refining configurations.\u00a0 This is also one of the reasons condensates are poor crudes relative to other crudes in the market as the distillate yield is very small.<\/p>\n

The quality changes did help the refineries produce more distillate, but many planned to expand and run their Catalytic Crackers and Hydocrackers.\u00a0\u00a0 The price incentive has resulted in cutting back how hard those units run.<\/p>\n

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Calibrating USGC Refining Model<\/strong><\/p>\n

The first piece for calibration is putting a recipe of crude oil entering the USGC cracking and coking refineries.\u00a0\u00a0 The average API for the last 12 months average around 30.2 API and 1.7 %S.\u00a0\u00a0 The import data shows the major importers of oil for USGC are the Saudis, Venezuela, and Mexico.\u00a0\u00a0 A crude slate from each of the countries were selected.\u00a0 Most of the import volumes were sent through the coking refinery.\u00a0 For those not knowledgeable in refinery \u2013 all coking refineries do have \u201ccracking\u201d capability via hydrocracker or cat. cracker.\u00a0 A blend of LLS, WTI, Mars, and Condensate represented the domestic blend. \u00a0The volume on the domestic side went through both a cracking and coking refinery.\u00a0 The final recipe produced an average 30.5 API and 1.7% S.<\/p>\n

Both refinery configurations were then adapted to produce similar yield seen in the market place.\u00a0\u00a0 The refinery levers represented modification in cuts going into the various units along with conversion capabilities.\u00a0\u00a0 We also looked at the market signals from octane values to maximize the refinery capability to produce high octane components.<\/p>\n

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Octane pricing is a story in itself.\u00a0\u00a0 The increase in value corresponds with the increase in condensate production.\u00a0\u00a0 Condensates typically produce low octane products \u2013 another issue for condensates.<\/p>\n

The final production of our represented cracking and coking unit in the USGC produced the following yields compared to the actual market production.<\/p>\n

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We then review the historical refining margins produced by the model depending on configuration and crude oil.\u00a0 The issue is whether we account for the ethanol requirement.\u00a0 As a crude produces more gasoline, the requirement for ethanol purchases are needed.\u00a0 Balancing some of the cost is ethanol octane is at 115 vs. 87 spec.\u00a0 For comparison, we use the simple 3-2-1 crack spread commonly used in the market place ( [2 x Gasoline Price + 1 x diesel]\/3 \u2013 Crude Reference Price).<\/p>\n

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The yield and final market margins are the key step to how well your model is performing.\u00a0 Similar to our extensive work in calibrating our power models, we put the same effort into the refining models.\u00a0\u00a0 We believe in transparency and show all our calibrations.\u00a0\u00a0 As with any model, one can continue to improve upon it over time, but we will not be stuck in analysis paralysis.\u00a0\u00a0 For vintage #1, we are pleased with the results.<\/p>\n

Work in Progress<\/strong><\/p>\n

The results are promising.\u00a0 We will be filling our yield tables with various crude assays.\u00a0\u00a0 The outcome of the work – Oil Market Analysis (OMA) – will produce monthly market expected refining margins based on the future markets.\u00a0 There is no need to wait for your consultants to put out a report days to months after the market has moved.\u00a0 OMA will be updated at the end of every business day keeping you on top of the market changes.\u00a0 The analysis will indicate the expected refining margins for gulf coast refiners.\u00a0\u00a0 This will be helpful in guiding the valuation and expected earnings for USGC refiners.<\/p>\n

An interactive website will be developed allowing users to select various crudes.\u00a0 This can be used to help guide crude oil optimization from pricing for contracts to informing buyers and sellers of arbitrage opportunities.\u00a0\u00a0 The interface will also allow users to upload their own forecast of petroleum products or choose from All Energy Consulting custom forecast.\u00a0 With this capability, a user can customize and create endless amounts of insights.\u00a0\u00a0 An end goal will also be to allow users to upload their own assays to be automatically run through our models.\u00a0\u00a0 Currently, we can do this manually as this process requires some tricky programming to automate this feature.<\/p>\n

Another thing we can offer is generating a model for East Coast, Midwest, and West Coast.\u00a0\u00a0 The process and procedure will be similar to the above.\u00a0\u00a0 Also, an international model could also be possible if we can find the information needed for calibration.\u00a0\u00a0 Using this model, I plan to produce a report to calculate the value of condensates and further delve into the rapid growth in octane value.<\/p>\n

Lots of fun analysis to do \u2013 who needs to sleep or eat?<\/p>\n

\u201cPeople who love what they do wear themselves down doing it, they even forget to wash or eat\u2026.When they\u2019re really possessed by what they do, they\u2019d rather stop eating and sleeping than give up practicing their arts.\u201d<\/em> Marcus Aurelius, Meditations<\/p>\n

Your Tireless Energy Analyst,<\/p>\n

David<\/p>\n

David K. Bellman
\nFounder\/Principal
\nAll Energy Consulting LLC- “Adding insights to the energy markets for your success.\u201d
\n614-356-0484
\ndkb@allenergyconsulting.com
\n<\/a>@AECDKB<\/p>\n

Sign Up to AEC Free Energy Market Insights Newsletter<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

I had planned to continue to discuss the impact of oil prices beyond the obvious.\u00a0 In the first report on the impact of oil prices in the non-obvious areas, I discussed the likely impact to the Renewable Fuel Standards.\u00a0\u00a0 I was hoping to follow up that report with the impact on condensate value as a […]<\/p>\n","protected":false},"author":1,"featured_media":35,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,26],"tags":[96,49,349,90,348],"class_list":["post-1524","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-oil-petroleum-products","tag-condensate","tag-oil","tag-oma","tag-refining","tag-usgc-refining"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1524","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/comments?post=1524"}],"version-history":[{"count":6,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1524\/revisions"}],"predecessor-version":[{"id":1537,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1524\/revisions\/1537"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/35"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=1524"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=1524"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=1524"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}