KBC VIEWPOINT:

AGGRESSIVE OPTIMIZATION
PROGRAMS ARE CRITICAL FOR THE
SURVIVAL OF MARGINAL REFINERS
AGGRESSIVE OPTIMIZATION PROGRAMS
ARE CRITICAL FOR THE SURVIVAL OF
MARGINAL REFINERS.
Written by:
Duncan Micklem, Strategy Director, KBC
Executive Summary

The global refining industry is constantly evolving and responding

to new crude supplies and sources, more stringent fuel/product
specifications, perpetually changing demand patterns and other
global and regional trends. Increased competition from large,
efficient refineries is forcing small- to mid-sized refiners to rethink
their strategies to remain competitive.

Aggressive optimization programs are a very
attractive strategy. Marginal refiners can use
advanced simulation models and software to secure
returns demanded by their stakeholders. These
tools and methods are low-risk approaches to value
creation. With an appropriate understanding of
where and how to optimize assets, these benefits
can be sustained.
Rapidly evolving technologies, regulations and
geopolitics will continue to add more risk to
large capital projects. Only a few refiners have
the advantage and long-term fundamentals,
resources and capabilities to justify and successfully
implement new major investments.
For the rest of the refining industry, achieving or
exceeding market returns requires bold action.
The best option for boosting performance is an
aggressive asset optimization program.
Agility to survive market volatility
The ultimate goal for any optimization program is to align the supply of premium
products as closely as possible to market demand. When product/market demand
fluctuates, strategies must be in place to quickly respond and adapt. For refiners, agility
means possessing the resilience or operational flexibility to readily adjust production
and exploit opportunities. A correctly executed optimization program mitigates any
new risks, ensuring that the refinery will survive and profit from market volatility (Fig. 1).

FIG 1. REFINERS MUST DEVELOP MID- AND LONG-TERM STRATEGIES THAT AFFORD FLEXIBILITY AND AGILITY WHEN WORKING
WITH CONSTANTLY CHANGING FEEDSTOCKS AND PRODUCT DEMANDS.

Options for modifying, adding or reconfiguring assets
to achieve this operational flexibility are limited. Such
decisions must consider associated capital intensity
and short time schedules. Likewise, these plans must
address market fluctuations, operational integrity
constraints of aging assets and the mindset changes
required among operators.
Typically, refiners use linear programming (LP)
planning models to develop strategies for dealing
with processing and market changes, and other
opportunities. However, LP models are frequently
limited by weak process unit representations and
inadequate consideration of physical and logistical
constraints. Generally, LP solutions represent recent
operating conditions. LP predictive capabilities are
outside the present operations and are, therefore,
suspect, frequently inaccurate and sub-optimal. A
more rigorous tool, such as the molecular approach,
is needed to determine the true optimal economic
environment for both present and future operations.

