Challenges and Opportunities in Refining and Clean Fuels

The results of refining processes are all around us, from the fuel in our cars, to the plastics that keep food fresh, to the asphalt on our streets, and beyond. But while refining in general is ubiquitous, there are challenges, including cyclical demand, efficiency and emissions requirements, and maintaining profitability. In this comprehensive interview, Brian Heasley, KBR’s global director of Refining and Clean Fuels, discusses current obstacles refiners face, including policy hurdles and barriers to entry for clean fuel, and how they can capitalize on opportunities through product diversification, circularity and refining residue oil.

Transcript

IN ORBIT: A KBR PODCAST

Season 5, Episode 5

Challenges and Opportunities in Refining and Clean Fuels

DISCLAIMER

The views expressed in this podcast are not necessarily those of KBR or its subsidiaries.

INTRODUCTION

John Arnold

Welcome to the podcast one and all. Whether you've been with us for a while or are tuning in for the first time, we're just glad you're with us and staying in our orbit. If you follow the news and it's awfully hard not to with our little pocket computers, you know planet Earth is experiencing upheaval on seemingly every front. One of the most crucial issues is energy, how and why we're producing it. And the processes like various kinds of refining by which we create products like plastics, asphalt, and other things we probably take for granted that we need to maintain quality of life. Over the past decade or so, there's been a major push to produce energy and those products we need more sustainably. A task that as you can guess, is not without challenges.

In the refining space, that means developing processes that reduce emissions and waste, that create circularity, that help plants run more efficiently and that perhaps even help diversify income streams. For clean fuels, that means breaking down the barriers to entry, primarily costs, of course, and making those solutions accessible and profitable. If any of that interests you are in for a treat. In this episode, we're going to be talking about all of that and some of the groundbreaking solutions KBR delivers to address those challenges, particularly clean fuel and sustainable refining solutions. And with me here today to talk about it all is Brian Heasley, Global Head of Refining and Clean Fuels with KBR's Sustainable Technology Solutions business. Welcome to the podcast, Brian.

Brian Heasley

Great to be here. John, thanks for the introduction and look forward to discussing many topics today. I think we're finding industries going through quite a transition right now and there's lots of uncertainty in the world, right? Lots of changes. So it's an exciting time and KBR is trying to address all these challenges.

John Arnold

Yeah. Everyone listening along in your cars or at home, strap in. We're going to cover a lot of ground, but I think it's going to all be very, very informative. Before we get into that, Brian, we'd love to hear about you. So would you just please tell us a little bit about yourself, your career and how you came to be at KBR?

Brian Heasley

Sure. So I've been with KBR, it'll be six years actually, in, I think, about a week. So it's been very exciting time here and I've basically covered just about every refining technology we have in our portfolio, and we have 20 of them. Probably won't have time to talk about all 20 today, but we'll try to focus on the key ones that are really making a big impact. So I started my career in Chicago working for UOP, Honeywell and chemical engineering background, attended Purdue University in Indiana, my undergraduate degree there. And spent about five years at the first job doing various roles including R&D, engineering design, and a bit of technical service-related roles, traveling around the world, starting up process units in various countries. From there, I joined a catalyst company in Houston and worked for them for about five years as well, and was selling catalyst into petrochemical applications, so mainly steam crackers in North America and really enjoyed that role coming up to speed on the commercial side.

Having started my career, very technical, I came into a commercial role and that's how I landed at KBR, where I wear a bit of a dual hat in terms of both technical and commercial. And I really thrive in this sort of role where I can go back to my roots, which is very technical, but then also the fun stuff, as I call it, on the commercial side. Love negotiating with clients. I love relationship building, so this is really a perfect home for me in terms of both the technical and commercial side. And yeah, since I've been with KBR, I've traveled the world extensively and I originally started kind of focusing on Asia and China covering just a few technologies, but that's broadened. Of course, I'm leading the business now, so about a year and a half I've been leading the business overall. And we have a great team covering the world, so I have about 63 people under my team globally and a fantastic team to work with, and we're doing great things in the industry, and yeah, look forward to what's to come. It's an exciting time, as I mentioned.

John Arnold

That's awesome. I love hearing about people's journeys from chemical engineering to doing more of the negotiating commercial side of the business is a really interesting transition. Also go Boilermakers —Purdue! Purdue!

