Oil Refining

Today's post is about something important that I entirely took for granted that most people don't know about. Oil refining.

Oil refinery, pic from eia.

For those five of you that read last week's post and wondered where I got all that from, a lot of that information came from books on geopolitics and a course called Geopolitics of energy. More or less, geopolitics goes far beyond your government course to include geographic/geologic/demographic constraints.

Anyways. Refining. No equations here. Sorry if you like those.

Basically, refineries buy crude oil and distill it to usable products based on the fact that crude oil is a mix of a bunch of different products. Your typical barrel of low-grade crude from Venezuela will have 40% of a substance that can be only used as road tar. This is called residuum. Chemically speaking, it is chains of long, heavy molecules, not useful for much. More chemically speaking, the Van Der Waal's forces, which are based on molecular mass, attract these to each other, so they are sticky and have high boiling points.

Distillation temperatures (and a rock block diagram of a refining tower) of different crude oil components. from EIA.gov

How do these get separated? By their different boiling points! Refineries are towers. Everything at the bottom is very hot, so just about everything boils. Farther up the heaviest stuff with the highest boiling points will condense out to liquid phase, while stuff with lower boiling points will stay in the gas phase. This pattern continues all the way up, until the different products are fully taken out.

A schematic of a refining tower. Nearly everything in the bottom is volatile (gas phase). As you move up in the tower, temperature drops, and the heaviest items condensate out in liquid form, collect in trays, and are removed. source: chevron Pascagoula

Gasoline is amongst the most valuable commodity pulled out of a barrel of crude. Diesel in the US is more valuable if it can make its way to the east coast, where it can be shipped to Europe. Why does Europe use more diesel than the US? Cause the gasoline tax there is much higher than the diesel tax. So the price for gasoline is artificially raised very high, and then the price for diesel (which can be substituted for gasoline in most applications) rises to something underneath gasoline. Since petroleum products are a globally traded good, the price of diesel in the US is directly affected.

Barrels of oil are not created equal. Stuff coming out of Saudi Arabia can produce a lot of gasoline (we are talking nearly 70 or 80%). Stuff coming out of the Canadian tar sands might produce closer to 20%, and have a ton of residuum. A barrel of Canadian tar sand oil is thus worth much less than a barrel of Saudi crude. Note: the Bakken produces a barrel that is even better than Saudi. It is some of the best in the world. It is worth less at the well head (where it comes from the ground) than other barrels. Cause the Bakken developed so rapidly that there is not enough transport capacity. This elucidates another important point. Refineries buy crude oil.

Hokay, next stop on refineries: different types. The crude that comes from Venezuela and the Canadian tar sands is incredibly low quality. It is filled with heavy stuff. In order to distill it, it needs to go to special refineries. It turns out that Texas and the American South are one of the few places that can handle this super thick sludge. So Venezuela can complain all they want about the US, but their only buyer for their product is currently the US. No one else has the ability to process it. What about Canadian tar sands and Keystone XL? Most of us have heard that China is willing to buy that stuff, and they will if Keystone does not go in. It would be pretty easy for that stuff to be shipped to the coast, and if China could have a guaranteed supply of it for years, it would be worth it for them to build refining capacity for that thick sludge. So if we don't build Keystone or develop rail capacity to buy that junk from Canada, then China will.

How much money does refining oil make? A couple of dollars per barrel. Compared to Saudi Arabia making nearly $100 a barrel, this doesn't seem like much. But given there are 80 million barrels of oil used a day in the world, that means there is somewhere between $100 and $150 million per day to be made in the world by refining oil. If you are Exxon and don't have all that much access to produce in a Saudi oil field, this could be a great option.

Okay. That's about it. Thanks for reading.

-Jason Munster

Oil exports and imports

I am going to be lazy this week and post a very short one.

We discussed the Bakken before. It is producing nearly a million barrels a day of oil. This is $100 million in oil sales a day. It costs up to $45/barrel to lift the oil out of the bakken. The Bakken makes profits of about $50 million a day, or about $18 billion a year.

Let's compare this to Saudi Arabia. They pull oil out of the ground for $1 per barrel (it is very efficient there). They make profits of roughly $100/barrel. They produce 12 million barrels a day. In other words, they make $1.2 billion per day.

