Building a complex, hydro cracking, hydro skimming, catalytic cracking refinery, can cost anywhere around $5B to $15 billion.
According to Wikipedia, an oil refinery or petroleum refinery is an industrial processing plant where crude oil is refined into more useful products such as petroleum naphtha, gasoline, diesel fuel, asphalt base, heating oil, kerosene, liquefied petroleum gas, jet fuel and fuel oils.
These refineries play a very crucial role in the production of transportation fuels and other fuels. The crude oil components, once separated, can be sold to different industries for a broad range of purposes.
Lubricants can be sold to industrial plants immediately after distillation, but other products require more refining before reaching the final user. 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.
Estimated Cost Breakdown for Building an Oil Refinery?
The exact cost of building an oil refinery in the United States is affected by many factors. These factors include:
1. Permits and Approvals
Today, national and state legislation mandates refineries to meet stringent air and water cleanliness standards. In fact, oil companies in the U.S. believe obtaining a permit to build a modern refinery to be so difficult and costly that no new refineries were built (though many have been expanded) in the U.S. from 1976 until 2014, when the small Dakota Prairie Refinery in North Dakota began operation. Oil refining requires a LOT of resources.
You will need to seek regulatory body approvals depending on the jurisdiction. This varies wildly depending on which state, which company and other factors.
2. Location and Crude Sourcing
Even in the refining business the location of a facility plays a huge role in how profitable it can be. Arguably crude sourcing also play the most vital role in refinery cost and profitability. This has historically held true, and today has been rammed front and centre.
Anomalies aside, there are still some fundamental factors one should consider when assessing the crude sourcing situation for new a refinery build or acquisition.
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? The available options drive the capital requirements on new facility infrastructure.
Nonetheless, initial capital expenditure isn’t the only factor to consider. Continued supply chain costs will forever affect refinery operating costs and margins. Vessel demurrage costs, pipeline tariffs, weather impacts, geopolitical influences, and crude supply availability are all factors that can quickly erode profitability.
This particular factor depends on the source of crude and supply balances (which in turn depends 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 does include an incredibly integrated complex upgrading & treating units. These complex configurations will cost more and affect the estimated cost of building a new refinery.
Refining capacity refers to the amount of oil a plant can refine. Complexity determines the type of crude oil consumed and the quality of refined products produced. Utilization rates show how much of refining capacity is used to refine oil, which can depend on things like efficiency, maintenance, and turnaround activities in the unit.
The higher the refining capacity and utilization rates, the higher the production of refined products, and so refining capacities and utilization rates directly impact the cost of building a refinery and the revenues of refining segments.
5. Refinery Complexity
Refinery complexity impacts the cost as well as revenue for refiners, and so it impacts the profitability of a refining company.
The cost of crude oil processed by a refinery depends on market prices for crude oil. Note that crude oils can be classified as heavy or light, and sweet or sour, depending on the density, viscosity, and sulphur content. Lighter and sweet crude oils are expensive and trade at a premium over heavier and sour oils.
Note that the higher the refinery complexity, the heavier the crude it can process. So a high – complexity refinery will have lower costs than a low – complexity refinery because it can process cheaper crude oil. Refinery complexity also affects the output of the refinery unit, usually referred to as “product slate” or “refining yields.”
Owing to the above factors, building a complex, hydro cracking, hydro skimming, catalytic cracking refinery, can cost anywhere around $5B to $15 billion. The throughput (processing capacity) of this refinery should be between 250 – 500,000 barrels per day.
Using the above average size (between 250,000 – 500,000 barrels a day), it will take between 5 – 7 years to complete the refinery. Duration from breaking ground to achieving full complexity & throughput can range between 3 – 8 years depending on the scope of the project.
Without diving into factors such as cooling water availability, climate impacts, manpower, and many more, you can imagine that a multitude of factors need to be carefully weighed when deciding the cost of building an oil refinery in the United States.
It’s fair to say that more thought is put into the initial costs than the continued maintenance and efficiency costs of a refinery.