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Refinery catalysts: Strong fundamentals trump uncertainty

4:15 PM MST | March 4, 2013 | —Rebecca Coons

Innovation Drivers: BASF says close collaboration with customers is key to creating new solutions.

Stronger demand for transportation fuels in emerging economies continues to boost prospects for refinery catalyst makers, although concerns about the strength of global economic recovery has injected uncertainty into 2013 forecasts. As suppliers invest to build capacity to serve high-growth markets in Asia, the Mideast, and South America, opportunities to provide innovative products to address heavier crudes in North America have arisen.

Refinery catalyst makers expect rising fuel demand and more stringent fuel standards in emerging markets, and the growing use of heavier feedstocks in North America to support healthy catalyst growth. Despite those solid fundamentals, suppliers say economic uncertainty—particularly surrounding the extent to which China’s GDP reaccelerates in 2013—has made it difficult to predict what business will look like this year.

Shawn Abrams, president of Grace’s catalysts technologies group, says he expects the second half of 2013 to be better than the first half. “The outlook is in line with our expectations with growth strengthening as the year progresses,” he says. Grace is forecasting fluid catalytic cracking (FCC) sales volumes to grow 5–6%, slightly above the historical growth of transportation fuels.

Amy Motto, v.p./catalysts at Albemarle, also expects stronger results in the second half, lifted in part by product introductions. Albemarle also expects volume growth for refinery catalyst in geographies where fuel demand and fuel standards are rising the fastest, including the Mideast, India, and Latin America. Crack spreads remain healthy, which bodes well for refinery production rates and demand for high-performing catalyst.

Albemarle had originally forecast 2013 to be a step-out year for its catalysts business. Customer developments, however, have caused the company to pull back expectations somewhat. “The fundamentals are fine,” Motto says. “But specific cases—like certain customers taking turnarounds and the number of large HPC [hydroprocessing catalyst] changeouts that boosted results in the fourth quarter [of 2012]—will impact results early in the year.” Albemarle’s HPC business posted fourth-quarter net sales growth of 61% year-on-year (YOY) with an 85% increase in profits.

Several of Albemarle FCC customers have turnarounds, scheduled throughout the first half of 2013, that will cost between 5,000 m.t. and 6,000 m.t. of volume—about 5% of 2012 FCC volumes, Albemarle CEO Luke Kissam said during a recent company conference call with analysts. A large FCC project in the Mideast that the company is contracted to serve will now come online later in 2013 than originally anticipated, and could possibly slip to 2014. “Once those matters are behind us, we expect volume growth in 2014 to drive this business to new heights,” Kissam adds.

Fueling future growth

The global market for refining catalysts was $3.1 billion in 2011—roughly a quarter of the $12.5-billion process catalyst industry, according to IHS Chemical. The largest segment in terms of value is HPC, while the largest-volume products are the zeolite-based FCC catalysts that convert heavy petroleum fractions into lighter, more-valuable components. Other major refinery catalyst market sectors include hydrocracking and reforming catalysts, IHS says.

Looking ahead, changes in crude oil composition, desired product slates, and stricter emissions limits—particularly in high-growth emerging markets—favor increased catalyst use globally, producers say.

Refiners are using more FCC resid catalysts to upgrade the bottom of the barrel and increase olefins output, says The Catalyst Group (Spring House, PA). Demand for HPC catalysts is also growing as refiners increase hydrotreating capacity to manage the increasing sulfur content of crude and meet tighter sulfur regulations worldwide. The Catalyst Group expects refinery catalyst demand to grow 3.7%/year through 2015.

Motto says tightening sulfur specs in the Mideast and Asia are driving demand for hydrotreating catalysts, Motto says. This is especially the case for for Albemarle, which has a strong portfolio of products for removing sulfure in diesel fuel production, she adds.

The Catalyst Group says sulfur-removal technologies also apply to gasoline, and technology from companies like Clariant have been selected for use in more than a dozen new units worldwide, the majority being in China.

Refiners are also looking for products that help them tailor product slates to help meet the global shortfall in propylene. Strong polypropylene demand in emerging regions is outpacing steam cracker production, a situation that is exacerbated by increased ethane cracking in North America.

