Today’s refineries operate in a volatile market and within complex processing environments. They face many challenges, including low margins, a decline in experienced industry professionals, the consolidation of refining assets, mergers and acquisitions (M&A) and higher operating costs, due to rising feedstock, energy prices and environmental expenses.
The traditional silo practices that historically blighted the industry created inefficiencies in the operational structures of the downstream supply chain, which can hamper improved profitability. Consequently, the need for a more effective supply chain management culture shift is increasingly urgent. Integration of the supply chain often requires changed business processes and working practices, supported by the latest technology and integrated software tools.
Managing demand - scoping the challenge
Optimisation of the supply chain can significantly improve company profitability by creating a more streamlined and agile company that can react faster and better to market opportunities. As refiners move away from the traditional supply push model to a demand pull model, an accurate demand forecast will become increasingly important as this will drive critical operations and supply decisions. The more accurate the demand, the better the planning. Put simply, if you do not know where you need to go, then you risk not optimising the route and going to the wrong place.
Refiners’ margins will remain uncertain as demand for petroleum products grows modestly in the developed world, while the world’s refining capacity expands in developing nations. Over the past three years, new builds (new refineries) and revamps (expansions of existing facilities) have occurred in India, the Middle East, China and Latin America. These new refineries are being built to high standards of efficiency and automation providing a low-cost base for production and enabling these new refiners to satisfy growing local demand while competing effectively in an increasingly global marketplace.Keeping costs under control
Refiners are expected to incur higher operating costs in the future due to increasing charges of feedstock, energy and labour. Also, existing and new HSE (Health, Safety and Environment) regulations, especially those due to the pending cap-and-trade legislations in OECD countries, can add to operating costs. Cost uncertainties surround new environmental regulations globally. There are changes in the US and European Union and new legislation is being considered in many Asia-Pacific countries. So, how can refineries tackle these challenges and still remain in business?The strategic response
Globally, the refining industry is responding in a number of ways. Refiners are seeking to lower crude feedstock acquisition costs. Although the price of a barrel of crude on the spot market is not as high as during late 2008; relative to finished product prices, crude prices do remain high and put downward pressure on margins. As crude production declines in established producing areas like the North Sea, Mexico and Alaskan North Slope, refiners must seek other feedstock sources to compensate for existing declining sources. Over time, most refiners must broaden their crude slates in an effort to lower average acquisition costs.
Refiners are focusing on operational excellence. The approach is to optimise operations by squeezing as much as possible from existing operations and through better utilisation of supply chain assets, including better use of refineries, transportation and distribution assets. In driving through this response, refiners are focused on operating the plant for optimal production, but also in managing the supply chain. Their focus is on making the most of resources they have in place (people, plant and software tools) to maximise margins or ROCE (return on capital employed).
In doing so, refiners need to concentrate on the following key areas:
- Achieving enhanced productivity through optimised throughput and better management of existing manufacturing assets
- Following best practices in crude and feedstock selection, refinery production, energy management, distribution scheduling and delivery
- Meeting new manufacturing and product standards quickly and cost effectively
- Tapping into the best technology expertise and delivering the most profitable refinery plans possible.
By optimising refinery operations and managing the supply chain, refineries have the potential to deliver an integrated petroleum supply chain and optimise value from the chain as a result.
Driving integration – the holistic approach
Ultimately, this can only be achieved by integrating the business processes, personnel and technology across the supply chain to efficiently procure, refine, distribute and sell petroleum products. Significant benefits can be derived by streamlining the business process and optimising margins across production, refining and marketing.
Far too many refineries are currently tackling industry challenges in silos. Supply chain optimisation can only be achieved by evaluating the whole picture. Leading companies have invested in the integration of their supply chain business processes to provide greater visibility across the chain which, in turn, provides the ability to minimise losses and to exploit opportunities to maximise profitability at each step in the supply chain.
Typically in this context, this means the ability to improve interaction between business units, respond to supply and demand fluctuations and resolve schedule conflicts while supporting real time visualisation of demand, inventories and refinery production and, ultimately, reduce costs whilst increasing volume and margin.Operational best practices
Based on the benefits of the integrated platform outlined above and the importance of focusing on supply chain efficiencies, refineries are responding with a broad range of operational best practice approaches, including the following.
Planning and scheduling
- Demand-driven global supply chains - having systems to use market demand to guide commercial and operational decisions in determining the best yields from the plant
- Crude feedstock optimisation - given that feedstocks represent the major operating cost of the refinery, it is imperative to optimise the crude slate charged to the crude units, not only in terms of overall costs, but the appropriate demand-driven yields that the refinery can get from an optimal crude slate
- Energy management across the refining supply chain - lowering energy costs has long been a target of improved efficiencies in the refinery. With the emergence of new Green House Gas emissions legislation, the need to be more efficient in the operation from the expanded supply chain is essential
Integrating Planning and Scheduling is critical to ensure an effective data flow in the refinery. Planners and schedulers can now anticipate refinery and market changes by reacting accordingly with the use of optimisation software tools.
A good example of process optimisation software tools that help engineers to achieve such goals is AspenTech’s own aspenONE Integrated Petroleum Supply Chain. The applications tools help drive key values of increased profitability: agility, flexibility and productivity and are ultimately where an integrated petroleum supply chain links most closely to the achievement of business advantage. Another example is Aspen IMOS, which enables advanced distribution scheduling and inventory management to lower transportation and distribution costs
Investment in such software tools brings enormous return on investment by enabling companies to respond quickly and profitably to changes in the supply chain and marketplace generally. This increased agility can lead to higher overall profits and deliver flexibility by providing applications to quickly modify plans and schedules based on opportunities and challenges. Integrated data flows enable collaboration between refining and distribution departments that can occur in minutes rather than hours or days, saving labour costs and resulting in better decisions. The value proposition
Software tools can help engineers optimise refinery throughput while considering distribution and transportation constraints to optimise the overall supply chain. Production plans can be integrated within the refinery scheduling and blending systems to maximise the highest margin and production from the refinery leading to greater efficiency. The ultimate goal is a virtualisation of the whole supply chain and to have a seamless system that will provide true value. Decisions are taken at different stages across the management hierarchy from planning, scheduling and operations. Aligning each step is a complex process, which is vital to achieving standards and gaining competitive advantage. However, the decision to invest in appropriate technology is more than a proposition – it is a commercial necessity.AspenTech
Eric Petela is director, business consulting at AspenTech, the world’s leading supplier of software that optimises process manufacturing. Always at the forefront of innovation in the process industries, Today the company’s aspenONE solutions are used by virtually every leading company in the process manufacturing sector.
For further information please visit: www.aspentech.com