Refining and Sales

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 Petroleum is essentially a mixture of hydrocarbons, and hydrocarbons containing small quantities of oxygen, sulfur, nitrogen, vanadium, nickel, and chromium.  The hydrocarbons present in crude petroleum are classified into three general types:

Crude Oil Fundamentals

1. paraffins, 2. naphthenes, and 3. aromatics.

 In addition, there is a fourth type, olefins, that is formed during processing by the dehydrogenation of paraffins and naphthenes. Elemental Composition of crude oil

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Paraffins, Naphthenes,Olefins & Aromatics

Element Carbon Hydrogen Sulfur Nitrogen

% wt 84–87 11–14 0–3 0–0.6

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3.1 Crude Oil Properties  Crude petroleum is very complex so no attempt is made by the refiner to analyze for the pure components it containes.  Relatively simple analytical tests are run on the crude and the results of these are used with empirical correlations to evaluate the crude oils as feedstocks for the particular refinery.  Each crude is compared with the other feed stocks available and, based upon the operating cost and product realization, is assigned a value.

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CRUDE OIL CHARACTERISTICS Sweet or sour & TAN

Crude Oil Characteristics API

 Sulfur content measures if a crude is sweet (low sulfur) or sour (high sulfur)

 Crude density is commonly measured by API gravity as it provides a relative measure of crude oil density.  The higher the API number, the lighter the crude  Classified as light >34, medium 24 – 26, or heavy 0.7  Acidic crudes highly corrosive to refinery equipment

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Characterization Factors

Salt Content or BS&W

 There are several correlations between yield and the aromaticity and paraffinicity of crude oils, but the two most widely used are the

 If the salt content of the crude, when expressed as NaCl, is greater than 10 lb/ 1000 bbl (approximately 30 ppm), it is generally necessary to desalt the crude before processing.  If the salt is not removed, severe corrosion problems may be encountered.

UOP or Watson ‘‘characterization factor’’ (KW) 1

K = TG

3 B

w

U.S. Bureau of Mines ‘‘correlation index’’ (CI). CI =

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87 ,552  473.7G  456.8 TB

where TB = mean average boiling point, °R G = specific gravity at 60°F.

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Distillation Range D86

Watson characterization factor

 KW < 10 aromatic materials  KW 10 to 12 highly naphthenic  KW 12 to 15 highly paraffinic compounds.

The boiling range of the crude gives an indication of the quantities of the various products present.

The correlation index The lower the CI value, the greater the concentrations of paraffin hydrocarbons in the fraction; The higher the CI value, the greater the concentrations of naphthenes and aromatics.  04:49 12:33

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Crude oil quality by types

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Uses of Crude oil

 In general, the products which dictate refinery design are LPG, gasoline, diesel, jet fuel, and home and industry heating oils.  Storage and waste disposal are expensive, and it is necessary to sell or use all of the items produced from crude oil even if some of the materials, such as high sulfur heavy fuel oil and fuel grade coke, must be sold at prices less than the cost of the crude oil.  Economic balances are required to determine whether certain crude oil fractions should be sold as is (i.e., straight run) or further processed to produce products having greater value.

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 Usually the lowest value of a hydrocarbon product is its heating value or fuel oil equivalent (FOE).  This value is always established by location, demand, availability, combustion characteristics, sulfur content, and prices of competing fuels.  Knowledge of the physical and chemical properties of the petroleum products is necessary for an understanding of the need for the various refinery processes.  To provide an orderly portrayal of the refinery products, they are described in the following paragraphs in order of increasing specific gravity and decreasing volatility and API gravity.

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The Standard oil blue barrel • The Standard barrel of crude

(abbreviated bbl) is 42 US gallons (158.9873 L). • This measurement originated in the early Pennsylvania oil fields is based on the old English wine measure, the tierce. • Earlier, another size of whiskey barrel was the most common size; this was the 40 US gallons (151.4 L) • In 1866 the oil barrel was standardized at 42 US gallons.

