Optimizing the Hydrocarbon Value Chain
Refining companies have a multitude of lucrative coordination opportunities in their efforts to turn hydrocarbon resources into finished products.
In recent years, refiners have suffered with skills shortages, where crucial skillsets left the organization. At the same time, there has been a proliferation of data that makes decision-making more complicated, and after constant reorganization, the inter-departmental siloing of responsibility makes optimization across the total value chain more difficult to achieve.
Any hydrocarbon value chain improvement initiative must first have a clear set of objectives. Some companies seek to optimize working capital, and deployment of liquid inventories. Others seek to configure for optimal margins, while others are most interested in operational flexibility, and ensuring maximum throughput from refining assets.
In our view, there are as many as ten discrete departments that must work together to maximize the total hydrocarbon value chain. In general terms, they are:
Trading – Product exchange for alternatives to production, and getting the right crudes and feedstocks to maximize added value.
Planning – Identifying decision drivers through optimization including crude selection, operating conditions, stream dispositions, product blending and demand allocations;
Scheduling – Translating the planning decision drivers into a feasible and achievable set of execution instructions while minimizing logistics cost;
Process Engineering – Providing rigorous, technical process insight and direction that informs operations and planning and scheduling modelling requirements;
Refinery Operations & Maintenance – Executing safe, reliable and optimal production and providing current information that enables well informed plans and schedules;
Logistics – The movement of refined products to their final destinations efficiently and by the lowest practical cost.
Distribution – Placing product in quantity into the highest margin markets;
Production Accounting – Managing hydrocarbon losses and providing quality reconciled “actual” data;
Master Data Management – Providing a unified quality data for performance analysis;
Performance Analysis – Providing measurement and visualization capabilities that facilitate collaborative enterprise optimization and management of past, present and predicted performance.
The Functional Landscape
Below is a map of the functional landscape that illustrates some of the opportunities that are available for optimization at any given time:
Ensuring a uniform, latent and accurate set of data is helpful. Often outdated prices, incentives, and inventory positions make ‘optimizing for yesterday’ a phenomenon. We typically will commence an improvement project with a focused effort on making the refinery material balance more accurate and trustworthy. Further, there are number of techniques to improve the physical visibility of crudes and products in transit, giving them more of a real-time.
The planning process and cycle is also very important. Does manufacturing disregard aspects of the plan? Are changes to the plan adjudicated swiftly, with clear roles and accountabilities? When market opportunities present themselves, how long does it take to amend the plan? Does manufacturing chase day-to-day economics, or look to optimize over the longer term?
Better communication around maintenance events and upsets is also a common starting point. Although no one can accurately predict when an asset or unit will resume operation following a period of unplanned downtime, better focus on progress communication can help to mitigate maintenance changes to the plan. While a lot of focus has been placed on maintenance backlog reduction, overall expense reduction and reliability improvements, there needs to be an acute focus on mean time to repair (MTTR) and how status updates are provided beyond the refinery fence line.
Carbon accounting will undoubtedly become a more important consideration in optimization. With carbon pricing, carbon capture and storage, green hydrogen, and renewables of all forms are becoming part of the equation to optimize, value chain optimization professionals need to at the total bottom-line. Recent changes instituted by the US Inflation Reduction Act only make these considerations more financially relevant.
In our experience, the optimization benefits available will include hundreds of millions of dollars in free-flowing cash from better working capital management and decisions. The achievement of a sustainable cost reduction across the value chain equivalent to between fifty and one hundred fifty cents is also entirely achievable. A well-oiled hydrocarbon value chain is also less susceptible to shocks, more responsive to capturing general interest economics, as well as delivers a more robust supply to ensure that refining assets perform at their optimal rate.
This article is written by Adrian Travis, President of Trindent Consulting