Transcript:

Hello, and welcome to Oil Connect with your host, Bruce Carlile of Carlile
Commodity Consulting.

This podcast is hosted by the EKT Interactive Oil and Gas Podcasting
Network and is sponsored by Oil 101, a free introduction to the oil and gas
industry.
Welcome.

This is Bruce Carlile, president of Carlile Commodity Consulting. A relatively

new consulting firm.

Today, I’d like to talk to you about crude oil assays for the non-technical
person. This podcast is intended to be used in conjunction with a
PowerPoint presentation available at our own website www.carlilecc.com.
Carlile spelled a little bit differently, C-A-R-L-I-L-E. Thanks for tuning in
today.

The proper usage of crude assay types and techniques will definitely help
enhance your profit picture regardless of where you are in the supply chain.
Today, this short presentation coupled with eight key slides is designed to
appeal to any level of non-technical personnel in the oil and gas sector.

The overview will make you more informed and perhaps at ease to employ
sound analytical testing applications to aid with your profit picture.

Crude oil assays are widely used by refiners, petrochemical plants, splitters,
upgraders, midstream transporters and marketers.

Yes, even engineering firms, oil producers, and did I mention lawyers? You
might be a little perplexed at that, but if you go back in time when the
commodity prices start hitting to well over $100, which they have in not too
distant future.

Lawyers often are brought in on startup companies to help in the secure of

the feedstock or crude oil, have it run in a third-party lab, in order to do the
due diligence or financing activity in startup companies.
In today’s podcast, again I’ll cover those eight key areas of interest,
hopefully in about 15 to 20 minutes, I’d like anybody regardless of positions,
staff, management level, to obtain a fundamental understanding of crude oil
characterization and quality evaluation to fit your needs.

The point is whether you’re a PhD in a lab setting actually doing the crude
distillation, this little presentation will be applicable to show the different fits
and usage of the analytical techniques in the external world of the supply
and trading.

Let’s start out with something very fundamental.

Crude oil types, I think a lot of the audience will already understand, there’s
a wide variety of foreign domestic crudes but generally speaking, we break
them into categories at least I like to think of conventional crudes or virgin
crude oils, unconventional crudes i.e. tight sands or shell oils, biomass,
cellulosic-derived feedstocks, bitumens, Canadian oil sands, synthetic
crudes or upgraded bitumens.

We also get into the category, by the way, that would be known as the
unconventional crude category from oil sands through the Canadians.
Opportunity crudes, those are typically crudes that are very commonly
blended at the least level or the bulk tank level.

The word dumbbell is derived because often times there will be a field unit or
small topping unit that strips out certain components of the crude, the
valuable components i.e. the naphtha and the crude is induced back in a
pipeline to a refinery, and then refinery certainly doesn’t understand well.

Maybe I’m not getting the value out of that crude. Crude assay will help
explain why.

There are also a lot of lookalike blends at which is done on the up and up by
midstream companies that want to make a boutique blend for a given
refiner’s use. Again crude assays are employed so those different blends of
crude can be to meet a refinery spec or a spec to compete in the world
market.
The best example I know is the Canadians induced western Canadian
select. It’s a blend of eight crudes basically designed to compete with the
Mexican Maya heavy crude, so that is again a special blend.

Now let’s get down to the point here of what is a crude oil assay?

Well, again assays come in all types yet fundamentally are performed in
laboratories and research centers using glassware in bench scale sizing to
simulate refinery distillation towers, crude oils condensate feedstocks are cut
into petroleum gases, petroleum products all the way through to the resid.

The primary use is to evaluate the performance of the hydrocarbons and

evaluate the financial worth of each crude oil in different refinery conditions
or petroleum marketing conditions.

I would also say that no crude oil type is identical as we all know they have
critical differences we pointed out.

Often times fields of production for example, the Saudis have a variety of
world-scale crudes in the market from the Saudi light to the heavy to the
mediums to the ultralight and at any given point, some of these fields may be
very mature, so the crude quality is relatively stable and may go back and do
some infill drilling and change the molecular setup.

In other words, typically as a general rule, if a field changes more than about
three API, people will tend to want to retest that in some fashion or other,
typically some level of crude assay.

