Optimism runs high for Satorp refinery in Saudi Arabia
Total lauds the economic strengths of its new Saudi Arabian complex while troubles in Europe mount
The new Total (37.5%) and Saudi Aramco (62.5%) refinery at Jubail reached its full capacity of 400,000 barrels a day (b/d) in August, after a marathon 11-month commissioning programme. Total says the $12 billion investment by the venture, Saudi Aramco Total Refining and Petrochemical Company (Satorp), will benefit from strong economics - and it expects the refinery still to be operating in another 40-50 years.
Total’s former president of refining and chemicals, now chief executive, Patrick Pouyanné, says: “Our job is to find the cheapest crude to make the best product.” Jubail will run on just one type of crude, permanently - Arabian Heavy, produced from the Safaniya and Manifa fields to the north of Jubail, and delivered by pipeline directly into the complex. “We designed the refinery to handle this one type of crude, allowing us to optimise operations and giving Jubail a big advantage in operational reliability”, Pouyanné says. Pipeline-delivery provides another big advantage: “We can operate with a very low inventory of crude, and this is very important because if you are managing a huge inventory, you use a lot of working capital”.
Designing the refinery to run on a heavy grade of crude contributed to its high capital cost. “We decided to build a full-conversion refinery - we will produce no fuel oil”, Pouyanné says. “All the molecules sold will be diesel or gasoline or petrochemicals or petroleum coke, all high-value products. There will be no fuel oil because fuel oil has a minus value - other spread between fuel oil and crude is negative, so the less fuel oil you produce, the better”.
The Saudi Arabian location brings other benefits, particularly the supply of low-cost gas for process fuel. “Energy represents 50%-60% of costs, but in Saudi Arabia we have gas at $0.75/million British thermal units - also, electricity is very cheap, half of what we pay in Europe”. Pouyanné said the energy advantage from being in Saudi Arabia amounts to $10-$15 a tonne (t), or $1.36-$2.04/b.
After good logistics, full-conversion and low-cost fuel, the refinery’s fourth strand is integration with chemicals production. Integration allows feedstocks to be swapped quickly from unit to unit, to take advantage of price movements. Pouyanné says the aim is to “add value to each molecule”.
The benefits add up to a $50/t ($6.80/b) advantage for the Jubail refinery, Pouyanné said. For comparison, Total’s European refining margin indicator - not the company’s own margin, but a calculated margin for a Rotterdam-area refinery - averaged only $8.70/t ($1.18/b) in the first half of this year. A chart produced by Total earlier in the year indicates that Jubail will show a margin of about $8.00/b.
Virtually all of Jubail’s output is going to markets in the Middle East, Asia and East Africa, Total says. Saudi Aramco is selling its share of gasoline in Saudi Arabia, where there is a large market.
With no fuel oil production, the refinery’s yield value is high. Total says middle distillates make up 55% of the yield, while distillates and other light products will account for more than 85% of output. Much of the remainder will be petroleum coke, of which Jubail will be Saudi Arabia’s first producer.
The refinery’s coking unit is the key to producing a high-value yield from the high-sulphur and high-residue crude. Coker streams are upgraded through a mild hydrocracker and a distillate hydrocracker to yield low-sulphur products —pas much as 200,000 b/d of the refinery’s gasoil will be sulphur-free (maximum 10 ppmS) grade, it is indicated. There is also a fluid catalytic cracker, used mainly to maximise production of light hydrocarbons such as propylene and liquefied petroleum gas (LPG) for the chemicals units.
The main chemicals units at the site give capacities for 700,000 t/y of paraxylene, 150,000 t/y of benzene and 200,000 t/y of polymer-grade propylene, but there are other chemicals facilities at Jubail Industrial City and Saudi Aramco has interests in many of them. “We have plans for optimising streams, exchanging products - with minimal capital expenditure, you can add value”, Pouyanné says.
Total is “beginning to think about a new cracker” eat Jubail and will crack gas, not naphtha. Saudi Arabia continues its policy of making gas and LPG available at 70% of the international price, so LPG margins will be better than naphtha margins — winvesting in a pure naphtha cracker would be quite bold,” he adds.
While many petrochemicals companies are looking to the US, with its low-priced ethane feedstock, “at Total we develop petrochemicals units and refining capacity as it adds continuity to the main upstream business - we are expanding in the Middle East now, maybe in Russia tomorrow”. But a US investment is also being considered, says Pouyanné. Investments in Europe continue, particularly the sites at Antwerp, Belgium, and Normandy, France, although last year the firm said its cracker at Carling, France, will close.
As the largest refiner in troubled Europe, Total is said to be planning capacity cuts although Pouyanné says it is not a straightforward decision. “When you shut a plant you do not benefit, the whole market benefits, and your competitors may benefit more than you,” he said. “We are proud to be the largest refiner in Europe - to be the best, you need this footprint, and we want to focus on our big integrated platforms.”
But Europe has a large surplus of capacity: “Refinery utilisation is 75%, you target 85%, and the 10% difference is 1.5 million b/d of structural overcapacity.” That weighs on margins. “Internally, we need a refining margin of about $4.00/b - at this level, it works”, Pouyanné says. Two years previously, he would have wanted $5.00-$5.50/b, but “integration has lowered the break-even point”. The company’s latest results back him up: in the first half of 2013, the European refining margin indicator stood at $25.50/t and the refining and chemicals segment produced an operating income of $955 million; in this year’s first half the margin had fallen by 66% but income was only down by 22%, to $747m.
On Total’s own figures, the company has reduced its European refining capacity by less than most of its competitors. Over the 10 years to 2013, Shell cut by 45%, BP by 41% but Total by 27%, while ExxonMobil made a cut of only 7%. Over the five years to 2013, Europe’s demand for oil products declined by 14% while refining capacity fell by only 8%. In contrast, in Asia and the Middle East demand was up by 18% while capacity rose by 14%.
*Since this interview, Patrick Pouyanné has been appointed chief executive of Total. Philippe Sauquet, formerly president of global gas and power, now heads the group’s refining and chemicals unit.
Speaking at the Oil & Money conference in London, shortly after the sudden death of former chief executive Christophe de Margerie, and just after a week after he had taken on the role, Pouyanné reaffirmed his commitment to Total’s strategic plan. “We operate in a low-price environment now. We must maintain capital discipline, and we should not jeopardise our strategy.” He admitted, though, that for refiners “the future is tough”, adding that companies “have to be realistic”.
He pledged to maintain continuity and stability within the group. “The company demonstrated our strength [in the days following de Margerie’s death]. We will continue to move forward, and we will be stronger in another way.”
Pouyanné added: “I can never try to replace Christophe. I can only be what I am, as I am. Total is strong, we are united and we have a good strategy. We will move forward after these sad days.”
Pouyanné was named chief executive after a meeting of the Total board on 22 October. The vote in favour of Pouyanné’s appointment was unanimous.