Brian Heasley

Thank you.

John Arnold

Yeah, yeah. So now we'll get into the nitty-gritty When people hear the word refinery, and by “people” I mean myself — people may think of things like the scene in the beginning of the Tim Burton “Batman” movie or in the old school “RoboCop” movie. Where these big austere grimy-looking structures with flames spouting willy-nilly, and that might be the mental picture when they think about refining. And some refineries might kind of look like that. I think that's hyperbolic, but even as someone who tries to be environmentally conscious, I know I take it for granted the kinds of everyday essentials sitting around the house that are the result of some kind of a refining process. So we'll focus on refining before we get into the clean fuels. Would you tell us about the kinds of refining that KBR is currently involved in? I know you can't probably go into all of those kinds of solutions, but would you just talk to us, set the table there?

Brian Heasley

Yeah, I think it would help if I go back to the history of not refining in general, but where KBR entered refining. So all the way back to the 1920s MW Kellogg was involved in licensing technology. So they started out with thermal cracking, and so last year actually we celebrated our hundredth anniversary in the refining industry. Going back to that 1924 installation of a thermal cracker. And refineries have evolved over the years. So they started out really, really basic, just separating oil by distillation, which they still do today, but then they started getting into conversion. So that first unit that we licensed was a conversion technology, which enabled refiners to make more fuel from a barrel of crude. KBR, then MW Kellogg — we had Brown & Root join later —but MW Kellogg was involved in one of the first critical refining processes in the 1940s called fluid catalytic cracking or FCC.

This technology was developed during World War II, it was primarily made to make gasoline for the war effort. And KBR was involved in that first unit and we've continued to lead in FCC technology since then. So we are world leaders in process design and also the equipment. So the equipment is very important in an FCC and we support a lot of refiners in the world with our FCCs. There's not a whole lot of new FCCs being built, so a lot of it is sustaining these fluid catalytic cracking units, making sure they operate efficiently. So FCC technology has evolved tremendously over the years and our technology has evolved into even other technologies and applications like Maxofin™ or high-severity FCC, which uses multiple risers to crack them at conditions that those different types of feeds prefer. And we're able to get very high propylene make out of a Maxi-Fin type unit.

Then we have K-COT, our catalytic olefins technology, and that's taking various light streams like naphtha and C4 olefins and it can make propylene and ethylene. And then we have K-Pro™, our on-purpose PDH [propane dehydrogenation] technology. So FCC has for us developed tremendously and even into a number of other technologies which are very beneficial for our clients looking to integrate with petrochemicals. So this FCC technology is very versatile and KBR I would say are world experts in FCC technology. Some of the other areas we're assisting refiners with are on bottom of the barrel, so the heavy crude we call bottom of the barrel or also residue. That part of the oil, if we go back to the beginning of refining, they weren't converting this, they were more or less discarding it or maybe burning it. They didn't have any technology to upgrade that really heavy oil. So nowadays we have very advanced technologies and we have two in our portfolio that are really strong, and ROSE® [Residuum Oil Supercritical Extraction] is one of them. You may have heard that technology.

John Arnold

Yeah.

Brian Heasley

It's a solvent de-asphalting technology and we have over 90% market share in that technology. And if you look at... I think we'll maybe talk about bottom of the barrel a little bit in later, but that technology in terms of bottom of the barrel is the cheapest, most efficient way to upgrade a residue stream. The other technology we have is Veba Combi-Cracking, which is a slurry hydrocracking technology, and that's in partnership with BP, and that is the ultimate conversion tool for bottom of the barrel. So if you want to convert every last drop of oil that you have, VCC is the perfect technology to do that. So we're getting over 95% conversion of that very heavy fraction to the point where what's left becomes solid. So we're extracting every last bit of liquid and converting it to fuels or even petrochemicals ultimately. There's some other areas that are exciting for us.

Alkylation is one. We have a K-SAAT℠, our solid acid alkylation technology, and that is a revolutionary technology. So historically alkylation, again, that goes back to 1940s as well, that technology originally historically was done with liquid acids, so either hydrofluoric or sulfuric acid. The problem with the liquid acids are they're very corrosive. In the case of hydrofluoric acid, it can become a volatile compound in the air, and you can imagine if this is going towards a population or a city, it's going to cause lots of harm. So there's a push to shift to safer technologies for alkylation, and we have K-SAAT which it's a solid catalyst, which is very common in refining. You can actually hold it in your hand, incredibly safe, and it's proven as well. So we have a unit operating in China, and then there's going to be another installation going in the U.S. at CVR Refinery in Wynnewood [Oklahoma, USA].