The US currently imports 11 million barrels of oil per day, and we use a total of 20 million. We transfer about $1.1 billion out of the US per day to drive cars.

What is the end product of this money? Many countries with oil have what is called the "resource curse." It is also known as Dutch disease. It turns out if your country has a ton of natural resources, it becomes inefficient and actually has less growth than it would have otherwise. This has several reasons. First, if a government makes a ton of oil money (or copper or gems), they tend to provide stuff for free to the populace. They take the money they make and just use it to pay for social things, like schools, hospitals, etc. Citizens pay less or no taxes. Corruption and handouts tend to be rife, but since the citizenry gets stuff for free, they don't even care. It is highly inefficient, and the country does not develop a real economy. They often will not use the money to diversify the economy, and once the resource runs out, the country is literally worse off than it was before they found the resource. Finally, having resources tends to allow despotic regimes to thrive. Iraq, Iran, Venezuela,

Interesting, eh? Maybe is a good reason to drive a fuel efficient car. Except that China and India and other developing countries with increasing numbers of cars will ensure every barrel of oil finds a buyer.

One last thing. The US gets its oil imports almost entirely from North America, from Mexico and Canada. The Middle East oil goes to China and the rest of the east. Why does the US spend so much money to maintain peace in the Middle East? Cause if the oil produced there came off the market, the former buyers will have to go elsewhere to buy their oil. Despite the fact that we don't get oil from the middle east, the global price (and our price) is much lower than it would be if war caused the oil to stop flowing from there. So why doesn't China start also enforcing peace in the Middle East? How come the US is the major country to fund this peace keeping? Frankly put, no other country has the experience of the US with having troops on foreign soil. China doesn't yet have the experience to effectively do this sort of thing. But they are already practicing. Eventually, as China continues to rise, they will likely begin to shoulder responsibility of ensuring the flow of oil.

Natural Gas Prices 2

Natural gas flaring (NOAA). Often it is less expensive to burn natural gas than it is to get it to market.

Since I am in the field installing science onto an airplane, this is going to be a short post. In a prior post, I showed graphs with natural gas prices being de-coupled from oil (recreated and updated with the latest numbers here). I decided it was high time to do some maths related to it. All the data is from the EIA, and all the analysis is my own. I had to interpolate average coal prices for the past two years based on its link to specific coal prices.

If you know what correlation is (I think most of you do), skip over the description of correlation and go straight to Maths, since it is very rudimentary, and you could probably make fun of me for writing it. If you want to do better statistics with the data set, let me know and we can have some fun.

One important point! These prices are well-head prices. In other words, it is roughly what the major distributors of gas will pay for the stuff. Your prices as and end-consumer won't change. In other words, they pay less when the price goes down, but they sell you to at the same price. That works out pretty well for them, doesn't it?

Description of Correlation and its Limitations

Correlation: correlation is a measure of how closely two data sets match. In other words, correlation answers the question: when one set of data goes up, does the other go up? It is important to remember that correlation does not imply causation. In the case of natural resources, this idea is very easy to understand. The price of oil and natural gas both rose together in the 90s. This does not mean that the price of oil rose on its own, causing the price of natural gas to rise. Natural gas prices rose for pretty much the same reasons as oil prices rose. In this case, demand for things that burn and produce heat caused an increase in price in both of them.

Long-term prices 1-13

Wellhead hydrocarbon prices over the past 3 decades. The price of natural gas used to follow the price of oil. In 2008 this changed thanks to hydrofracking.

A classic example of the abuse of correlation and causation is ice cream and murders. Both murder rates and ice cream purchases tend to rise in cities at the same time. One could conclude that ice cream causes murderous rampages, or that the best way to relax after murder is to eat ice cream. Both of these are silly to conclude. More likely, there is an outside factor that causes both. It could be hotter weather makes people eat more ice cream, and simultaneously makes them more irritable. Or it could be that hotter weather makes people eat more ice cream, and it also makes more people be outside, where they are more likely to get murdered than in their homes. The point is that correlation can show that two factors are tied together, but often requires more than that to show a direct causal link.

Hokay. Correlation goes from -1 to 1. 0 means no correlation, 1 means perfect positive correlation: one thing rises, the other one rises by a predictable amount. -1 means perfect negative correlation: one thing rises and the other falls by a predictable amount.

