Article from Chemical Week Magazine: Cover Story May 18, 2012
Transportation fuel demand in high-growth regions such as China is changing the face of the global refining markets, and refinery catalyst suppliers say their ability to capture growth will be driven by product performance. Despite refinery closures, opportunities exist in North America, where technology advances can help refineries grapple with low-quality feedstocks and maximize output of higher-value products.
Refinery catalyst makers expect slow, GDP-like growth over the next three to four years, as new refinery builds in the Mideast and Asia, increasingly stringent environmental restrictions, and more demanding crude oil help mitigate refinery closures in North America and Europe. Suppliers are confident, however, that as markets shift East, the ability to maximize yields of the highest-value product will win market share.
“Customers are looking for more activity, longer run rates, and the ability to process more barrels per day from tougher feedstocks,” says Scott Purnell, managing director of Advanced Refining Technologies (ART; Columbia, MD), a hydroprocessing catalyst (HPC) joint venture equally owned by W.R. Grace and Chevron. “The big drivers [of demand] are the implementation of [stricter] sulfur regulations, refiners looking to upgrade the bottom of the barrel, and transportation fuel demand in China and India.”
The most significant trend in refinery catalysts is the ongoing impact of globalization as demand shifts to high-growth economies. “All of the growth in refined product demand is outside the U.S. and Europe, so winning new units outside the developed regions is key,” says John Nicols, v.p./Albemarle’s catalyst unit. Most new hydrocracking or FCC resid units are being added to existing refineries, Nicols says. “Only developing world state-owned oil companies, like Petrobras and Petrochina have announced new greenfield refineries,” he adds.
By contrast, several refineries along the U.S. East Coast have been idled in the past three years. “The shutdown of sites which have fluid catalytic cracking (FCC) capacity will help reduce the excess gasoline situation within Western Europe and the U.S., although distillate production will also be reduced,” says The Catalyst Group (Spring House, PA).
Demand for FCC catalysts is growing about 3%/year, the rate of growth since the end of the most recent recession, Nicols says. “Refiners are continuing to choose new resid FCC units when selecting amongst various choices for increasing conversion and upgrading the bottom of the barrel,” he says. “That’s driving steady, GDP-like growth for FCC despite much slower growth rates for underlying oil demand.”
“While FCC is a mature technology, we continue to witness the adaptability of this refining technology as it continues to evolve to meet increasingly complex global energy requirements,” says Hans-Peter Neumann, senior v.p./process catalysts and technologies, BASF. Growth will be driven by fuel demand, “particularly in the developing world, the trend toward heavier feedstocks, which require more catalysts to process, and a shift in product mix globally from gasoline to diesel.”
Heavy transport and changing passenger vehicle fuel needs are increasing demand for diesel, a trend that has been ongoing in Western Europe but increasing in the U.S. as well, Neumann adds.
Ongoing legislation in the developed world to improve FCC emissions is also driving a need for better attrition-resistant catalysts, and thereby reduce fines creation, Neumann says. Refiners need catalysts that can effectively process the heavier, sourer crudes becoming more prolific globally. “These include feeds that require metal passivation in order to mitigate the impact of contaminant metals, such as vanadium and nickel,” he adds.
Catalysts that improve the environmental impact of refining or help refiners meet increasingly stringent regulations will post the strongest growth, says Harm Scheepstra, head of Süd-Chemie’s catalysis and energy business.
Producers predict demand for hydroprocessing catalysts (HPC), which are used to remove sulfur and other impurities from petroleum products and convert heavier feedstocks into lighter, more valuable products, will grow 4%-6% annually.
“Developed regions have, for the most part, implemented the most significant sulfur regulations, but are looking at further cuts in gasoline,” Purnell says. The big moves are now in emerging markets, especially as India and China increase both regulations and their demand for transportation fuels, he adds.
Economic uncertainty is also affecting the refining industry. Even emerging markets—considered the growth engine for refining products demand as well as global economic growth—have slowed in recent months. Chinese government data shows the country’s oil demand for the month of April fell 0.5% from volumes in April 2011, the first year-over-year decline in three years.