That refinery will revamp a hydrofluoric acid unit to K-SAAT. So we're very excited about that technology and the opportunity to make alkylation safer, cleaner. But there's a performance advantage too, so it's not just about safety or making things cleaner. That technology has some real benefits in terms of yield and octane better than the traditional technologies. And then yeah, there's a lot of other things that we're supporting in. I think SAF [sustainable aviation fuel] is one exciting area maybe we'll talk about today, a newer technology for us or actually our newest technology in the portfolio. We have an alcohol-to-jet technology, PureSAF℠ and we're really at the beginning of sustainable aviation fuel, that market. But it's expected to grow tremendously in the decades to come as airlines are trying to decarbonize and countries and are all adopting various policies to enable that production. But our technology is really unique. It can handle multiple feedstocks, not only alcohols, it can take syngas or CO2.

We also have a full drop-in replacement jet fuel, so it is physically equivalent to fossil jet fuel. So it has even the aromatic component that you find in fossil jet fuel. It's required for the seals and the engines basically have to have this aromatic content. So we have that and it's approved for 50% blending right now, but it's well on its way to being approved for a hundred percent a fully synthetic jet fuel, which we feel is the future for SAF, right? Having something that's essentially equivalent to what we have today. Our technology also was fully tested and approved by both the U.S. military and Swedish military. So the original developer of the technology Swedish Biofuels, they've developed this PureSAF alcohol to jet process over 20 years. There's quite a bit of data and testing that's gone into this. So this is a proven technology and our partner, Swedish Biofuels, are really pioneers in alcohol to jet.

Back to bottom of the barrel, it's common for refiners to be making pet coke, and that's something you can make out of both our rose and VCC technology. Pet coke is essentially a solid rejected material from the refinery. I say rejected, but it has value and it is primarily burned today, so that's one stream. The others going kind of up from bottom of the barrel would be lube oil would be one traditionally used as solvent de-asphalting technology like ROSE to take the residue oil and extract what we put into lubricant oil. There's also asphalt, and that can be common in refineries. It takes usually a particular type of crude to produce both the lube and asphalt, so there's requirements for viscosity. And then moving up from bottom of the barrel, you get into ... when we get to the FCC technology, we can start making olefins. Olefins are lighter hydrocarbons that are hydrogen deficient, and this would be ethylene, propylene, butene.

Some of them, like the butenes can go into fuels, but the lighter ethylene, propylene are monetized traditionally into petrochemicals. So most of the ethylene, propylene in the world is going into polyethylene and polypropylene, which is plastics. And then there's some other chemicals that they can go into as well. And a lot of refiners are producing these today, the ethylene, propylene, but they may not be taking them to petrochemicals. They may actually be burning them as fuel gas or they're selling them as not a high purity product, so they're not getting maybe a big margin on it, but a lot of refiners are changing their focus and now integrating more with chemicals, petrochemicals because they can get a higher margin. The other advantage is if you're diversified in your products late, if you're only producing fuels and the market's up and down, we know oil market's very cyclical, the fuel market tends to follow that, and refiners that are solely based on fuel tend to be less resilient than those that are diversified in their products.

So we saw this during the pandemic too. The refiners that really had the healthy margins were those that were integrated with petrochemicals. So we fully would encourage it and are talking to many of our clients about integrating with some of these other products because they can only help weather the storm in these cyclicalities we see in the market. I think that's going to be really important for refiners, particularly in the next five, 10 years as the industry's going to go through a big transformation.

John Arnold

Interesting. Especially in the context of the pandemic, thinking about distilleries that were making alcohol, but then would use byproducts to make hand sanitizer, things like that, just to diversify their income stream or their offering to stay afloat. So it's really interesting to hear also that it's not just fuels when people think refining it's plastics that have tens of thousands of use cases and asphalt things that people take for granted every day. These are the result of refining. And so we've talked about refining a little bit and we've mentioned a couple of aspects of clean fuels, but I wonder if you'd break down clean fuels a little more for us now.

