Trade-Off Economics for Plant Turnarounds

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Trade-Off Economics for Plant Turnarounds

  1. 1. TURNAROUND INDUSTRY NETWORK CONFERENCE An Owners Only Forum for Industry Best Practices TINC 2008 June 16-19, 2008 Trade-Off Economics in Plant and Refinery Turnarounds Jan A. Jackson Senior Consultant – AP-Networks TINC 2007 – “The Continuum of TA Excellence” 2008 1
  2. 2. In case you did not know… “Smoking is one of the leading causes for …..statistics.” TINC 2007 – “The Continuum of TA Excellence” 2008 2
  3. 3. Background Purpose of Presentation 1. Describe various types of economic trade-off scenarios in the turnaround environment 2. Present some on-going high-level turnaround data research and emerging trends. 3. Provide a conceptual framework for your turnaround decision-making and trade-off considerations TINC 2007 – “The Continuum of TA Excellence” 2008 3
  4. 4. Background Proposed Methodology I. ESSENTIAL CONCEPTS II. DATA PRESENTATION  Constraints  TA Duration  Trade-Offs  TA Size (hrs, $)  Optimization  Labor Productivity  Opportunity Costs  Work Intensity III. CASE STUDY IV. SUMMARY  Shift Pattern  Refining Margin Conclusion  TINC 2007 – “The Continuum of TA Excellence” 2008 4
  5. 5. Background ECONOMY Increasing volatility in refinery margins 350 300 250 Cents/Gallon of Gasoline 200 Price of Gasoline1 (left axis) Crude Oil2 150 Refinery Margins3 100 50 0 JAN-86 JUN-95 JAN-02 APR-08 1 Spot Price EIA New York Harbor Conventional Gasoline Regular FOB, 2Cushing OK WTI Spot, 3NWE Brent Cracking TINC 2007 – “The Continuum of TA Excellence” 2008 5
  6. 6. Background INDUSTRY US Refiners approach 1980‟s capacity with ½ the plants 100.0 Utilization3 320 95.0 90.0 Number of Refineries 270 85.0 Capacity2 80.0 220 75.0 Input 70.0 170 65.0 60.0 120 55.0 70 50.0 1949 1980 2006 1 Information provided by www.eia.doe.gov, 2 Capacity and Input are displayed w/o axis. 3 Right axis is for Utilization TINC 2007 – “The Continuum of TA Excellence” 2008 6
  7. 7. Background REFINERY Refinery portion of Gasoline Prices in „07 varied greatly 3.80 3.60 3.40 US$/gallon for gasoline production 3.20 3.00 2.80 2.60 ~$0.34 2.40 Misc. Taxes 2.20 ~$1.26 2.00 1.80 1.60 Refinery Crude Oil 1.40 Gasoline 1.20 1.00 Cost of Crude 0.80 0.60 0.40 0.20 - 2007 1 Information provided by www.eia.doe.gov, FRS TINC 2007 – “The Continuum of TA Excellence” 2008 7
  8. 8. Background REFINERY The Refinery Cost Structure1 is dominated by crude 2.9% Refinery Net Income 1.6% 4.5% Other Refining Expenses 9.0% Other2 Refined Product Costs 36.0% Product Purchases 100.0% 91.0% Processed 55.0% Raw Material 1 Information provided by www.eia.doe.gov TINC 2007 – “The Continuum of TA Excellence” 2008 8
  9. 9. Background Context – Summary  Increasing volatility in refinery margins  U.S. has reached almost same capacity in 2007 with 149 refineries as in 1980 with 320  Major extraneous constraints are present on all levels:  Economy: Oil Prices set by World Market and events  Industry: Increasing regulatory requirements (safety, environmental, fuels, etc.)  Refinery: Limited options for capacity expansion, resource attrition  Turnaround: Contracting and labor, skill level  Turnarounds are being executed in an increasingly difficult context TINC 2007 – “The Continuum of TA Excellence” 2008 9
  10. 10. I. Essential Concepts What are “Constraints”? What are “Trade-Offs”?  The “Triple Constraint1“ of (Turnaround) Management  Constraints exist due to (inter-) dependencies  Constraints are an artifact of scarcity  They force us to consider trade-offs cost performance time TINC 2007 – “The Continuum of TA Excellence” 2008 10
  11. 11. I. Essential Concepts Constraints in the “real” world are not just „triple‟ but manifold cost personnel company skills objectives scope schedule refinery objectives personnel availability reliability TINC 2007 – “The Continuum of TA Excellence” 2008 11
