SARAS S.p.A. Platts 6th Annual Refining Conference 1
Platts 6th Annual European Refining Markets Conference – 24th Sep 2012 Dario Scaffardi – General Manager, Saras S.p.A.
Maintaining Europe’s refining industry – independent perspective
SARAS S.p.A. Platts 6th Annual Refining Conference 2
• Structural challenges for the EU refining sector • Governments’ actions to defend a strategic industry • Initiatives of “self-help” – Saras’ case study
Agenda
SARAS S.p.A. Platts 6th Annual Refining Conference 3
Increasing prices and volatility
Structural challenges for the EU refining sector
Sources: IEA, Wood MacKenzie, CONCAWE and EUROPIA
Shrinking Oil Demand in OECD New Refining Capacity Additions
Environmental regulatory pressure
SARAS S.p.A. Platts 6th Annual Refining Conference 4
Governments’ actions to defend a strategic industry
Given the truly strategic role of this industry…
…EU Governments are considering various defensive measures
EU
Administrative simplifications for conversions and clean-ups
Green label for EU production,
to avoid “environmental
dumping” Stable and uniform
regulation across EU countries
Support to investments dedicated to increasing
competitiveness
Reconsidering time-frame for
development of bio-fuels
Energy Security
Mobility & transport
Reduction in greenhouse gas
emissions
Employment & job creation
Integration with other industries
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“Self-help” to pursue “Operational Excellence” Saras' Case study: Project “Focus” 2010-12
SARAS S.p.A. 5
Platts 6th Annual Refining Conference
A project conceived to pursue excellence…
As independent refinery Saras recognized that one of its main levers of value creation was operational excellence
…structured in 3 waves of intervention and supported by Boston Consulting Group
• New Organization • Asset Mgmt focus • Energy saving (step1)
• Labour cost & HR restructuring
• Product yields
• Commercial activities • Supply & Trading • Energy investments
Operational Excellence
Ener
gy
effic
ienc
y
Asse
t int
egrit
y &
fixe
d co
st
optim
isat
ion
Prod
uctio
n yi
elds
op
timis
atio
n
Asse
t bac
ked
Trad
ing
Asset Reliability & Efficiency Reactiveness to market dynamics
Wave 1 (2010) "Start the
change"
Wave 2 (2011) "Embed the
change"
Wave 3 (2012) "Enlarge the
change"
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Energy is today’s most relevant operating cost To tackle this, several initiatives launched during the Programme
6 6 SARAS S.p.A.
Energy has become 60%+ of refinery operating costs...
Source: Saras elaboration, BCG, EMC and Platts
2 1 0
2004-08 2009-10 2011 1H12 2001-03
$/bl
4
3
6 5
EMC Margin + variable costs C&L1
70
60
50
40
0 1H12 2011 2010 2007 2006 2009 2008 2005 2004
Energy cost as % of Opex
$ 38 $ 55 $ 65 $ 72 $ 97 $ 62 $ 80 Brent Price $ 111 $ 113
1. Consumption & Losses
... and Energy consumption is a key driver of profitability
$/bbl
Selection of Energy Efficiency initiatives
Platts 6th Annual Refining Conference
Flare losses reduction (-73% vs. 2008 baseline)
Fuel furnace optimization (-50% of 2008 extra-consumption
vs. technical specs)
Heat exchanger and flows re-routing
Steam and condensate system optimization (-8% vs. 2008 baseline)
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Asset integrity and fixed costs optimisation: Levers should address both “demand”, “supply” and “execution”
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Platts 6th Annual Refining Conference
Cost Savings vs. annualized cost basis:
• approx. –15% of maintenance costs • approx. –20% of other fixed costs (excl. personnel)
Improved performance vs. 2009 baseline:
• +0.7% in Operational Availability (~10% reduction on oil to oil time on critical TA)
"Demand" "Supply" "Execution"
•Review and optimize maintenance policies
•Root cause analysis and bad actors removal
•Challenge "turn around" scope of work
•Challenge of real needs for “non core” services
•Review make vs. buy policies – E.g. in-source ordinary
maintenance
•Foster competition among suppliers
•Encourage and incentivise suppliers productivity
•Reduce TA complexity allowing for workers productivity increase
•Minimize TA downtime – Challenge TA critical
paths – Optimize shutdown &
restart sequences
•Maximize "tool time"
+
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Production yield optimisation: 3 areas addressed to reach full technical performances
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Process units yields
Maximisation of yields to achieve technical specification of process units, i.e.: • VGO recovery • VSB conversion • MHC conversion • Topping LE recovery
Give Away
Reduction of losses and give-away of high-quality products, blended into lower grades, i.e.: • ULSD in Heating Oil • Slop reduction
H2 network
Optimisation of the Hydrogen network, to full exploit available H2 @ high netback process units
