Discussion on the calculation of refining processing cost indicators

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Discussion on the Calculation of Refining Processing Cost Indicators Cao Dongxue (Refining Division, Sinopec Corporation, Beijing, 100029) Guo Wenhao (Energy Conservation Technology Center, Sinopec Group, Luoyang, 471003) Editor’s Note Mr. Cao Dongxue and Mr. Guo Wenhao have proposed improvements to the methods used for calculating refining processing costs, suggesting that the consumption of energy generated internally should also be taken into account. This would enable a more accurate assessment of a plant’s energy consumption levels and help identify its potential for energy savings. Regarding this view, differing opinions emerged during the process of having relevant experts review it for this journal; now we are publishing it in its entirety in order to draw the attention of relevant professionals and management, so that thorough discussions can take place. As the old saying goes, “Like cutting and filing, like carving and polishing” – a method can only be improved gradually through continuous cutting, filing, carving, and polishing. It is hoped that, by taking into account the actual conditions at home and abroad and through discussion, all parties can reach a consensus to make this calculation method more standardized and continuously improved. Abstract: An analysis of current refining processing cost indicators reveals that they fail to accurately reflect the actual consumption during the processing stage without including the costs associated with energy produced internally, which accounts for a significant proportion; therefore, improvements are necessary. The calculation methods and pricing principles for the cost of self-produced energy were discussed; that is, all energy consumed in the refining process should be priced at its selling price, while the price of energy not sold externally should be determined based on the price of equivalent alternative energy sold on the market. Currently, the prices of fuel gas and catalytic coking in China can be set at the level of the price of fuel oil with an equivalent heat value. An example shows that once the indicators for refining costs are improved, domestic refineries have the potential to save 20 yuan in energy costs per ton of crude oil processed. Keywords: refining processing cost, indicators, calculation, improvement. 1. Problem statement: In the current method of calculating the individual components of refining processing costs in existing refineries, depreciation costs account for the largest proportion, while energy consumption costs, which should constitute the largest share of refining processing costs, only account for 18.1% (see Table 1). The reason is that the energy cost includes only the cost of energy purchased by the refinery; the cost of energy produced internally is not taken into account, but is instead reflected in the decrease in sales revenue resulting from the drop in the overall product yield. Table 1: Current status of processing costs at a certain refinery
Item, Processing cost per ton‑1 in yuan, Percentage (%)
Auxiliary material costs: 18.5, 10.7
Energy consumption costs: 31.2, 18.1
Wages and additional expenses: 6.0, 3.5
Depreciation costs: 57.6, 33.4
Repair costs: 24.3, 14.1
Other manufacturing costs: 7.9, 4.6
Administrative expenses: 12.5, 7.3
Financial expenses: 4.8, 2.8
Sales expenses: 9.5, 5.5
Total: 172.3, 100
Using this calculation method, even if energy consumption during the processing is high, as long as more self-produced energy is utilized, the processing costs in refining can still remain at a high level. As shown in Table 1, when the required energy is fully self-sufficient, the refining cost drops to an unreasonable level of 141.1 yuan per ton. At this point, although the energy consumption costs are high, they are included in the revenue from product sales, and thus appear insignificant compared to the \"huge\" revenue generated from those products. In this way, the energy consumption costs, which should account for the largest share of the refining costs and can generally be reduced through efforts, are hidden. As can be seen from the above, the current calculation method for refinery processing costs distorts the proportions of various components, reduces the comparability of this indicator, and also hides the potential for energy savings, which hinders efforts to reduce energy consumption costs. Therefore, it is unreasonable and improvements are necessary. 2 Improvement of the method for calculating refining costs. The aim of improving this method is to ensure the completeness and scientific accuracy of the indicators, thereby reflecting accurately all the costs involved in the refining process. Therefore, the energy consumption cost, which accounts for a large proportion of the refining costs, must be fully included. During the oil refining process, the amount of various energy sources consumed is fixed; once the price of these energy sources is known, it is possible to calculate the total cost of oil refining accurately. This is the key to improving the calculation of this indicator. The energy consumed in the oil refining process includes purchased energy and energy generated internally. The price of purchased energy is the market price, and energy consumption costs are easy to calculate ； As for self-generated energy, since it is not traded on the market, the cost of energy consumption depends on the method used to determine its price. Solomon Company believes that all energy consumed in the refining process should be priced at the selling price. The author agrees with this pricing method, as when the energy produced is insufficient or in excess, it is necessary to exchange it in the market, and market prices must be followed; therefore, the price of the energy produced is actually the selling price of that energy in the market. The primary and secondary energy sources produced by refineries mainly include steam, electricity, fresh water, fuel oil, fuel gas, and catalytic coking. The first four can be exchanged in the market; just use the market price. The latter binomial portion, in whole or in part, cannot be exchanged in the