REFINERY SECURITY

Elspeth Thomson and Dickson Yeo

Energy Studies Institute
for ESI Energy Security Conference
22 May 2009

Outline
1. What is Oil Refining?
2. Oil Refining Globally
Physical, Economic and Political Vulnerabilities
3. Oil Refining in Asia
Vulnerabilities
4. Conclusion

What is Oil Refining?

Crude oil itself is useless. It must be refined into various oil

products.
Procuring crude oil is one thing, procuring the right quantity
and types of petroleum products (pps) is quite another.
The worlds largest producers of crude are not necessarily
also the largest refiners, e.g. Iran is the worlds 4th largest oil
producer, but often has to ration petrol due to lack of
refining capacity.

Refinery Operations

Typically process one hundred to several

hundred thousand barrels of crude each day

Usually operate 24/7

Require steam, cooling water, electric power,

storage tanks for crude oil feedstock,
intermediate products and end products

PP Categories
There are basically four types of crude:
light
heavy (asphaltic, bitumen)
sweet (non-sulphurous)
sour (sulphurous)
- High quality crude oil is increasingly harder to find
Refining splits fractions based on boiling points and relative
solubility.
The crude is refined into:
- fuels
- lubricants
- feedstock in petrochemical processes that make plastics,
detergents, solvents, elastomers and fibers such as nylon
and polyesters
5

Main PPs

Light distillates
LPG, gasoline (petrol), naphtha
Middle distillates
kerosene and related jet aircraft fuels, diesel
Heavy Distillates and Residuum
fuel oils, lubricating oils, paraffin wax, asphalt and tar

Vulnerabilities

Physical
Economic
Political

Attacks on Refineries

Operation Tidal Wave Allied strategic bombing of Nazi oil

refineries in Polesti, Romania (June 1942). Negligible impact
due to heavy air defense efforts and lack of precision targeting
technology; most of the facilities recovered within weeks.

Al-Khobar massacres- Al Qaeda attack on oil installations and

foreign workers complex in Saudi Arabia. Large number of
civilian casualties with no direct physical damage caused to oil
refinery facilities. However, led to exodus of key oil industry
personnel and impacted investor confidence.
(April 2004)

Abqaiq Oil Refinery complex - attacked by explosives-laden car.

Heavy security and blast proof gates prevented terrorists from
detonating their bombs. Paralysing Abqaiq would have
devastated Saudi oil exports and led to an immediate hike in
international crude prices. (Feb 2006)

Attacks (cont)

Laju Incident: Terrorists attempted to bomb Pulau Bukom:

Singapore refinery owned by Shell. They succeeded in
detonating 3 explosives but caused little damage. Marine
police and sentry guards managed to fend them off. (31
January 1974)

Physical Vulnerabilities
-

key targets in WW II and the Iran-Iraq war (1980-1988)

Capital intensive industrial facilities which require intricate technical coordination to function, making them vulnerable to sabotage and sensitive to
structural attacks.

Skilled manpower can become direct targets for saboteurs and terrorists.

The oil, waste gases, chemicals, etc., are typically flammable and can cause
significant damage to surrounding civilian facilities when ignited. Many
refineries around the world are in close proximity to major urban
concentrations.

Refineries and their associated infrastructure have high media visibility which
increases their attraction to saboteurs whom are intent on making a major
statement.

10

Economic
Vulnerabilities:
Perpetual Imbalance

Not just a question of total refining capacity matching

demand, but the right production mix, e.g., sometimes a
global shortage/excess of distillates, other times a
shortage/excess of fuel oils.

Recently, refining capacity globally has increased by less

than 2 mbpd while demand for pps has increased nearly 4
mbpd.

Several projects under construction now, but the current

global recession has caused demand for pps to fall sharply.

Refinery capacity shortages contributed to the high oil prices

in 2008
11

Economic Vulnerabilities
(cont)

Ideally, all parts of the oil industry require continuous

investment for supply/demand equilibrium.

The current low oil prices have helped cushion the economic
recession, but many refinery projects around the world have
been cancelled. Many refineries are not operating at full
capacity.

Oil tankers parked offshore awaiting higher prices. Merrill

Lynch estimates that global demand for pps will drop by 5.2
mbpd below capacity in 2009.

Asian demand for pps was expected to grow at the fastest

rates over the next couple of decades. Key question how
long and deep will the current global financial turmoil affect
Asia?
12

Refinery Investment

Refining industry was hit hard by the 2008 hurricanes in the

US. With low crude oil prices, replacing that capacity is less
appealing.

Refineries cost billions to build, and take several years to

complete. They are not generally hugely profitable.

Factors influencing construction are: input prices,

output prices (rate of return) and government
regulation.

In recent years, strict environmental rules have

been put in place: rules governing the operation
of the plants, and also the products they produce,
i.e., cleaner fuels.

Much of the worlds existing refineries are now undergoing

modification to produce cleaner fuels.

No new refinery built in the US since 1976.

13

Political Vulnerabilities:
Energy Nationalism

State-owned companies have both strategic and commercial

interests, whereas private companies are generally focussed
entirely on commercial interests.

Private companies generally prefer upstream activities

exploration, retrieval and production of oil. They are looking
for high returns and tend to avoid activities with variable
margins.

14

Political Vulnerabilities
(cont)

Target the facility itself

Target the people working at them
An attack may be a protest over a countrys
activities elsewhere
Civil war
Inter-state war

15

Oil Refining in Asia

Much of future global demand for pps is in Asia, and

much of the worlds planned refinery capacity
expansions this year and next are taking place in
Asia, especially India, China and Vietnam. Much of
the new capacity in Asia is designed to take the
poorest quality crudes sour, heavy, highly acidic,
etc.

Some worry that the new refinery capacity may

outpace demand for pps

16

Refining in Asia
(cont)

Much of Asia has regulated markets, i.e. prices for

various oil products are considerably below international
prices. This causes distortions and dulls global price
signals, hence demand/supply often imbalanced.

Refineries in Asia are relatively low-cost because wages

are lower than in the west. Thus, they will not feel the
pinch of the recession quite so much.

Should countries aim to be self-sufficient in ALL pps?

17

Asian Refineries
(cont)

Most of the Asian refineries take crude from Middle East.

It is expected that they will take on more from Russia
and West Africa.

Trying to adapt refineries to take cheaper grades

18

Strategic Petroleum
Reserves
1.
2.
3.
4.
5.

IEA requires the holding of 90 days worth of reserves

Japan and Korea are IEA members
China and India are building SPRs
Singapore has reserves
Rest of Asia?

19

Conclusion
1. Refineries are indispensable in modern society.
2. Many new refinery installations are under construction in Asia
now and more are planned.
3. Spurred by various local and/or international political
motivations, these refineries, as refineries anywhere, are
potential targets.
4. A successful attack on a refinery would potentially cause not
only loss of life and economic disruption, but also serious
environmental damage.
5. Great care must be taken to ensure the security of the new
Asian refineries from within and without.
6. Refineries can never be 100% secure but can be made almost
completely impenetrable if the physical vulnerabilities are all
well-considered in their design.
7. For practical and economic reasons, refineries must be made
as flexible as possible with respect to the types of crude oil
they can process.

20

THE END

21