Improving margins at oil refineries through operational excellence

18 April 2018 Authored by Consultancy.uk

Improving operational excellence remains a top priority for oil & gas players. Colin Chapman and Ekaterina Kalinenko of London-headquartered Euro Petroleum Consultants (EPC), reflect on measures for improving efficiencies in oil refineries and facilities.

In the current environment, it has become increasingly important for companies to operate existing assets in the most efficient manner possible – this in order to sustain and improve margins. It is also important to design revamped or new facilities with advanced solutions for the same reason. To manage assets efficiently, companies should develop a strategy or roadmap for operational excellence, which will help save on costs and lead to higher margins.

Achieving high levels of efficiency and reaching world-class level in specific areas of activity could enable net profit growth between $2 and $3 per barrel. For large refineries these amounts can be significant. Key areas of operational excellence include technical systems; competency and skills development of staff; efficiency management; and mindset and behavioral stereotypes.

When we look at how refineries or facilities operate, they usually fall into four principal categories depending on their level of operational excellence:

  • Survival mode – company tries to operate normally but frequently uses inadequate and inefficient trouble-shooting methods due to lack of personnel competency; results are: high costs, unstable operations and low level of process safety
  • A path to stability – the focus is on improving occupational safety and key technical aspects of operations system; results are: stable operations coupled with comprehensive level of safety
  • Aiming first quartile OpEx levels – efficient operational system which covers all four major elements of Operational Excellence; results are: in some areas companies can achieve top industry levels
  • Leadership pace setters – all aspects of operations (including contractors’ activities) are executed within the framework of company’s unified operational system, personnel involvement and compliance with system’s principles are ensured via continuous training and leadership from the management side; results are: efficiency levels within global standards, personnel are actively involved in the process and makes effort to increase created value.

Operational excellence can improve margins at oil refineries

The roadmap for operations improvement should cover all four essential components of the operational system, enabling companies to achieve high results.

Technical systems

  • Ensure maximum efficiency of implementing ‘lean production’ methods
  • Develop & introduce the most advanced technical system via pilot projects implementation at process facilities

Competence/skills development

  • Define on a company scale and delegate needed authority to work group, the goal is to plan sustainable transformational changes
  • Create special corporate academy for training in-house experts Efficiency management
  • Set high-scale goals for the company and define a set of KPIs that would range according to different organisational levels
  • Adopt a routine of regular meetings to discuss efficiency issues at all levels of management

Mindset and behavioural stereotypes

  • Understand the mentality and attitude of employees that are present to date
  • Develop a structured plan and/or ready-to-implement scheme of a future operational system
  • Ensure personnel’s commitment in achieving targets. Important to address motivation issues

Technical system

The technical system at any refinery embodies a large number of components, so to understand and measure them efficiently a variety of analytic methods is needed – usually these include comparative analysis with the use of industry benchmarks as well as global standards compliance indexes analysis. When looking to meet the future challenges facing the refining industry, companies tend to invest in Increasing level of conversion, and yielding world-class quality products.

It remains very important to incorporate best practices into the design to enable meeting future targets of operational excellence. Deeper conversion is a way of resource-saving for companies that allows production of approximately 1.5 times more valuable oil products out of one ton of crude cutting. The refining industry is one of the most capital-, material- and energy-intensive industries, hence it is important to optimise refinery operations and to obtain maximum benefit from assets. Possible ways of raw material optimisation include:

  • Increasing conversion per ton of crude oil processed
  • Improved productivity of process units (higher yields of main products)
  • Crude and oil products loss control and minimization
  • Lower fuel consumption
  • Process configuration optimisation.

Refineries with higher levels of conversion will be better placed to adapt to the changing market situations.

Achieving high levels of efficiency could increase profit growth significantly in refineries

Focus on efficiency improvement

To advance technical aspects of refinery operations it is vital to assess process optimisation efficiency: analyse the current LP model, blending recipes and procedures, and decisions for buying/trading products. Energy consumption (electricity, fuel and steam consumption) is one of the largest refinery cost items. To improve total company efficiency, usually the refiner has to implement numerous middle- and small-scale improvement programmes.

With a relatively modest level of investment, a company can eventually save millions of dollars a year by substantially reducing energy consumption. Another area needing attention is environment protection. This factor affects costs, product quality, process safety and company image more and more every year. Plants may lose their license to operate if they do not comply with the increasingly stringent environmental requirements. That supports the message that development of environment policy, along with energy and resource-saving, is an important factor for the future financial state of the company.

The maintenance process and its organisation at refineries are important elements of  the technical system, and also key to facilitating improvements. Incorporating ‘lean production’ principles is going to also have a tremendously beneficial effect. For example, one refinery implemented methods of quick setup and maintenance, which allowed maintenance staff to shorten the compressor valve turnaround period by 75%.

Implementation of an integrated refinery operational improvement roadmap/programme may become a source of additional profit – EBITDA per barrel of processed oil (one of the main financial and operational indexes that indicates plant efficiency) could be increased by $2-$3; for a refinery with a capacity of around 10mn tpa it would mean some extra $150-$200 million per annum in revenue. In this era of increasing pressure on refining margins it is imperative to improve refinery operational efficiency to maintain competitive advantage in the coming years.

Conclusions

An important benefit of an integrated approach is the sustainability of the transformation. Once real results are achieved this will give motivation to staff to identify further improvements on a continual basis. Implementing an energy-efficient scenario in the oil and gas industry will substantially increase operational and financial efficiency. Medium-sized oil companies would be able save up to $50-$70 million per annum through resource-saving technologies and create a full database from benchmarking and case study experience, and can then use such experiences at other company assets. Improving efficiency should be viewed as an ongoing task, and by implementing such an approach companies can sustain and improve their position in the markets.

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