Refining crude oil to produce the lifeblood of a nation

A simple concept supporting a sophisticated technological industry.

Introduction

In order to appreciate the importance of the New Zealand Refining Company to our Nation, you
must first understand the many ways in which refined oil products drive out industries and
enhance out lifestyle.

Oil is a gift from Nature. By taking this valuable and illusive resource in it natural form – crude
oil – and placing it through a series of sophisticated processes, many quality products for every
day use are created.

We are fortunate in having an oil refinery here in New Zealand – one of the most modern in the
world, at Marsden Point. It means that we can produce top grade petroleum products from
crude oil without being dependent on expensive imported refined products.

What is crude oil?

Crude oil is a mixture of a vast number of different compounds which contain predominantly
hydrogen and carbon (hydrocarbons) associated with small quantities of other elements (for
example sulphur).

Why is crude oil refined?

The objective of refining is to convert crude oil into products as cheaply and efficiently as
possible, while meeting all required industry and national specifications. These products are:

• Motor gasoline
• Jet/DPK
• Gas Oil
• Fuel Oils
• Bitumen
• Sulphur

What are the steps of refining?

Each oil refining step can be classed as either:

A. Separation
B. Conversion
C. Purification
D. Separation

Processing crude oil in the Refinery starts with distillation. (this process is covered in detail in
our Information brochure). This is a physical separation process which is undertaken under
different conditions as shown on the block flow scheme Fig. 1 by CD1 & 2 and HVU-2.
Another physical separation process is the Butane Deasphalting Unit (BDU). This solvent
extraction process makes a separation between distillate-type and asphaltic compounds of the
short residue. Solvent extraction is a more suitable process that high vacuum flashing where, in
order to avoid thermal cracking (temperature decomposition), impractically low pressures or
high temperatures would have to be used.

In the Butane Deasphalting process, short residue form a high vacuum distillation unit is
contacted with liquid butane under specified temperature and pressure conditions. Butane has
been selected as the optimum solvent because it provided the highest deasphalted oil yield with
good selectability at low solvent-to-feed ratios. The butane easily dissolves the lower boiling
hydrocarbons, but its solvent power is limited with respect to the higher boiling hydrocarbons,
especially aromatic and asphaltic compounds. The butane and short residue are mixed in an
extraction column at conditions close to the critical point of butane.

Two liquid phases are formed, one rich in butane containing the extracted oil (Deasphalted Oil -
DAO) the other of asphaltic compound with little butane and oil content (ASPHALT).

The extraction column operates isothermally, the butane-rich phase being continuous and the
asphaltic phase as dispersed droplets. The density difference between the phases drives the
dispersed phase downwards in a countercurrent flow to the continuous phase, so that an
interface level is formed in the bottom.

The extractor has perforated trays to enhance the contacting of the two liquid phases and the
butane solvent is recovered from the two phases (DAO and ASPHALT) by flashing and
stripping, to be recycled for reuse.

The DAO, along with the waxy distillate, is fed to the Hydrocracker. The asphalt is used as
Refinery fuel or blended with gas oil to make fuel oils.

E. Conversion (Upgrading)

The refining of oil into desirable products also uses catalytic upgrading techniques, where
chemical reaction with associated energy change results in products of better quality.

Several types of conversion processes are used.

• The removal of sulphur from oil products by Desulphurisation through converting sulphur
compounds to hydrogen sulphide over a catalyst in the presence of hydrogen.
• Catalytic reforming is restructuring of the oil molecules by aromisation and isomerisation
endothermic reactions over a platinum catalyst (Platforming).
• The manufacture of bitumen uses the Air blowing technique of oxidation and polymerisation
to produce a “harder” product.

These processes are indicated in the refinery block flow scheme Fig. 1 as HDT, KHT and HDS,
PLAT and BITUMEN.

There are other conversion processes in the Refinery which came as part of the expansion.

