Refinery Margin System (RMS)

Over the past decade, there has been significant volatility in the profitability of petroleum
refining. In order to put this volatility in perspective and to gain some insight into future
trends, it is important to understand the fundamental factors that affect refinery product prices.
During these times of global financial uncertainty and fluctuating oil prices, you have to
maintain your existing plants and machinery with minimum investment whilst trying to
achieve maximum returns from existing equipment and production installations, with limited
or no interest in new grass root refineries due to the economic crisis, and worse, volatility in
petroleum prices . This can only be done when you have the right decision- making strategies
and you implement them effectively, utilizing up-to-date margin calculations & forecasting
(daily, weekly or monthly).

Understanding the Problem that will be required to make -Crude cost

New York, Oct. 23, 2008 (UPI) -
Crude oil prices rose to $69.40 a
barrel on the New York Mercan-
tile Exchange Thursday, although
prices are still riding an overall
downward trend. Falling stock
markets and a strong dollar are
undermining the price of oil, which
has fallen more than 50 percent
from its high of more than $147
per barrel in July, 2008.
England, Dec 08, 2008(The
Market Oracle) - Crude Oil Fore-
cast 2009- Time to Buy? China
and other emerging markets are
eyeing the fall in crude oil price
to utilise huge trade surplus for-
eign currency reserves to buy up
R crude oil reserves exposure
wherever possible, this has re-
E sulted in less of a decline for oil
majors stock prices despite the
P 70% oil price crash.
O Petroleum refining in the new
millennium has become an ex-
R tremely competitive business.
T Given the huge capital expendi-
tures in the form of master plans
cleaner fuels (EU 2005,2012)
and to meet new environmen-
tal limits ( Such as : Kyoto proto-
col Feb.,2004), refiners will need
to become more efficient to sur-
vive financially. The system
should cover the critical tools that
will allow refiners to boost their
margins, development and use of
LP models, interactions between
operations and marketing groups,
short- term and long- term plan-
ning for optimizing refinery
operations, cost reduction by im-
proving unit/ refinery reliability,
reducing refinery losses and con-
servation of energy.
Definition of Refining
Margin
There are different kinds of re-
fining margins. This article focuses
on refinery net margin (net in-
come), dollars per barrel of crude
oil process, which is defined as:
Refinery net margin=
N
Σ (price producti xyield producti)
i
-other feedstock cost
-variable cost
-Fixed cost
-Maintenance cost
-Depreciation
-Loss
Where:
• N represents all oil products
produced, including gasoline,
kerosene, LPG, fuel oil, gas oil,..
• Price product, is the volume of
product
• Yield product, is the price paid
for a barrel of crude oil
• Other feedstock cost, include
costs for MTBE and purchased
gas condensate and so on,
• Variable cost, include fuel
burned during processing, elec-
tricity, steam, catalysts and
chemicals, cooling water re-
quired to process the crude oil
• Fixed and maintenance costs,
include all personnel, engineer-
ing, supervisory, maintenance
materials, laboratory, clerical,
property taxes, insurance and cor-
porate overhead, subcontractors

Refining
Margins 16 HYDROCARBON ASIA, JAN-MAR 2009 Visit our website at: http://www.safan.com
 TABLE-1 :Crude oil price assessment
• Loss cost, including the cost of 1Q 4Q 2Q 4Q Jul. Crude price,
allowable & non allowable hy- 2009 2008 2008 2007 2003 $/bbl
drocarbon wastes produced dur- —— 59.21 121.18 88.45 28.02 Brent,UK
45 64.01 123.8 90.47 30.70 WIT,USA
ing processing.
( Ref.: Platts, oilgram price report, 2003-9 and EIA2009)

This margin is a key determi-

nant of refining profitability, ( Fig-
ure-1),( Figure -2)

Figure- 1: Gross margin.

Figure 2: Refining margin vs. Budget

Refining Margin Trends

Analyses of refined oil prod-
ucts and feed (crude oil) supply
and demand balances indicate
that four major considerations
may affect a refinery’s output
profile and its margin. The two
most significant of them are the
type of crude being processed
(light or heavy) and the refin-
ery’s configuration – whether
simple (a hydroskimming re-
finery, with a distillation unit
and a reformer), a semi- complex
(with a visbreaker added or com-
plex (with a catalytic cracker /
hydrocracker or some other ad-

HYDROCARBON ASIA, JAN-MAR 2009 17


vanced upgrading unit). The
other considerations are supply /
demand of crude and products
with regards to political, techno-
logical, environmental, govern-
mental policies of countries and
international assemblies. The last
factor which the Global Oil Re-
port highlights is Utilization Rate
of Primary Distillation Capacity
and Secondary Processing Units.
The accompanying tables (1) &
(2), using data supplied by Platts,
BP and EIA, show the downside
trend of refining margins and pe-
troleum prices of some geographi-
cal areas (USA, Singapore, Europe)
in the world during the 2003-2009
period, as well as the fast changes
of oil product prices of some main
petroleum products (such as Gaso-
line Kerosene, Gas oil, ….)during
this period worldwide.
TABLE-2 : Refining Margins ($/bbl)
4Q2008 2Q2008 4Q2007
4.63 9.49 8.49
4.89 9.41 5.8
——— 7.46 4.84
(Ref .: Pllats, Oilgram price report , 2008 and BP 2008)
How to Improve Profit
Margins
In addition to considering some
significant factors mentioned be-
fore for improvement of refinery
Refining
Margins 18 HYDROCARBON ASIA, JAN-MAR 2009
profitability and company profile,
top management or personnel who
are concerned with improving re-
finery economics should consider
the following factors too:
1) Long-term refinery planning
(LP Modeling, margin calcula-
tion,…)
2) Long-term investment plan-
ning (feasibility study,
benchmarking, master plan,
management information sys-
tem, EFQM,… )
3) Improving Unit / Refinery
reliability (CMMS/..)
4) Optimizing refinery unit op-
erations (use of simulation
models,…)
5) Expanding refinery margin
through energy management
plan (energy auditing, econo-
mizer, Preheating Pinch tech-
nology, energy reduction,
HSE, …)
July 15, 2003
5.26 U.S.A.,$/bbl
3.59 SINGAPORE,$/bbl
2.87 EUROPE,$/bbl
6) Reducing refinery losses and
producing more value-added
products
7) Continuous refinery margin
calculation & forecasting
Conclusion
In today’s refinery environment
and economic fluctuation in the
world, it’s a necessary and eco-
nomically important approach
that all refiners should make the
most profitable decisions for run-
ning, establishing and develop-
ing their profitable refineries
considering the latest prices of
crude oil and their products costs.
For applying this approach, the
top management of the refinery
should review refining margin
trends’ status daily with the use
of up-to-date international
prices of crude and oil products
data entered in a simple refin-
ery margin calculation software
to take into account any correc-
tive and preventive actions to
remedy or counter any probable
economical worldwide fluctua-
tions and threats. HA
This publication
thanks Mr. Hamid
Reza Seyed Jafari
for providing this
article. He has
over 15 years of working expe-
rience in process engineering
and management system en-
gineering in the Shiraz Oil Re-
finery in Iran. He is currently
expert in management system
engineering & is in charge of
planning and control of Shiraz
oil refining company(Iranian
Title
petroleum ministry, NIORDC).
He holds a BS in chemical engi-
neering from Petroleum Uni-
versity, and a Masters in
Industrial Management from
Iranian Science & Technology
University of Iran. He also
holds a diploma in Economic
& Management downstream
from IFP, France.
Visit our website at: http://www.safan.com