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Oil, gas and coal: how they form, are found, moved and priced: Moving and refining oil

Understanding Energy / Module 6: Oil, gas and coal: how they form, are found, moved and priced Part 3 of 5

Moving and refining oil

Oil's value lies not just in its energy but in how cheaply it can be moved and how flexibly it can be refined. Tankers, pipelines and refineries together form the largest industrial system in the world, with a few narrow sea lanes as its weak points.

3.1 Tankers and pipelines make oil the most traded commodity

Crude oil is the world's most traded commodity by both value and volume. Most of it crosses oceans in tankers, which are themselves driven by large, slow-turning diesel engines, the prime movers Smil credits with making globalisation possible.

Tankers grew dramatically after the 1950s. The closures of the Suez Canal in 1956 and 1967 forced Gulf oil bound for Europe around the Cape of Good Hope, and larger ships made the longer voyage affordable. Very large crude carriers, or VLCCs, carry around 300,000 tonnes deadweight, roughly 2 million barrels. Moving a barrel across an ocean in such a ship costs only a few dollars, a small fraction of its value.

On land, pipelines carry crude to ports and refineries and products on to cities. Once built they run continuously and cheaply, pushed by pumps driven by electric motors or gas turbines.

The system has chokepoints. The most important is the Strait of Hormuz between Iran and Oman. The US EIA put flows through it at about 20 million barrels a day in 2024, about a fifth of world oil consumption, plus about a fifth of world LNG trade. Others include the Strait of Malacca, Bab el-Mandeb at the mouth of the Red Sea, and the Suez Canal. Saudi Arabia and the UAE have pipelines to ports outside Hormuz, but the EIA estimated that only about 2.6 mb/d of their capacity was spare, a fraction of normal flows.

3.2 Refining separates crude by boiling point, then reshapes the molecules

A refinery's first step is distillation. Crude is heated to around 350 to 400 degrees C and fed into a tall column. The lightest molecules rise as vapour to the top and condense into gases and naphtha; progressively heavier ones condense lower down as kerosene, diesel and gasoil; the heaviest remain at the bottom as residue. The residue can be distilled further under vacuum to recover more heavy gasoil.

Distillation alone would leave too much heavy oil and too little of the light fuels people want. So refineries convert. Thermal cracking, the oldest method, uses heat and pressure to break large molecules. Catalytic cracking, introduced in the late 1930s and now central to gasoline production, uses a hot powdered catalyst to do the same at lower temperatures with better yields. Hydrocracking adds hydrogen under pressure, producing especially clean diesel and jet fuel. Coking units crack the very heaviest residue into lighter products and a solid petroleum coke.

Other units rearrange molecules to improve quality. Reformers turn low-octane naphtha into high-octane gasoline components and produce hydrogen as a by-product. Hydrotreaters use hydrogen to strip out sulfur. Alkylation combines small molecules into high-quality gasoline blendstock.

The products are many. Transport fuels dominate: gasoline, diesel and jet fuel together make up most of the output of a typical refinery. The rest includes liquefied petroleum gas, naphtha for petrochemicals, heating oil, marine fuel oil, lubricants, asphalt for roads and petroleum coke. A modern complex refinery is a giant, tightly integrated heat machine that burns part of its own intake, often some of its gases and residues, in furnaces and boilers; the more conversion units it runs, the larger that share.

Process flowchart From a barrel of crude to fuels
Inputs Crude oil1 barrel, 159 litres, about 6.1 GJ Process steps 1 Atmospheric and vacuum distillation

split by boiling point into gases, naphtha, kerosene, diesel, gasoil and residue

2 Conversion: catalytic cracking, hydrocracking, coking

heavy molecules broken into lighter, more valuable ones

3 Upgrading: reforming, hydrotreating, alkylation

raise octane, remove sulfur

4 Refinery fuel use

part of the input energy burned in furnaces and boilers; more in complex plants

Outputs Gasoline, diesel and jet fuelusually most of the barrel by volume LPG, naphtha, fuel oil, asphalt, lubricants, cokethe remainder

Product shares vary widely between simple and complex refineries; complex plants make more light products from each barrel.

Source: Smil, Oil: A Beginner's Guide (2008), via Smil Mastery Course, M6 'Moving and refining oil'

3.3 Cleaner fuels and petrochemicals have reshaped the barrel

Refineries are more complex today than in the 1960s for two reasons: rules on fuel quality and the growth of petrochemicals.

Tetraethyl lead was added to gasoline from the 1920s to raise octane and stop engines knocking. Its toxicity, and the fact that it poisoned the catalytic converters needed to clean exhaust, led to its removal starting in the 1970s; leaded petrol for cars has now been phased out worldwide. Refineries replaced its octane boost with more reforming and alkylation. Sulfur limits came next. Diesel and gasoline in Europe, North America, China and India must now contain no more than 10 to 15 parts per million of sulfur, down from thousands. India jumped from Bharat Stage IV to Bharat Stage VI standards in 2020, cutting the allowed sulfur in fuel from 50 to 10 parts per million. Each step added hydrotreating capacity, hydrogen production and energy use.

The second change is petrochemicals. Naphtha, liquefied petroleum gas and ethane from natural gas liquids are the raw materials for ethylene, propylene and aromatics, which become plastics, fibres, solvents and countless other products. The IEA's Oil 2025 report expects petrochemical feedstocks to become the main source of growth in oil demand from 2026, and to take about a sixth of all oil used by 2030.

That matters for the future of oil. Electric cars can displace gasoline and diesel; the IEA estimated EVs would displace about 5.4 million barrels a day by 2030. But demand for plastics and chemical feedstocks is harder to replace, so the barrel of the future may be used less for burning and more for making materials.

See it in the table

Oil Crude oilGas Natural gasS SulfurH2 HydrogenC2H4 EthyleneC3H6 Propylene

Check your understanding

Roughly how much oil passed through the Strait of Hormuz each day in 2024, according to the US EIA?

About 20 mb/d, roughly a fifth of world oil consumption, plus about a fifth of world LNG trade.

What does a catalytic cracker do?

It raises the yield of gasoline and other light products from each barrel.

Which use did the IEA expect to become the main source of oil demand growth from 2026?

Petrochemicals were forecast to take one in six barrels by 2030, while EVs eroded fuel demand.
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