The Hydrocracking process is a large complex of many units, which converts waxy distillate
and deasphalted oil (DAO) into predominantly kerosine and gas oil. The process id the 2-stage
Shell Hydrocracking system (Hydrocracker in fig. 1) and achieves almost 100% conversion.
Different catalysts are used in various stages. The first stage of the process reduces the
nitrogen, sulphur and oxygen content for protection of the second stage catalyst.

The second stage is predominantly hydrocracking.

The principle reactions occurring are:

1st Stage 2nd Stage

Denitrogenation Hydrogenation
Desulphurisation Hydrocracking
Deoxygenation Isomerisation
Hydrogenation
Hydrocracking
Isomerisation

These reactions are exothermic and al consume hydrogen (except isomerisation). The
molecular types found Hydrocracker feedstock include:
Paraffins
Naphthenes
Aromatics

Examples of the different reactions in the complex Hydrocracking process follows:

1. Denitrogenation is the rupture of the carbon-nitrogen bonds with the formation of ammonia.

2. Desulphurisation is the rupture of the carbon-sulphur bonds with the formation of hydrogen
sulphide.

3. Deoxygenation is the rupture of the carbon-oxygen bonds with the formation of water.

4. Hydrogenation is the saturation of the carbon-carbon double bonds.

5. Hydrocracking is the splitting or breaking of straight of cyclic hydrocarbon and

hydrogenation of the ruptured bonds.

6. Isomerisation is the modifying of a compound by rearrangement of its atoms.

7. Condensation. All the foregoing reactions yield more or less useful products. A less
desirable but important reaction is the condensation of aromatics to produce large
unsaturated polyaromatics which deposit on the catalyst for form coke.

Polyaromatics are much more susceptible to this reaction than monoaromtics. Hence, should
the feedstock contain a high amount of polyaromatic asphaltenes, then rapid catalyst
deactivation due to coke laydown will occur.

Heat of Reaction

The foregoing reactions are predominantly exothermic. The heat released is absorbed by
injecting cold hydrogen quench gas between the catalyst beds. With out the quench, the heat
released would generate high temperatures and rapid reactions leading to greater heat release
and an eventual runaway.
Products

The molecular types found in the main products from these reactions are:

i. Normal and iso paraffins

ii. Naphthenes
iii. Monoaromatics

The reaction products from the hydrocracking section (reactor effluent) are further separated by
fractional distillation into product streams and blended with other products of the Refinery (refer
Fig. 1).

An outline of the HCU process is given in Fig. 3.

The large consumption of hydrogen in the above reactions requires a separate production
source and for this the refinery has its own Hydrogen Manufacturing Unit (HMU).

The hydrogen is produced by converting hydrocarbons and steam into hydrogen with reaction
by-products of CO and CO2.

The CO is further converted to CO2 and removed by absorption (purification). The preferred
feedstock for hydrogen manufacture (HMU in Figure 1) is light hydrocarbon gases and butane.
The vaporised feed is de-sulphurised before the steam reforming reaction. The reactions which
occur during reformation are complex but can be simplified to the following equations:

For Methane: CH4 + H20 -> CO +3H2

Generally for Hydrocarbons: CnHm + H20 -> 2n + m . H2

2

Water gas shift reaction: CO + H2O > CO2 + H2

The process of reforming can be split into three phases of preheating, reaction and
superheating. The overall reaction is strongly endothermic and the design of the HMU reformer
is a careful optimisation between catalyst volume, furnace heat, transfer surface and pressure
drop.

In the preheating zone the steam/gas mixture is heated to the reaction temperature. It is at the
end of this zone that the highest temperatures are encountered.

The reforming reaction starts at a temperature of about 700ºC and, being endothermic cools the
process.

The final phase of the process, superheating and equilibrium adjustment, takes place in the
region where the tube wall temperature rises again.

The CO mixed with the hydrogen is then converted to CO2 in two stages, a high and low
temperature shift reaction.

CO + H2O > CO2 +H2

The CO2 produced by the shift reactions is removed by absorption but trace quantities of both
CO and CO2 do remain and the hydrogen stream is therefore passed through a methanator to
convert CO and CO2 to methane (CH4). The reactions are highly exothermic and take place as
follows:

CO +3H2 > CH4 + H2 O

CO2 +4H2 > CH4 + 2H2O

Finally, all produced hydrogen is cooled and sent to the Hydrocracker. Fig. 4 gives an outline of
the HMU process.