It will help briefly to talk about what a refinery does, but certainly in no
great length.

Generally speaking, refineries are considered in different classes, a very

basic topping unit, a mid level refinery up to a complex refinery which
integrates with petrochemical complexes, so you can see right there, that’s a
whole another topic today and EKT Interactive does an excellent job of going
into the refining sector in their own podcast in very detailed form.
If we just look at our slide and we see conceptually, the refinery takes light
ends, gasses, about 50% total between gasoline, jet, and diesel and into the
gas oil and resid about 37%.

This would be a distilled West Texas intermediate crude example. If you go

to the right side of the slide, you’ll see a refinery maximizes the conversion
of these crude oils into desirable products transportation fuels.

Through the refinery process, things like cokers, hydrotreaters, and so forth
and so on through the downstream processing within a refinery
configuration. The products are generally upgraded hopefully to the right
specification and certainly in volume.

The point we’ll get back to is mirroring the refinery. If we get back to the
fundamentals of a crude assay, there are some companies, third party or
principals for example, I can think of Koch industries in Wichita.

They have their own pilot plants. Actually they have physical refinery units in
warehouses but we’re not going to talk about that level of crude assay, a
production assay.

We’re talking about bench, scale, glassware, in a laboratory condition which

emulates the CDU accrued distillation units, and the slide that I’m talking
about you’ll vividly see on the left to analytical techniques that the ASTM has
come up with.

ASTM D2892 is atmospheric distillation which is based on a theoretical 15

trays, most refineries have 100 or more at a certain reflex ratio due to the
catalyst that’s packed within the tower and you’re going from an initial boiling
point out to 750 degrees Fahrenheit or equivalent of 400 degrees C.

The next technique that’s employed as you get through again, the gases, the
gasoline, the naphtha, the kero.

You convert over to ASTM 5236. That is typically referred to as vacuum

distillation or pot still. That picks up from 752 out to 1050, that’s as far as any
laboratory can go, obviously if they cook or heat up the hydrocarbons
excessively, it changes the molecule to an extent that violates the basic test
method and you really can’t push it out past 1050.
There are other techniques, GC techniques that you can do modeling to go
out further, but for our purpose, this is as far as a gas oil will go, so now
again from 752 to 1050, we’re getting into the black oils, the fuel oils, the
resid, the bituments, the asphalt.

That’s principally what the laboratory will do.

They need two five gallons typically. It takes four or five days to just do the
cutting to derive at the fractions of interest.

Now who uses the assay data?

The value chain. You can have the same analytical techniques employed
obviously because there’s very robust protocol to follow the precision of the
ASTM and other methods there used.

If you take the basic technique of an assay, you could work for the upstream
sector for example, a company like a Shell oil or an Exxon has their own
research centers to do assays, but frankly they typically take a long time, two
or three months.

Commercial labs may take three or four weeks by the time the crude arrives
in the lab, they do a full assay, and the data is released.

You can see the importance of the third party lab community. Most
producers today, the fully integrated companies, like I mentioned the Shells,
the Exxons of the world have their research centers, they have their own
equity production, it’s in their best interest to put the crude assay data out on
the library to market their barrels.

If we drop down to state-owned oil companies like a Petrobras or perhaps a

BHP, an Australian company or a Pioneer in natural resources.

Those companies typically may employ assays for different reasons to not
only find a better market, but when their marketers approach them, the
savvy markets with these companies will know the relative netback and
hopefully can negotiate a little better deal with their end user, the gathering
companies.
Gathering companies generally is lumped in the midstream sector.

Often times pipeline companies will do a mini-assay to see how the crude
properties and pseudo-components flow through their pipeline.

They’re really probably a little more interested in the whole crude property,
the viscosities, the flow, the pour, but on some occasion they will do assays
from the origin to the destination for one simple reason.

To predict a baseline of crude quality coming through their system so when

they take on new customers and new volume, they can either reflect in their
tariff or their transportation dealings whether that crude is going to upgrade
or downgrade their stream significantly.

That is why things like the Trans-Alaskan pipeline has an allocation system
based on assay data to allocate the revenue back to each of the interest
owners or in South Louisiana, it’s very common to have gravity and sulphur
banks to equate or equilibrate the quality in a lab condition, again it always
ties back to revenue or money.

