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Refinery catalysts: Value creation with every barrel
11:24 AM MDT | March 14, 2014 | —Rebecca Coons
Refinery catalyst makers continue to benefit from growing demand for fuels in high-growth economies in Asia, Latin America, and the Mideast, as well as the global adoption of more stringent regulatory standards. In developed markets, products that help refiners process difficult feedstocks and boost outputs of higher-value products are creating opportunities.
Despite modest global growth for fuels, refinery catalyst makers are counting on more challenging feedstock compositions, changes to desired product slates, and stricter emissions limits to raise catalyst demand growth at rates above that of overall refinery output. “We are anticipating 3–5% market growth in 2014 as refining complexes start up in the Middle East and Asia,” says Robert Gatte, v.p. and general manager/refining technologies at W.R. Grace. “Regionally, strong demand for fuels is driving catalyst demand in Asia and the Middle East. Favorable margins due to advantaged crude in North America support catalyst demand and continued product exports to Latin America and Europe, compensating for flat to declining fuels demand in the United States.”
According to Grace, 70-plus new fluid catalytic cracking (FCC) units, primarily resid-focused, are planned through 2018. Polypropylene production is driving greater FCC utilization and greater demand for FCC catalysts, Gatte says. “However, uncertainty in Europe remains due to lower fuels demand domestically and competition from lower-cost imports from new refining complexes in the East and North America,” he adds.
The global petroleum refining catalysts market was a worth $4.5 billlion in 2012, the most recent year for which data are available, and is expected to grow 2.7%/year on a value basis through 2017, according to IHS Chemical. New refining capacity in China, Other Asia, and the Mideast will contribute to high growth rates during 2012–17. Catalytic cracking catalysts are expected to grow 3% annually through 2017, from $1.7 billion in 2012.
“Growth in refinery catalyst demand is driven by growth in refinery capacity and demand for fuels,” says Michael Wilson, senior v.p. and president/catalyst solutions at Albemarle. “If you look at what’s happening globally, gasoline demand is probably growing near 1%/year, whereas ultralow sulfur diesel is growing closer to 2%/year. So, we believe overall refinery capacity, keeping other refinery products in mind, will grow roughly 2%/year. Demand is growing fastest in the Mideast, India, and Asia, particularly China, whereas fuels demand in Europe has actually declined over the last few years. Most of the new refinery investments are being made in the Mideast and in Asia, while you see European refiners taking capacity off-line.”
European refiners have, unsurprisingly, been reducing capacity, says Clyde Payn, CEO at The Catalyst Group (TCG; Spring House, PA). “The region has lost over a million barrels a day of refining capacity over the last two years.” While the outlook for the European refining industry is “not positive,” capacity is beginning to stabilize and supply and demand are closer to balance, says Brittany McGinley, v.p. at TCG. “Capacity is definitely still decreasing. We expect to continue to see European refineries closing but not at the same rate they were 12–24 months ago. The market is expected to balance within the next five years.”
Several years of strong investment activity and cooling demand are also bringing the Chinese refining market closer to balance. The International Energy Agency reports that China’s oil consumption grew 1.6% in 2013—the slowest rate since 1992. Growth is, however, picking up in Southeast Asia, outside of China, Payn says. “The growth we’re seeing there is moderate, slightly above GDP growth. There are still growth opportunities there.”
Demand for diesel and tightening environmental regulations, particularly in the emerging regions, are supporting hydroprocessing catalyst (HPC) demand, says Scott Purnell, managing director of Advanced Refining Technologies, a joint venture between W.R. Grace and Chevron. “We continue to see new hydroprocessing units start up around the world, although the greatest concentration is in Asia/Pacific. Most of these units are fixed-bed resid processing or hydrocracking units.” Purnell expects the market for HPC to continue to grow at 45%.
Financial results for refinery catalysts makers were mixed in 2013. Lower year-on-year (YOY) rare earth prices put a dent into refinery revenues, although cooling GDP growth in key emerging regions and destocking and investment delays by refiners contributed to declines. Rare earth surcharges, put in place in 2011 after China introduced severe cuts to export quotas—sending prices sharply higher—were largely eliminated last year.
W.R. Grace’s catalyst technologies segment, which includes its polyolefin and specialty catalysts, reports 2013 net sales down 11.4% YOY, to $1.3 billion, and segment operating income down 16.8%, to $327.5 million. In July 2013, Grace said an initiative to raise FCC catalyst and additives prices by 10% was the “right direction too early” and estimated that customer pushback had lost it annualized sales volumes worth up to $60 million. Grace has said that it will continue to pursue the announced base price increases as industry conditions allow, “although significant benefits” are not expected until this year.
