Assignment 2

Methodology
Min c=c c + ci + c x +

4
0.7952
+1.813ip ( nt+1.2 q )0.861 4.2510
2.09104 t 0.3017 1.064106 a t 0.4925 4.24210 a t
+
+
+
360
52.47 q(60)
52.47 q(360)
52.4

Parameters: a is the annual fixed charges fraction (0.20),

ci

, insurance cost (0.50 $/kL),

cx

cc

crude oil prices (12.50 $/kL),

, custom cost (0.90 $/kL),i interest cost (0.10),

n number of ports (2), p land prices (7000 $/m)

Vary: Refinery Capacity, refinery capacity, q ( bbl/day), Tanker size, t (kL)
This problem is clearly an unconstrained multivariate minimization problem. (However, it is
noted that there were trivial constraints such as q and t must be positive real number which
were not specify explicitly in the solver.) A MATLAB pre-defined solver (fminsearch) that
uses a Nelder-Mead simplex algorithm was used to solve this optimization problem. An
100

initial guess of q = 10 and t = 10 was used with a function tolerance of 10

. Based on

figure 1, fminsearch is able to converge to a local minimum with 121 iterations (q =

1.7956*105 bbl/day and t = 4.4638*105 kL, c = 17.8799).
To verify that this solution is indeed the best solution (for t>0, q>0), a plot 3-D plot of cost
function w.r.t to refinery capacity and tanker size were plotted from (t,q = 0 to 1*106). It
could be observed from the graph, when t and q are within the range investigated; the
function has only one local minimum. In addition, careful analysis of the cost function
reveals that as q and t is large (above 106) and is of similar magnitude, the cost function could
be approximated to be:
0.1049 q 0.671
Min c=c c +ci +c x +
360
This is clearly a monotonic increasing function and therefore, it could concluded that for the a
positive t and q domains, the minimum cost of the refined oil (dollars per litre) is
approximately $17.88.