Authors: John Auers and Elizabeth Hilbourn
“None of you can make the grade” are the repeating lyrics of the angst fueled alternative rock band Placebo in their song “Bionic.” It is also a tune some aluminum producers are singing as shifts in the operations of some of their refiner suppliers negatively impact anode grade coke quality and/or volume. These shifts are taking place for a variety of reasons, most of which are region specific. In the U.S., the growth in Light Tight Oil (LTO) production and its increasing presence in the crude slates of refiners who produce anode grade coke is the biggest driver of these changes. In China, the world’s most important aluminum and by association, anode coke market, a restructuring of the industry and changes in refinery configurations are having the largest impacts on the anode coke market. Important developments are taking place in other regions around the world as well. Regardless of the reasons, a major trend that appears to be emerging is that anode grade coke production is not keeping up with demand and that this could lead to shortages in supply in the years to come. In order to provide a better understanding of these emerging supply and demand patterns, Turner, Mason & Company has teamed with AZ China and Cascade Resources, two well-respected consultants who specialize in the anode coke/aluminum markets, to develop a comprehensive deep-dive report titled, Anode Coke Outlook to 2025. This report has just been completed and becomes available today (September 1). In today’s blog, we provide some additional background on this study, along with a brief description of the analysis and forecasts contained in the report.
Anode grade petroleum coke is essential for making aluminum; however, production has not been rising fast enough recently to meet the increasing demand generated by growing aluminum production. The three study partners analyzed the drivers for this, and how it could play out in the future. Part of the data gathered for the report includes an exhaustive list of refineries around the world that produce anode grade coke and an analysis of how production at each of the facilities will change in the future. Detailed in the report is a five-year history and a ten-year forecast of anode code production for each anode coke producing refinery. The report looks at various factors that impact refinery production, including investment, changing crude slates, and new regulations. The forecast includes changes in the volume and quality of green coke which will be produced at each of the refineries.
Anode grade coke supply usually doesn’t change significantly year to year unless a new anode grade coker is built or an existing one is shut down. In the past, existing anode grade cokers have continued in the business of selling anode grade coke, operating their cokers accordingly and purchasing crude oil feedstocks to support anode grade coke. This philosophy is changing, however, as cheaper crudes such as LTO are available, which refiners are choosing and is resulting in a reduction in anode coke production. The demand for aluminum steadily increases but the forecasted supply of anode coke falls short. Changing world environmental regulations will put low sulfur crudes in higher demand.
A couple of blogs ago, in “All in the Family”- What is Happening with the Bunkers, we addressed the changing bunker fuel market. With the ramping down of sulfur in bunker fuel, the goal is to eliminate sulfur oxides and particulate matter pollution from ocean-going vessels. This is primarily achieved by lowering the maximum sulfur content of the bunker fuel used to power these vessels and pushing resid-based fuels out of the pool in favor of lighter and easier to desulfurize diesel. These regulations could also impact the anode coke market, as low sulfur crudes which are currently used to produce anode coke, could instead be diverted to make low sulfur bunker fuels in an environment where LS bunker prices increase in tandem with diesel prices. Other regulations, particularly those that impose costs on the delayed coking process could also impact anode coke production. Our report investigates all of these factors and others in analyzing future production levels.
Coking Units convert the heavier portion of the crude barrel to fractions that can be processed by other refinery units into transportation fuels. This process unit thermally cracks (breaks apart with heat) the large fuel oil molecules into smaller molecules can be converted to make gasoline, diesel and other products. Petroleum coke is a by-product of the coking process. When refineries do not have a coker unit, they sell the vacuum tower bottoms mixed with distillate streams to meet gravity and viscosity specifications as a No. 6 fuel oil or, in some cases, into asphalt. The majority of No. 6 fuel oil is sold into the bunker fuel market and some for electricity generation and numerous industrial applications. When the global bunker fuel specification changes from 3.5% S to 0.5% S in 2020, this will have a significant impact on the No. 6 fuel oil market. Many crudes can produce a resid which can meet the 3.5% sulfur specification, but few can meet the 0.5% sulfur specification.
The U.S. continues to lead the world in total coking capacity and is second only to India in coking capacity as a percent of crude unit capacity.
Coker capacity additions in the U.S. have been significant in recent decades, rising by 1.4 million BPD (a 101% increase) since 1987. This trend is also prevalent in India and China.
The three most important coke quality issues relating to the ability to produce anode grade coke are the level of sulfur, six metals (vanadium, nickel, iron, silicon, calcium, and sodium) and the structure meaning the coke should be sponge, not shot. These parameters are critical to the smelting of aluminum using electrolytic reduction cells or “pots” as they are commonly referred to in the aluminum industry. Low sulfur, metals and the proper Conradson Carbon to asphaltene ratio in the crude are prerequisites for anode grade coke production. In general, the crude must have a sulfur level below 1% and be lower in asphaltene in order to produce anode grade coke. The raw coke out of the coker is referred to as green coke. In this context, “green” means unprocessed. The green anode coke is calcined to remove residual volatile hydrocarbons and then baked to produce the anode coke. Approximately 80% of coke produced is high in sulfur and metals and sold as fuel grade coke. Fuel grade coke is used (as the name implies) for fuel, mainly for cement kilns and electric power plants. It is over 90% carbon and has higher energy content than coal.
Anode grade coke commands a significant premium over fuel grade coke, often at twice or more the price; however, coke is still a byproduct of refining. Crude oil is chosen on the most part in order to fill key refinery process units and to produce high value gasoline and diesel products. Anode crude production is often a secondary consideration in that low sulfur and metal crudes are chosen to be processed first, for the economics of filling the units and not exceeding sulfur plant limits. Sometimes a refinery will continually produce all anode coke in its Coker, but just as often a Coker will only intermittently produce anode coke and flip back and forth between anode and fuel grade. Often an upgrade on a Coker unit will change the refinery economics from anode grade to fuel grade. An example is Husky’s Lima, Ohio refinery where in 2018 they plan to install larger coke drums, which will allow for a higher throughput but, as a result, the crude slate will shift to heavier Canadian grades and yield only fuel grade coke.
Anode Coke Supply Outlook to 2025 and Beyond has just been completed and is available as a subscription product. This definitive study carries the most in-depth look at anode coke supply available today. To give you an idea of what areas are covered, we are making available a copy of the Table of Contents of the report. The attached PDF file also shows a list of the tables, figures and charts that will be in the report. Click here to see the Table of Contents and the list of charts and figures. If you would like more information about pricing or other details of the study, contact John Auers at Turner, Mason & Company (jauers@turnermason.com) or Paul Adkins at AZ China (paul.adkins@az-china.com).
Turner, Mason & Company monitors developments in all segments of the petroleum industry. We are in the business of analyzing downstream markets and assisting all segments of the oil industry in responding to changing market dynamics. In addition to Anode Coke Supply Outlook to 2025 and Beyond, we are also completing a comprehensive analysis of the changing dynamics in world crude oil markets, The Evolving New World Order. This is also a collaborative effort, as we have partnered with Schlumberger Business Consultants, combining their upstream expertise with our downstream coverage. This report will be available in mid-September and you can read our prospectus by clicking here. Our 2015 Mid-Year Update of the Crude and Refined Products Outlook was issued earlier this month. For more details about any of our publications, studies or other TM&C services, please visit our website, send us an email or give us a call.