3/20/2018 The process of crude oil refining | EME 801:

EME 801
ENERGY MARKETS, POLICY, AND REGULATION

HOME SYLLABUS ORIENTATION LESSONS CANVAS RESOURCES LOGIN

The process of crude oil refining Print

Once crude oil is extracted from the ground, it must be transported and re ned into petroleum products that
have any value. Those products must then be transported to end-use consumers or retailers (like gasoline
stations or the company that delivers heating oil to your house, if you have an oil furnace). The overall well-to-
consumer supply chain for petroleum products is often described as being segmented into three components
(shown graphically in Figure 2.1).

Upstream activities involve exploring for crude oil deposits and the production of crude oil. Examples
of rms that would belong in the upstream segment of the industry include companies that own rights
to drill for oil (e.g., ExxonMobil) and companies that provide support services to the drilling segment of
the industry (e.g. Halliburton).
Midstream activities involve the distribution of crude oil to re ners; the re ning of crude oil into
saleable products; and the distribution of products to wholesalers and retailers. Examples of rms that
would belong in the midstream segment of the industry include companies that transport oil by
pipeline, truck or barge (e.g., Magellan Pipeline); and companies that re ne crude oil (e.g., Tesoro).
Downstream activities involve the retail sale of petroleum products. Gasoline stations are perhaps the
most visible downstream companies, but companies that deliver heating oil or propane would also fall
into this category.

Figure 2.1 Well-to-consumer supply chain for petroleum products. Upstream midstream and downstream

https://www.e-education.psu.edu/eme801/node/470 1/6
3/20/2018 The process of crude oil refining | EME 801:

Some companies in the petroleum industry have activities that would fall into upstream, midstream and
downstream segments. ExxonMobil is one example of such a rm. Others have activities that fall primarily into
only one segment. The KinderMorgan pipeline company is an example of a specialized petroleum rm, in this
case belonging to the midstream segment. Many regions have local gas station brands that would specialize in
the downstream segment of the industry. One of the best-known regional examples is the WaWa chain of gas
stations and convenience stores in eastern Pennsylvania, but large grocery stores and retailers like Costco and
Wal-Mart are increasingly involved in downstream sales of petroleum products.

Petroleum re neries are large-scale industrial complexes that produce saleable petroleum products from
crude oil (and sometimes other feedstocks like biomass). The details of re nery operations di er from location
to location, but virtually all re neries share two basic processes for separating crude oil into the various
product components. Actual re nery operations are very complicated. The link below will take you to a 10-
minute long video that provides more details on the various re ning processes.

petroleum re ning basics

Video (10:00) explaining petroleum re ning basics

Credit: Seth Blumsack

The rst process is known as distillation. In this process, crude oil is heated and fed into a distillation column.
A schematic of the distillation column is shown in Figure 2.2. As the temperature of the crude oil in the
distillation column rises, the crude oil separates itself into di erent components, called “fractions.” The
fractions are then captured separately. Each fraction corresponds to a di erent type of petroleum product,
depending on the temperature at which that fraction boils o the crude oil mixture.

https://www.e-education.psu.edu/eme801/node/470 2/6
3/20/2018 The process of crude oil refining | EME 801:

Figure 2.2: Crude Oil Distillation

Credit: EIA

https://www.e-education.psu.edu/eme801/node/470 3/6
3/20/2018 The process of crude oil refining | EME 801:

Figure 2.3: Important processes of a re nery

Credit: EIA

The second process is known as cracking and reforming. Figure 2.3 provides a simpli ed view of how these
processes are used on the various fractions produced through distillation. The heaviest fractions, including the
gasoils and residual oils, are lower in value than some of the lighter fractions, so re ners go through a process
called “cracking” to break apart the molecules in these fractions. This process can produce some higher-value
products from heavier fractions. Cracking is most often utilized to produce gasoline and jet fuel from heavy
gasoils. Reforming is typically utilized on lower-value light fractions, again to produce more gasoline. The
reforming process involves inducing chemical reactions under pressure to change the composition of the
hydrocarbon chain.

The production of nal petroleum products di ers from re nery to re nery, but in general the oil re neries in
the U.S. are engineered to produce as much gasoline as possible, owing to high demand from the
transportation sector. Figure 2.4 shows the composition of output from a typical U.S. re nery.

https://www.e-education.psu.edu/eme801/node/470 4/6
3/20/2018 The process of crude oil refining | EME 801:

Figure 2.4: Products made from crude oil

Credit: EIA

Nearly half of every barrel of crude oil that goes into a typical U.S. re nery will emerge on the other end as
gasoline. Diesel fuel, another transportation fuel, is generally the second-most-produced product from a
re nery, representing about one-quarter of each barrel of oil.

‹ Overview up Regional analysis of petroleum product

movements: Petroleum Administration for
Defense Districts ›

EME 801: Energy Markets, Policy, and Regulation

Search

Lessons
Lesson 1 - Global Markets for Crude Oil
Lesson 2 - Markets for Re ned Petroleum Products
Overview
The process of crude oil re ning
Regional analysis of petroleum product movements: Petroleum Administration for Defense Districts
Futures contracts for re ned petroleum products

https://www.e-education.psu.edu/eme801/node/470 5/6
3/20/2018 The process of crude oil refining | EME 801:

Re nery Economics
Deliverables
Summary and Final Tasks
Lesson 3 - Markets for Natural Gas
Lesson 4 - Unconventional Natural Gas Development
Lesson 5 - Introduction to the Electricity Industry
Lesson 6 - Restructuring and Deregulation in the Electric Power Industry
Lesson 7 - Economic Challenges in the Integration of Renewable Resources
Lesson 8 - Basic Accounting
FINAL PROJECT
Lesson 9 - Discounted Cash Flow Models and Metrics for Evaluating Energy Projects
Lesson 10 - Project Decisions Under Uncertainty

Author: Seth Blumsack, Assistant Professor of Energy Policy, Department of Energy and Mineral Engineering, College of Earth and Mineral Sciences,
The Pennsylvania State University.

This courseware module is part of Penn State's College of Earth and Mineral Sciences' OER Initiative.
Except where otherwise noted, content on this site is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International
License.
The College of Earth and Mineral Sciences is committed to making its websites accessible to all users, and welcomes comments or suggestions on
access improvements. Please send comments or suggestions on accessibility to the site editor. The site editor may also be contacted with questions
or comments about this Open Educational Resource.

The John A. Dutton e-Education Institute is the learning design unit of the College of Earth and Mineral Sciences at The Pennsylvania State
University.

2217 Earth and Engineering Sciences Building, University Park, Pennsylvania 16802
Contact Us
Privacy & Legal Statements | Copyright Information
The Pennsylvania State University © 2017

https://www.e-education.psu.edu/eme801/node/470 6/6