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Refining Technology Basic Refining Concepts

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What’s in a Barrel of Crude Oil? • Refineries upgrade crude oil to higher value products

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Types of Refinery Processes 1. Physical Separation Processes  Distillation/Fractionation  Extraction

2. Chemical Processes  Cracking/Conversion  Combination/Reformulation  Hydrotreating

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Refinery Configuration Overview 1. Topping – Simple crude separation, no ability to change yield and quality 2. Hydroskimming – Simple crude separation, no ability to adjust yield. Can increase octane, lower sulfur 3. Conversion – Yield adjustment capability and quality improvement 4. Deep Conversion – Large yield/quality flexibility, fuel oil minimization. 12:33

Refinery type/ Complexity

Crude Oil Characteristics - Yield Light & Heavy Crude Yield vs. Product Demand

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Simple crude separation, no ability to change yield and quality

Simple crude separation, no ability to adjust yield. Can increase octane & lower sulfur

Reformer Naphtha is catalytically processed and reformed to High octane Reformate.

Diesel Hydrodesulfurization (HDS) Sulfur is catalytically removed in the presence of hydrogen 12:33

Conversion Refinery Catalytic Cracking (FCC)

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– Large yield/quality flexibility, fuel oil minimization

Fluid Catalytic Cracking (FCC) Makes gasoline out of vacuum gasoil (a stream heavier than diesel). Using intense heat (about 1,000 deg F), low pressure and a powdered catalyst, the cat cracker converts heavy fractions into smaller gasoline molecules Product streams typically have high sulfur content

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Alkylation

Diesel HDS and Aromatic

Combines FCC gas propylenes / butylenes) with isobutane to produce a high octane stream called alkylate.  Catalyst is sulfuric or hydrofluoric acid Alkylate is an excellent diluent for other gasoline blending components

 Saturation

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Deep Conversion Refinery Catalytic Cracking, Coking & Hydrocracking

Necessary for FCC LCO treatment 1st stage - requires Diesel HDS 2nd stage – aromatic saturation with noble catalysts

Process consumes high quantities of hydrogen  Gains of 17 to 23 cetane numbers are possible

– Yield adjustment capability and quality improvement

Hydrocracking  Similar and preferably lighter feeds than cat cracking  More flexible. Can optionally maximize gasoline, jet or diesel  Uses a different catalyst, much greater pressure than FCC and a lot of hydrogen  Products have minimal sulfur

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Visbreaking

Coking

Also vacuum residue feed Mild form of thermal cracking. Reduces viscosity of residue Produces small quantity of diesel.

Vacuum residue feed  Thermal cracking process. No catalyst involved.  Use heat and moderate pressure to turn heavy residues to lighter products and coke (a hard coal-like substance used as an industrial fuel).

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Blending Blending is the physical mixture of a number of refinery streams to a finished product. Options include: Batch blending via manifolds into a tank In-line blending via injection of proportionate components into a main stream

Additives/Improvers such as octane enhancers, detergents etc. are added before or after blending

Table 5.1. Hydroskimming Refinery Complexity Calculation Complexity Factor Crude distillation

1.0

Throughput Complexity Ratio to Crude 1.0 1.000

Gas plant

0.5

0.5

0.250

Splitter

0.3

0.30

0.090

Naphtha hydrotreater

2.0

0.15

0.300

Catalytic reformer

4.0

0.15

0.600

Straight run gasoline treater 0.5

0.15

0.075

Kerosene hydrotreater

0.5

0.15

0.075

Distillate hydrotreater

0.5

0.20

0.100

Complexity

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• What about more complicated refineries that convert much of that residual fuel into gasoline and distillates? • The complexity factor of these gasoline refineries goes up rapidly because the units added are very expensive.

• Adding the flasher (complexity factor of 2.0), cat cracker (6.0), hydro cracker (10.0), alkylation unit (11.0), and the auxiliary treaters and equipment puts the complexity of the gasoline refinery in Figure 5.2 at 9-10.0. • The residual fuel yield in one of these refineries is down in the range of 15-20%, while the gasoline yield is probably in the range of 45-55%.

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• At the extreme range of complexity are the refineries that have facilities to produce the high value-added products such as lube oils or petrochemicals. • The complexity factors, i.e., the capital costs, are high. For aromatics recovery, the complexity factor is 33; for olefins, depending on the feed and downstream treating, 10-20. • It isn't unusual to see a refinery with 10% petrochemicals yield (ethylene, propylene, butadiene, and aromatics) with a complexity of 16 or more. 12:33

• Nelson's analysis relates refinery complexity to refinery cost and takes into account the economies of scale for refinery size.

