Why don't they refine oil at the wells, before shipping it?

Factual Questions
1

If I understand the refining process correctly, a given batch of crude oil has a specific, set proportion of the various useful petroleum products. A given country may need these products in a quite different proportion. By waiting to refine the oil until it reaches the destination country, doesn’t that create a system of surpluses and deficits in particular products?

It seems like it might make more sense to refine it into however many products closer to the drill site. Then countries could buy the specific products they need and have them shipped directly to them. Which would be more efficient. Now obviously, this is a multi-billion dollar industry and their current method is probably the most efficient way. So what’s wrong with doing the refining before shipment?

2

Refineries are billion dollar monster facilities. Oil wells are geographically dispersed, often in remote, hard to get to locations. Doesn’t make sense to build expensive refineries and then abandon them when a well dries up. Further, if you do refine your crude oil into multiple products, you’d need multiple pipelines to carry them. So logistically and economically, it makes sense to centralize the refining process.

3

There are several factors: some of the major oil-producing states are on occasion unfriendly to the United States, the largest oil consumer. It would be a shame for Texaco to spend $500 million on a refinery in the Asir Province of Saudi Arabia, only to have the Saudi government nationalize it the day after it opened. Sure, Texaco would get compensation, as long as they were willing to wait twenty years.

As for why the Saudis don’t establish their own refinery network, it’s a mix of economic, technological and political factors, one of which is not to provoke an arms race among OPEC members. The OPEC statute, Chapter II (Membership), Article 7, Paragraph C, states

“Similar interests” include a low desire to become a refining nation. If the Saudis started producing cheap refined oil for export, it would force the Iranians, Iraqis (once the various embargos are lifted), Nigerians, Kuwaitis etc to do the same. The net effect would be that everyone has to spend a whole lot of money on infrastructure and nobody ends up making that much more money.

The more industrialized non-OPEC oil states like Canada and Norway do have refinery installations of their own, though for export (mostly to the U.S.), it’s easier to send crude and let the receiver refine it. The refining industry in the U.S. is a major Union (and voter) stronghold and an American oil company that tried to set up cheaper refining operations abroad would face major political and employee flak.

4

  1. Oil refineries are huge plants. Come visit Houston some time and you can see for yourself. They require lots of specialized equipment, and that gets expensive. First, expensive to locate where you want the plant and build and maintain it, and second, to move when you go to a new drill site.

  2. Refineries require people to run the plants. Lots of people. That requires towns to provide the infrastructure. So now you’re building towns at the drill sites to run for a few years, then close down. Right.

  3. Once you refine it, you have to move it elsewhere. That requires different facilities to move the different products. Either multiple pipelines, or lots of trucks on different rigs. Ergo, cheaper and easier to move over long distances (like Alaska to the lower states) crude.

  4. Companies can sell some products in one country, and other products in other countries. It’s called global markets.

5

  1. Oil refineries are huge plants. Come visit Houston some time and you can see for yourself. They require lots of specialized equipment, and that gets expensive. First, expensive to locate where you want the plant and build and maintain it, and second, to move when you go to a new drill site.

  2. Refineries require people to run the plants. Lots of people. That requires towns to provide the infrastructure. So now you’re building towns at the drill sites to run for a few years, then close down. Right.

  3. Once you refine it, you have to move it elsewhere. That requires different facilities to move the different products. Either multiple pipelines, or lots of trucks on different rigs. Ergo, cheaper and easier to move over long distances (like Alaska to the lower states) crude.

  4. Companies can sell some products in one country, and other products in other countries. It’s called global markets.

6

We don’t want that since it would allow price manulipiation of individual petro products. Also I have to think safty is a factor as in is safer to transport crude then gasoline.

7

Why not make cornflakes in a corn field? :wink:

8

Having designed and worked in Refineries before, I think, even if we “owned” all the oil wells (onshore and offshore), this is not practical because of the economics. It takes less capital and operating costs to bring in and refine crude at a central location.

This page (http://www.eia.doe.gov/kids/non-renewable/refinery.html) gives a layman’s introduction to refining.

Refining provides a whole lot of feedstocks for downstream processing. A few examples may be ethylene (for making polyethylene), propylene (polypropelene), Naphtha (Either Naphtha or Natural Gas is used to make Hydrogen, which is in turn used to make Ammonia which is inturn used to make Urea or associated fertilizers, Benzene/Toluene/Xylene Aromatics - for polymers and pharma … There are a range of products from pharmaceuticals and cosmetics, to fuels and polymers feedstocks which are catered to by the refinery.

The biggest unit in the Refinery is the CDU (Crude Distillation Unit) which is the originator of all products followed by the Vacuum Distillation Unit (VDU). These just do separtions whereas units following this have reactions happening in them (hydrogenation, aromatization, alkylation, …).

Refineries generate products depending on the demand. It can be shifted to generate more gasoline or more diesel with the same amount of crude.

A very important factor with crudes is their sourness (sulfur content). Sulfur is a big problem - not only because of pollution problems, but also due to corrosion and catalyst poisoning. Hence, a crude with higher sulfur content will need the refinery to make changes before it can accept it.

Another important factor may be safety. Downstream petrochemical plants are located near the refineries for safe transportation requirements. Once you make ethylene in a refinery, you have to liquify it (@ -104 °C) to transport it over long distances. And hydrogen is most dangerous to transport.

Even NASA (Florida) has a big problem getting their 100 odd tons of Hydrogen from New Orleans.

Thats more info than desired, I guess :).

9

Another WAG is that you have to ship all of the cracked components separately, be it in pipelines, trucks, etc. Much easier to pipe lots of wells into a central refinery and ship it from there instead of having seven different pipes coming from every well.