An oil refinery is a manufacturing facility that uses crude oil and other feedstocks as a raw material and produces a variety of refined products. The actual mix of refined products from a particular refinery varies according to the refinery's processing units, the specific refining process used, and the nature of the feedstocks.

Refinery processing units generally perform one of three functions:

Separation of the different types of hydrocarbons contained in the feedstocks. Conversion of separated hydrocarbons into more desirable or higher value products. Chemical treatment of the products to remove unwanted elements and contaminants such as sulphur, nitrogen and metals.

Refined products include propane and butane, gasoline, diesel fuel, jet fuel, furnace oil, heavy fuel oil, and lube stock.

Refining is primarily a margin based business in which feedstocks and refined products are commodities. Both crude oil and refined products in each regional market react to a different set of supply/demand and transportation pressures and refiners must balance a number of competing factors in deciding what type of crude oil to process, what kind of equipment to invest in, and what range of products to manufacture.

As most refinery operating costs are relatively fixed, the goal is to maximize the production of high value refined products and minimize crude oil feedstock costs. The value and yield of refined products are a function of the refinery equipment and the characteristics of the crude oil feedstock, while the cost of feedstock depends on the type of crude oil. The refining industry depends on its ability to earn an acceptable rate of return in its marketplace where prices are set by international as well as local markets. Over the long term, refining margins and crude oil prices are typically correlated as both are driven by the demand for refined petroleum products.

Until recently, global investment in refining capacity has been restrained as weak refining margins have not supported investment in either capacity increases at existing refineries or the construction of new refineries. From the early 1980's through the early 1990's, global refining capacity fell as uneconomic refineries were shut down in the face of low margins. Since then, global refining capacity has grown, predominantly through capacity creep.

Refining Margins

Refining margins or 'crack spreads' are terms used to describe a benchmark indication of the margins made by refiners. A common refining crack spread is called the 2:1:1, which mirrors the gross margin that would be realized by a refiner if they purchased two barrels of light, sweet crude oil (based on the benchmark West Texas Intermediate or WTI) as feedstock, and produced one barrel of gasoline and one barrel of diesel. Since sour crude oil traditionally sells at a discount to WTI, the margin for sour refiners tends to be more favorable and is called a "sour crack spread".

Examples of a 2:1:1 crack spread and a sour 2:1:1 crack spread are below, assuming a WTI oil price of US$90/barrel, a gasoline price of US$99 per barrel and a diesel price of US$114 per barrel.

North Atlantic is a sour refinery, so our feedstock costs are different from the 2:1:1, and our margins include more products than a 2:1:1 crack spread contemplates. Each barrel of sour crude oil that we process is refined into three different products, weighted approximately as follows: 32% gasoline, 41% diesel and 27% heavy fuel oil (which trades at a discount to WTI).

Liquid and non-liquid petroleum gas products (fuel gas, propane, butane) Light liquid products (naphtha) which are further upgraded in the naphtha hydrotreater and platformer for subsequent blending into gasoline Middle distillates (kerosene and diesel) which are produced from the middle of the distillation tower. Kerosene goes to either jet fuel blending, the distillate hydrotreater for Ultra Low Sulphur Diesel (ULSD) production, or No. 6 fuel blending. Diesel goes to the distillate hydrotreater for ULSD production Material remaining in the bottom of the crude distillation tower (atmospheric tower bottoms or ATBs) are sent to the vacuum tower for further separation.

The vacuum tower operates at less than atmospheric pressure and further fractionates the ATBs. Vacuum gas-oil (VGO) recovered from the vacuum tower is then routed to the Isomax (hydrocracker) to be upgraded primarily into naphtha, kerosene, and ultra-low sulphur diesel. The residual vacuum tower bottoms (VTBs) stream is routed to the visbreaker.

ISOMAX Hydrocracker:
The Isomax (a UOP licensed hydrocracking process) uses high heat and pressure to upgrade the VGO through catalytic hydrogenation. This process removes contaminants and produces naphtha for gasoline blending and platformer feed, ULSD and jet fuel. The Isomax fractionation bottoms (Frac Bottoms) are sold as a valuable lubricant feedstock.

Visbreaker:
The VTBs (asphalt-like product) are further processed in the visbreaker. The visbreaker uses high temperature to crack long chain molecules thereby reducing viscosity to meet the requirements for High Sulphur Fuel Oil (HSFO) blending.

Naphtha Hydrotreater, Platformer, and Platformate Hydrogenation:
The naphtha hydrotreater (NHT), uses hydrogen and catalyst to remove sulphur and nitrogen contaminants from the naphtha to enable it to be used as platformer feed. The platformer then converts the low octane naphtha into high octane platformate for use in gasoline blending. A portion of the platformate is further processed in the platformate hydrogenation unit (PHU). The PHU reduces the benzene content of the platformate allowing it to be blended into Reformulated Blendstock for Oxygenate Blended (RBOB) gasoline.

Distillate Hydrotreater:
The distillate hydrotreater operates at high pressure and uses hydrogen over a catalyst bed to remove nearly all of the sulphur and nitrogen from the middle distillates for the production of ULSD.

Crude oil and other feedstock and finished refined products from the various processing units are temporarily stored in designated tanks. North Atlantic has storage capacity for approximately seven million barrels of crude oil and refined product. This storage capacity is allocated approximately 50 per cent crude oil feedstock and 50 per cent refined products.

Refined products are ultimately shipped by vessel for delivery to the United States Atlantic Coast market, including Boston and New York City, and Europe. These markets account for approximately 90 per cent of the refinery's production, and the balance is sold through North Atlantic's branded and unbranded distribution and marketing network in Newfoundland.