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Figure 5.3. Refinery Cost vs. Complexity The scale on the left is just an index. It must be calibrated to the current inflation adjusted cost of construction for a crude distilling unit. The rest of the chart shows the relationship of crude distillation throughput, the normal indicator is for "refinery size” to complexity now the more sophisticated engineering approach to size. 12:33

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Deep Conversion Refinery Catalytic Cracking, Coking & Hydrocracking

Product Yields of Different Crudes Crude Oil Fractions Light Crude 3%

Heavy Crude 1% 14%

LPG & Gases

24% 25% 35%

•Middle East has the largest growth potential, though the crude is sour

Gasoline Distillate

60% 38%

•The light and sweat crude production (Brent and WTI) is declining

Heavy Gas Oil & Bottoms

•S. America (e.g. Venezuela) has large heavy oil reserve •West and North Africa has potential in producing light and sweat crude 12:33

netback • The gross profit per barrel of oil produced by a refinery. • A company calculates a netback by subtracting all of the costs of delivering a barrel of oil to the marketplace from all of the revenues produced from the sale of oil or hydrocarbon byproducts. • Oil and gas companies use the netback value to compare costs against competitors and to plan strategically for exploration and production of products.

• Costs included in the netback calculation may include refining and production costs, and distribution costs. • Other costs involved with delivery of oil products to the market include taxes, royalties, and marketing costs.

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Netback calculation • Take a hydroskimming refinery processing West Texas sour crude and selling products into the spot market. • Compare that to a gasoline refinery doing the same thing.

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• It is clear that if West Texas sour crude is available to either refinery at a price of $28/bbl, and if the product prices are those shown, then the gasoline refinery will make more money than the hydro skimming refinery. • The more complex refinery has a bigger operating margin than the less complex (simple) one. • That's easy enough.

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Table 5.2. Refining $28/bbl West Texas Sour Crude Hydroskimming Refinery Gasoline Refinery % Unit Revenue % Unit Revenue Volume Costs or or Total Volume Costs or or Total Price Cost$ Price Cost. $ West Texas Sour Crude Gasoline

100 30

28 35

(28.00) 10.50

100 50

$28 35

(28.00) 17.50

Jet fuel Distillate fuel Residual fuel Refinery fuel Total outturn Operating costs Operating margin

10 20 37 3 100 100 100

33 31 22 -

3.30 6.20 8.14 28.14 (1.00) -0.86

20 24 1 5 100 100 100

33 31 22 -

6.60 7.44 0.22 31.76 (3.00) 0.76

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• But change one variable and a slightly different message emerges in Table 5.3. • Instead of West Texas sour crude at $28/bbl, substitute a very heavy crude like Mayan (from Mexico) at a price of $25/bbl.

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Table 5.3. Refining $25/bbl Mayan Crude Hydroskimming Refinery % Volume

• The distillation curve and other characteristics of Mayan crude are different than West Texas sour, but the hardware is still the same in each refinery. • So the yields are quite different, and look what happens to the operating margins! • The simple refinery makes almost as much money as the complex refinery. 12:33

Gasoline Refinery

Unit Revenue % Volume Unit Costs Revenue or Costs or or Total or Price Total Cost. Price Cost$ $

100

25

25.00

100

25

25.00

Gasoline

16

35

5.60

26

35

9.10

Jet fuel

12

33

3.96

20

33

6.60

Distillate fuel

22

31

6.82

27

31

8.37

Residual fuel

47

22

10.34

21

22

4.62

Refinery fuel

3

-

-

6

-

Total outturn

100

26.72

100

Operating costs

100

(1.00)

100

Operating margin

100

0.72

100

1

-

28.69 3

(3.00)

0.69

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There are a few important observations at this point: 1. Mayan crude has about the same profitability in either type refinery, simple or complex. 2. Simple refiners can't afford to run West Texas sour. The acquisition cost is too high for the product slate that is produced. Complex refiners make enough light products to give a positive margin.

3. It might be that the complex refiner has bid up the price of West Texas sour crude so that the simple refiner can't afford it. 4. The yields from Mayan are such that the complex refiner has hardly any room to bid it up and take it away from the simple refiner. The price of Mayan is already so high at $25/bbl that neither simple nor complex makes much margin ($0. 72-$0. 69/bbl).