The Maths!

NG correlations

The overall correlation between oil and natural gas prices from 1986 to 2012 is .68. This is pretty good for noisy data sets (noisy meaning there are outside factors, like commodity speculation in the markets). The correlation between natural gas and coal over that period is .4. This is pretty low, and partially represents inflationary increases in prices of both of these over time (if I had used real 2005 dollars instead of nominal dollars, all of these correlations might decrease).

More important is breaking out the correlations between early and late. I mentioned in the prior price post that decoupling began to happen in 2007, and then accelerated. The 22 year correlation between gas and oil until end of 2008 was .88, very high, much higher than .68. After this, the gas:oil correlation becomes -.23. The prices have become decoupled. At the same time, the correlation between gas and coal rises to .69. Not great, but definitely more coupled than gas and oil currently are.

One thing is clear about natural gas prices and correlation. Natural gas prices in the US used to be tightly coupled to oil prices. Natural gas prices in the US are no longer coupled to oil prices. They are instead coupled to coal prices, though not as tightly as the prices used to be coupled to oil prices.

Hydrocarbon prices per million BTU after hydrofracking. Pretty easy to see that decoupling, eh?

Hydrocarbon prices per million BTU after hydrofracking. Pretty easy to see that decoupling, eh?

Now we discuss the cause. The cause in this case is definitely hydrofracking in the US. Outside the US, oil and gas prices are still more correlated. Okay, that was a short discussion.

Some caveats: the numbers I used for historic coal prices are mean annual coal spot prices weighted for what was bought. These are correlated to monthly oil and gas prices. These coal prices were not available for the last two years. They are, however, tightly coupled to coal prices in general. I looked at similar priced coal over the two years, and extrapolated the prices for my model based on these. Given the very tight link of mean coal prices to the price of specific types of coal, this is not a faulty method. If someone were to use a more consistent methodology to determine coal prices throughout the entire time period I have sampled, it would produce results that are nearly identical.

Conclusions

Oil prices and natural gas prices were historically tied. With the advent of fracking in the US, natural gas prices decoupled from oil prices, and have coupled with coal prices.

So much for a short post, eh?

Hydraulic Fracturing!

Fractured Shale and pipe

Schematic of what hydrofracking does to the surrounding rock. Source

This is one of my favorite topics! Hydrofracking (short for hydraulic fracturing) is used to extract both natural gas (Barnett and Marcellus Shales) and oil (Bakken Shale, a few other places) from regions that used to be too dense to extract hydrocarbons from, or that would otherwise not produce much.

These dense rocks, called “tight formations” (formations meaning rock beds, tight meaning not having connected holes) are not permeable enough for hydrocarbons to move out of them at high flow rates. (Permeability means fluids can flow through something. Paper towel is permeable, plastic is not.) Believe it or not, many types of rocks are very permeable. They have lots of interconnected cracks. Shale is not such a rock. It may have space inside it with oil or gas, but these spaces are not connected by the cracks that would allow these hydrocarbons to flow out to a well. A well drilled vertically into this shale would produce almost nothing. These hydrocarbons stayed in the ground. Hydrofracking changed that.

Hydrofracking

Hydrofracking, in short, is exploding cracks and holes in the ground with shaped charges and water and then pounding sand into those holes. Hydrofracking requires 2 to 3 million gallons of water and 2 to 3 million pounds of sand per well.

Hydraulic Fracturing first requires drilling a hole in the ground. These holes can be kilometers deep. The advent of horizontal drilling allows for drilling horizontally by bending the steel tubes of the well. Sounds crazy that steel can bend? Given 300 feet of pipe, the steel pipes can bend  at a right angle. Horizontal drilling can cost up to 4x what normal drilling costs, so it is only used in places where it can greatly increase production. Like hydrofracking applications, where it makes a well go from zero production to up to 2000 barrels of oil per day.

This is where the magic happens. Formations that hold oil and natural gas are often horizontal. First a vertical well is drilled, then it goes horizontal for up to 10km. For hydraulic fracturing, shaped charges are planted inside the pipe in the horizontal section. They are then directionally exploded into the rock, creating large cracks in the rock extending away from the pipeline.