Motto says refineries in Asia, India, and certain parts of the Mideast are looking for FCC catalysts that help maximize propylene yields, Motto says. Albemarle’s FCC volumes were up 14% YOY in 2012.

Abrams says the shift in fuel demand growth from mature markets to emerging regions and the subsequent buildup of refining capacity in the Mideast and China are key trends driving Grace’s refinery catalysts strategy. Company sales of refinery catalysts in emerging regions increased 29% in 2012. Also, emerging-region growth was cited as the largest contributor to a 12% increase YOY in FCC sales volumes.

Among Asian countries, China is the largest consumer of refining catalysts, but the market is dominated by local producers. “At least 80% of the catalysts consumed in China are produced domestically,” IHS says. “Most refining catalysts are produced by two petroleum companies—Sinopec and China National Petroleum Corporation.”

Shifting Markets: W.R. Grace investing in China and the Mideast to meet FCC demand growth.

In North America and Europe, improving fuel economy, higher biofuels blending, and stagnant population growth pressured fuel demand, leading to a number of refinery closures in recent years.

Catalyst makers have already felt most of the negative impacts, however, and the rate of refinery closures is expected to slow.

For the most part, the industry has taken out enough capacity to bring gasoline and diesel supply in balance, according to The Catalyst Group.

“There are always going to be a few refiners that are in danger of shutting down, particularly smaller ones in the US and Europe,” Abrams says. Hess’s Port Reading, NJ, refinery—which Hess said earlier this year would be closed—is typical of the type of older, smaller operations under pressure. However, Abrams says he does not expect any larger refineries to announce closures.

However, there could be additional refinery closures in Europe, The Catalyst Group says, as the market there remains plagued by overcapacity and poor margins.

Global supply and demand for FCC catalysts and HPCs are presently roughly balanced, potentially leaning toward slight overcapacity in FCC catalysts, says John Murphy, president of The Catalyst Group Resources, a TCG subsidiary. Regional imbalances in Asia, Brazil, and the Mideast, however, are driving investments in those regions.

Grace is investing in China and the Mideast to ensure the company has the proper footprint to meet FCC demand, Abrams says. Sixteen FCC units are expected to be built in the Mideast and South Asian markets in the next 5 years, increasing the catalyst opportunity in the region by about $150 million, Abrams says.

Late last year, Grace closed the acquisition of assets of Noblestar Catalysts (Qingdao, China), a manubesufacturer of FCC catalysts, catalyst intermediates, and related products used in the petroleum refining industry. The company is making additional investments to the Qingdao site for environmental, safety, and manufacturing upgrades.

The company has also advanced an FCC catalysts and additives plant construction project at Abu Dhabi to the engineering phase. The facility, Grace’s first in the region, is being built in partnership with Al Dahra Agriculture (Abu Dhabi). Abrams says that the site is on pace to start up in 2015, although ultimately timing of the plant’s commissioning will be aligned with development of demand in the region.

Albemarle has an agreement with Petrobras to jointly build an HPC plant at Santa Cruz, Brazil. Motto says the project remains on track for start-up in 2015, but because the plant is expected to serve the six to eight refineries Petrobras plans to begin operating by 2020, timing will ultimately depend on Petrobras’s ability to shore up feedstock agreements, government approvals, and engineering contracts.

Customer focus

Close collaboration with customers and broader service capabilities are keys to helping refiners manage the challenges of shifting regional demand, feedstock composition, and desired product slate, catalyst makers say.

Albemarle announced last week that it is changing how it organizes its refinery catalysts business. Instead of separating sales groups into hydroprocessing and FCC segments, Albemarle’s refinery catalyst business will now be grouped into Heavy Oil Upgrading, consisting of FCC, coking additives, and ebullated and fixed bed resid hydrotreating and hydrocracking catalysts; and Clean Fuel Technologies, which focuses on catalysts for hydrotreating, hydrocracking, alkylation, polymerization, and isomerization.