Brian Heasley

Sure. So yeah, the clean fuels aspect involves a couple of key technologies for us. So K-SAAT, I already mentioned that falls into clean fuels, and then we have a couple other technologies. In partnership with Neste, we have a next octane technology that's taking the C4 olefins and it's making a gasoline. We call these clean fuels, the alkylation next octane because they're producing a very high octane gasoline blend component that's very high value and it makes... We see a lot of improvements and the efficiency of engines and those high efficiency engines, but the ones that have turbochargers require a higher octane gasoline. So this is a very clean, very high performing gasoline blend component coming out of those technologies. The other technologies in clean fuels would be related to bio. I will say we are exploring other opportunities in the bio space and we'll look to expand our offering in bio.

We made the change to ... Historically we called our group the refining group, but a couple of years ago we added the clean fuels component because we really feel that the market is demanding cleaner, safer alternatives. You actually have a lot of refineries out there that have implemented bio-streams into their refineries. There's some refineries that have actually converted fully to bio-refineries as well. So bio is a big component of that clean fuels, and we will continue... I think if you at our portfolio, probably the majority of newer technologies we'll continue to add will address kind of the clean fuels drive and transforming the industry from these high carbon intensity processes to cleaner, safer alternatives, making better fuels, and even going into petrochemicals too.

John Arnold:

Awesome. Well, you've already alluded to this a little bit, especially talking about the cyclical nature of the oil and gas industry, but let's talk about energy needs and how they're changing globally. How are refineries going to transform in your estimation over the near term, let's say five years and then even further afield in the next two decades or so?

Brian Heasley

As I mentioned at the beginning, there's quite a big change going on in the refining industry right now, and it's largely driven by the energy transition and electrification as well. So the adoption of EV [electric vehicles] vehicles in certain markets right now are actually ... We're starting to see decline in gasoline demand from EVs and then also the efficiency of engines has gotten better. And so that's putting pressure on gasoline demand. The other changes we're starting to see, I think we'll see more of this in the future, would be with the heavy oil, the fuel oil that's going into a lot of ships right now, marine fuel. There's a meeting with the IMO [International Maritime Organization] who manages the regulations for marine fuel later this year to talk about decarbonization, and they are going to implement some sort of a carbon tax, I think is sort of what they're leaning towards, which will have a big impact on fuel oil going forward.

So we're seeing some of these big trends and they're aligned with the energy transition that are really disrupting what refineries are doing right now. For the longest time, we only expected cyclicalities and then demand over time, but we always expected things to go up. We're now at a point where we can see potentially a peak, and depending on who you talk to, some folks will say we'll see the peak within this decade. Others will say maybe by 2035. If you talk to OPEC [Organization of Petroleum Exporting Countries], they say it's not going to happen. Oil demand will continue to go up. And if we go back and look at history as well, I think we've been talking about peak oil for decades.

Who's right is anyone's guess. I think it's up for debate, but one thing I would point to right now is in China where they have tremendous EV adoption, upwards of 50% of new vehicles are electric vehicles, and that is putting pressure on gasoline demand in China. So we've seen declines in demand there already. So this is happening today. Whether that happens in other regions I think is up for discussion. I think certainly in the U.S. right now, we expect the opposite. Europe probably will follow a similar pathway to China because they're very aggressive in terms of adopting EVs and moving away from internal combustion engines. And so how is that impacting refiners? They're having to find other products to put this into. So the obvious one for gasoline range molecules is to shift into petrochemicals because it is very easy conversion. Refiners have done this, but the problem right now is the petrochemical market is also somewhat down.

So capacity was overbuilt for petrochemicals over the last five years or so, and the prices have dropped. So there's too much supply, not enough demand, we're not balanced. The one thing with petrochemicals is we do expect that demand to outpace supply again, because that demand for plastics for polymers is only expected to rise into the future as population grows. As economies mature, plastic consumption tends to go up. So refiners can move into petrochemicals, but it's a difficult investment today. So I would say they will make that investment. We are encouraging them to make that investment today, but it is tough to justify right with where the market is right now.

So in the near term, what I would recommend refiners do is try to be more efficient, try to make your margins better, and usually this means by adding more conversion to your refinery, bottom of the barrel is an obvious choice. If we kind of price different oils based on their properties, the heavy residue oil is the lowest value oil. Because it has limited applications to go into by itself and to upgrade it it's very expensive. So inherently it is the lowest value material, whereas the lighter oil tends to be higher value because you have to apply less energy to it to get it to end products. So you have this distribution of value within even a barrel of crude, if you will, by light to heavy.

