Profit Recovery Through Optimized Performance

Owner-operators across the chemicals, oil and gas industry face a wide variety of challenges in both good times and bad. While there have always been a multitude of factors that could cause disruption to these businesses, the industry is now facing the combined impact of demand deterioration, supply overhang and increased pressure for renewable energy.

The current market highlights the importance for owner-operators to seek profit recovery through optimized performance.

Gaining Optimized Performance

Improving profitability through optimized performance is a top priority for owner-operators. Over the past three months we interviewed a cross-section of operation managers and strategists in the U.S. to discuss business impacts and the options to mitigate market uncertainty. Overwhelmingly, the common response was an indicated need for profit recovery.

As one vice president of strategy stated, “The times are tough, but they make us better. This market is forcing business discipline into the system.”

Profit recovery begins with capital deployment discipline. During market booms, owner-operators invest capital in growth projects. These investments take the form of expansion projects and profit diversification, like small-scale petrochemical integration in the U.S. In contrast, today’s market has forced owner-operators to reduce capital budgets and halt further major investment, even if it means stopping work at a construction site and focusing on asset performance for improved profits.

Good performance implies safe and reliable operations. While there are numerous facets to optimized performance, attention should be paid to these four areas with high potential impact.

1. Feedstock Selection and Scheduling

• Undertake detailed crude evaluations in the context of how it will be processed with all reasonable crude synergies; if possible, supply, trading and refinery should target three new crudes per annum.
• Use advanced feedstock selection tools for evaluation of large crude baskets for a wide range of price and demand scenarios; employ the refinery linear program (LP) for developing detailed screening, setting realistic cargo size and showing availabilities.
• Get feedback on crude quality from daily performance monitoring and see that feedback is provided to supply and trading.
• Perform detailed scheduling activity and evaluate each crude blend for downstream hydraulic and quality constraints.
• Shift to campaign operation, in which feedstock quality is predictable and unit operations are stable.

2. Unit Operating Envelopes

• Use optimum LP solution for campaign to generate process unit targets; targets are edited to represent realities, not contained in LP.
• Encourage regular discussions between planning and process engineering to capitalize on opportunities.
• Use accurate LP, with nonlinear representation of key units.
• Secure agreement on campaign targets and strategy with operations and technical staff.
• Review targets daily and update as required.

3. Unit Target Review

• Set a specific task force that is committed to daily process monitoring with an emphasis on semiregular unit test runs, refinerywide mass balancing, steam balancing and fuel gas balancing.
• Apply process simulation models to understand daily deviations from targets and identify opportunities to improve performance.
• Encourage unit process engineers to embrace being the interface between production planning and operations; this person is key to improving targets in a timely fashion.

4. Margin Improvement Workshops

• Understand “what good looks like” for a given process unit and rationalize the gaps.
• Focus efforts on identifying margin improvement ideas that leverage “no-cost” operational improvements.
• Share best practices across sites.
• Establish a solid base case of unit performance before investing in future revamps or new units.

Improving profitability through optimized performance centers around asset management. Profit recovery is dependent on having functioning assets and deploying capital where it can have the biggest impact. Owner-operators must first understand their assets, their condition and how to allocate resources to garner the highest return in this and any future market downturn.

Performing asset due diligence identifies risks and the range of potential outcomes by considering critical inputs tied directly to your financial model.