Oil Refinery

Oil refineries

Key takeaways
* An oil refinery converts crude oil into usable petroleum products (gasoline, diesel, jet fuel, kerosene, asphalt, lubricants).
* Refining is the downstream segment of the oil and gas industry; many companies operate upstream, midstream, and downstream functions.
* Distillation is the primary first step; additional processes such as cracking produce lighter, higher-value products.
* The Nelson Complexity Index measures refinery sophistication and its ability to make lighter products from heavy crude.
* The crack spread (difference between crude cost and refined-product prices) is a key indicator of refining margins and a hedging tool.

What is an oil refinery?

An oil refinery is an industrial facility that transforms crude oil into a range of petroleum products used for transportation, heating, industry, and petrochemical feedstocks. Refineries typically run continuously and can process hundreds of thousands of barrels of crude per day.

Refining is considered the downstream portion of the oil and gas value chain: crude is produced upstream, transported midstream, then refined and sold downstream to businesses, governments, and consumers.

How refineries work

1. Distillation: Crude oil is heated in a distillation unit to separate hydrocarbons by boiling point into fractions (gasoline-range, diesel-range, kerosene, etc.).
2. Conversion processes: Heavier fractions are converted into lighter, more valuable products using processes such as catalytic cracking, hydrocracking, and coking.
3. Treatment and blending: Fractions are treated to remove impurities (sulfur, metals) and blended to meet product specifications (octane for gasoline, cetane for diesel).
4. Offsite uses: Some distilled streams (lubricant bases, petrochemical feedstocks) are sold to other industries with little further processing.

Product yields vary by crude type and refinery configuration. From a 42‑gallon barrel of crude, U.S. averages are roughly:
* 19–20 gallons of motor gasoline
* 11–12 gallons of distillate fuel (mostly diesel)
* ~4 gallons of jet fuel

Cracking, the crack spread, and refinery complexity

• Cracking refers to chemical conversion processes that break large hydrocarbon molecules into smaller ones (e.g., converting heavy oil into gasoline-range molecules).
• The crack spread is the price difference between crude oil and the refined products produced from it (commonly used in futures markets). Traders and refiners use crack spreads to estimate refining margins and hedge price risk by buying crude futures and selling product futures.
• The Nelson Complexity Index (NCI) rates refinery sophistication. Higher NCI refineries have more conversion and treatment units and can produce a greater share of light, high-value products from heavy crude.

Refinery companies and services

Some energy companies are integrated across exploration, production, transport, and refining (e.g., major international oil companies), while others focus primarily on refining (refining “pure plays”). Refineries also rely on midstream services (pipelines, terminals) and service companies for design, construction, maintenance, and testing. Expanding pipeline capacity reduces transport costs and supports refinery feedstock logistics.

Safety and operations

Refineries handle flammable, high-pressure, and high-temperature processes and require rigorous safety systems. They operate 24/7 and typically schedule periodic shutdowns for maintenance and turnaround work.

Industrial accidents can be catastrophic; a notable example is the 2005 Texas City incident, where a flooded and over-pressurized distillation unit led to explosions that killed and injured workers. Such events underscore the importance of process safety management, equipment integrity, and organizational safety culture.

U.S. refinery facts (selected)

• Operable petroleum refineries in the U.S.: 129 (as of Jan 1, 2021).
• The most recent U.S. refinery to begin operation started in 2019 (Texas).
• One 42‑gallon barrel of crude typically yields about 19–20 gallons of gasoline and 11–12 gallons of diesel.

Frequently asked questions

What is the crack spread?
* The crack spread is the difference in price between crude oil and the refined products obtained from it. It is used to estimate refining margins and hedge price risk.

How does crude quality affect output?
* Heavier, sour crudes produce proportionally more heavy fuels and require more complex conversion units to make light products like gasoline. Refinery configuration and complexity determine how flexibly a refinery can process different crude types.

Sources

• U.S. Energy Information Administration — Refining and product yield data
• U.S. Chemical Safety Board — Investigation reports on refinery incidents