Petroleum coke to compete with coal in power plants, analysts say

By the OGJ Online Staff

HOUSTON, Sept. 19, 2001 — As refineries expand coking capacity worldwide, petroleum coke will become a major fuel option for power plants, predicted analysts DRI-WEFA Inc., Lexington, Mass.

“Refinery coking capacity is set to skyrocket over the next 5 years as refiners work to get higher volumes of lighter distillates out of increasingly heavy crudes,” said John Dean, consulting vice-president of the company and author of a new study.

Petroleum coke is an option for power producers, said Dean, as it will be plentiful and cheaper than alternatives. Most coal-fired plants can use the coke as a fuel, he said.

The increased coking capacity — created to supply transportation fuels and other heavily catalytically cracked products — will greatly increase petroleum coke supplies. Also, supplied crude is getting heavier, he said.

Venezuelan crude, for example, is very heavy and sour, producing a substantial amount of coke. Dean said petroleum coke supply and demand is more or less in balance, at 70 million tonnes/year. He said supply will grow substantially over the next 3-4 years to about 100 million tonnes/year, producing a glut on the market until about 2007, when supply and demand return to closer balance.

‘Dirty’ fuel now viable
For many years, petroleum coke — a cheap byproduct of refinery coking operations — has been considered too “dirty” for most power plants to use as primary fuel. Although a coal-coke blend is used in many plants, and coke has various niche uses, environmental concerns require a watchful eye on emissions.

But more stringent environmental requirements are prompting power plants to install “scrubber” equipment and take other measures to reduce SO2 emissions. “The ironic thing is that these environmental rules … are making it possible to use dirtier fuels,” said Dean. He said a plant outfitted with scrubbers will burn coke and produce three times less SO2 emissions than a plant without scrubbers burning medium sulfur coal.

He predicted more power plants will begin using scrubbers and other such equipment, especially to meet Clean Air Act Phase II requirements and as banked emissions credits are depleted. As desulfurization equipment is installed, petroleum coke use will increase, he said, because of its higher heat rate (as high as 14,000 btu/lb, compared to coal’s 8,000-13,300 btu/lb) and price competitiveness with coal.

“The cumulative impact on demand will begin to reach a significant level sometime close to 2007 and extend well into the future,” said the report.

Dean said the coke pricing will prove interesting. Coke is produced whether there is a buyer or not. He said refiners are likely to set the price just below the next most attractive fuel, probably high sulfur coal.

Dean said prices could rise later, noting refiners may first use “introductory offer pricing” for power plant operators. The refiners themselves use large amounts of coke to power their own operations, he said.

“Petroleum coke prices have peaked and will continue to slide from their recent highs (of about $23.75/tonne on the spot market for 4% sulfur coke) through 2005,” said the study. “Prices will stabilize over the longer term in real dollars, in the $15-$17 range for 4% sulfur, 50 HGI Gulf Coast, as significant increases in capacity are met in large part by growth in global demand.”

In terms of customer base, Dean said that nearly all coal-fired boilers can burn some coke — and some in “very substantial” amounts.

He said last year’s surge in natural gas prices caused some US operators to review their plans to build power plants. Although far more proposals called for building gas-powered plants, Dean said, the gas price spike prompted proposals for up to 60 coal-fired plants, of which half have some serious chance to be built.

Still, he attributed the rise of petroleum coke as a power fuel less to recent gas price fluctuations than to a substantial increase in supply and a substantial increase in the use of equipment to clean emissions.

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