Major Questions & Role of Bottom of the Barrel in Gulf/MENA region

Given the drastic changes witnessed over the last 18 months there are a number of questions surrounding the future of the Bottom of the Barrel (BOB).

• What role will the bottom of the barrel play given the change in demand?
• Will upgrading residue retain its importance with the evolution of the refining landscape?
• Focusing on existing assets: how have they been operating over the last year?
• And last but not least are operators still looking to invest in capital intensive BOB projects given the acceleration of the energy transition?

The past 18 months have certainly proven to be a difficult period for the markets, with the Covid-19 pandemic and its wide-reaching impact – all calling into question the best adapted routes and solutions for upgrading the bottom of the barrel in the MENA region.

The industry experienced a drop in oil price fueled by global lockdowns and consequently decreased demand. The first wave was by large the most dramatic in terms of duration and impact; the second and the third waves were less significant in comparison, however all three drastically changed the refiners outlook on the markets both for the short and longer term.

In addition, the pandemic accelerated many aspects of the energy transition and this evolution presents challenges but also opportunities for the Middle East's downstream sector. The region occupies an advantageous position and will continue to do so. In other regions, such as Europe, the situation differs – we have seen an increase in plant closures, asset transformation and third party sales. The Middle East has all the ingredients to strengthen its position, with impressive assets in terms of scale and complexity, access to feedstock, and access to export markets – all factors contributing to long-term success.

That is not to say that there aren’t challenges – a number of regional projects have been affected and the Middle East's refiners have had to adapt their operations to meet current market conditions and fluctuating demand in transportation fuels. Traditional refining is evolving, with optimized integration and diversification playing an increasingly important role in improving revenue and margins.

As many refineries in the region struggle with feedstock flexibility, coupled with the ongoing challenging fuel markets and changing specifications, an interesting idea for refiners is to look at alternative solutions – this could mean considering different type of feeds (e.g. Fuel oil) for the crude oil distillations to help meet both changing demands and improve margins. This of course depends on market conditions but remains an option to explore.

This pandemic demands creative ideas with regards to diversification. One new trend on the market is the interest from certain traders in buying intermediate products and paying a better price for the benefit of blending themselves. Asset availability is equally important, as refiners need to be in a position to quickly react when margins improve, even if this is for a short period (2-3 months). Many programs are being developed and implemented to improve availability, reduce shutdowns and minimise the downtime of planned shutdowns – all these programs are designed to build upon the digital transformations already in place.

These programs can be costly but they highlight each element where financial and efficiency value can be increased. An example is the Downstream Transformation Program, recently initiated by Saudi Aramco – this program includes a comprehensive review of all downstream assets. The review was made to ensure that all improvements were consistent and implemented throughout the various sites of the company and JV's. This enabled multiple plants globally to better cooperate with each other with the goal to improve overall efficiency and profitability.

Looking at the longer term, the role of fossil fuels in the energy mix will remain important during the energy transition. Modern society has an insatiable appetite for energy and as a result the distillate market, as well as demand for hydrocarbon and liquid fuels, will remain for the foreseeable future. Once all travel restrictions are lifted, the industry will be expected to supply transportation fuels, but value will need to be there.

Another important project in the region is Bapco’s modernization project (BMP) – this project focuses on bottom of the barrel upgrade with additional environmental compliance and energy efficiency at its core. For stand-alone refineries, competitive advantage is key and projects such as BMP will help producers increase flexibility to meet demand as the energy mix evolves. With changing fuel specifications, there is an opportunity to continue to improve environmental standards and supply regions that are struggling with high sulphur outputs.

So what future for upgrading residue? From the discussion at the recent advisory meeting for the upcoming BBTC Mena 2021 conference it was clear to see that upgrading the bottom for the barrel remains a priority for the regions producers. Italian energy company Eni, which is uniquely positioned as one of the leaders of the energy transition in Europe, a supplier of residue upgrading technology (EST), and a partner in a joint venture with ADNOC and Eni Abu Dhabi Refining & Trading Services, recognised that upgrading the bottom of the barrel remains a key solution for the region with CAPEX investment continuing.

Eni also shared their experience in CCUS, mentioning the importance to implement in the regional deep conversion processing facilities. It will be important for Refiners to look at different CCUS solutions in detail – to analyse the benefits and constraints. The aim is to better manage and better use the hydrocarbons molecules and fossil fuels.

Residue to petrochemicals is also an area of interest and is likely to become the preferred route for bottom of the barrel for many in the region. High severity RFCC is an option for maximizing olefins production for conversion to Polymers. This is the rote selected by SOil in South Korea.

In Kuwait, integration is the key for the KIPIC Al-Zour Complex with Phase I front refinery units nearing completion and Phase II Petrochemicals units planned to start operation in 2026-2027, whilst SATORP’s, petrochemical expansion Amiral Project is due to start in 2026.

Saudi Aramco, like many others in the region, advocate for further refining and petrochemicals integration and upgrading the bottom of the barrel. The focus is on the different opportunities to enhance contribution in improving carbon footprint. At the Ras Tanura refinery, Saudi Aramco’s largest refinery in the Kingdom, they are addressing efficiency opportunities and working on upgrading their sulphur recovery facilities to meet new regulations. They are currently finalising a Gasoline Clean Fuel project, having completed the ultra low sulphur diesel upgrades and are on track to produce clean fuels.

The advantage of further integration has been highlighted over the last year through the observation that companies, that embraced integration early, have fared better.

However, there is a risk that certain markets for petrochemical products become saturated – like we have seen in the past with some refinery products. A detailed market analysis is required to better forecast demand and become more flexible to absorb market fluctuations. Having the optimal configuration in existing assets rather than installing new capacity is recommended, as many big investments take time to be realized and come on-stream.

On the technology side, there is continued interest and investment in new bottom of the barrel processes, as well as revamps and operational improvements to existing units. New projects are moving forward, notably in the Middle East and Russia, with wide ranging technology options available – covering thermal, ebullated, fixed-bed and slurry hydrocracking technologies.

Technology providers have an important role to play in giving refiners the flexibility to change their solution paths depending on their market position, as well as help to optimise assets and make configuration adjustments to comply with regulations for CO2, all whilst maximining margins. CO2 reduction restraints are upon us so it is important that refiners implement mapping programs to have a clear view of scope 1 and 2 contributors.

Another area of focus for many is how to close the loop in catalytic processes in bottom of the barrel. There is a huge volume of catalysts used in these processes resulting in an opportunity to not only focus on the disposal of spent catalysts but to reclaim vital metals such as vanadium for batteries which have an infinite life cycle compared to lithium and creating synergies with other industries.

Requests for co-processing are rising, for example processing plastic waste back into the fixed bed units. This results in the need for a tailored catalysts design depending on crude flexibility and what needs to be co-processed. Looking ahead, we can see demand rising for the homogeneous catalyst, making use of solar energy to split water into oxygen and hydrogen, which can then be used as an energy source in many different ways.

SUMMARY

In summary, petrochemicals are one of the preferred solution routes for bottom of the barrel processing. However, there is a need to continue producing transportation fuels and there are the tools available to enable producers to do both efficiently. Refiners are very experienced in optimising every molecule based on the added value and extending the life of the molecule, will become a key objective for our industry moving forward.

Over the next 20-30 years, the future MENA refiner will become more complex, producing a variety of products – a mix of both new, specialty and traditional chemicals and fuels. Operations will be powered by renewables sources and coprocessing will feature. But one thing is for sure, the Middle East is in a prime position to diversify, embrace flexibility and continue to meet new market demands.