Next they pressurize a viscous fluid and cram it into the drilled hole using dozens of pumps to create massive pressure. This process can take dozens of trucks work of fluid, pipelines, and pumps. The trucks gang-pump fluid into the hole. The fluid finds the cracks in the pipe and rock made by the shaped charges. The fluid rips through the rock, rending the cracks, expanding them in length and volume and connecting them. These cracks become very widespread. The former tight shale or sandstone formation that prevented the flow of fluids is now a series of connected cracks leading to the pipeline. Fluids can flow.

Hydrofracking pump trucks

Dozens of hydrofracking trucks pump hydrofracking fluid into the hole. Source.

When the hydrofracking fluid is drained, the cracks can close up again. To prevent this, something called a proppant is used. A proppant props open the cracks, much like leaving a door stopper in your door. Typically sand was used for this, but new proppants with special shapes and properties are being used as well, like ceramic beads covered in resin for deeper wells. The proppant is put in at the same time as the hydrofracking fluid. When the trucks reverse the flow of hydrofracking fluid and pump it back out, the proppant remains behind.

Fracking Proppant

Proppants hold the cracks open after the hydrofracking fluid is drained. Source

Proppants hold open the rock and allow flow, but this is not permanent. Flow reduces over time. The first year after hydrofracking happens is the most productive. Drilling and hydrofracking a hole, then closing it, reduces the hydrocarbons you will get out of the hole compared to drilling and pumping. If you frack a hole and then close it, the hole will ultimately produce a lot less hydrocarbons than if you drill and pump. In other words, once you have fracked, you gotta make use of that hole or you will lose a lot of money.

Natural Gas hydrofracking

Natural gas hydrofracking in the US is one of the more polarizing topics. The chemicals in fracking fluid are of such low concentration that it does not matter if it gets in the local water supplies. But they mix concentrated versions of these incredibly toxic chemicals into the fracking fluid. In other words, the fracking fluid may not be toxic, but the pure chemicals they keep on-site to mix into these trucks sure are. If any of this leaks into the environment (it has), it can be quite damaging. One can hope that this sort of thing is both rare, and well-controlled in the future.

There is the leaking associated with hydrofracking for natural gas. Howarth (2012) estimated there is an upper limit of 8% of methane leaking from natural gas extraction and transport for hydrofracking. Given the factor of 23 greenhouse warming potential of methane, this is a problem. Compounding the problem is that mineral and resource policy are states rights in the US.  NY and PA do not have the law history in place or the resources to figure out how to deal with the potential pollution from fracking, nor the resources to enforce the policy. This, in part, is why fracking has been stalled in the Marcellus in many places.

Oil hydrofracking

The Bakken formation. Here the sandstone contains the oil. It is sandwiched between two impermeable layers of shale.

The Bakken formation. Here the sandstone contains the oil. It is sandwiched between two impermeable layers of shale.

There are other important implications for fracking specific to oil production. In order to drill, a company has to lease drilling rights. When a company leases drilling rights, they have obligations to produce certain amounts of hydrocarbons within a short time-frame, or they lose the lease. So they drill. A lot. Remember how we talked about holes losing productivity over time? Once a fracked hole is open, they are unlikely to close it. The problem? In the Bakken shale, they co-produce natural gas with oil. There is no infrastructure to pipe the natural gas away. They burn it instead. Some of it may leak. In other words, they are producing massive amounts of pollutants and GHGs. North Dakota does not have the ability to quickly build infrastructure to capture and transport this natural gas. And North Dakota doesn’t quite have a population that is accustomed to or capable of having a lot of bureaucracy to deal with these issues and enforcing policy. It’ll be a while before this is handled. In the meantime, North Dakota will light up the night sky like a mega-metropolis.

Bakken at night edit

The flaring of natural gas 24/7 in Bakken makes North Dakota look like it has one of the largest cities in the US. If you look at the picture below, you can see a stark contrast.

 

That light in North Dakota didn't used to be there. Courtesy Nasa

Implications

You may have heard that Hydrofracturing for natural gas is a phenomenon that is not repeatable outside the US. This is untrue. It likely cannot be repeated in Europe, but China is just discovering shale gas deposits that could rival or outsize that of the US. There are also likely large deposits in Africa. As far as shale oil goes (not to be confused with oil shale!), it is also likely available outside the US. We are just really good at getting stuff out of the ground here.

