WHEN you fill up at a petrol station, do you ever wonder how that RON 95 that you’re pumping is made?
Perhaps we had learned a little bit about how it was made when we were in school but that was quite some time ago, wasn’t it?
So, here’s a little refresher about how that black stuff pumped out of the ground (or seabed) is made into that stinky stuff that runs your car.
The process begins with exploration and building of an oil well or rig to access the crude oil. Once that crude oil is pumped out, it must first be transported and refined into petroleum products that have any value. Those products are then transported to end-users or retailers (petrol stations).
The supply chain for petroleum products is segmented into three major activities.
UPSTREAM ACTIVITIES
These involve exploration for crude oil deposits and also the production of crude oil. Examples of firms that would belong in the upstream segment of the industry include companies that own rights to drill for oil and companies that provide support services to the oil drilling industry, whether building oil rigs and pipelines, supplying components or services.
MIDSTREAM ACTIVITIES
These involve the distribution of crude oil to refiners, the refining of crude oil into saleable products and the distribution of products to wholesalers and retailers. Examples of firms that would belong in the midstream segment of the industry are companies that transport oil by pipeline, truck or barge and companies that refine crude oil.
DOWNSTREAM ACTIVITIES
These involve the retail sale of petroleum products. Petrol stations are perhaps the most visible downstream companies, but companies that deliver LPG or propane would also fall into this category.
Some companies in the petroleum industry have activities that are involved in upstream, midstream and downstream segments. Petronas and ExxonMobil are examples of such firms.
Others have activities that fall primarily into only one segment to support any of the other segments.
But we are concerned with the refiners who actually turn the crude oil into fuel for our vehicles.
Petroleum refineries are large-scale industrial complexes that produce petroleum products from crude oil. Virtually all refineries share two basic processes, which are distillation and cracking for separating crude oil into the various product components.
Actual refinery operations are very complicated and involve sophisticated machinery and engineering but a simplification of the processes is as follows;
• The first process is known as distillation, where the crude oil is heated and fed into a distillation column. As the temperature of the crude oil rises, it separates into different components called “fractions”. The fractions are then separated, although it is easier said than done.
Each fraction corresponds to a different type of petroleum product, depending on the temperature at which it boils off the crude oil mixture.
• The second process is known as cracking and reforming. The heaviest fractions, the gasoils and residual oils, are of lower value than the lighter fractions, so refineries go through a process called “cracking”.
Cracking breaks apart the molecules in these heavy fractions. This process will then produce some higher-value products.
Cracking is most often utilised to produce petroleum and jet fuel from heavy gasoils.
Reforming is typically utilised on lighter but lower-value fractions, again to produce more petroleum. The reforming process involves inducing chemical reactions under pressure to change the composition of the hydrocarbon chain.
Refineries are usually engineered to produce as much petroleum as possible, due to the high demand from the transportation sector.
All these processes, from upstream to end user, adds to the value (read; cost) of the final product - petroleum.
Since it is not possible to pump crude oil into your car directly (even if you had an oil well behind your house), the obvious fact is that the cost of a barrel of crude oil does not translate directly into the cost of petrol. From the captain of the oil tanker to the cashier behind the cash register, all have a vested interest in each litre of petrol you pump into your car.
In addition, nowadays a lot of petroleum is mixed, or rather, blended with ethanol to boost octane levels. Then, there are the various detergents and additives that make each fuel unique (and provide a Unique Selling Point for each brand). All these (plus advertising and promotion) add value and, therefore, cost to each litre of petrol.
Luckily for the petroleum companies, the market is largely a captive market. Well, at least until we find out how to run that Skyline on water and/or Teslas cost as much as a Proton Saga. Until then, we shall continue to pump that magic elixir that makes us go from 0-100kph in 3.8 seconds.