Grace says the market for FCC catalysts was flat in 2013, since refinery start-ups in the emerging regions offset closures in the Atlantic basin and Japan. Fourth-quarter sales of FCC catalysts decreased 8.4% YOY but were up 6.2% sequentially, resulting in part from sales of new products designed specifically for shale oil feedstocks, heavy resid feedstocks, and propylene maximization. Grace says improved sequential results reflect the progress it has made recovering FCC catalyst sales it lost during the year, and that, following regular seasonal weakening in the current quarter, FCC sales should return to growth.
“With this progress, first-quarter  should be the last quarter for lower year-on-year earnings in catalysts,” said Alfred Festa, Grace chairman and CEO, in a recent investor conference call. Grace is the world’s largest producer of FCC catalysts and additives and says about 40% of transportation fuels worldwide are processed with its catalysts.
From a revenue perspective, lower metals pricing pass-through offset solid volume growth. “FCC enjoyed double-digit volume growth in 2013 despite heavy customer turnarounds during the first half of the year. HPC volumes also were up in the mid-single digits in 2013.” Lower metals pass-through drove over 70% of a 10% YOY catalyst price decline, says Luke Kissam, Albemarle president and CEO.
Producers say the impact of rare earth surcharges on YOY financial results will not be a factor going forward. “That’s basically behind us as of the fourth quarter of last year. We have passed through that cycle and really don’t expect rare earths to have a significant impact one way or another as we go into 2014,” Wilson says.
On 10 April of last year, Albemarle announced it would increase global prices of its FCC catalysts by about $350/m.t., effective immediately. Wilson says it will probably take 2–3 years to fully implement the increase given the nature of contract and refinery cycles. The company was able to push through some increase in 2013, although this benefit was more than offset by lower rare earth surcharges. Looking ahead, he does anticipate higher prices across Albemarle’s refinery catalyst portfolio in 2014.
Kissam says FCC is poised for a great year. Within its heavy oil upgrading business, Albemarle expects to benefit from continued strong demand globally for FCC catalysts, designed to handle heavy resid-based feedstocks, maximize propylene production, and address the metal contaminants found in North America shale oil. A debottlenecking project at Albemarle’s Bayport, TX, facility—expected to be completed in the second half of this year—will raise FCC capacity at the site by 15%, he adds.
Grace is also making investments to expand FCC supply. The company advanced previously announced plans to build an FCC plant near Abu Dhabi during 2013. In March 2013, Grace executed a jv agreement with Al Dahra Agriculture for the $200-million project, which will be the first in the Mideast and serve refiners throughout the region and, potentially, South Asia. Gatte says the groundbreaking is planned for this spring.
The Mideast is expected to be among the fastest-growing regions for refinery catalyst demand. IHS Chemical expects volumes to grow 5%/year through 2017, from 90.7 m.t. in 2012.
Demand in China is also projected to grow well above the global average. IHS estimates refinery catalyst demand will increase 6.7%/year, reaching $1.2 billion in 2017, although the nature of China’s refining industry makes it a difficult market to gain a foothold. IHS says 85% of the catalysts consumed in China are supplied by local producers. In 2012, Sinopec refineries accounted for 40.4% of the total capacity; CNPC accounted for around 31%. “Most refining catalysts consumed in China are produced by Sinopec and CNPC, who have researched and produced a variety of refining catalysts for themselves,” IHS says.
Wilson says Albemarle is nevertheless making inroads in expanding sales in China. “We put resources on the ground—beginning with sales and technical service staff—and are bringing products to customers that will help solve problems they might not have the technology to resolve. In many ways, it’s a similar model to what we have done elsewhere around the globe; it’s just that China has been a bit more difficult to penetrate.” Albemarle will also be opening a new technology center in China in March.
Grace also purchased a FCC catalyst production assets operated by Noblestar Catalysts (Qingdao, China) at Qingdao in 2012.
