Houston Refining
Encyclopedia
Houston Refining formerly known as Lyondell-Citgo Refining (or LCR). The 270200 oilbbl/d (July, 2007) refinery is located on the Texas Gulf Coast in Houston, covering nearly 700 acres (2.8 km²) along the Houston Ship Channel
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In 1969 Sinclair Oil was acquired by Atlantic Richfield (Arco). Although Arco was primarily an oil company, the company realized the potential synergies between the Houston refinery and a chemicals complex it owned in nearby Channelview, Texas. To take advantage of this, Arco invested in a major expansion of the refinery that was completed in 1976 and that enabled it to process heavy sour crude to produce refined products and chemical plant feeds. At the same time, two world-scale ethylene crackers were built at the Channelview complex that were capable of processing naphtha and heavier liquids from the refinery.
By the early 1980s, however, the commodity chemicals business entered a prolonged period of oversupply, and the performance of Arco's Houston area assets began to decline. In addition, Arco's strategic planning group in Los Angeles, headed by Dr. Bob Gower, developed a long-range forecast calling for a decline in the price of crude oil. At the time Arco was in a bidding war with Chevron for Gulf Oil, but the crude oil price forecast made that acquisition look increasingly less favorable. Adding to the uncertainty was the value of Gulf's chemical assets.
Bob Gower's planning group was then tasked with the job of finding a way to either sell, spin off or shut down the Houston assets, which were losing on the order of $100 million per year by 1984. Instead Gower proposed a radical plan to combine the chemical plant and refinery into a single business unit that would take advantage of operational synergies and other opportunities to return to break-even performance. With nothing to lose, Arco approved Gower's plan and Lyondell Chemical became a wholly owned subsidiary of Arco on April 15, 1985, with Bob Gower as its president.
Arco itself also undertook a major restructuring in 1985, which included taking a $900 million write-off of the Houston area assets of what was now Lyondell Chemical. Even with the write-off Lyondell continued to lose money in 1985, albeit at a greatly reduced rate, and by early 1986 the company began to return to profitability. Aided in part by the writedown, profits for 1986 and 1987 averaged in the range of $120 million, and as the chemical cycle began an upswing in 1988 the company began seeing profits of $10–20 million per month.
Seizing an opportunity to cash out at the top of the cycle, in mid-1988 Arco decided to offer 50.1% of Lyondell Chemical to the public via an initial public offering (IPO). To ensure that the offering was fully subscribed, Arco also promised that Lyondell would pay out all cash flow in excess of capital needs in the form of special dividends to the shareholders. Arco was initially able to sell approximately 53% of its stake when the IPO occurred in January 1989; however the price quickly fell below the IPO price and Arco was forced to repurchase some of the shares which resulted in giving Arco a 49.9% interest in the Houston refinery and the other Houston area assets.
Part of Lyondell's strategy from the start was to operate as a merchant refiner. This meant that even as a wholly owned subsidiary the company was not obligated to purchase crude oil from the Arco parent, nor was it required to sell product to Arco's refined products marketing organization. However, the lack of long-term crude supply contracts meant that the company was subject to dramatic swings in the cost of raw materials and refined products. Initially the company tried to manage this risk though a hedging strategy based on crude and refined product derivatives contracts, but when this proved to be unsuccessful company planners began to investigate the sale of the Houston refinery.
In early 1990 Lyondell began talks with several interested parties regarding the sale of the Houston refinery. These talks progressed throughout the spring and summer of 1990 with several potential buyers including representatives of several mid-east oil companies. However the Iraqi invasion of Kuwait in August 1990 and the subsequent uncertainty in the global petroleum markets damped interest in the refinery and Lyondell was forced to end discussions regarding its sale.
Prior to the IPO, Lyondell's refinery evaluations team had been engaged in a project to negotiate a long-term crude supply agreement (CSA) with a major oil producer. This project was shut down when Arco decided to take Lyondell public, but when the refinery sale project ended interest in a long-term CSA was revived. Earlier discussions had indicated that in addition to locking in a guaranteed source of crude there was an opportunity to expand the refinery's heavy crude processing capability.
