David Flanagan reports on Grupa LOTOS’ EFRA refinery upgrade programme
As the upstream industry begins to crack under price pressure, refineries are heating up. One player on the up is Grupa LOTOS, owner and operator of Poland’s key Gdansk oil refinery, which has been implementing a far-reaching upgrade and efficiency programme. The so-called EFRA project will see the group improve performance of the refinery through a number of technical innovations and improvements.
In an exclusive interview with InnovOil, LOTOS president and CEO Pawel Olechnowicz gave an update of EFRA’s progress, and explained some of the motivations and key technological elements of the upgrade, and how LOTOS is ultimately measuring EFRA's success.
As with many European refiners, LOTOS’ plant expansion takes advantage of the current market and increasing throughput “to seize wider margins on higher volumes.” Olechnowicz explained the role of EFRA within the group’s long-term strategy, highlighting the “gradual modernisation of oil processing” which began with the “10+ Programme,” implemented between 2007 and 2010. It is an approach thoroughly rooted in technology, and based on the belief that using more advanced methods of processing each barrel will enable it to operate at maximum efficiency.
But the regulatory climate is also a driving factor motivating some of these changes. He explained: “Growing environmental requirements and the increasingly stringent nature of EU regulations have an impact on the oil refinery sector in Europe. [Environmental responsibility] is an important part of our development programme, and one which triggers improvements in our refining technology.”
One area upon which EFRA has focused is hydrogen production. Olechnowicz pointed out that increased H2 output would deliver significant commercial and regulatory benefits. “Due to the inclusion within EFRA of the Hydrogen Recovery Unit (HRU) – which we sometimes call by its Polish acronym ‘WOW’ – and of the Hydrogen Generation Unit (HGU), we want to achieve a situation where LOTOS will greatly increase production of hydrogen. In turn this will allow us to produce and de-sulphurise far more fuels.”
Hydrogen is used in the hydrodesulphurisation and hydrocracking of crude oil, and the EFRA plan will see a major addition in capacity at the two existing installations for Diesel Hydrodesulphurisation and MHC Hydrocracking. “We expect this will deliver nearly 1 million tonnes of additional products obtained from heavy, high-sulphur residues,” Olechnowicz added – and higher volume outputs improve the firm’s refining and production margins.
These technical changes should allow LOTOS to transform its product range with a number of new offerings. “Instead of asphalt and heavy fuel oil which we produce now, the installations will produce 900,000 tonnes of excellent, almost sulphur-free fuels that meet stringent environmental standards,” he continued.
The new EU rules include the amended Industrial Emissions Directive (IED), known as the “NOx and SOx” directive, as it seeks to reduce emissions of nitrogen and sulphur compounds from the industrial and energy sectors. The upgrades mean that LOTOS should no longer encounter IED issues with regard to the sale of heavy fuel oil which either does not meet, or will soon fail to meet, standards for permissible emissions of sulphur compounds.
Technologies for recycling and re-use have also been incorporated into EFRA; the by-products created during the heavy oil desulphurisation process will now be treated to yield pure sulphur, which can be sold to external customers and delivered in liquid form via tanker.
As well as commercial and environmental benefits, EFRA is also intended to bring LOTOS greater flexibility. Olechnowicz noted: “The project gives us a greater competitive advantage, owing to the maximisation of processing depth and the elimination of negative-margin products which are manufactured from heavy residue.” Overall, “the change in product structure will result in an increase in refining margin of approximately US$2 per barrel,” he said.
Future flexibility is therefore the key to the EFRA process. “In practice it is a kind of ‘technology policy’ which is securing the future of the refinery for a possible period of economic downturn. The refinery will be able to weather any downturn thanks to higher refining margins as well as the flexibility in terms of our product portfolio, and also the type of crude oil which is processed.” In practice, it means LOTOS can maximise its margins using lower quality, lower price feedstocks, without sacrificing its end product. “For example,” Olechnowicz explained, “Throughput of cheaper, low-quality crude oil from Canada or Venezuela can now be undertaken.”
To accomplish this, many other installations at the Gdansk refinery are also being upgraded. “The most important is the Delayed Coking Unit (DCU),” said Olechnowicz. “The entire coking complex will be built around the DCU, including the Hydrogen Generation Unit (HGU), Coker Naphtha Hydrotreating Unit (CNHT), LPG Installation (LPGTU), installation of logistics and coke storage (CS-LF) and the Hydrowax Vacuum Distillation Unit (HVDU).”
He is bullish on the capabilities and green credentials of the “environmentally friendly DCU technology.” In typical DCUs, the coke is ground with a water drill and discharged from the reactor together with water into an open concrete basin, where it is cooled down through partial evaporation of water. At the same time, hydrocarbons from coke are released into the environment. To accelerate drainage, the coke in the basin is poured using a crane dipper, crushed in another unit, and then transported via conveyor belts – all of which exacerbate the risk of potential environmental damage.
Instead, LOTOS engineers took the decision to reduce the water pressure drastically before opening the DCU reactor, in order to achieve a maximum withdrawal of hydrocarbons before the coke-cutting process. This was done with a newly installed vacuum pump, which helps to decrease the amount of escaping steam and volatile hydrocarbons.
In the next stage of the process, instead of an open basin for unloading and draining coke, a closed hermetic system will be used, meaning that unloading, transfer, storage, loading and transport are all carried out to above-standard environmental safety regulations.
Levies on emissions mean that the higher capex cost for this technology is offset in the long run, ultimately meaning a lower cost for LOTOS.
Reading the results
The complexity of the overhaul means that LOTOS has many targets to consider in assessing the programme’s progress – and whether or not it has been a success. Olechnowicz explained how LOTOS reviewed EFRA and the overall performance of the refinery against the backdrop of oil market conditions: “In each investment project, its crucial element is the assessment of its effectiveness and the benefits it will bring to our company. The key is the profitability of raw material processing, measured in terms of throughput margin. It should be at a decent level, even in periods of economic downturn or sudden changes in prices, exchange rates or demand.”
That is, of course, easier said than done. One notable metric allows the group to weigh up its technology strategy with market variables. Olechnowicz elaborated: “In our reviews we monitor financial results, namely measurable indicators which may justify changes in technological processes. For example, the investment being carried out in our refinery in coking processes will result in greater resistance to changes in oil prices.”
Ultimately, he is evangelical about the transformative potential of technology in the refining sector, concluding: “Thanks to EFRA, LOTOS, with its level of complexity, energy efficiency, depth of processing, operational excellence and technological advancement, will be among the best in the world.” This is encouraging to see, especially given the downward trend of European refining over the past five years. But, as Olechnowicz notes, the real test of the EFRA programme will come as prices recover – here’s hoping that improvements in technology will continue to work for LOTOS in the years to come.