An oil refinery or petroleum refinery is an industrial processing plant where crude oil is refined into gasoline, diesel fuel, asphalt base, heating oil, kerosene, liquefied petroleum gas, jet fuel and fuel oils etc. Most refineries built in the United States possess the capacity to process hundreds of thousand barrels of crude oil daily.
Nonetheless, the refining side of the business is actually hurt by high prices, because the demand for many petroleum products, including gas, is price sensitive. However, when oil prices drop, selling value – added products becomes more profitable.
The exact cost of building an oil refinery in the United States is affected by many factors. In this blog we cover what those factors are. Keep on reading for more.
Permits and Approvals
Oil companies in the U.S. believe that obtaining a permit to build a modern refinery is difficult and costly. To add to the difficulty, national and state legislation mandates refineries to meet strict air and water cleanliness standards. You will need to seek regulatory body approvals depending on the jurisdiction. This varies wildly depending on your state and company.
Location and Sourcing
Even in the refining business the location of a facility plays a huge role in how profitable it can be, as does crude sourcing. For example, one leading thought should be means of delivery. Is it possible to receive crude by shipping vessels, or do you need a crude pipeline…or maybe even both? Nonetheless, initial capital expenditure isn’t the only factor to consider. Continued supply chain costs will forever affect refinery operating costs and margins.
This particular factor depends on the source of crude and supply balances–which is based on the geographic location of your refinery. You will have to choose which refinery configuration works best for you. Oil refining has long moved on from simple crude distillation and now includes incredibly complex upgrading & treating units. These complex configurations will cost more and affect the estimated cost of building a new refinery.
This refers to the amount of oil a plant can refine. Utilization rates show how much of refining capacity is used to refine oil, which can depend on things like efficiency, maintenance, turnaround activities etc. The higher the refining capacity and utilization rates, the higher the production of refined products. With that being said, refining capacities and utilization rates directly impact the cost of building a refinery.
Complexity impacts cost as well as revenue for refiners. The cost of crude oil processed by a refinery depends on market prices for crude oil. Note that crude oils can be classified differently–light, heavy, sour & sweet–depending on the density, viscosity, and sulphur content. Lighter and sweet crude oils are more expensive when compared to heavier and sour oils. Note that the higher the refinery complexity, the heavier the crude it can process.
Owing to the above factors, building a complex refinery, can cost anywhere around $5 to $15 billion. That is of course without diving into factors such as climate impacts, manpower, and much more. Regardless, you can imagine that a multitude of factors need to be carefully weighed when deciding the cost of building an oil refinery.
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