A slow down in China’s economic growth, in particular, hurt export opportunities into Asia, says Shawn Abrams, president/catalyst technologies at W.R. Grace. “From there, the questions become: what will happen to refiners in mature markets; is growth going to meet expectations in emerging markets?”
Competition from China’s domestic catalyst suppliers, namely Sinopec, has also posed a challenge. “In order to counter Sinopec both outside as well as within China, Western companies will need to continue with new technology introductions and provide a high quality product with service after the sale,” according to a catalyst industry report from The Catalyst Group Resources (TCGR), a subsidiary of The Catalyst Group.
The only way Albemarle is able to compete against domestic suppliers in the Chinese market is by demonstrating performance and yield advantages, Nicols says. “We are doing well in HPC because of significant technology advantages over Sinopec’s catalysts.” In FCC, the cost advantages Chinese producers had during rare earths metals’ rapid and severe price run-up made it difficult for all non-Chinese catalyst makers to compete, he adds.
The Catalyst Group says Sinopec will lose much of its price advantage going forward, as rare earth prices globally continue to drop from the “astronomical levels” seen in 2010.
Growing refining capacity in the Mideast also presents significant growth opportunities. Albemarle was recently chosen to supply FCC catalysts to the Abu Dhabi Refining Company (Takreer; Ruwais, UAE) Abu Dhabi refinery, which is currently under undergoing a major expansion. When it comes online in late 2013 or early 2014, it will be the world’s largest resid FCC unit.
Sixteen FCC units are expected to be built in the Mideast and South Asian markets in the next five years, increasing the catalyst opportunity in the region by about $150 million, Grace says. The company recently signed a memorandum of understanding with Al Dahra Agriculture (Abu Dhabi) to jointly build and operate an FCC catalysts and additives plant in Abu Dhabi. “As the world’s largest producer of FCC catalysts, we want to be in the market where the growth is,” Abrams says.
The jv is subject to the execution of definitive agreements and regulatory approvals.
Jefferies (New York) analyst Laurence Alexander says the plant start-up is well-timed for when the industry will reach limits on debottlenecking existing plants. He estimates the facility will cost about $120 million-$160 million and have a capacity of about 30,000-40,000 tons/year—about 5% of current demand but not too large as to negatively affect market prices.
“If executed, this site will provide Grace a competitive advantage assuming other suppliers decide not to also build plants in the Middle East to avoid an overcapacity situation,” The Catalyst Group says. Due to high capital investment, the negative impact of new world-scale catalyst plants on supply/demand economics, and the lingering effects of the financial crisis, Western companies have been reticent to make the investment.
Supply and demand are largely in balance, Nicols says. “HPC demand has been solid so far this year, coming in a little above historical growth,” Nicols says. Stronger demand year-over-year is expected to continue, he adds. “We have a lot of visibility for change outs in the back half of 2012 and early 2013.” Upgrades to one of the two production lines at the company’s Amsterdam plant will add capacity and improve Albemarle’s ability to switch between catalyst grades. The company has also been debottlenecking both HPC and FCC catalyst production lines at its Houston and Amsterdam plants.
Front-end engineering for Albemarle’s HPC production project in Brazil—largely expected to serve a projected five-fold increase in HPC demand from Petrobras—has been completed, but the construction will likely be delayed about a year. “The delay is tied more to Petrobras, which has an ambitious growth agenda across all its businesses,” and not to any weakness in the region, Nicols says. Petrobras is planning to add new refining capacity, convert its existing refinery network to ultra low-sulfur diesel, and has massive exploration projects underway, he adds. The HPC plant is being built at the Santa Cruz, Brazil site of Fabrica Carioca de Catalisadores SA (FCC SA), an FCC and additives joint venture operated by Albemarle and Petrobras.
The Impacts of Shale
Although refinery capacity is rationalizing in the U.S., the emergence of shale gas production could provide some growth opportunities in what has long been a flat-to-down market for catalyst makers. The shift to low-cost ethane by cracker operators has boosted ethylene margins, but severely cut propylene output.
“As [polypropylene] demand outpaces steam cracking output, we’re seeing a significant push for higher propylene output from FCC units,” Nicols says. “Our FCC technology has proven advantages in bottoms upgrading and propylene yield. Most of the new refineries are looking to drive yield mix toward diesel and propylene.” This is especially true in refining operations with downstream chemical operations for polypropylene production.
