Searing Heat Triggers Fuel-Supply Worries at Oil Refineries in Europe and Beyond

(Kpler data, compiled by Bloomber)

(Bloomberg) -- Temperatures in Europe are getting close to levels at which some oil refineries would have to start making less fuel.

Greece is battling wildfires and the nation’s capital could see temperatures above 40C (104F) in the coming weeks. In Poland, heat may soon exceed the point at which the country’s top fuel supplier can run its refineries normally. Macquarie Group estimates that heat-related disruption at European plants reached about 1 million barrels-a-day last year — almost 10% of what they normally handle.

Temperatures in Europe have been well above seasonal norms and there’s little sign of that changing anytime soon. Looking further into the future, Sweden’s largest refiner says climate change is making fuel production harder.

“European refineries were designed in the sixties and the seventies,” said Alan Gelder, vice president of refining, chemicals and oil markets at consultancy Wood Mackenzie Ltd. “The world’s got hotter since then.”

The industry’s challenges are partly of its own making: climate change caused by the consumption of fossil fuels. But refineries are adapting, adding equipment where it makes economic sense to do so, to allow them to keep profiting. Plants in regions that are more used to hot weather like the Middle East are better designed to cope. In Europe, though, refineries tend to have been built to withstand lower temperatures rather than high ones, according to Kent Plc, an engineering firm.

A shift in the types of crude that the continent’s facilities use following Russia’s war in Ukraine compounded the issue but that is showing signs of improving. European plants, which turned to bountiful supplies of light American oil, are processing heavier grades — that can help them deal with the issue — according to Kpler data.

“Even if it’s not an all-time record like last year, if it’s just super hot versus normal, you will have very similar challenges to last year,” said Vikas Dwivedi, an analyst at Macquarie who previously worked as an engineer at Shell Plc.

Many Variables

Forecasts for how much refiners might have to curb their overall processing rates — a critical detail for understanding supply and demand — are almost unknowable because there are so many variables: the unpredictability of weather, as well as the fact that each plant has its own configuration, ideal crudes, and fuel output.

An extreme-heat scenario could prompt a refinery to cut runs by as much as 15% over a 24-hour period, said Steve Sawyer, former director of refining at FGE and previously economics and planning manager at the now-shuttered Coryton plant in the UK.

The impact of the heat was particularly bad in the Mediterranean last year, said Janiv Shah, vice president of oil markets analysis at Rystad Energy.

“This is something that I discuss with clients on a daily basis,” he said, referring to refining when temperatures are high.

US Too

Europe’s refiners aren’t alone in having to deal with hot weather.

In the US, the East Coast and Midwest regions may be hardest hit. Operations there are designed to deal with winter’s cold, not summer’s heat, said Randy Hurburun, the London-based head of refining at Energy Aspects Ltd.

Refineries on the Gulf Coast, home to the nation’s biggest plants, have more and bigger cooling towers and storage for cooling water, allowing them to better withstand summer temperatures. 

Nevertheless, high heat does stress production units. Cooling towers, air-cooled heat exchangers and other equipment used to remove process heat from refinery units will be working extra hard. Prolonged summer heat can overload regional power grids, forcing sudden shutdowns of entire plants, Hurburun said.

Individual units may also shut down. Last summer, Valero Energy Corp.’s McKee, Texas, refinery had an unplanned closing of its key gasoline-making fluid catalytic cracker amid searing temperatures. Exxon Mobil Corp.’s Baytown refinery lost power to an FCC after a boiler tripped amid Texas’ intense heat.

“It’s not so much the loss of electricity,” Hurburun said. “High temperatures can degrade performance so that process units run less effectively and refineries may have to reduce run rates.”

US refiners are already running near full rates, as demand for gasoline peaks during summer driving season. Much of the winter and spring maintenance — some deferred since Covid decimated demand in 2020 — was aimed at ensuring fewer breakdowns even when running at full pelt for extended periods in summer’s brutal heat.

Ambient Temperatures

It’s not expected to be as hot as last summer across the southern United States, according to Tyler Roys, a senior meteorologist at AccuWeather Inc. He also expects southern Europe to be cooler this summer than in the past three.

Still, in Warsaw the maximum temperature could pass 35C this weekend, according to the European Centre for Medium-Range Weather Forecasts.

If the Polish capital hits that marker, it would be within a degree of the maximum temperature at which refineries run by Orlen SA, the nation’s largest fuel supplier, are designed to operate. Any higher and they’d be forced to scale back.

“In the case of high ambient temperatures, heat transfer in condensing and cooling systems is significantly limited, which in turn force to reduce the load of individual installations,” Orlen said by email.

Sanctions on Russian crude and other feedstocks used in processing units caused significant disruption in European refining in recent years. Most plants have an ideal grade of oil that they were built to process, and without Russian Urals, upon which many had relied for years, they need to blend together other ones to create a synthetic alternative. 

Last year was “the annus horribilis of European sourcing, with slates lightening up,” at the wrong time for refiners, said Viktor Katona, head crude analyst at Kpler.

This year, however, solid inflows of heavy barrels from Latin America have improved the situation, he added.

Even so, the US is sending record volumes to the region of WTI, a grade that has a high yield of naphtha, a product that’s used to make plastics and gasoline.

Inner Workings

In a refinery, crude oil is heated to hundreds of degrees Celsius so that much of it turns into vapor. The vapor is then separated out into different petroleum products, such as diesel and jet fuel, in what’s known as a crude distillation unit, or a fractionater.

When it’s hot outside, part of what can become tricky is getting the vapor in the CDU to turn back into a liquid at its normal operating pressure – particularly for those petroleum products that have the lowest condensing/boiling point, according to Gelder, who was previously a senior engineer at Esso Engineering. This can ultimately force refiners to reduce crude processing, he said.

Naphtha, along with petroleum gases, which are together known as overheads, require the most intense cooling. So if a crude used by a refinery produces a particularly high yield of these lighter fractions, that can pose difficulties in high temperatures because more cooling is required.

Big Cuts

Macquarie estimates that globally about 1.5 million barrels of daily capacity was offline last summer as a result of hot weather. The Mediterranean was forced to cut throughput by almost a third of that in the second quarter of last year, Bank of America estimated at the time.

In terms of dealing with high temperatures, a refinery might make its biggest throughput reduction to avoid the hottest part of the day, then start reversing that cutback overnight when it’s cooler, according to Sawyer.

Refineries in the Middle East are generally better able to deal with extreme heat than plants in Europe because they’re designed for it. Specifically, they’re set up to run at a higher operating pressure, which means they can function effectively at higher ambient temperatures, Gelder said.

Spain’s Repsol SA said certain parts of its refineries can have limitations due to high temperatures but they are designed to handle them. Orlen said its Gdansk and Plock refineries will operate normally from around -25C to +36C.

To deal with higher temperatures it plans to install what it calls chillers to improve cooling.  

“As the climate changes and temperatures rise, it becomes more challenging to keep the temperature and pressure at the top of the fractionation tower down,” said Ludwig Kollberg, a spokesman for Sweden’s Preem, adding that that can limit throughput capacity.

--With assistance from Sherry Su and Eric Roston.

©2024 Bloomberg L.P.

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