Crude oil, as received for refining, contains sulphur in levels up to a few percent weight. It is
removed from oil products mainly by the desulphurisation process described under toe
purification processes, which result in the formation of hydrogen sulphide. This H20 is further
converted by using the “Claus” process of partial combustion of H2S to form SO2 and then
reacting with the remaining H2S to produce sulphur. This Sulphur Recovery process takes
place in one thermal and two catalytic stages and has a total recovery of 95%. The final 1 or
2% volume of H2S in the “tailgas” from the last catalytic reactor is burnt in a separate incinerator
so that the effluent gas finally discharged to the atmosphere has an environmentally acceptable
H2S content of less than 5 ppm by volume.

In a Sulphur Recovery Unit (SRU), elemental sulphur is produced by the following reaction:

H2S + ½ O2 <-> S + H2O + H2 O(1)

This overall reaction (1) is the sum of two exothermic reactions, the oxidation of H2S to SO2 (2)
and the subsequent reaction between H2S and SO3 (3) to form sulphur and water.

H2S +3/2 O2 <-> SO2 + H2O (2)

2H2S + SO2 <-> 3S + 2H2O (3)

In the first stage of the process enough air is supplied to convert one third of the H2S in the acid
feed gases to SO2 and H2O according to equation (2).

In addition to this, any hydrocarbons and NH3 in the feed gases are completely combusted:

C3H8 + 5O2 > 3CO2 + 4H2 O

2NH3 + 3/2 O2 > N2 +3H2 O

In the second and third stage of the process, more H2S is converted to sulphur according to
equation (3).

To shift the equilibrium of this reaction as far as possible to the right side, lower reaction
temperatures are applied to these stages. To assure sufficiently high reaction rates, the
reactions take place in the presence of a catalyst. Finally, the SRU tail gas is oxidised in a
catalytic incinerator at a temperature of approximately 400°C. At this temperature, achieved by
burning fuel gas in addition to the process gases, the H2S and sulphur vapour/mist are
practically completely oxidised in the presence of a catalyst according to the reactions:

H2S + 3/2O2 > H2O + SO2 and S + O2 > SO2

The sulphur is produced in liquid form. Heated handling and loading facilities provide sulphur
storage before loading into road tankers for delivery to the fertiliser works. Fig. 5 is an outline of
the
SRU process.

Purification Processes

The treating or purification of the different refinery product streams is an important feature of the
refinery operation. Purification may be required in order to meet a final quality specification, or
necessary to avoid contamination or poisoning of a valuable catalyst in another refinery
process.

The removal of H2S from the various sour fuel gas streams produced by the refinery processes
allows sweet fuel gas to be burnt in the refinery furnaces without excessive SO2 emissions. The
Shell Adip process is applied, being a regenerable absorption process, with di-isopropanol
amine (DIPA) as the absorbant. The sour components react with the di-isopropanol (DIPA)
component of the Adip solution. The overall reaction can be represented as follows (-R
denotes the isopropanol group (CH3 – CHOH – CH2-)).

H2S + R2NH <-> R2N H2 + HS

The equilibrium of the above reaction lies at the right hand side of the equation at lower
temperatures and higher pressures (absorber conditions).

At higher temperatures and lower pressures (regenerator conditions) the reaction is reverses,
resulting in the removal of H2S from the solvent.

Fig. 6 outlines the Adip process of absorption and regeneration. The normal DIPA
concentration in water of the Adip solution is 4 molar and the H2S concentration of the lean Adip
to the absorber is typically 80 ppm wt.

In the HMU, there is an example of a Non-Reversible Absorption Process applied to protect a

valuable catalyst. In this case, desulphurisation is by absorption of H2S by zinc oxide, according
to the equation:

ZnO + H2S > ZnS + H2O

The reaction is non-reversible and consequently the saturated absorbent must eventually be
discharged and replaced.

