Crude Oil and Production Process

This section provides a brief overview of the technology and production process. An

understanding of these issues is critical as it helps understand industry structure.

Crude oil is a liquid mixture of hydrocarbons - chemical compounds consisting roughly of six

parts of carbon and one of hydrogen, both of which are fuels; it generally also carries small

quantities of sulphur, salts, metals, oxygen and nitrogen. It was formed from organic remains

accumulated undersea and eventually trapped in sedimentary rocks; these rocks are where crude

oil exploration is concentrated. Generally the oil is compressed, and gushes out if a pipe is

pushed into an oil-bearing trap. But as it is extracted, the pressure diminishes, and it is often

artificially reinforced by injection of air or water into the reservoir to push up the oil.

Crude oil contains hydrocarbons that vary in their boiling point; refining is a process in which

crude oil is heated in a vacuum until it evaporates and then allowed to rise up a column. Different

hydrocarbons liquefy at different temperatures and can be collected at various heights in the

distillation column.

In the basic refinery process, crude is heated to 600ºC by injection of superheated steam and

pumped in at the bottom of a vertical distillation column. As the vapour rises up the column, it

cools. The column has trays at various heights with holes. As the vapour cools, fractions with

different boiling points liquefy, collect in the trays and are drained off; products with high boiling

points rise to the top, while products with low boiling points collect on lower trays. The principal

products, with their approximate boiling points, are petroleum gas (20ºC), naphtha (40ºC), petrol

(70ºC), kerosene and jet fuel (120ºC), diesel (200ºC), lubricant (300ºC), and furnace oil (370ºC);

solid petroleum coke collects at the bottom after the liquid fractions are removed.

The proportions in which these products come out vary to an extent with the crude; crudes are

classified as light or heavy according to the proportion of light products. But the balance of

demand and supply for the products is such that the prices of furnace oil are much lower than

those of light products such as petrol, kerosene and diesel oil. In August 2008, international

prices of residual fuel oil ranged from $2.29 to $2.48 a gallon; the corresponding range was

$2.68-3.05 for petrol, $3.06-$3.29 for diesel oil, and $3.18-$3.38 for jet fuel. So other

technologies are employed to crack, alter or recombine molecules and make lighter hydrocarbons

from residual fuel oil.

The principal products obtained from the primary refining and cracking processes are (see

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