Crude Quality of US Shale

[FGoldwyn + 1]

Greetings!

I need some assistance with an issue that I have recently encountered. While domestic oil production is projected to grow to more than 2 mb/d, there seems to be an issue with the quality of the oil.  As I understand the situation, US shale crude has an API Gravity of 40 - 45. However, most global refiners can process crude with an API Gravity of ~31.5 to 33. Further, US refiners have an API cap of ~ 32. If most of the shale production in the US is at an API of 40 to 45, then who in the US refines it? If most international refiners have a similar API limit, then who buys it?

Now, to be fair, I may be completely wrong on all of the above. So I am reaching out for someone help me understand this.

 

[Tom Kirkman + 8,860]

Furthermore, due to the peak of conventional oil in 2005 and the considerable increase of U.S. shale light tight oil, the production of heavy fuel oil (not diesel, rather bunker fuel for ships, etc.) has also declined.  Turiel explains in the article The Peak of the Diesel: 2018 Edition, that the refineries cannot make as much diesel from the U.S. light tight shale oil, so they are forced to crack the heavier fuel oil to make diesel.  If true, what we have here is the cannibalization of the refinery system to continue to produce diesel at the expense of the heavier fuel oils.

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Hello, this is Steve from the SRSrocco Report.  I believe Turiel is on to something here about the peaking of global diesel production.  I have heard from a few other sources that the refineries are indeed having difficulty in producing quality fuels from combining of tar sands and light-tight shale oil.  The industry thought by combining the heavy tar sands oil and U.S. light shale oil, it would make an average oil blend, similar to good ole fashion medium grade API conventional oil.

However, it has turned out to be a real nightmare as this Tar Sands-Shale Oil blend creates a lot of difficulties for the refineries.  So, it will be interesting to see how the situation unfolds in the global refinery market when U.S. shale oil finally peaks.

[Jan van Eck + 7,558]

It is my understanding that oil derived from coal has an API gravity of 75.  It is still easily processed into diesel and gasoline.  The refineries do have to fiddle with the distillation tower to get to where they want to go.  One historical solution was to buy Venezuelan heavy crude to mix with with the light oil.  As Tom points out above, efforts to substitute Canadian oilsands heavy oil have met with some disappointment.  

Ultimately, smallish refineries, on the scale of 15,000 bpd, will end up getting built, specifically designed to process tight light.  That is a function of money flowing in from Wall Street.  If they can smell money, the capital will be furnished.  That is the nature of Wall Street. Stick around and watch, folks; the Street provides. 

[Jeffrey Brown + 207]

The following chart shows refinery yield by API gravity. Note the huge decline in distillate + cat feed content just going from 39 API gravity (about 55%) to 42 API gravity (about 20%).  Based on the most recent EIA data, about 42% of US Lower 48 Crude + Condensate (C+C) production exceeds 42 API gravity, which is the maximum API gravity for WTI crude oil.   Note that the more common dividing line between crude & condensate is 45 API gravity. 

https://i1095.photobucket.com/albums/i475/westexas/Refineryyields_zps4ad928eb.png

Edited December 14, 2018 by Jeffrey Brown

[FGoldwyn + 1]

So, some of my ignorance has lifted, if only slightly. The higher the API number the "Lighter" the crude, as measured by oils' ability to float on water.  Hence, Crude API's with a density above 10 will float on water. The larger the API value, the "lighter" the crude.  Lighter crude is also easier to refine and has less residuals. More importantly, lighter crude produces more gasoline per unit of oil than "heavier" oil.

Data from the EIA; hold on, I know people do not trust these numbers, but I have to start somewhere; indicate that the vast majority of the oil produced in the US is light crude. What struck me is the data for the Gulf of Mexico, of which 67% has an API between 30.1 - 50. I cannot find the same data for sulfur content, but most reliable sources indicate most of the tight oil is sweet oil. In Texas, 84% of the crude is between 30 - 50 API. Therefore, it seems the issue is that refiners spent a lot of money in the past re-configuring their facilities to process heavier crude. Now that the lighter API crude is on stream, this is creating processing issues at the refineries. Heavier crude tends to contain more sulfur.

Saudi Heavy is API/Sulfur of approximately 27/3.1 Saudi Light is approximately 33/2.5. Louisiana Light Sweet is 36/.3 and West Texas Intermediate is 37/.4.(1) So it seems I got the issue a bit backwards. The problem is not the crude, the problem is the configuration of the refiners. The second issue is easier to fix that the first, since the first took hundreds of millions of years to create in the first place.

Thoughts? Comments?

(1) Source: https://www.eia.gov/todayinenergy/detail.php?id=7110