You may have also heard that this could make the US energy independent by 2035. If we don't grow our appetite for oil, this could possibly happen. It is unlikely, but that is a topic for later. The US is already one of the largest producers of oil on the planet. Is this a good thing? It is a mixed bag. It will definitely be a boon to the economy if we are not sending nearly $1 billion a day overseas to satiate our demand for oil (we use 18 million barrels a day in the US, importing 10 million of those @ $100/barrel, or a billion dollars a day). It would not prevent the middle east from getting a ton of money from oil still, as Asia and Europe will still buy all the middle east oil. It likely won't decrease the price of gas in the US, since any increase we make in production will be matched or outstripped by increased demand in China (1.3 billion people), then India (1.2 billion people), then Africa (2 billion people) in the 2nd half of the century. In other words, it won't change much on a world scale. Producing this much oil domestically also will keep the US addicted to oil, rather than transitioning to cleaner energy sources and more rational lifestyles that don't burn tons of resources. But the whole quarter of a trillion dollars per year that we aren't sending overseas, if handled properly, could easily boost our economy and help subsidize our way out of oil addiction. It's clearly a thorny topic, and beyond the scope of this post.

Conclusions

Fracking will change the energy landscape in the US by providing a lot more natural gas and oil domestically. It has downsides, from increased flaring of natural gas to domestic pollution, but it does have upsides that can be harnessed for the good of our future.

Natural Gas Price Drop, and Natural Gas Electricity!

Today’s post is about the shift in US primary energy use from coal to natural gas (AKA methane). Hydrofracking, the hydraulic fracturing of rock to subsequently produce natural gas, is a new favorite pass-time in the US. Natural gas prices used to track oil prices per unit of heat. They now roughly track coal prices per unit heat. As a result, it is now economical to produce electricity from methane rather than coal. As we discussed before, coal produces a whole bunch of dirty pollution, and methane does not. All good, right?

This is very important for both CO2 emissions reduction and for reduction of other pollutants. The math section is chemistry heavy. If you are going to skip a math section, this is the one.

The highest grades of coal have composition C_{240}H_{90}4NS , and lower grade coal is C_{137}H_9O_9NS. All coal is tainted with mercury and other heavy metals. Lower quality coal has more pollutants per unit heat, and this produces more pollution for the same amount of electricity. From the last post, we learned burning coal has quite the array of negative health effects.

The chemical composition of natural gas is CH4. It contains almost no other pollutants. It doesn’t produce particulate matter. When it is burned to produce electricity, we do not have the direct adverse health effects associated with coal. What about the CO2 emissions? These are reduced. Cause of math.

The Math of Chemistry! This is bond enthalpy chemistry. (Feel free to skip ahead if you don’t like the math parts)

Let’s look more closely at the composition of these two things. When any substance burns, it produces heat by converting everything to H2O and CO2. The resulting H2O and CO2 have lower internal energy than the coal or methane that formed them. The difference in energy from the coal to the H2O and CO2 has to be given off as heat.

Before the math: First, what is a mol? It is short for mole. Pretty bad abbreviation, eh? A mol is the number of molecules it takes to make one g times the molecular weight of the molecule. It is 6.022 \cdot 10^{23} molecules. This is confusing. Lets use examples to make it less confusing. Hydrogen has a molecular weight of 1. A single mole of it weighs 1 gram. CH4 has a weight of 16 (12 for the carbon, 4 for each hydrogen). A mole of it weighs 16g. CO2 has a molecular weight of 44, and a mol of it is 44g. Done.

The amount of energy used to hold atoms together to make molecules is the bond energy. Chemical reactions happen, chemical compositions are changed. If the overall energy of bonds are lower after the change, heat has to be released. This creates fire.
Bond energies: C-C bonds (aromatic, the ring-type found in coal) have 519 KJ/mol. C-H is 410. H-O is 460. C=O (double bond) is 799. O=O are 494 KJ/mol.

We simplify coal as aromatic bond chains of 4(-CH-) (this is generous in terms of calculating CO2 produced per unit coal, as all my prior calculations have been) (I stole this clever approach from my advisor, Jim Anderson, to simplify things). CH4 is pretty easy as CH4.

