Refineries are some of the largest carbon emitters in the world, and making them greener is no simple task. Yet, an effort to do so is taking place in West Texas in the heart of the Permian Basin. Here, two operators have received state permits to build small, modular refineries to process the light, sweet crude from shale formations with emissions that are roughly 95-percent lower than those from the average Gulf Coast refinery.
Taking advantage of their location – where oil is produced and its finished products are needed – these operators have capitalized on the opportunity to build their own refineries from scratch, complete with carbon capture technology, and become some of the cleanest refineries in the country.
“A lot of ESG (environmental, social and governance) projects die when you have to economically justify them. We need carrots or sticks to start cleaning up our environmental act, but if you have an economic rationale, it makes sense,” said Gerry Obluda, owner at Polaris EPC Inc., which will build the West Texas refineries this year using its own technology called UltraFuels. “Refining, either directly or indirectly, is the third-largest carbon emitter on the planet, so why not start cleaning it up one step at a time?”
The Refinery Status Quo
After constructing approximately $100 million in conversion projects at the Calumet Specialty Products Partners refinery in San Antonio, Texas to increase its refining volume for light, sweet crude, Obluda and Michael F. Milam, then vice president and manager of the refinery, began brainstorming ways to domestically refine more of the light crude produced from the shale boom – rather than export it.
“We learned from the project in San Antonio that running light crude was advantageous,” Milam said. “The idea was to start with a clean slate, build only what’s needed, use the latest technologies and build in modules.”
During the oil crisis of the 1980s, the United States significantly upped its oil production of heavy, sour crude. Existing refineries, many along the Gulf Coast, invested a huge amount of capital into retooling their processing equipment to handle this crude, which would be refined to make hydrogen and transportation fuels – namely gasoline, diesel and jet fuel. The United States refines roughly 18 million barrels of crude oil a day for transportation fuels in large refineries that can process hundreds of thousands of barrels a day.
Refineries operated on the heavy, sour crude that steadily flowed into their pipes for decades – until the shale revolution threw them for a loop. Using horizontal drilling and hydraulic fracturing in source rocks, operators began producing a seemingly endless supply of light, sweet crude, which most refineries could not handle. So, in 2015, the U.S. government broke its longtime ban on exporting crude oil, citing a host of reasons. Obluda strongly believes it was because the country simply could not refine its new brand of oil.
Presently, the United States exports approximately 3 million barrels of light, sweet crude a day, and it imports 7 to 8 million barrels of medium to heavy crude to refine domestically, according to the U.S. Energy Information Administration.
“We are exporting what we have and importing what we don’t have,” said Obluda, who has been in the refining business for more than 30 years. “It’s not very energy-efficient on a lot of different levels. There is an opportunity here.”
As Obluda and Milam brainstormed, they knew that light, sweet crude has an ideal boiling-point range to make transportation fuels and that it requires less energy to refine. They also knew that building refineries tailored for light crude outfitted with new equipment that complies with current emissions standards would only add to their efficiency.
A smaller refinery that processes 10,000 to 20,000 barrels a day would require only state permitting, allowing them to be built in a quicker timeframe. And, a smaller volume of oil would not overwhelm the surrounding markets on either the crude supply or finished product sides.
“You want to be a drop in the bucket so you don’t affect the local economies,” Obluda said. “If you are too big of a percentage of your local market, you are going to have to start exporting.”
Adding a carbon capture element to target the emissions from the furnace stacks and amine absorption for the CO2 byproduct would make the operation almost entirely green.
“We can actually generate our own power on site and capture the emissions from our own generated power. This is next-generation oil refining,” Obluda said. “We have got to do it clean. That is the buzzword today and the focus of the investment folks.”
The reduction in emissions includes criteria pollutants: particulate matter, carbon monoxide, nitrogen oxide and sulfur oxide.
According to a 2021 article from the World Resources Institute, petroleum refining constitutes 13 percent of the United States’ industrial emissions, with process emissions (from refining crude for transportation fuels) responsible for 31 percent of those emissions.
The carbon capture component of the Polaris refinery is one of its most substantial costs. However, Obluda said, “the economics are still strong enough based upon the refineries’ strategic advantages that it’s still a bankable investment.”