  12. 12. I. Essential Concepts Optimization of the „Cost Curve‟ cost • Decreased labor productivity • More complex field management • Higher number of safety incidents • Increased general conditions • Expediting charges • Indirects • Inefficiencies in coordination • Rental Equipment 3 cost (crash) MINIMUM Cost Curve 1 TIME TRADE TRADE cost (opt.1) 2 time t(crash) t(opt.1) t(normal) TINC 2007 – “The Continuum of TA Excellence” 2008 12
  13. 13. I. Essential Concepts Opportunity Costs and the „Cost Curve‟ cost Cost Curve -revised- 3 cost (crash) cost (opt.2) MINIMUM 4 Cost Curve 1 TIME cost (opt.1) 2 Opportunity Costs time t(crash) t(opt.2) t(opt.1) t(normal) TINC 2007 – “The Continuum of TA Excellence” 2008 13
  14. 14. In case you did not know… “There are three kinds of lies: lies, damn lies, and statistics.” - Benjamin Disraeli - TINC 2007 – “The Continuum of TA Excellence” 2008 14
  15. 15. II. Data Presentation Labor Performance1 deteriorates with increasing TA size 1.70 LABOR PERFORMANCE INDEX 1.50 (+)100,000 hrs = (+)0.10 1.30 1.10 1.0 0.90 TOTAL TA HOURS 0.70 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 1 Labor Performance Index (LPI) is calculated by dividing Actual Hours Incurred and Planned Hours TINC 2007 – “The Continuum of TA Excellence” 2008 15
  16. 16. II. Data Presentation Higher Work Intensity1 adversely impacts Labor Performance2 1.55 LABOR PERFORMANCE INDEX 1.45 1.35 1.25 ~500 personnel / shift 1.15 ~270 personnel / shift 1.05 1.0 0.95 0.85 HRS WORKED / DAY (Work Intensity) 0.75 0 5,000 10,000 15,000 20,000 25,000 1 Work Intensity is defined as „Hours Worked per Day‟ 2 See previous slide TINC 2007 – “The Continuum of TA Excellence” 2008 16
  17. 17. II. Data Presentation Higher Work Intensity increases potential for Safety Incidents1 50 45 40 SAFETY INCIDENTS 35 30 25 20 ~270 personnel / shift 15 10 5 WORK INTENSITY (HOURS WORKED / DAY) 0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 1 Safety Incidents here are defined as the sum of (a.) First Aids and (b.) OSHA Recordable Incidents TINC 2007 – “The Continuum of TA Excellence” 2008 17
  18. 18. II. Data Presentation Larger TAs have increasing portion of „support hours‟ 0.40 Indirect manhour portion increases by 1% per each additional 20,000 hours in size for turnarounds up to 400,000 hours in size. 30% in support hours appears to be the upper limit. PORTION OF INCL. SUPPORT HOURS 0.35 0.30 27.5% 0.25 0.20 0.15 0.10 0.05 0.00 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 ACTUAL TOTAL TA HOURS TINC 2007 – “The Continuum of TA Excellence” 2008 18
  19. 19. II. Data Presentation Turnaround Durations by Shift Pattern 6-10s 7-10s 7-12s 2.00 7-10s and 7-12s show wide range of outcomes and strong potential for labor hour overruns of 40-60%. 6-10s are very 1.80 predictable with few „catastrophic‟ outcomes. LABOR PERFORMANCE 1.60 1.40 MEAN MEAN 1.20 1.00 0.80 SHIFT TYPE TINC 2007 – “The Continuum of TA Excellence” 2008 19
  20. 20. II. Data Presentation Turnaround Costs by Man-hours (left axis) and All-In Rate $100,000,000 $150.00 1. Total TA Costs and Labor Hours strongly correlated $90,000,000 2. Up to 300,000 hrs data have very tight fit to trend-line $140.00 3. “All-In Rate” level is elevated between 300-500,000 hrs $80,000,000 $130.00 TOTAL TURNAROUND COSTS 1 $70,000,000 $120.00 3 $60,000,000 $110.00 $50,000,000 $100.00 All-In Rate 2 $40,000,000 $90.00 $30,000,000 $80.00 $20,000,000 $70.00 $10,000,000 $60.00 $0 $50.00 0 200,000 400,000 600,000 800,000 1,000,000 TA SIZE IN MANHOURS TINC 2007 – “The Continuum of TA Excellence” 2008 20
  21. 21. II. Data Presentation Man-hours and Turnaround Duration 70 HRS/CD 20,000 17,500 60 15,000 TA DURATION IN CDs 50 3 12,500 2 40 10,000 1 7,500 30 5,000 20 2,500 10 0 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 TA SIZE IN MANHOURS TINC 2007 – “The Continuum of TA Excellence” 2008 21