So for refiners trying to really improve their margins, they should go after bottom of the barrel. And the ROSE technology, as I mentioned, or VCC, are great tools to get there and making an investment there today will help them in the future. As we see fuel oil demand decline, you want to upgrade that bottom of the barrel material, shifting away from fuel oil. And then ultimately going into petrochemicals I think would be the next step after that. And if you can lift heavy bottom of the barrel material to chemicals, that is the ultimate value proposition for a refiner. It is the fastest return on investment, and we can achieve that with the ROSE, VCC technology then going into our FCC technology, converting it to olefins or going into our petrochemicals technologies even SCORE™ [Selective Cracking Optimum Recovery], K-COT™ [Catalytic Olefins Technology], K-Pro. These are all tools to go all the way from bottom to the barrel to petrochemicals.

John Arnold

Right.

Brian Heasley

So I'd like to see refiners make these investments to improve margin today, because what we're going to see maybe as we approach this peak is that the weaker refineries will start to be impacted. So we've already seen, particularly during the pandemic, a number of refiners that were challenged and actually shut down because of low margins, because they weren't integrated with petrochemicals. I think there were roughly 10 or so both in Europe and in the US that ultimately had to shut down because they had not made the investments and increased their conversion and shifted to petrochemicals. I think these refiners are going to be challenged. Again, these types of refiners are going to be challenged again in the future. They should invest now and try to become more profitable to prepare for these cyclicalities. Then long-term, I think that the strongest will survive. But if we look at even the most pessimistic projections, we're going back to maybe 2005, 2010 levels of refined product demand by 2050.

So refineries are still going to be very relevant, even out to the net-zero target of 2050 for many countries. A lot of the crude oil will just shift from fuels to petrochemicals. That's the projection. And in some regions, we expect actually the majority of crude to be going into petrochemicals, whereas today it's going into fuels. So there's going to be this flip. So the refinery will be a petrochemical-making machine in the future, but they're going to have to kind of adapt along the way as well. And I think become cleaner, reduce their carbon footprint. That'll also come along the way. So refining is here to stay. That's the bottom line.

John Arnold

It's interesting, your recommendation to be more efficient, to improve margins, to prepare for the future, to take that approach, whether it's because of the peak or also just to be proactive. If there is, God forbid, another black swan event like the pandemic or something like that, it seems like it would behoove these refiners, these clients to diversify and make sure that they're prepared for whatever comes. So that's really interesting insight. It seems like sustainable and clean fuels are a lot in the news right now, but let's talk KBR's own PureSAF or the sustainable aviation fuel space. What's working, what's not working, and what do you think is next on the horizon for SAF technologies?

Brian Heasley

Yeah, great questions. I think maybe I'll start with what's not working. Because to be honest, I think there's more that's not working, that's working. We're all, when I say we, I mean all the stakeholders in the SAF market space, so governments, airlines, developers, refiners, everyone is trying to find their way and find the right way to make this happen. So we all know it needs to happen, but finding the right way is critical. So what's not working? Sustainable aviation fuel is the only viable way to decarbonize the aviation industry, and I think everyone's come to this conclusion. So we're all aligned there. That's great. To make a sustainable aviation fuel at large volume is expensive. And most of the made today are produced by waste oils called HEFA [hydrotreated esters and fatty acids] or used cooking oil. And the volumes of these feedstocks are very limited in the world. So we know this, I think we're all aligned here as well. We'll check the box on that one. But to scale it up from there is a very expensive proposition.

So the next feed to come to would be alcohol. Ethanol would be the preferred alcohol to start from. It's abundantly produced in the world, primarily for fuel blending. So there's some major producers, US, Brazil leading the world really in ethanol production. But again, it's very expensive to make SAF from even alcohol. And then there's other feedstocks beyond that as we kind of look even further into the future, the next feedstocks would be gas-based, either taking CO2 from bio-sources or CO2-

John Arnold

Interesting.