Enter the Small, Modular Refinery
A 10,000 barrel-a-day refinery is about 75 percent modular – its pumps and piping built in a factory that allows for higher quality control and faster construction times. The remaining 25 percent includes the installation of large equipment, including towers and heaters on site.
“It’s like a big erector set,” said Eric P. LeDoux, EPC Projects Development manager at Polaris. (However, the more barrels refined – for example 40,000 to 50,000 a day – would sacrifice some of the modularity.)
LeDoux stressed that the refinery is not made from new or unique technology.
“We are using all existing technologies but putting them together in a way that hasn’t been done before,” he said. “We understand that no one wants to be a guinea pig. This is a new application of existing technology.”
In fact, Polaris has received a patent on its UltraFuels technology and is awaiting a second patent on its carbon capture element.
The refinery is designed to process crude with gravities that range from 38-60 API. It can also handle light, sweet condensate that contains hydrogen sulfide, which doesn’t always export well.
“People producing H S would be a great target audience,” Obluda said.
A small refinery takes up about 10 acres of land and expands, depending on the size of the tank farm – how much oil an operator wishes to store on site. Total construction time is roughly 20 months, with costs that vary depending on size. Once an oilfield is depleted, the refinery can be packed up, moved and used again. With proper maintenance, it should last “forever,” Obluda said.
“It doesn’t take long to pay off one of these units in today’s margins for diesel and gas,” LeDoux said. “When on-line, after running about two years, it will pay itself off.”
Economic Incentives
West Texas has been an ideal place to start. As it stands, operators in the Permian Basin rely on diesel fuel for drilling and imported CO2 from New Mexico and Colorado for enhanced oil recovery operations. They must pay to ship their oil to refineries along the Gulf Coast and then pay to ship the finished product back.
If operators had their own refineries on site, this would eliminate the need to transport oil and finished products back and forth. The finished products – including the diesel they need to operate – would be right there for use, and they could sell other fuels, such as gasoline and jet fuel, to already existing markets in West Texas, specifically the Dallas-Fort Worth area.
“Margins are better in West Texas in terms of demand for diesel for frac’ing,” Milam added.
And, at some point, it could become economically viable to use the captured CO2 to offset the amount imported from neighboring states for enhanced oil recovery.
In an era when some believe refining is a dwindling industry, large refineries are not entertaining huge capital investments to begin refining light, sweet crude or to capture their emissions, Obluda said. Many were built in the mid-1900s and overhauled in the 1980s for heavy crude. After so many incremental changes, they have become outdated “Frankenstein” units unripe for further transitions.
“You can’t do carbon capture in these big refineries because the crude unit was built in 1950, the cat (catalytic) cracker was built in 1975 and the coker was built in ’85, and they are all spread out over many square miles,” he explained. “They didn’t have spacing guidelines back in the 1950s. It’s crowded (in the units) and there is no room to put carbon capture technology.”
But the fact is, refining is going to be around for a long time, Obluda said.
Milam added, “Over the next several decades, we are going to need all the energy sources we can get, but we have to capture the carbon. We can’t continue to throw carbon into the atmosphere.”
A Nascent Trend
Countries that produce oil but that lack refining capabilities are now looking hard at refining their own oil on site as the economics become more favorable. Guyana, which recently experienced an offshore discovery of light crude, is one of them. The country is currently importing all of its diesel and gasoline but is looking to use its royalties to build its own refineries with a green angle, LeDoux said.
A transition to cleaner refining from a country’s light, sweet crude from new shale discoveries makes sense. So do the small refineries in West Texas for small operators and entrepreneurs, Obluda said.
“It is the ideal thing for smaller companies that are bringing in 10,000 to 30,000 barrels a day. It’s not complicated, and it doesn’t take lot of people to run them. They can take advantage of their own product and also sell to their local markets, LeDoux added.
Small refineries are “a drop in the river of oil in West Texas and a drop in the bucket in all finished products coming back,” Obluda said. Yet, he hopes to piggyback on their success and show the public that refineries can be efficient, clean and odor-free, and begin building larger refineries optimized for light crude and low emissions.
With the Permian Basin producing more than 3 million barrels a day, “that rate could just keep going up,” Obluda said. “I’m not an E&P guy, but at the rate you guys are increasing the crude export from West Texas, we could replace all the heavy, sour crude with light, sweet crude – not just in the United States but around the world.”