At this week’s Petchem Tech Conference in Houston, Andrew Sloley delivered his thinking on the opportunities and strategies for successfully integrating refineries and petrochemical plants in today’s volatile market.
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Rapid market swings create shifting economics for refinery-petrochemical integration
1. Rapid market swings create
shifting economics for
refinery-petrochemical
integration
Refining, Petrochemicals and Rails
Andrew W. Sloley - Principal Consultant, Advisian
Larry A. Shugart - Railway Consultant, Advisian
Prepared for Presentation at the Petchem Tech Forum
Houston, TX, July 2016
Copyright Advisian. A. W. Sloley, L. A. Shugart. All rights reserved.
3. Volatility and profits
Market volatility is increasing, and its impacting:
• Feed and product values
• Shifting asset owners
• Regulatory action
• Political uncertainty
The result - short-term profit opportunities
10. Objectives
1. Introduce refining and
petrochemicals to each other
2. Identify opportunities
3. Connect the refinery and
petrochemical plant through
pipelines on rails
16. 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:
18. 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.
19. 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.
“
”
20. 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.
21. How to collaborate? … first, understand
the benefits of rail
Analyze the logistics system - identify its components,
highlights and economic background
22. Processes
In a high-performance logistics system, three
elements must be aligned
Logistics System Framework
Structure
Organization
Alignment
Facilities
Carriers
Commodity Flows
Planning
Operations Control
Procurement
Metrics
Information Systems
Organization Structure
Usually reasonably
understood
Often the biggest gap
Typically room for
improvement
23. 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)
24. Logistics system analysis
Dependence on one pipeline route,
customer or receiving agent
Planning for disruption
Cost of ownership of tank cars
Regulatory constraints
Securing construction resources
Planning a network and its associated resources
Operation and maintenance of fleet
Options analysis
Logistics chain optimization modeling
Route selection
Challenges through-out project life-cycle
International procurement
Design and execution planning
Construction logistics
Supply chain development
Progressive risk mitigation
25. Trains only
move when all
resources are
available:
Train
Departs
Locomotives
Crews
Cars
EOT
Paperwork
Interchange
Track capacity
Mainline slot
26. The rail service is set by
the cost structure - the
cost structure determines
the rail tariffs…
Incremental costs – direct costs of adding a
piece of traffic
Variable 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
27. Economic costing analysis
Uniform 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
29. 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.
30. Successful companies
profit from volatility
Volatility is increasing. Operators need to
accept these current conditions and make
the best use of existing assets to continue
to profit.