Now if we go on to logistics which I mean most of the shipping and large

terminals, they don’t typically employ full crude assays to any extent they
may use flash assays that we’ll talk about in a minute.

Whole crude property evaluations and then lastly, as you might surmise, the
end market, the refining community, the petrochemical community
predominantly concerned with condensates are all about full crude assays.

How else can they optimize the units at the refinery have engineers de-
bottleneck, debug or re-tool various units and optimize, or when the refiner
and their commercial partner go out in the market to select incremental
crude production they need to know what that value is going to be in relation
to their base load value, and a crude assay will tell them in addition to using
sophisticated software.

What an assay tells us?

We’ve kind of touched on it a little bit but you can see the examples I have
on the left an Eagle Ford barrel, now that field is 50 miles wide and 450
miles long, so you can imagine in the Eagle Ford South Texas play, the
crude goes from 19 gravity, very heavy up to as much as 70, very very light
up into a condensate pool.

On average, the crude is either field blended before it’s transported up to the
bulk level where there’s certainly a large volume that comes out in the high-
30, the low-40s, with a 0.13 sulphur, so very desirable, very good barrel, and
you can see the components that it yields are typically a lot higher in some
of the naphtha kero distillate range. It’s got a less heavy product, less
valuable product make.

We go to a WTI, a West Texas Intermediate which is somewhat of a

comparable barrel.

Again, a very good in the naphtha, very good in the kero, a little less in the
distillate range.

We go to the comparable Brent that’s traded from the North Sea or

compared as a world-scale crude to a Bakken, Arab heavy, and the Western
Canadian select again is a blend of eight crudes, very heavy, 20 gravity or
thereabouts, 3.3 plus percent sulphur and the Western Canadian select is a
way for the Canadians to have an identified market crude to compete with
the Mexican Maya.

That in essence is becoming the blood and guts of an assay. Every refiner
and marketer has different terms but if we were to run through a model that
I’ve prepared and picture could be seen.

You would see two crudes, one heavy, one light, one very paraffinic with a
good lube make, and you would see nine different petroleum cuts or
fractions with their boiling range from gas fraction initial to the 60 degrees F
to a light naphtha 60 to 280, medium to heavy naphtha at 280 to 450
degrees F.

Jet fuel kerosene at 450 to 550. Diesel 550 to 650. That was done on an
atmospheric distillation tower, ASTM 2892.
Now we start to shift to the pot still into the atmospheric bottoms 650
degrees F plus, light vacuum gas oil 650 to 850, heavy vacuum gas oil 850
to 1050, and then we’re pretty much in that vac resid in the 1050 we stop.

Now again don’t get too hung up on the numbers of degrees F, and
nomenclature because again a lot of people use different product names at
different fractions because the refineries are configured differently but it’s a
good education tool to get the concept and the idea.

Now when we get into the types of crude assays, the one that’s the quickest
less cost that a lot of people use is called a flash assay.

It’s only, repeat, only gives you information on the whole crude, so you can
design to setup an API gravity, a sulphur, your metals, your scavenger
metals, nickel and vanadium, their poison catalyst in refinery.

Your acid number, total acid number, your micro carbon residue that shows
the [inaudible 00:19:20] tendency of the barrel and we get into gas
chromatography, GC work called simulated distillation.

It’s not the most accurate as the glassware, and so a lot of labs have come
up with their own ASTM 7169 method.

That’s an industry method but they take the light ends C1 through C10
merge with an algorithm into the simulated distillation to get a very very good
simulated distillation of what petroleum products by late is in the barrel.

That would typically take one or two quarts of volume by the time these
sample gets to the lab, two to four business days and the cost depending on
your arrangement with the third party lab or your internal cost will be $3,000
to $5,000.

Very very effective tool.

I have to stress as you go up the food chain for a little more robust assay,
that these whole crude parameters are always done and some of the traders
don’t quite understand typically that you can release the flash assay data
promptly so you know what you have at a point in time to bid on barrels
while you’re waiting for the next level of assays because they take
considerably longer.

Depending on the time of year, for example at year-end, all labs, commercial
labs get backed up because of vacations, budget spend, any number of
factors. The next level is called a mini-assay.