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• While that third observation might seem profound, it might also be a gross exaggeration. • The situation may instead be that there is so much Mayan crude around that it fills up the complex refineries and some has to be run in the simple refineries, too. (Hence, the same margin in both types of refinery.) • Furthermore, the product demands (and prices) are such that additional crude (West Texas sour) has to be run in complex refineries to meet the light oil demands.

• Deciding which of those conditions prevails often isn't possible by looking only at crude oil margins for any specific point in time. • There are too many variables to pin it down. • But as you'll see, changes over time can tell a story.

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One more example.

Table 4 refinery Operating Margins

• Suppose the relationship between the light oil (gasoline, jet fuel, and distillate fuel) prices and the resid prices, i.e., the resid/light oil differential, changes. • In Tables 5.2 and 5.3, the average resid/light oil differential is about $9.00. Say for some reason it increases to $13.00/bbl; light oils increase in price by $3/bbl, resid falls off by $1/bbl. 12:33

Hydroskimming Gasoline West Texas Sour $9.00 spread $13.00 spread Mayan $9.00 spread $13.00 spread

-$0.86 -$0.63

$0.76 $1.69

$0.72 $0.75

$0.91 $1.42

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• At first glance it might seem that both types of refiners are better off-all the operating margins are larger. • But closer examination indicates that the simple refiner is more vulnerable. • The spread between simple and complex operating margins has increased, too. • That gives the complex refiner more room to maneuvre, perhaps bidding up the crude prices to the point of eliminating any margin for the simple refiner. 12:33

Will the price be bid up? • If the simple refiner can no longer afford to refine either crude, will his shutdown affect the product supply/demand balances? • Will that affect the resid/light oil differential? • And will that ultimately provide an incentive for the simple refiner to start-up again?

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5.1.1 Industry's Model • All those questions are only a sample of what is asked every day as crude oil prices and product prices and differentials change. • To cope, some rigor has been introduced to the analysis, and it shows up even in the industry press. • In general, refineries are classified as simple or complex, although analysts often use' 'very complex" as well.

Crack spread • Crack spread is a term used in the oil industry and futures trading for the differential between the price of crude oil and petroleum products extracted from it • that is, the profit margin that an oil refinery can expect to make by "cracking" crude oil (breaking its long-chain hydrocarbons into useful shorter-chain petroleum products).

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The futures markets

Factors affecting the crack spread

• In the futures markets, the "crack spread" is a specific spread trade involving simultaneously buying and selling contracts in crude oil and one or more derivative products, typically gasoline and heating oil. • Oil refineries may trade a crack spread to hedge the price risk of their operations, while speculators attempt to profit from a change in the oil/gasoline price differential.

• One of the most important factors affecting the crack spread is the relative proportion of various petroleum products produced by a refinery. • Refineries produce many products from crude oil, including gasoline, kerosene, diesel, heating oil, aviation fuel, asphalt and others. • To some degree, the proportion of each product produced can be varied in order to suit the demands of the local market.

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Factors affecting the crack spread • Regional differences in the demand for each refined product depend upon the relative demand for fuel for heating, cooking or transportation purposes. • Within a region, there can also be seasonal differences in demand for heating fuel versus transportation fuel.

• The mix of refined products is also affected by the particular blend of crude oil feedstock processed by a refinery, and by the capabilities of the refinery. • Heavier crude oils contain a higher proportion of heavy hydrocarbons composed of longer carbon chains. • As a result, heavy crude oil is more difficult to refine into lighter products such as gasoline. • A refinery using less sophisticated processes will be constrained in its ability to optimize its mix of refined products when processing heavy oil.

Simple Refinery Long Crude Crude Fuel Oil Crude Short Short Crack Gasoline FO Oil oil oil Gasoline FO Spread bbl

galon

galon

galon

5

3

2

Jun-08$125.96

$3.00

$3.20

$3.64 $15.00

$9.60 $7.28

$1.88

Jul-08$126.00

$3.00

$3.19

$3.65 $15.00

$9.57 $7.30

$1.87

Aug-08$125.76

$2.99

$3.18

$3.66 $14.97

$9.54 $7.32

$1.89

Sep-08$125.45

$2.99

$3.16

$3.67 $14.93

$9.48 $7.34

$1.89

Oct-08$125.14

$2.98

$3.03

$3.69 $14.90

$9.09 $7.38

$1.57

Nov-08$124.83

$2.97

$3.00

$3.69 $14.86

$9.00 $7.38

$1.52

• crude distillation, • hydrotreating of middle distillates, • cat reforming of naphtha.