In other process of the Refinery, sulphur compounds (mainly H2S) and possible chlorine
compounds are removed from hydrocarbon gas streams by a Caustic Wash Process. Here,
the following typical reactions take place:

H2S + 2NaOH > Na 2s + 2 H2O

RSH + NaOH > RSNa + H2 O
HCI + NaOH > NaCI + H2O

Another significant purification process in the Refinery is the removal of CO from the hydrogen
product gas stream in the HMU.

Again, a Regenerable Absorption Process is applied by circulating a sulfinol solution.

This is a mixed solvent, consisting of: 50 wt% DIPA (CH3 – CHOH – CH2) 2NH 25 wt%
tetrahydro-thipothene-dioxide (Sulfolane): C 4H8O2S 25 wt% water.

CO2 is removed by absorption in the sulfinol at low temperatures and high pressure.
Subsequently, the “fat” sulfinol solution is regenerated by removal of CO2 at high temperature
and low pressure. The chemistry of the process is complex.

How are the Refinery economics structured?

Refinery Processing Income

(a) The Refinery operates as a tolling refinery, ie. it charges fees for refining its customers’
feedstocks into products.

Additional Income

The Refinery also derives income from other related business, viz:-

(a) A fee for each barrel of product shipped down the Refinery to Auckland pipeline.
(b) A lease fee for the Wiri Terminal in Auckland, which the Company constructed, but is
operated by the Oil companies.
(c) A Road Tanker Loading Fee for bitumen and fuel oil tankers.
(d) The sale of the Refinery by-products eg Carbon Dioxide rich gas.

The Economics of Refining in New Zealand

At present world products and crude oil prices, there is a benefit from refining in New Zealand,
to the tune of around $300 million per annum.

This primarily derives from the strong product prices within the Singapore Oil Market, and the
differential shipping costs of products versus crude to New Zealand. Crude comes in larger
parcel sizes, thus attracting cheaper freight rates than the smaller parcels of products which
have to be shipped in “clean” vessels, and in parcel sizes that can be handled in New Zealand
ports.

Economic benefits of Particular Processes

The processes that particularly make money for the Refinery are those which achieve a high
upgrading value of their feed into products. As most “white” products are sold on a volume
basis a process that increases volume has an improved effect.

The two main upgrading plants operated by NZRC are the Platformer and the Hydrocracker.

Of course these two units cannot operate in isolation, thus it is unfair to single them out for
particular attention. However in operating the Refinery economically and maximising the
income, these two units are given special priority to ensure that they are fully utilised.
Economic Tools

The primary economic tool is that used by most refiners is a Linear Programme Model. This is a
mathematical representation of the Refinery which is optimised to maximise the Gross Refiners
Margin. It has a number of uses at NZRC, being used by the Oil Companies to select the
optimal feedstocks for a quarter, by the Refinery to see where synergies exist in summing all Oil
Company programmes into one, for month to month planning of the refinery processes, and at
the end of each quarter for dividing up the crude oil and products made between the Oil
Companies.

The Oil Industry also uses another optimising package for scheduling of the coastal tankers that
take product from the Refinery around the New Zealand coast, and bring indigenous feedstocks
to the Refinery.

Refining Costs

The total operating costs of the Refinery are around $2.90 per barrel of 1.9 cents per litre,
spread across all products. It is estimated that the refining cost of gasoline is around 3 cents
per litre, ie. about 3% of the total price paid at the pump.

The Refinery keeps a very close eye on its operating costs, which it compares every year with
its competitors. It leads the way within the Asia Pacific region with the low level of maintenance
costs versus replacement capital costs, all the time ensuring though that the assets are fully
kept up to date so that reliability is maintained.

In Conclusion

Now that you have a greater understanding of crude oil refining and its many useful products,
you begin to appreciate the importance of The Refinery to New Zealand – our people, our
industry and our economy.

Our own Refinery makes us less vulnerable to the uncertainties of overseas’ supply, generates
revenue and employs New Zealanders.

The New Zealand Refining Company aims to ensure safe, efficient and profitable operation,
whilst preserving the environment.