Why Mini-Refineries Are a Thing of the Past

Some time ago I wrote about mini-refineries. Recently I read that one member of parliament is proposing to support them. As it happens, I studied the basics of petrochemistry and the oil business at university. Deputies should take such courses too, because their proposals are sometimes, to put it mildly, very far removed from reality.

I will try to explain why mini-refineries belong to the last century and why supporting them clearly makes no sense.

What is a mini-refinery? It is an ordinary atmospheric distillation unit that separates crude oil (at best) into three fractions: gasoline, diesel and fuel oil (mazut). No other products can be obtained from a mini-refinery.

The gasoline that comes out of these columns is straight-run, which means its octane number is below 70.

Commercial gasoline, which has the greatest value, has an octane number of 92. It is simply impossible to produce AI-92 gasoline at a mini-refinery unless additives are used, and their environmental safety is questionable.

To produce good-quality gasoline, you need a reforming unit.

As for the economics, a mini-refinery yields 50 percent straight-run fuel oil. Fuel oil is in itself a by-product, since its price is lower than the price of the crude from which it is made. So even if a mini-refinery manages to produce diesel and gasoline, the loss on selling fuel oil will outweigh the revenue from selling the gasoline and diesel.

That is why modern refineries process fuel oil further and obtain additional fractions of light petroleum products. Catalytic cracking is usually used for this.

At modern plants, the yield of light products is about 90 percent. Unfortunately, we do not yet have such plants.

People ask why reforming and cracking cannot be used at mini-refineries. The reason is that there is such a thing as minimum production capacity, and with it, economic viability. I will not go into the details, but the world has not yet invented a technology that would make it possible, given these parameters, to use cracking and reforming at small plants. There is such a thing as an optimal scale of production.

But that is not all. It is well known that the crude oil arriving at a refinery varies in quality, including in its environmental characteristics. The main problem is sulfur. Removing sulfur requires hydrotreating, which is far from cheap and also cannot be done at a mini-refinery.

So when a deputy tries to push through loading mini-refineries, it looks more like lobbying or ignorance of the subject.

Our problem is that we need to increase the depth of refining at existing refineries. In principle, we already have sufficient atmospheric distillation capacity.

There is also a shortage of feedstock. Of course, everyone will ask how there can be a shortage of crude in an oil-producing country. But it is true, because domestic gasoline prices do not match world prices, and for normal producers it is more profitable to export crude than to refine it and sell the products inside the country.

I also do not understand why complaints about fuel prices are constantly directed at the Ministry of Energy, when fuel prices are free-floating and the ministry cannot, in principle, influence them. This is more a question for Samruk-Kazyna: when will it finish reconstructing the refineries? After all, with proper reconstruction, the existing volume of oil refining could easily supply the country with gasoline and diesel and even leave part for export.