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Complex Refinery • • • •

simple refinery plus a cat cracker, alkylation plant plus gas processing.

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Very Complex Refinery • complex refinery plus • either an olefins unit or a • residual reduction unit such as a coker.

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Table 5.5. Complexity and Yields % Yield

• Any crude run through these three refineries will have higher light oil yields in the very complex refinery than the simple. Take West Texas sour, for instance:

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Simple

Complex

Very Complex

Gasoline

30

50

65

Jet fuel

10

19

20

Distillate fuel

20

17

25

Residual fuel

35

20

0

Fuel (gain)

5

(6)

(10)

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• Another crude will have its own set of yields from each refinery. In the typical industry model, the yield for each crude for each type refinery has to be individually calculated. • In that way, the incentives to refine what and where can be observed. • Typically, that's done by looking at the results of the calculations two different ways: a snapshot of how the whole industry looks now and a look at how parts of it operate over time.

•

Ref_Margins.xls

 Conversion capacity needed to capitalize on sour crude discounts  Hydroskim – Breakeven or moderate margins; High resid yield  When margins are positive – increase crude runs  When margins are negative – decrease crude runs

Cracking – Better margins; Lower resid yield Coking – Best margins; Lowest resid yield  Maximize heavy crudes 12:33

Process Objective:

6. Crude Distillation  The crude stills are the first major processing units used to separate the crude oils by distillation into fractions according to boiling point so that each of the processing units following will have feedstocks that meet their particular specifications.  Higher efficiencies and lower costs are achieved if the crude oil separation is accomplished in two steps:

• To distill and separate valuable distillates (naphtha, kerosene, diesel) and atmospheric gas oil (AGO) from the crude feedstock. • Primary Process Technique: • Complex distillation

 first by fractionating the total crude oil at essentially atmospheric pressure;  then by feeding the high boiling bottoms fraction (topped or atmospheric reduced crude) from the atmospheric still to a second fractionator operated at a high vacuum.

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Crude Distillation Unit (CDU) Process Schematic

Process steps • Preheat the crude feed utilizing recovered heat from the product • Streams • Desalt and dehydrate the crude using electrostatic enhanced • liquid/liquid separation (Desalter)

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Typical Yields and Dispositions • Heat the crude to the desired temperature using fired heaters • Flash the crude in the atmospheric distillation column • Utilize pumparound cooling loops to create internal liquid reflux • Product draws are on the top, sides, and bottom 12:33

PRODUCT

Yield, wt% of Crude

Disposition

Light Ends

2.3

LPG

Light Naphtha

6.3

Naphtha Hydrotreating

Medium Naphtha

14.4

Naphtha Hydrotreating

Heavy Naphtha

9.4

Distillate Hydrotreating

Kerosene

9.9

Distillate Hydrotreating

Atmospheric Gas Oil

15.1

Fluid Catalytic Cracking

Reduced Crude

42.6

Vacuum Distillation Unit

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VDU Process

VDU Process The vacuum still is employed to separate the heavier portion of the crude oil into fractions because the high temperatures necessary to vaporize the topped crude at atmospheric pressure cause thermal cracking to occur, with the resulting loss to dry gas, discoloration of the product, and equipment fouling due to coke formation. 04:49 12:33

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Process Objectives

Process steps:

• To recover valuable gas oils from reduced crude via vacuum distillation. • Primary Process Technique: • Reduce the hydrocarbon partial pressure via vacuum and stripping steam.

• Heat the reduced crude to the desired temperature using fired heaters • Flash the reduced crude in the vacuum distillation column • Utilize pumparound cooling loops to create internal liquid reflux • Use Stripping steam to enhance separation • Product draws are top, sides, and bottom

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Table 5.1 Boiling Ranges of Typical Crude Oil Fractions

Typical Yields and Dispositions PRODUCT

Yield, wt% of Crude Disposition

Light Ends

40

3–4

240–260 (115–125)

30–40

4–7

260–280 (125–140)