Meanwhile, increasingly stringent restrictions on sulfur emissions, especially in emerging markets where limits remain high compared to developed markets, are driving HPC demand growth projections above the rest of the refinery catalyst segments. In 2014, China plans to decrease maximum sulfur content in gasoline from 150 parts per million to 50 and in diesel from 350 ppm to 50. Brazil is also expected to mandate ultralow sulfur diesel by commercial vehicles within cities this year. Earlier this year, EPA finalized fuel standards that will cut the allowed sulfur content of gasoline from 30 ppm to less than 10 ppm by 2017. “This has been a big battle among EPA, refiners, automakers, and other constituents,” and will positively impact HPC demand, Wilson says. “But... globally, you have other countries where sulfur standards are still much higher. Over the next decade, the expectation is that there will be increasingly stringent standards in many of these regions” and that will have an even bigger tailwind for demand, he adds.
The ongoing trend of increasingly sour crude may be moderating, however. “There is starting to be a little more balance in the sense that we were generally seeing much larger volumes of very sour crudes about 1224 months ago,” McGinley says. “Now, I would say we are starting to see larger penetration of Latin American tight crudes into the Asian markets, which is starting to balance out the higher sulfur crudes that you were seeing earlier.” Tight oil is pretty low sulfur content, although that is variable and it all gets blended, but certainly what the US is processing does not have as much sulfur as it did previously.”
Global feedstock slates and changing output needs are shaping refinery catalyst development.
Tight oil production has changed the refining landscape for major portions of the United States, and market forecasts show dramatic changes in the international refining community as tight oil production rates continue to ramp up, BASF says.
“FCC units operating with tight oil feedstocks are experiencing increased operational challenges due to the quality variability inherent to this crude,” says Herbert Exner, BASF v.p./refining catalysts. FCCs transitioning to tight oil feed are generally experiencing higher conversion, heat balance concerns, higher sodium, higher calcium, and higher iron, he adds. “BASF’s catalyst technology and service offerings are aimed at delivering flexibility to meet these challenges and enable refiners to extract maximum value from their assets. There is no one-size-fits-all solution. … [A] variety of BASF catalysts are being used in tight oil applications.”
Tight oil composition also tends to be higher in C4-plus components, so refiners are looking for catalyst innovations and new product slates that take advantage of this fact along with growing export opportunities, says John Murphy, president of The Catalyst Group Resources (Spring House, PA). “That means better isomerization catalysts, better olefins catalysts, and butane to butene catalysts.” Hardware is also needed, both by revamping trains and investing in export infrastructure to get the resulting products out to the market.
Advantaged crudes are one of the many stories dominating the conversation with refiners; another is strategies to maximize resid processing, Gatte says. “In North America, the tight oil boom has left some refiners to experience refinery imbalances, resulting in underutilized downstream assets. [Vacuum gas oil] shortages for FCC can lead to low throughputs, resulting in lower alkylate production.” Grace’s newest catalyst product, the Achieve catalyst platform, provides refiners the flexibility to increase yield of alkylation feedstock while maximizing both yield and quality of FCC fuels, Gatte says. In Asia and the Mideast, resid processing and demand for chemical feedstocks continue to be primary drivers, he adds.
Refinery catalyst makers are also looking beyond products that help refiners maximize propylene to catalysts and additives that can provide a more aggressive change in FCC flexibility. “You can get a C3 boost without reorienting a train through a different mix of catalysts and additives,” McGinley says. “As we move forward, the question becomes, As all these on-purpose propylene production units come online in the US and China, what are FCC units going to produce next? There are technologies being developed to create what I envision to be a refinery of the future, with a more flexible FCC unit that can produce other, higher value-added products like aromatics and C4s that help refiners improve profitability over the long run,” she says.
Producers say delivering superior end-use performance is the only sustainable way to create value in the refinery catalyst industry, while close collaboration with customers and broader service capabilities are important for gaining market share.
“Refinery catalysts are a performance sell,” Wilson says. “That requires deep relationships with our customers, particularly at the refinery level, so we truly understand the operational issues of a particular unit. If a refiner is facing a problem and we can bring a solution that helps [the refiner] achieve increased efficiency and productivity, that’s how we both win. When you think about a refinery that is processing 250,000, 500,000 bbl of crude a day, if [it] can improve a process efficiency by 0.51.0%, that’s a big win.... If we can come in and tailor the catalyst offering to help achieve that productivity gain, that’s how we create value, and that’s how we win business.”
Wilson adds that it is important to understand both refiners’ current needs, for example the changing crude slate resulting from tight oil, as well as long-term needs. “We’re investing significantly to meet refiners’ near-term challenges, such as tight oil. At the same time, we spend a significant portion of our R&D dollars investing for the longer-term on more breakthrough technologies for the future. All of this requires a rigorous stage-gating process to manage what you’re investing in and what you’re cutting away.”