Brian Heasley

CO2 from the air as well and turning it into SAF. All very exciting chemistry to talk about, but it's expensive. So really what's not working today is finding a way to make this work despite the economic challenges. So governments have stepped up, you have the U.S. taking a very incentivized approach, which I think we will get more clarity on the U.S. policy in the coming weeks, but so far it's been very incentive based, right? Europe is mandate based, so they're saying, we need this amount of SAF by a certain date, and if you don't comply with it, there will be a penalty. Other countries have adopted either incentives or mandate policies or even combination of the two, right? But we haven't found something that's really working, what I would say. So for me, if I had to pick my perfect policy, it would be incentive based, but more long-term clarity on the incentive. The problem with the incentives in the US is they tend to be very short-term.

And if I'm building a plant for 15, 20 years plant life and trying to get a return on investment for my investors, I need certain assurances that that incentive is going to be there for the long term. And we're just not seeing that the governments need to come work hand-in-hand with KBR, with the other stakeholders to understand how do we make this work. And we're having those discussions today. What's working I would say is the rapid development of technology and the rapid commercialization. So technology providers like KBR and others are really rapidly innovating and developing technologies in the space, which is exciting. And ultimately we're working on the other end to drive the cost lower, to make the economic barriers lower. That's our ultimate goal. If we were to come up with the perfect technology that we could offer a price similar to fossil jet prices, that would be the perfect technology. That would be the perfect way to implement SAF everywhere in the world. And I think all of us are driving for that, but we will need policy to support that.

John Arnold

How is KBR helping clients face the challenges that they're facing right now, both in clean fuels and in refining?

Brian Heasley

It's different for each refiner depending on region, depending on where they are in terms of profitability today. I think because of the uncertainty in the refining market, dollar amount of capital investments has gone down in refining. And so that means trying to find that low-hanging fruit that we can really address. So there are a number of technologies that we have that are lower capex and really solve big problems or make big efficiency improvements. So I would say when we look at the low-hanging fruit, bottom of the barrel, again, is one location that we look to with our ROSE technology, which really can ... I'll be bold in this statement, I think it's the most versatile technology within the refinery because we can go to any refinery or anything in the world and find an application for it, whether it's making lube oil, asphalt, going to petrochemicals, going to pet coke.

I think there's a home for this technology in every refinery, whether they have bottom of the barrel conversion today or not. So that's one technology I think we automatically talk to with all refiners. The other kind of low-hanging fruit would be around, we call it heart of the refinery, the FCC. A lot of these FCC units are very old and require a lot of attention, but there's also improvements that they can make to the FCC to boost yield to make it more efficient, so produce less gas or coke. And we have a number of equipment solutions to address that. And as I mentioned, going back to our history, 80 years of FCC, we are experts in FCC technology. Another technology I didn't talk about, which is very low-hanging fruit would be divided wall column technology or DWC. And this is a technology to take distillation, which is I think the most widely used operation within a refinery.

There's many, many, many distillation columns. We're always separating chemicals by boiling point because it's efficient. It's efficient, but it's also very high energy consumption. But one tool is this DWC technology, which has been around for over 20 years. KBR was originally involved with the Manchester Institute of Technology, UMIST, to develop this back in the 1990s and filed a number of patents. And also this has been implemented in over 15 plants globally, refineries. And it's a way to take those multiple distillation columns and combine it all into a single column. And this is a very affordable technology to implement as well. And we are a full-scope solution for it. So we would supply the equipment, do the engineering assist with startup, and this is a technology we're actively talking to a lot of refiners about today.

John Arnold

What's your take on how regulation is both creating challenges and driving opportunities, and how do the business strategies differ regionally? You talked about how the U.S. is more incentive-based, and Europe is more of a mandate or sometimes a combination.

Brian Heasley

Policy has historically always driven change in the refining. If you go back decades, there's been changes in policy, if you look at the MTBE ban in the U.S., right? Leaded gasoline phase-out in the U.S., so those were policy changes that made... As a result, refiners have to make significant changes, and we've seen these continue over the years. So refiners are very used to the regulations, and so I think it's inevitable that's how most refiners review it. But the changes we're seeing today are more fundamental and predominantly, I think the big changes are going to impact refiners are related to the energy transition. In Europe, there's internal combustion engine phase out, which will fundamentally change what refiners in Europe need to do. So European refiners are going to either have to find new home for that gasoline range material or export market will open up for them.