  22. 22. In case you did not know… "The bigger the real-life problems, the greater the tendency for consultants to retreat into a reassuring fantasy-land of abstract theory and technical manipulation.“ (revised) - Tom Naylor - TINC 2007 – “The Continuum of TA Excellence” 2008 22
  23. 23. III. Case Study Creating the Base Case Baseline Shift: 5-8s MATERIAL 23.0% Estimated Dur.: 49 CDs GENERAL COND. No. avail. Men: 1,428 09.0% EQUIPMENT Scope Hours: 400,000 INDIRECT LABOR 68.0% DIRECT LABOR $ 10% - 30% INDIRECT hrs 70% - 90% DIRECT 0 7 14 21 28 35 42 49 56 TINC 2007 – “The Continuum of TA Excellence” 2008 23
  24. 24. III. Case Study Productivity Profiles1 1.100 Baseline Case 5-8s 1.0 EXPECTED DAILY PRODUCTIVITY RATE 1.000 5-10s 0.900 0.800 6-10s 6-10s 6-12s 0.700 7-10s 0.600 0.500 P1 P2 P3 P4 7-12s 0.400 0 7 21 28 CALENDAR DAYS 80 1 In TINC 2007 – “The Continuum of TA Excellence” 2008 24
  25. 25. III. Case Study Major Observations  Total Scope is base-lined as 400,000 Earned Hours on 49 CDs (5-8s).  Each shift pattern meets final scope target on a different day due to productivity differentials. TINC 2007 – “The Continuum of TA Excellence” 2008 25
  26. 26. III. Case Study Creating the Base Case 49 Days 39 Days 37 Days 33 Days 30 Days $80.0MM - 10 Days - 2 Days - 4 Days - 3 Days + $6MM + $7MM EQUIP. / GC PER DIEM EQUIP. / GC $60.0MM + $7MM PER DIEM MATERIAL + $10MM EQUIP. / GC PER DIEM MATERIAL EQUIP. / GC PER DIEM MATERIAL IND. LABOR $40.0MM EQUIP. / GC IND. LABOR MATERIAL PER DIEM IND. LABOR PREMIUM PREMIUM IND. LABOR PREMIUM 32% 32% MATERIAL PREMIUM 23% 15% $20.0MM DIRECT LABOR IND. LABOR DIRECT LABOR 7-14s DIRECT LABOR 7-12s DIRECT LABOR 7-10s 6-10s DIRECT LABOR 5-8s TINC 2007 – “The Continuum of TA Excellence” 2008 26
  27. 27. III. Case Study Turnaround Durations by Shift Pattern PRODUCTIVITY STUDY AND SHIFT PATTERN F-(7-12s) 33 CDs 4 CDs E-(7-10s) 37 CDs 2 D-(6-12s) C-(6-10s) 39 CDs 10 CDs B-(6-10s) A- (7-14s) 30 CDs 19 CDs BASE (5-8s) 49 CDs 20 25 30 35 40 45 50 CALCULATED TA DURATION TINC 2007 – “The Continuum of TA Excellence” 2008 27
  28. 28. III. Case Study Trade-Offs (e.g. capacity 200,000 bbl/d) $80.0MM 7-14s 7-12s 7-10s 6-10s 5-8s $12.00 margin bbl 2 $70.0MM + $6MM + $7MM $60.0MM $6.00 margin bbl + $7MM $4.00 margin bbl $50.0MM + $10MM $2.00 margin bbl 30 33 37 39 49 1 $40.0MM 20 25 30 35 40 45 50 55 TINC 2007 – “The Continuum of TA Excellence” 2008 28
  29. 29. III. Case Study Compression v. Acceleration FEASIBLE RANGE 3 4  Compression increases degree of concurrency (t(conc.)/total duration) 1 2 => increasing demand on coordination/supervision skills 0 7 14 21 28 35 42 49 56 TINC 2007 – “The Continuum of TA Excellence” 2008 29
  30. 30. IV. Summary  Larger TAs tend to have worse Labor Performance Index (LPI). The complexity of these events is not fully valued.  LPI development changes significantly at ~270 and ~500 personnel/shift  Portion of support hours increases by 1% for every 20,000 hrs up to 400,000 hrs, and then log to lim. 28%  All-In Rate is highest for TAs between 300-500,000 hrs.  Higher work intensity accelerates safety incidents.  Larger TAs have higher work intensity  Impact of 7-day shift schedules on LPI often underestimated TINC 2007 – “The Continuum of TA Excellence” 2008 30
  31. 31. IV. Summary The Need For Post-Turnaround Reviews of Data 1.0 Cumulative Productivity Incremental Productivity 0.9 0.8 0.7 0.6 ADDED CO HRS 0.5 7,200 HRS LOSS LESS IMPACTED PERIOD IMPACTED PERIOD LEARNING 0.4 0.3 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 21-JUL 27-AUG STEAM LEAK STRIKE ERROR ? TINC 2007 – “The Continuum of TA Excellence” 2008 31

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