The move essentially transitions Albemarle’s sales strategy into one that separates products into one of two categories: those used to process the crudes coming into the refinery and those used at the refinery’s back end, such as catalysts and additives that help refiners meet fuel specifications and tailor product output, Motto says.

The move was largely driven by customers and Albemarle’s internal goal of improving its service capabilities, Motto says. “This is more along the lines of how our customers think,” and in a technology-driven industry such as refinery catalysts, customer intimacy is of paramount importance, she says.

Motto expects the new organization will also help Albemarle identify gaps in its product portfolio that could spur new licensing deals, alliances, and M&A opportunities. The company also plans to further build its modeling and technical capabilities.

Advanced Refining Technologies (ART), a joint venture between W.R. Grace and Chevron, announcced last week that it has signed a sales agreement with Chevron Lummus Global (CLG) to streamline HPC supply and improve technical service for refining customers. Under the terms of the deal, ART will have the exclusive right to sell CLG’s hydrocracking and lubes HPCs to CLG’s licensees and other petroleum refiners for unit refills. CLG is a jv between Chevron and CB&I Lummus Technology Group.

The agreement “represents a unique combination of ART’s well established portfolio of hydrotreating catalysts, extensive sales network, and manufacturing expertise together with our hydrocracking and lubes hydroprocessing catalyst technologies, and engineering and technical know-how,” says Leon de Bruyn, managing director of CLG. “It will allow our customers to receive broader service and more advanced catalyst materials, and will improve the competitiveness and profitability of their refineries.”

For BASF, close collaboration with customers provides a “strong platform for innovative solutions that drive new levels of performance and value, today, and over the long term,” says Herbert Exner, BASF v.p./refinery catalysts and technologies. “This commitment extends beyond innovative products, but also provides each customer with a suite of technical services that help refiners optimize their operation,” he adds.

Shale boom boosts US

The influx of shale gas and Canadian crude is changing the dynamics of the North American refining industry, and the impact on catalyst demand is positive. The additional methane supply can be used to produce lower-cost hydrogen for HPC units—making new projects economical.

Additionally, North American shale natural gas and natural gas liquids are reshaping feedstocks and costs for refineries and petrochemicals, and changing the processing choices for olefins production and downstream export product focuses. “We’re seeing increased interest in FCC additives in their use for product slate flexibility—beyond traditional C3 maximization—which could drive FCC additives market in the future and create a unique renewed perspective of the FCC units role in the refinery,” says Brittany McGinley, v.p./The Catalyst Group.

The recent development of tight oil crudes in North America has provided a key opportunity for BASF, Exner says. “As the market leader in this segment, BASF is working closely with customers to understand the developing needs associated with this new and variable crude slate.” Ongoing product development efforts at BASF also include next-generation maximum vacuum gasoil conversion, maximum propylene conversion, heavy feed conversion, and diesel maximization. “Suppliers need to be in tune with market needs to deliver new products in a quick and reliable form,” he adds.

Albemarle expects to begin commercial trials shortly for its AlkyStar catalyst, a solid olefin alkylation catalyst that will enable refiners to eliminate hazardous liquid catalysts like sulfuric acid and hydrofluoric acid, Motto says. AlkyStar represents a completely new product category and is the culmination of a decade of R&D. “Refiners have been begging for a less-hazardous, solid alkylation catalyst for years, but the industry considered it an innovation that would be difficult to pilot,” Motto says. “No one wanted to go first, but we are excited to have the first commercial trial scheduled for later this year. We have every confidence it will be successful.”

Albemarle is also set to begin commercial trial for coker additives that enable refiners to convert coke to higher-value transportation fuels. The company has done significant pilot trials over the last couple of years to prove out the technology, she adds.

BASF’s newest innovation for FCC catalyst manufacturing, the multistage reaction catalyst (MSRC) platform, allows for FCC catalyst particles with staged reaction zones—with different catalytic properties for each stage, Exner says. The MSRC manufacturing process allows for the combination of two or more FCC catalyst functionalities within a single catalyst particle. “The location of the various stages can be specifically engineered to achieve maximum value for the customer,” Exner adds.

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