You go through the same whole crude properties or more. You have limited
cuts or fractions by the glassware we talked about and you can derive
anywhere from maybe six to eight fractions and on each of the fractions
select your petroleum product test of interest.

Maybe a cetane on diesel, a smoke point on jet fuel, perhaps metals all the
way through to the heavy end of the barrel. 25 to say 50 different test, you
take one five gallon sample, two to three weeks and it cost between 5,000
and 12,000. You’d have your mini-assay.

Select test on few cut points. Again all the applications we talked about
earlier.

One good point about an assay, one advantage of a mini-assay.

If you are really really interested in a jet fuel make, and that it could meet a
certain ASTM 1655 or an international dirt spec. You might just primarily
want the mini-assay to have that cut pulled out and run very very extensive
testing, robust testing to see the products meet that spec.

The next level up is called the full comprehensive assay, sometimes called
the transportation assay. This is the one the refineries typically really really
insist on for any term of crude supply that they’re going to run in their
facilities.

Most major refiners that I work with come up with a template that is used for
maybe five or six refineries with very little adaptation, maybe if they have a
lube oil specialty refinery up in the Oklahoma area for example.

They might add some, a few additional test on the lube fraction but generally
they can take one large template, use it for all their refinery network and get
into Haverly or other software, Spiral Suite is a good one, there’s a number
of them to there that will take the laboratory data and do their own cutting
and their own modeling, in other words, their own theoretical work.

That laboratories typically can do, but don’t like to issue that data unless
they actually physically done the test.

For that reason, the labs will often use these software to cursorily check their
data points, but once they release it in a Haverly for example, the client can
massage the data and do their own work.

The key component of a full crude assay is you need two five gallons, you
need more volume, you need a little more time, three to four to five weeks is
an appropriate turnaround and you may get up to as much as 100 to 175
test considering you’re doing 10 to 12 cuts or fractions plus often extensive
GC work.

Those cost can range in the 15 to $25,000 normally and once again
depending on the type of crude oil, let’s take in the brief example and say
you had a heavy Venezuelan crude.

You are an asphaltic oriented refinery and downstream marketer. You might
have the lab do more work on the back-end of the assay because you’re
interested in the asphalt or the roofer’s flux.

Even have those cuts or samples sent to another host lab hopefully in the
same company but different network, Philadelphia comes to mind typically
where you get some very special asphalt paper grade or sharp certified
testing to see that it meets each individual state for which the asphalt will
have its marketing or application.

As we come to the tail-end of the presentation, we won’t talk too much about
petroleum product specifications because we’ve touched on it briefly. Every
refinery product has numerous specification that must be met.

Specification determined by the end user, different regulatory agencies,

pipelines, terminal operators, so you can see back to my statement one size
shoe doesn’t fit all.
The complexities of a crude assay template that you start with in scoping the
job before it gets into the lab.

That way everybody is on the same page, it goes to the lab much more
quickly, you get better turnaround, often times the customer, it’s in your best
interest to partner with a good consultant or a good lab to do all your due
diligence up front and I would caution you if I were a world-scale producer
with a new field, I might even send more crude sample because there’s a lot
of cost and time involved in getting these samples from across the world to a
lab and have them keep what they need to do the testing to market the
barrels and keep extra volume of crude.

These are things that I’ve learned as a marketer, have the lab store that for
brief periods of time, two, three, four months because your end customer
may want test done in their own research center, and you surely wouldn’t
want to go all the way back across the world to Mozambique or Ecuador or
Guinea or Africa to get these samples which by the way the stream may
have changed over the course of the months.

Just a little tip, get plenty of sample upfront, partner with your lab or your
consultant. Spend the extra time to go through multiple times if necessary or
site visits at the lab to make sure you’re going to get exactly what you need
and what you pay for the first time and lastly, anybody getting engaged with
the people like the COQA, the crude oil quality association and a few other
references I have in my presentation.

It’s all about networking. If you haven’t been through the process, it can be a
little cumbersome, but once you’ve done it a few times, it’s pretty easy.

Thank you for your time.

This was just a broad brush overview of crude assay, and crude oil
characterization.

Thanks again.