Petroleos de Venezuela, S.A. (PDVSA) was one of the two producers who participated in the earlier study. In a two-part transaction, Lyondell negotiated a 25-year CSA with PDVSA to supply 240 MBD of heavy Venezuelan crude to the refinery, and PDVSA's wholly owned U.S. subsidiary Citgo
agreed to invest in the refinery expansion project in exchange for partial ownership of the refinery. Initially estimated to cost $500 million, the refinery expansion project would eventually top $1.2 billion and lead to some acrimonious relationships between Lyondell and Citgo.
In 1993 CITGO entered into a joint venture agreement with Lyondell Chemical to form the Lyondell-CITGO Refinery Company in Houston; of which Lyondell owned 58.75 percent and CITGO owned the remaining 41.25 percent.
On Aug. 16, 2006, Lyondell Chemical Company
bought CITGO's share, and as a result, Houston Refining became a wholly owned subsidiary of Lyondell.
and low-sulfur diesel, as well as other products such as jet fuel
, heating oil
, lubricants, petroleum coke
and aromatics. It also has the ability to transform Light Sweet Crude into Naphthenic Lube Oils, as well as treat White Oils in its Lube Oil Complex.
Houston Ship Channel
The Houston Ship Channel, located in Houston, Texas, is part of the Port of Houston—one of the United States's busiest seaports. The channel is the conduit for ocean-going vessels between the Houston-area shipyards and the Gulf of Mexico.-Overview:...
.
History
The origins of Houston Refining date to 1918 when Harry Sinclair (Sinclair Oil) began building a battery still on the site. As the refinery grew, additional processing units were built to produce lubricants and aromatic chemicals, and with the addition of the fluid catalytic cracker in 1952 and the 736 coker in 1968 the refinery emerged as one of the earliest full-conversion refineries on the Texas Gulf Coast.In 1969 Sinclair Oil was acquired by Atlantic Richfield (Arco). Although Arco was primarily an oil company, the company realized the potential synergies between the Houston refinery and a chemicals complex it owned in nearby Channelview, Texas. To take advantage of this, Arco invested in a major expansion of the refinery that was completed in 1976 and that enabled it to process heavy sour crude to produce refined products and chemical plant feeds. At the same time, two world-scale ethylene crackers were built at the Channelview complex that were capable of processing naphtha and heavier liquids from the refinery.
By the early 1980s, however, the commodity chemicals business entered a prolonged period of oversupply, and the performance of Arco's Houston area assets began to decline. In addition, Arco's strategic planning group in Los Angeles, headed by Dr. Bob Gower, developed a long-range forecast calling for a decline in the price of crude oil. At the time Arco was in a bidding war with Chevron for Gulf Oil, but the crude oil price forecast made that acquisition look increasingly less favorable. Adding to the uncertainty was the value of Gulf's chemical assets.
Bob Gower's planning group was then tasked with the job of finding a way to either sell, spin off or shut down the Houston assets, which were losing on the order of $100 million per year by 1984. Instead Gower proposed a radical plan to combine the chemical plant and refinery into a single business unit that would take advantage of operational synergies and other opportunities to return to break-even performance. With nothing to lose, Arco approved Gower's plan and Lyondell Chemical became a wholly owned subsidiary of Arco on April 15, 1985, with Bob Gower as its president.
Arco itself also undertook a major restructuring in 1985, which included taking a $900 million write-off of the Houston area assets of what was now Lyondell Chemical. Even with the write-off Lyondell continued to lose money in 1985, albeit at a greatly reduced rate, and by early 1986 the company began to return to profitability. Aided in part by the writedown, profits for 1986 and 1987 averaged in the range of $120 million, and as the chemical cycle began an upswing in 1988 the company began seeing profits of $10–20 million per month.
Seizing an opportunity to cash out at the top of the cycle, in mid-1988 Arco decided to offer 50.1% of Lyondell Chemical to the public via an initial public offering (IPO). To ensure that the offering was fully subscribed, Arco also promised that Lyondell would pay out all cash flow in excess of capital needs in the form of special dividends to the shareholders. Arco was initially able to sell approximately 53% of its stake when the IPO occurred in January 1989; however the price quickly fell below the IPO price and Arco was forced to repurchase some of the shares which resulted in giving Arco a 49.9% interest in the Houston refinery and the other Houston area assets.