Other policies I think going on in the world, which maybe positively impact refiners would be kind of on the bio side. So there are incentives right in the U.S. for bio production. I think there's some other countries as well that have incentives in place for bio. So it's these energy transition type policies that are really affecting refiners. And the last one really maybe more significant would be carbon taxes or carbon pricing. Those will force refiners to make changes to decarbonize their refinery. Otherwise, they're subject to a tax, which if you look at the countries that don't have carbon taxing like the U.S., that'll put the U.S. in an advantage and then the other refiners at a disadvantage. So working hand in hand with the stakeholders I think is important in the industry because the impact of these policies should not be understated.

I think it will have, particularly carbon pricing will have a very negative impact on some regions, which may not be the intended consequence, right? So I think aligning that policy with the goal, decarbonization is great. We all want to achieve decarbonization, but how can you align that with profitability? That would be the goal, because otherwise what's going to happen is there's going to be an imbalance of policy. Hopefully we'll see more leveling of the playing field. That would be my hope that we see the policy level across the globe, which will just make everyone better off. That's my view.

John Arnold

So we've talked a bit about residual oil and bottom of the barrel. I wonder if you could tell us your last parting shot for what that has to play for refiners in the near and long term, and then also how that relates to KBR's position in the world of circularity.

Brian Heasley

For me, I think in addition to the adoption of EVs, electrification, which will take away gasoline demand, I think the next biggest impact for me will be the fuel oil change in demand going out to 2050 as we approach net-zero. So I mentioned the IMO taking action on decarbonization, that'll have a major impact on fuel oil. I think there will be other policies that go into place because there's other uses for fuel oil. So it can be burned stationary for power production, and I think there will be other policies in place that effectively reduce that demand completely. I'll start with the marine fuel. I think we're already seeing adoption of new fuels for marine fuel. We see ships that are running ammonia, methanol, and this will only continue. And of course for KBR, we're supporting some of these other fuels, ammonia, methanol namely.

For us, it's how can we enable the energy transition, whether it's in the refinery or if it's via ammonia. I think all of our technologies are really aligned with this massive change that we're looking at in the industry. And fuel oil is going to be a big one for refiners, so they're going to have to turn that fuel oil into something else. And ROSE and VCC are really going to be critical for refiners to achieve that. Again, the time is now to make these changes to position for the future. You can phase investments, but putting the plan in place today is very important because I think as we've seen, again, going back to the pandemic, a lot of refiners were caught off guard. And while I don't think we're going to see any drastic demand shocks like that in the future, we can't predict. Hopefully it's a gradual decline that we see that's more easier for refiners to prepare for. But if I'm a refiner today, I want to plan for the future to make me the most resilient refiner, then also become greener, become more efficient. These are all good goals to have.

John Arnold

Well, Brian, before I let you go, is there anything else you'd like to leave our listeners with?

Brian Heasley

No, I think it's been great, John. Thanks for the very good questions and I look forward to continue engaging with many of our clients around the world to address these challenges. We're here to help. That's my last message.

John Arnold

Yeah, absolutely.

Brian Heasley

Yeah, we're in this together. We're here to help you.

John Arnold

Excellent. Well, thanks so much for being on. We'll look forward to speaking with you again as some of these situations globally continue to evolve and we'll have you back on to catch us up on recent events.

Brian Heasley

Sounds great. So yeah, look forward to catching up in the near future.

John Arnold

All right. Thanks so much.

CONCLUSION

John Arnold

Well, we told you we were going to cover a lot of ground. Hopefully this discussion shed some light on some of the problems refiners in industries are facing and how KBR is well positioned to help solve them. Our thanks to Brian Heasley for his time, expertise, and candor on these important topics. Also, thanks to my colleague Lubna Salim for her help in putting this episode together. If you're interested in learning more about KBR's work in refining and clean fuels, I encourage you to go check out kbr.com. There's a wealth of information on those sustainable solutions and many, many others. If you like what you heard today, please go check out our back catalog.

You've got four full seasons of content to wade through to get you through to our next episode. If you have an idea for an episode or just want to say hi, please feel free to reach out to us at inorbitatkbr.com. And lastly, many thanks to you, our listeners. We've got a loyal listenership that we appreciate more than we can relate. We know there's always a lot of reasons why you can't listen, so we're grateful for the fact that you've taken the time to tune in and that you're keeping us in your orbit. Until next time, be kind to each other and take care.