We can write these as:

4(-CH-) \longrightarrow 4CO_2 + 2 H_2O
CH_4 + 2 O_2 \longrightarrow CO_2 + 2H_2O

The molecular weight of our coal is 4*(12+1) or 52. Methane: 12*1+1*4 = 16

Coal: We break four C=C aromatic bonds (only four cause we would be double counting if we did each side of (-CH-), four C-H bonds, and 5 O=O bonds. We form 8 C=O and 4 H-O bonds.
Methane: 4 C-H bonds are broken, as well as 2 O=O bonds (the two O=O bonds are from converting the 4 H bonds into H2O). 2 C=O, and 4 H-O bonds are formed.

Coal:   4 \cdot 519 + 4 \cdot 410 + 5 \cdot 494 - (8 \cdot 799 + 4 \cdot 463) = 2058 \frac{KJ}{mol} = 514 \frac{KJ}{Mol-CO_2}

Methane:   4 \cdot 410 + 2 \cdot 494 - (2 \cdot 799 + 4 \cdot 463) = 810 \frac{KJ}{mol} = 810 \frac{KJ}{Mol-CO_2}

Math done!

The changing landscape of energy production based on cheap NG

Back in the day (pre-2010 or so) natural gas was much more expensive per unit heat than coal was. If you were going to burn something to produce electricity, coal was much cheaper and so produced cheaper electricity. The fact that it was pretty dirty didn’t matter as much. Then hydrofracking happened. Natural gas got cheap. Its price once roughly tracked with but below oil. Now it tracks with coal. This makes it a viable alternative to coal in power production. This fundamentally alters the primary energy landscape in the US. Once more data is available, we will revisit this.

Hydrocarbon Prices 86-12

Historic hydrocarbon prices per million BTU. Natural gas roughly tracked with oil, until hydrofracking made a glut in the market

Hydrocarbon Prices 07-12

Zooming in on the recent few years, the divergence of oil and gas and convergence of coal and gas becomes evident

 

Let’s discuss policy and environmental implications. They are pretty huge.

The math shows that in energy per unit CO2 produced, methane is about 60% more efficient than coal. This means that if we have to burn either methane or coal, and we seek to limit CO2 production, methane is the natural choice. Historically pricing prevented this from happening.

Natural gas is now only slightly more expensive per unit heat than coal. It makes sense to make electricity from natural gas, cause it produces far less pollution per unit heat. Since 2008, the US has reduced the amount of CO2 is produces for the first time in a long time. The reduction of CO2 produced by the US is partially based on this change in natural gas price. We now produce more electricity from methane than we used to. Since methane is more efficient at producing energy per unit CO2 produced, we produce less CO2 as a country.

Many staunch environmentalists argue this is a bad thing. Natural gas is still a hydrocarbon and still produces greenhouse gases. It kills far fewer people directly than coal does. The deaths that came as a result of coal might have pushed us towards a much greener economy. Methane is the lesser of two evils. It produces energy like coal. It produces CO2. It is still a finite resource. It is much better than coal.

Coal: The great of two evils between coal and methane. A picture of anthracite coal to break up the monotony of a text well. From Wikipedia.

Barring legislation to prevent hydrofracking, this trend of cheap NG will continue for a long time in the US. We have massive reserves of natural gas in our shale, and hydrofracking can get it out. This is not limited to the US, but there are only a few countries in the world that will be able to do this.

Before closing, we have one last thing. Many of you looked at the graphs of natural gas prices, saw that they were historically not much higher than coal for many years, and wondered why we didn't have natural gas electricity plants then. There are two answers. The first is that we did. It is why we have so many right now that can instantly go online. The second answer is that the EPA really only started getting strict on coal plants in 2004. The emissions from coal plants add many costs that go beyond the price of coal. Natural gas is pretty clean, so it doesn't face these costs, making it more competitive with coal.

Summary: Hydrofracking in the US has changed the natural gas price to be much lower and has made it a basic energy feedstock rather than a premium one. The US has natural gas power plant capacity, and has started shifting to electricity from natural gas. These power plants produce less harmful emissions as a result. CO2 emissions are reduced for the same amount of electricity. Harmful pollutants that cause heart attacks, asthma, and early death are also reduced. This is pretty huge.

Thanks for reading again, and sorry for the huge length

Jason Munster

* Will pointed out that I had Avogadro's # off by a factor of 10. Fixed