Part of Lyondell's strategy from the start was to operate as a merchant refiner. This meant that even as a wholly owned subsidiary the company was not obligated to purchase crude oil from the Arco parent, nor was it required to sell product to Arco's refined products marketing organization. However, the lack of long-term crude supply contracts meant that the company was subject to dramatic swings in the cost of raw materials and refined products. Initially the company tried to manage this risk though a hedging strategy based on crude and refined product derivatives contracts, but when this proved to be unsuccessful company planners began to investigate the sale of the Houston refinery.
In early 1990 Lyondell began talks with several interested parties regarding the sale of the Houston refinery. These talks progressed throughout the spring and summer of 1990 with several potential buyers including representatives of several mid-east oil companies. However the Iraqi invasion of Kuwait in August 1990 and the subsequent uncertainty in the global petroleum markets damped interest in the refinery and Lyondell was forced to end discussions regarding its sale.
Prior to the IPO, Lyondell's refinery evaluations team had been engaged in a project to negotiate a long-term crude supply agreement (CSA) with a major oil producer. This project was shut down when Arco decided to take Lyondell public, but when the refinery sale project ended interest in a long-term CSA was revived. Earlier discussions had indicated that in addition to locking in a guaranteed source of crude there was an opportunity to expand the refinery's heavy crude processing capability.
Petroleos de Venezuela, S.A. (PDVSA) was one of the two producers who participated in the earlier study. In a two-part transaction, Lyondell negotiated a 25-year CSA with PDVSA to supply 240 MBD of heavy Venezuelan crude to the refinery, and PDVSA's wholly owned U.S. subsidiary Citgo
Citgo
CITGO Petroleum Corporation is a United States-incorporated, Venezuela-owned refiner, transporter and marketer of transportation fuels, lubricants, petrochemicals and other industrial products. The company is owned by PDV America, Inc., an indirect wholly owned subsidiary of Petróleos de...
agreed to invest in the refinery expansion project in exchange for partial ownership of the refinery. Initially estimated to cost $500 million, the refinery expansion project would eventually top $1.2 billion and lead to some acrimonious relationships between Lyondell and Citgo.
In 1993 CITGO entered into a joint venture agreement with Lyondell Chemical to form the Lyondell-CITGO Refinery Company in Houston; of which Lyondell owned 58.75 percent and CITGO owned the remaining 41.25 percent.
On Aug. 16, 2006, Lyondell Chemical Company
Lyondell Chemical Company
LyondellBasell Industries is a public multinational chemical company based in Rotterdam, Netherlands. It was formed in December 2007 by the acquisition of Lyondell Chemical Company by Basell Polyolefins for $12.7 billion. LyondellBasell was listed on the New York Stock Exchange on October 14, 2010...
bought CITGO's share, and as a result, Houston Refining became a wholly owned subsidiary of Lyondell.
Products
The refinery has the ability to transform heavy, high-sulfur crude oil into fuels such as reformulated gasolineGasoline
Gasoline , or petrol , is a toxic, translucent, petroleum-derived liquid that is primarily used as a fuel in internal combustion engines. It consists mostly of organic compounds obtained by the fractional distillation of petroleum, enhanced with a variety of additives. Some gasolines also contain...
and low-sulfur diesel, as well as other products such as jet fuel
Jet fuel
Jet fuel is a type of aviation fuel designed for use in aircraft powered by gas-turbine engines. It is clear to straw-colored in appearance. The most commonly used fuels for commercial aviation are Jet A and Jet A-1 which are produced to a standardized international specification...
, heating oil
Heating oil
Heating oil, or oil heat, is a low viscosity, flammable liquid petroleum product used as a fuel for furnaces or boilers in buildings. Home heating oil is often abbreviated as HHO...
, lubricants, petroleum coke
Petroleum coke
Petroleum coke is a carbonaceous solid derived from oil refinery coker units or other cracking processes. Other coke has traditionally been derived from coal....
and aromatics. It also has the ability to transform Light Sweet Crude into Naphthenic Lube Oils, as well as treat White Oils in its Lube Oil Complex.
Capacity
- Crude run capacity: 268000 oilbbl/d
- Gasoline: 120000 oilbbl/d
- Diesel: 95000 oilbbl/d
- Sweet Crude run Capacity: 7000 oilbbl/d
- Naphthenic Lube oils: 3600 oilbbl/d
- White Oil: 850 oilbbl/d