market and is non-marketable energy; therefore, its pricing principles need to be established. In the actual oil refining process, when the amount of energy not sold externally changes, it inevitably leads to a change in the equivalent amount of energy sold externally. If internal energy supply is sufficient, an equivalent amount of external energy with the same energy value can be substituted ； When non-saleable energy is insufficient, it is supplemented by saleable energy of equivalent energy. Therefore, the price of non-marketed energy is the price of marketable energy that can serve as an equivalent substitute, thereby reflecting the true value of non-marketed energy. Currently, in refineries, fuel gas and catalytic cracking are primarily used to heat process streams, provide the heat required for reactions, and generate steam. In the absence of fuel gas and catalytic cracking, fuel oil is used as an alternative energy source; therefore, the price of fuel gas and catalytic cracking is equal to the price of fuel oil with an equivalent calorific value. Some enterprises have already implemented or are preparing to implement projects to replace oil with coal (coke), with the main goal of using coal (coke), which is inexpensive, readily available, or easy to obtain, as a substitute for fuel oil in order to reduce fuel costs. Even at this time, the prices of fuel gas and catalytic coking should be consistent with the market price of fuel oil. Since coal (coke) replacing oil is primarily used to substitute for the fuel required in power boilers or cogeneration systems, its benefits lie in reduced refining costs resulting from lower prices of equivalent energy fuels ； Fuel gas is primarily used to heat process streams in process furnaces, and it is difficult to replace it with coal (coke) ； Catalytic coking is primarily used to provide the reaction zone with the necessary temperature and heat; if the heat generated by coking is insufficient, fuel gas (oil) must be used to raise the temperature of the feedstock, or fuel oil must be injected into the regenerator. 3 Examples and Analysis: The energy consumption per ton of crude oil processed by the refinery, as well as the prices and various costs, are shown in Table 1; these details are presented in Table 2. The calculation of the total processing cost considering self-used energy is shown in Table 3. Among them, the energy consumption cost increased from 31.2 yuan/t to 135.7 yuan/t, while the refining processing cost rose from 172.3 yuan/t to 276.8 yuan/t, an increase of 60.7%. Energy consumption costs account for the largest share, at 49%; depreciation costs come in second at 20.8%, while the remaining items together make up 30.2%. Table 2: Cost components for the complete processing of one ton of crude oil in a certain refinery
Energy consumption per ton of crude oil; Energy price/rMB·t⁻¹; Cost of energy consumption per ton of crude oil/rMB
Fuel/kg: 351, 371; 48.0
Catalytic coking/kg: 251, 371; 34.3
Electricity/kW·h: 670.5 * 33.5 = 1.0
Steam/t: 0.0868 * 0.9 = 0.08
Fresh water/t: 7.2 * 1.8 = 13.0
Total: 135.7
The price of electricity is 0.5 rMB/kW·h.

Table 3: Components of the total processing cost in a certain refinery
Cost per ton of crude oil/rMB·t⁻¹; Percentage (%)
Cost of auxiliary materials: 18.5, 6.7
Cost of energy consumption: 135.7, 49.0
Wages and additional expenses: 6.0, 2.2
Depreciation costs: 57.6, 20.8
Repair costs: 24.3, 8.8
Other manufacturing costs: 7.9, 2.9
Administrative expenses: 12.5, 4.5
Financial expenses: 4.8, 1.7
Sales expenses: 9.5, 3.4
Total: 276.8, 100%
Using the improved method for calculating refining costs, the cost of energy consumption becomes the largest component among them, and this result reflects the actual situation quite accurately. Moreover, once energy consumption costs become the biggest factor affecting refining costs, it draws significant attention from various management levels, and analysis reveals the potential to reduce energy consumption within refining costs. Let’s continue to use the aforementioned refinery as an example for analysis. The comprehensive energy consumption of this refinery is 3,634 MJ/t (86.8 kg of standard oil per ton), with the cost of energy consumption per kilogram of standard oil being 1.56 yuan. The overall energy factor for the refinery is 6.626, resulting in an energy consumption per unit of energy factor of 548.46 MJ/(t.Ef). In terms of the most comparable unit energy factor for energy consumption, this refinery lags significantly behind the best domestic value of 460.5 MJ/(t.Ef). If the energy consumption of this refinery reaches the advanced level in China, the overall energy consumption will decrease by 582 MJ/t, reducing the processing cost per ton of crude oil by 21.7 yuan, indicating significant potential for reduction. Since the energy consumption of this refinery is at the national average, the extent of reduction in its refining costs corresponds to the national average energy-saving potential. Based on these results, energy conservation remains a highly worthwhile endeavor, with significant potential for improving efficiency. At the same time, it also illustrates the necessity of improving the refining processing cost indicator. 4 Conclusions (1) Currently, the domestic refining cost indicators do not include the cost of self-produced energy, which distorts the proportion of various cost components and hides the potential for energy savings; therefore, they are unreasonable and should be revised and improved. (2) The cost of self-produced energy depends on the determination of the price of self-produced energy. All energy consumed in the refining process should be priced at the selling price, and the price of energy used for internal purposes should be the same as the price of equivalent alternative energy sold on the market. Currently, the prices of fuel gas and catalytic coking in China should be set at the level of the price of fuel oil with an equivalent calorific value. (3) The revised refining processing cost index reasonably reflects various influencing factors, with energy consumption costs being the primary factor. Currently, domestic refineries have a potential to save 20 yuan in energy costs per ton of crude oil processed.