Profit Pivot Points in a Refinery-Petrochemical Integrated ...
Rapid market swings create shifting economics for refinery-petrochemical integration
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Transcript of Rapid market swings create shifting economics for refinery-petrochemical integration
Rapid market swings create shifting economics for refinery-petrochemical integrationRefining, Petrochemicals and Rails
Andrew W. Sloley - Principal Consultant, AdvisianLarry A. Shugart - Railway Consultant, AdvisianPrepared for Presentation at the Petchem Tech ForumHouston, TX, July 2016
Copyright Advisian. A. W. Sloley, L. A. Shugart. All rights reserved.
Volatility of feedstock prices in the refining and petrochemical business
Volatility and profitsMarket volatility is increasing, and its impacting: • Feed and product values• Shifting asset owners• Regulatory action• Political uncertainty
The result - short-term profit opportunities
Market and asset risk
When industry invests in heavy oils… everything is good.
Then tight oils arrive.
© 2012-2014 WorleyParsons
When industry invests in LTO… everything is good.
Then crude oil prices collapse.
Market and asset risk… reprise
Volatility in the market – long-term
Volatility in market – last 10 years
Refinery-PetroChem IntegrationIntegrated facilities have more flexibility and as a result, majors are moving their investments more towards integrated units (e.g. ExxonMobil and Shell).
Refinery-petrochemical integration
Objectives1. Introduce refining and
petrochemicals to each other2. Identify opportunities3. Connect the refinery and
petrochemical plant through pipelines on rails
Refinery-Petrochemical linksConventional Liquids• Naphtha to reforming• Reformate to aromatics• Naphtha to steam cracking• Gasoil to steam cracking
LPGs• Propane-propylene• Propane to cracking
Conventional Liquids• Naphtha to reforming• Reformate to aromatics• Naphtha to steam cracking• Gasoil to steam cracking
LPGs• Propane-propylene• Propane to cracking
OpportunityCurrent pricing
Refinery-Petrochemical links
Example fuels refineryFe
eds
Example integrated complex
Link between configurations
light ends
naphtha
kerosene
Gas Plant
HTreat
Treat
Reforming Aromatics
TDP
Cryst - Abs
Anhydride
PTA - DMTpta
dmt
anhydrideso-xylene
xylenes
benz-tosolv
gasoline
kerosene
Logistics System• Shipper storage• Rail• Receiver storage
Pipeline on Rails• Rail concepts for refiners and
petrochemical operators
How to link the Refinery to the Petrochemical Plant:
Pipelines on Rails for integrating refineries and petrochemical plants
Why Pipelines on Rails?
Existing rail services are flexible and available, and require less permitting than pipelines.Operators can implement phased approaches starting with pipelines on rail, then move to pipelines.
What is the general approach to rail?… some anecdotes
Our corporate culture prides itself
on decentralized decision making.
Large Coal Company
International Agribusiness firm
“
”
We are a mining company, not
logistics specialists.
“”
A high-performance logistics system requires collaboration
Too often shippers and rail carriers are combative instead of collaborative.
There are many opportunities for them to work together for mutual benefit.
How to collaborate? … first, understand the benefits of rail
Analyze the logistics system - identify its components, highlights and economic background
Processes
In a high-performance logistics system, three elements must be aligned
Logistics System Framework
Structure
Organization
Alignment
FacilitiesCarriersCommodity Flows
PlanningOperations Control
Procurement
MetricsInformation Systems
Organization Structure
Usually reasonably understood
Often the biggest gap
Typically room for improvement
How do plants select the best logistics system?Optimization is required
The best option must be determined by:
• Price• Time• Reliability• Safety• Ease of doing business• Value added services
= 1,250 miles (rail)
= 1,450 miles (rail)
= 1,100 miles (truck)
Logistics system analysis
Dependence on one pipeline route, customer or receiving agent
Planning for disruption
Cost of ownership of tank cars
Regulatory constraintsSecuring construction resources
Planning a network and its associated resources
Operation and maintenance of fleet
Options analysis Logistics chain optimization modelingRoute selection
Challenges through-out project life-cycle
International procurement
Design and execution planningConstruction logistics
Supply chain development
Progressive risk mitigation
Trains only move when all resources are available:
Train Departs
Locomotives Crews Cars
EOT Paperwork Interchange
Track capacity Mainline slot
The rail service is set by the cost structure - thecost structure determines the rail tariffs…
Incremental costs – direct costs of adding a piece of trafficVariable costs – changes proportional to overall traffic volume (fuel, labor, maintenance)
Fixed costs – may be variable over the long-term (depreciation, management, and sales, general, administrative (SG&A))Average costs – assigns all costs to all traffic evenly (cost per carload, cost per net ton mile, cost per loaded car mile)Fully allocated costs – assigns all costs to all traffic using logical activities
Economic costing analysisUniform Rail Costing System (URCS)• Based on multivariate models from
the 1970s• Primarily used to support regulatory
proceedings – not used by railroad companies to set prices or for internal management
• Has been widely accepted due to familiarity and enormous case history
• Maintained by Surface Transportation Board (STB) – these are the boxing gloves
The economic models use production function to assign cost to using the following activities:• Fuel – Gross ton miles• Train crew – Train miles• Track costs – Gross ton miles• SG&A – Carloads• Car maintenance – Car miles• Car capital – Car hours• Locomotive costs – Horsepower hours• Terminal costs – Car handlings
Competitive price analysis
Regulatory LimitsEquivalent truck priceCompetitors:• Across-the-fence• Open gate versus closed gate• Arbitration modelsAlternate modes (e.g. pipelines)Sourcing competition (e.g. transload terminals, mixing centers
Pipelines on Rails Business Case
Arrangements must make sense for the:• Supplier (seller)• Shipper• Receiver (buyer)Obtain the capabilities to understand each stakeholder’s business and economics.
Successful companies profit from volatilityVolatility is increasing. Operators need to accept these current conditions and make the best use of existing assets to continue to profit.