Propane dehydrogenation (PDH) investments are also gaining traction as a possible solution. PetroLogistics’ PDH plant at Houston, with the capacity to produce about 1.2 billion lbs/year of propylene came onstream in late 2010 and is the largest in the world. There are plans for several on-purpose propylene units to be built in the U.S., totaling about 1.8 million m.t.
The push for higher propylene yields is not specific to the North American market. “New refineries, particularly in the Mideast and Asia, will be highly complex systems designed to produce petrochemical feedstocks such as propylene,” Neumann says.
Süd-Chemie says methanol-to-propylene will become increasingly important as demand for propylene outpaces output from refineries and crackers. In China, Süd-Chemie catalysts are being used in two facilities converting coal-based synthesis gas to propylene. The plants—designed by Lurgi—are the only ones producing propylene from methanol.
Shale gas will be a demand driver for HPC as well, because the additional methane supply can be used to produce lower cost hydrogen for HPC units—making new projects economical, Purnell says. “Ebullating bed resid hydrocrackers compete with coking units as a method of upgrading the bottom of the barrel. In North America, coking units have been more prevalent because of economics, but the availability of cheaper hydrogen should make resid hydrocrackers more competitive.”
Low cost natural gas also makes efforts to extract bitumen from oil sands for synthetic crude production—a catalyst-intensive process—more economical. BASF expects bitumen-derived feedstocks from the Canadian oil sands to increase in the mid-continent market, driving increasing demand for the company’s BituPro line of catalysts, Neumann says.
Meanwhile, cost pressures from the run-up in rare earth prices in 2010-2011 have abated. China, which has a near-monopoly on global rare earths supply, severely cut export quotas in 2010, sending prices from averages of $4-$6/lb, to highs in the range of $55-$60/lbs in summer of 2012. Prices have since eased lower, to around $12/lb.
Catalyst makers were able to quickly offer catalysts with low-to-no rare earth consent, helping to defray costs for customers. Several report more than half of their customers now use catalysts with lower rare earth content.
BASF launched an FCC catalyst with a phosphorous modification that allowed for less rare earths content without a penalty on performance, Neumann says.It also instituted a Rare Earth Alternative program of in-situ technology and modeling tools that could, on a case-by-case basis, evaluate a customers’ ability to reduce rare earths.
The speed in which Albemarle was able to offer Low Rare Earth Technology (LRT), and the opportunity to work with customers to develop the new catalysts, helped increase customer intimacy, Nicols says. Albemarle has also invested in modeling capability to help customers forecast the impact of their feedstocks, objectives, and subsequently, their catalyst needs and performance. “We’re staffing up the technical service side of our business, particularly in Mideast, India, and China.”
In most cases, FCC catalysts are tailored for the FCC unit. And because the composition of crude coming into the refineries is more variable, catalysts needs are often in flux. “Refiners are challenged to produce a certain product slate, be it gas, diesel, propylene, from a wide array or feedstocks,” says Joanne Deady, v.p./global marketing, Grace Refining Technologies.
Süd-Chemie says its position as an independent catalyst producer enables it to communicate more openly about technology when working with customers. “We are not linked to a refining or oil company, and therefore can really focus our R&D on solving problems in close cooperation with customers. That rapport is vital especially when working on complex issues,” says Harald Dialer, head of sales, refinery in Süd-Chemie’s catalysis and energy group. Süd-Chemie is working to address all of the problems their customers might face, whether it be converting oil, natural gas, or biomass into fuels and energy, all of which require tailored products based on regional needs.
In 2009, Süd-Chemie established an R&D center at Palo Alto, CA that it says is the most advanced of its kind in high-throughput experimentation for catalysts. The facility has helped the company in a number of projects to improve and scale-up existing catalysts, Scheepstra says, and is particularly valuable to its expanding custom catalyst business.
Clariant acquired Süd-Chemie late last year for €1.9-billion ($2.7 billion), a move it says will make it less cyclical and more profitable. Clariant manages the Süd-Chemie catalyst and adsorbent businesses as two new business units in its portfolio.