Crude Oil Blending James Ignatovich – Area Manager, WGC Intertek - Commodities Division total customer focus

Crude Oil Blending Transportation and Logistics Pipeline economics Quality Management total customer focus

1.Blending Heavy Crude for Pipeline logistics total customer focus

In-line blending for transportation Receiver (B) Density! Viscosity! Pour Point! Heavy crude (A) Light crude or other diluents $$$$ Heavy crude Horsepower Pipeline The efficiency of moving crude oil through this pipeline is totally dependent on some of its physical properties including DENSITY, VISCOSITY AND POUR POINT As the density increases so does the amount of horsepower required to push the crude through the pipeline….which will cost more on an incremental pipeline tariff! As the viscosity increases, the flow through the pipeline decreases and the pressure increases. All pipelines must operate under the Maximum Operating Pressure they are designed for, so it may not be possible to pump untreated high viscosity product at all. One solution is to acquire a light crude or another acceptable hydrocarbon that is readily accessible and use an inline blender to create a blend with a lower Density, Viscosity and Pour Point.

Heavy crude (A) In-line blending for transportation Receiver (B) Inline blender Light crude or other diluents Medium crude blend Density! Viscosity! Pour Point! $$$$ Pipeline One solution is to acquire a light crude or another acceptable hydrocarbon that is readily accessible and use an inline blender to create a blend with a lower Density, Viscosity and Pour Point. The problematic physical properties will now be eradicated and the blend will be easily pumped to the reciever.

2.Sharing a Common Pipeline total customer focus

Shared Pipeline blends Medium sour Common Carrier Sweet Sour $$$ Here you see three platforms all producing the same quality crude. It is all comingled and pumped to shore via a single pipeline. The allocations will only be based on metered volumes. Now let’s say wells with differing quality are drilled nearby…. A sweet crude well and a sour crude well are constructed close by Are the owners going to lay miles and miles of pipeline to keep the streams segregated? But what about the owners of the higher value stream? They will want to be compensated for the sweet product they are introducing to the system. No, they will connect to this common pipeline. And the owners of the lower value sour stream may not want to give up such compensation! One solution to the allocation of funds is to set up a quality bank that focuses on key quality parameters for the medium sour crude. Each quality parameter will set a benchmark for the value for the original crude. Using the benchmark value it can be calculated how much the sour crude is decreasing the streams value and the owner will be penalized. Likewise it can be calculated how much the sweet crude is increasing the value and the owner will be compensated.

3. Blending Crude Oil for Margin Optimization (Quality Management) total customer focus

total customer focus The “B” word…….Blending high quality crude oil with low quality crude oil in order to change the value of the product has been around for decades. It has been a taboo subject in years past and some of the crude oil blending that took place was very controversial resulting in what was known as “Dumb Bell” crudes. The industry standard for defining crude oil quality was by analyzing and measuring only two parameters, Gravity and Sulfur. Therefore the quality could be easily manipulated by blending a very heavy crude with a very light crude.

Historical and controversial dumb bell crude blending Heavy Sour Crude Condensate V Ni Fe Blending a heavy crude with a condensate would give a resulting blend that has Gravity and Sulfur parameters the same as a desirable sweet crude. But the other characteristics and parameters would be very different from a desirable crude oil….such as heavy metals!! As this blend passes through the refinery units the metals would deactivate or “poison” catalysts and upset other sensitive equipment The heavy and light product yields would be very high but the desirable middle distillate yields would be very low. Hence the term “Dumb bell” crude This did not fair well with refiners and because of this the COQA and other industry associations pushed for more parameters to be analyzed when defining the quality of crude oil.

Pipeline Specifications Pipeline crude sale specs TestUnitMinMax API: Sulfur: %Wt0.400 Light Ends:(C2-C5 total):%w/w6.0 Sim Dis: (1020+): %w/w MCRT: %Wt2.0 Metals: mg/kg8.0 TAN: mg KOH/g0.70 Virgin Sweet Medium Sour Heavy Sour LS Cond Here you can see a typical sweet crude pipeline spec taken from a public website. Along with the traditional Gravity and Sulfur we now have other specifications. The light ends and residue specs should eliminate “Dumb bell” crudes and the total metals spec (V, Ni & Fe) will stop heavy metals from poisoning the catalysts. There is also an acid number specification. Here you can see some typical results for a virgin sweet crude that meets spec along with other domestic and foreign crudes that do not meet spec. If a marketer has the use of a blending facility and has access to each of these crudes they can blend them together and still potentially meet all of the requirements of the pipeline and the refinery.

Tank blending Virgin Sweet 0.33% Sulfur $100 Virgin sweet 200MB SAH 38MB EIC 28MB MARS 6MB Pipeline Spec 0.4% Sweet Blend $100 Virgin crude oil available for the operation of supplying a 0.40% sulfur sweet crude blend through a pipeline. Target blend for contract sale

Tank blending Virgin Sweet 0.33% Sulfur $100 LS Cond 0.05% Sulfur $95 Virgin Sweet 200MB LS Cond 38MB EIC 28MB MARS 6MB 238MB Sweet light Blend 0.29% Pipeline Spec 0.4% Sweet Blend $100

Tank blending Virgin Sweet 0.33% Sulfur $100 LS Cond 0.05% Sulfur $95 Med Sour 1.00% Sulfur $90 Med Sour 28MB MARS 6MB 238MB Sweet light Blend 0.29% 266MB Sweet Blend 0.36% Pipeline Spec 0.4% Sweet Blend $100

Tank blending Virgin Sweet 0.33% Sulfur $100 LS Cond 0.05% Sulfur $95 Heavy Sour 1.90% Sulfur $90 Virgin Sweet 200MB Heavy Sour 6MB Common Carrier Medium Sour 1.00% Sulfur $90 $98.05/Bbl Gross profit $530k 266MB Sweet Blend 0.36% 272MB Sweet Blend Ready for Pipeline Pipeline Spec Sweet Blend $100

Tank Sampling. 300,000 Barrel Shore Tank 300,000 x 42 = 12,600,000 Gallons 12,600,000 x 4 = 50,400,000 quarts Here is a representation of a 300MB crude oil shore tank that our inspector would climb and take quart samples from each level (U/M/L) along with running averages. The samples would go back to our lab for testing. Based on the results the lab would produce a Report of Analysis for the whole tank based on that one quart sample. If this shore tank was to scale then this tiny, little dot would represent 1000 quarts of product. This means that the analysis we run is on a sample 1000 th the size of this dot…….. …..this shows how difficult it can be and how important it is to get good representative samples from a crude shore tank

A lot of pipelines converge at this area in the Midwest. At a little town called Cushing, OK. Known locally as the “Pipeline crossroads of the world”. The large crude oil terminal here has been upgraded and expanded (50M Bbls) recently for mass storage and blending of crude oil. Here is a map of the crude oil pipelines in North America.

total customer focus Intertek Crude Oil Laboratory, Cushing, OK Crude oil and fuel testing Intertek has committed to opening a full crude oil laboratory in Cushing, OK. Capabilities include almost all ASTM crude oil methods, including GC light ends & HTSD Metals by ICP, Nitrogen, Sulfur, Gravity, RVP, Chlorides and many, many more…. Opening March 2011

Questions? Bruce Carlile – James Ignatovich – Area Manager, WGC Intertek Commodities Division total customer focus