Platts 6th Annual Refining Conference
+ +
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Three main dynamics in current oil markets ... Platts 6th Annual Refining Conference
Source: Saras elaboration, EMC, Platts
Crack (spot, $/bbl)
20
10
0 Jul 12 Apr 12 Jan 12
Inter-month spread ($/bbl)
0,0
-0,5
-1,0
Jul 12 Jan 12
Ural-Brent spread ($/bbl)
0
-2
-4
Jul 12 Apr 12 Jan 12
Dominant backwardation but with different patterns across products
Volatile crack curves driven by supply & demand structure of underlying products
Fluctuant but prevailing shrinking trend of “Light-Heavy” crudes differential (with correlated high price for HSFO)
Gasoline Dec-Nov Gasoil Dec-Nov
Gasoline crack Gasoil crack
... require speedy reactiveness and Asset Backed Trading in order to exploit volatility, while hedging risk
1
2
3
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S&T can activate different optimization levers…
Inventory Mgmt
Planning of production
Crude Supply
& Trading
Oil Product
& Power
production
Pricing &
trading activity
(Reverse) Cash-and-carry
Third Parties
Deposits
Shift from an industrially optimized asset to a commercially optimized asset with an Asset Backed Trading approach
Optimized Asset Exploitation
Shift of crudes and prods slate
Dynamic Forward Trading
Crack Hedging
Crude reselling
Examples follow
Product Supply
& Trading
Whole-sale & Retail
Integrated logistical service
& pricing
Geo Arbitrage
Platts 6th Annual Refining Conference
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Inventory management: direct financial impact while exploiting market's price structure Deep Dive
1
Complexity of our refinery both challenging and supporting our efforts on Advanced Inventory Management
Planning of production
Crude Supply & Trading
Oil Product & Power
production
Product Supply & Trading
Whole-sale & Retail
Pricing and trading activity
Inventory Mgmt
"Improved financial profile: cash generation was very strong leaving net debt at EUR 82m only.
This improvement is attributed to […] optimisation of inventories as part of Project Focus"
• 20% reduction of oil and product stocks in backwardated scenario
• > Availability of storage for cash & carry strategies
M ton 1,5
1,0
0,0
-20%
Exp 4Q Exp 3Q Avg 2011 Actual
2Q12 A 1Q12 A
SarrochStocks
"Net debt was the real surprise, […], mainly thanks to the reduction of working capital,
related to inventory optimisation and valuation"
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Asset backed trading: value extracted by managing volatility and Dynamic Forward Trading Deep Dive
2
Planning of production
Crude Supply & Trading
Oil Product & Power
production
Product Supply & Trading
Whole-sale & Retail
Pricing & trading activity
Inventory Management
With an exposure of 10% for a 100 kbbl/day refinery, Dynamic Forward Trading has a potential value up to ~10 M$
• Leveraging on refinery natural long exposure to crack
• Creating additional value by
trading around hedging positions
• Enhancing a comprehensive perspective on margin evolution and its fundamentals
• 3 months pilot launched
1.4.12 1.5.12 1.6.12
10
8
6
Jul 2012 Gasoline crack vs. ICE Brent ($/bbl)
12
14
1.3.12 1.2.12 1.1.12
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Evolution of Fuel Oil economics: HSFO prices in the MED expected to drop in the Mid-Term
13
Fuel oil supply continues to decrease... • Less complex refineries (high FO yield) are the first to exit the market ... while "non-switchable" FO demand is increasing • Conversion capacity addition destroys FO to the advance of higher value products
Large availability of natural gas at lower price than FO Strong reduction of emissions in the MED required by IMO (MARPOL convention) • 0.5% sulphur by 2020 • Vessels could be "retrofitted" with LNG engines
HSFO marginal price aligned with natural gas Increase of “Light-Heavy” differential and refining margin for complex site
Short-Term Fuel Oil Supply & Demand
unbalance
Mid-Term HSFO drop expected, with
substitutes in bunker
Potential impact on refining margin
1
2
This scenario will benefit conversion refineries with a special "premium" for IGCC plants
Deep Dive
3
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30%
40%
50%
60%
70%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Ratio HSFO/GO [%]
14
Saras can take advantage of Mid-Term scenario for HSFO: thanks to its world largest gasification and power plant (IGCC)
Steam to refinery
Power to grid
IGCC simplified block diagram
TAR
Oxygen Hydrogen to refinery
Gasification Units
Gas turbine
SynGas purification & H2 separation
Steam turbine
SynGas
Saras’ Refinery business supported by a 575MW IGCC plant:
• The value of TAR is a function of its viscosity, the price of GO, and the price of HSFO
• ~1Mt of TAR (Heavy VisBreaking Residue) out of market
• High pressure Steam and pure Hydrogen to refinery units
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