AGGRESSIVE OPTIMIZATION PROGRAMS ARE CRITICAL FOR THE SURVIVAL OF MARGINAL REFINERS
The molecular,
model-based approach
Optimization plans entail more than just crude oil
feedstock selection and satisfying finished product
demands. The envelope for optimization has grown
significantly to include intermediate feedstocks,
chemical base stocks and fuel blending components,
as well as energy balance considerations where
generated power is a marginal product. In addition,
optimization opportunities are present on the logistics
side of the business.
As the optimization challenge becomes more
complex and encompassing, the tools required
for a valid and accurate answer must change. LP
technology can no longer be the only tool to solve
optimization problems. Value creation entails using
a holistic and rigorous approach to maximize the
value of all hydrocarbon molecules (not just finished
product streams) within their value chains.
The mix of feedstocks available to refiners has never
been greater. The growing availability of light, tight oil
and heavier crudes has broadened the crude basket.
In short, crude choices have a massive impact on the
array of molecules now possible.
Transportation fuel demand will stabilize globally over
the mid- to long-term. In contrast, strong demand
growth is predicted for petrochemical feedstocks,
such as naphtha, LPG and ethane. Accordingly, any
refinery optimization program should closely evaluate
the potential for molecular, model-based approaches
focused on value creation through refinery-
petrochemical integration.
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The time to act is now
Changing crude markets, pipeline reversals and the
ability of large and highly efficient US Gulf Coast,
Russian and Middle Eastern export refiners to
cost-efficiently place refined products into Europe
and onto the US East Coast adds more stress into
the market place. Open-mindedness and a sense
of urgency are required by refiners regarding the
targeted markets. Such decisions investigate how
operating constraints should be addressed and the
basis for feedstock (crude) selection.
With International Maritime Organization (IMO)
legislation due to be enforced beginning in 2020,
refiners with significant high-sulphur fuel oil (HSFO)
in their yield slate will be forced to consider changing
feedstocks or investing in conversion (sulphur-
reduction) technologies. Otherwise, they face possible
closure due to lower revenues from the weak HSFO
crack spread.
Concurrently, feedstocks are becoming heavier,
with those derived from shale having relatively low
sulphur content but high in paraffinic, concarbon and
sediment with high metals content. Such changes
can constrain the operational flexibility needed by
small- to mid-sized, marginal refineries to be more
competitive. Ultimately, these facilities must find and
adopt a new approach.
Adopting a new approach and maintaining it
Marginal refiners need operating
strategies to accommodate feedstock and
intermediate variability. In addition, these
plans must provide refiners with the ability
to run economically at lower throughputs
to meet market demand, while keeping
key units at required capacity. Achieving
this strategy requires:
• The right people with the right skills in the
right place, with the appropriate levels
of empowerment and cross-functional
collaboration—the organizational DNA must be in
place to act and sustain required actions
• Business processes focused on value delivery
• Supportive, rigorous and easy-to-use technology
to produce accurate and reliable answers.
When planning an optimization/competitiveness
program, refiners should consider these tools to
build their strategies:
• Operational excellence consulting services to
support the organization, and to provide the
leadership buy-in and drive to make necessary
changes
• Operations best practices so employees
throughout the organization can follow proven
business processes to adopt and sustain change
• Rigorous software technology to solve complex
operational/optimization problems at the
molecular level
• Applications and best-practice methodologies for
using rigorous software technology to generate
enhanced non-linear representations of process
units in advanced LP modeling systems
• Supply chain simulation that enables layering
optimization capabilities to address specific areas
that have the largest impact on the hydrocarbon
value chain economics
• Work flow software technology to drive
accountability for achieving new goals
• Cloud-based solutions to reach out beyond the
plant for additional support from offsite, remote
experts as required.
As illustrated in Fig. 2, aggressive optimization If an analysis is to explore operational futures
programs should be operations-focused, take that have never been encountered—such as new
a holistic view and require: feedstocks, product requirements, constraints and
different processing conditions—then drawing a
• Alignment of operating strategies with straight line from the starting point will never produce
actionable market insight a valid answer. Rigorous simulations will produce
accurate answers to support operating/business
• Creation of maximum asset value subject
decisions that result in safe, reliable and profitable
to acceptable risk
operations. They allow:
• Execution by a capable workforce and
• Engineering teams to understand the impact of
organization
alternative operating conditions on product yields
• Enablement via rigorous, easy-to-use technology and reliability

• Extension through the power of the cloud. • Project teams to use this information when
evaluating the impact of revamps and
For success, refinery-wide reactor simulators are modifications on the capability and capacity of
needed to accurately model the plant site. They given units.
must be calibrated against actual conditions, and
the calibration must address and be accurate for all
new possible conditions. Kinetic simulations and
models, based on physical and chemical laws, are
used in place of simple linear regressions of former
operations.

Strategic direction based on long-term goals & objectives

Clear mission, vision and measures of success
Forward-looking competitive analysis
SMART strategic objectives
Strategy Licence to operate (safety, regulatory)
& Business Revenue / margin
Excellence Costs (fixed / variable)
Working capital

Cascaded performance management

cycle providing confirmation of results Asset Defined business processes to execute the
achievement
Limited KPIs for scorecards
Op
ptim
p tim
m
Optimization business and achieve the strategic direction
End-to-end processes focused on business
Full range of PIs for predictive Cost Production value delivery
business performance measurement Optimization Optimization Documented process flows to understand
business function interfaces
Maintain Licence to Operate Defined RASCI and RAPID to ensure
accountability and actionability

Supportive technology to drive High performance organizations

Cl

ud
t
en

efficiency m aligned to business model

o

Enablement of data-driven En ge execution

ab na
decision making le d Pe Ma Optimal level of centralization
Automation of repeatable rformance and empowerment
tasks and limiting hand-offs Applied People and Cross-functional cooperation at
and recycle work Technology Organization hand-offs

SUPERIOR RESULTS. SUSTAINED.

FIG. 2. STRATEGIC DIRECTIONS AND PLANNING ALIGN ASSETS AND WORKFORCES WITH EVOLVING NEW TECHNOLOGIES
TO OPTIMIZE PROCESSING UNITS AND MOLECULES THROUGHOUT THE SUPPLY CHAIN.

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Is the LP dead?
New, advanced simulation/optimization
tools have not made the LP obsolete, and
it is still the tool of choice for operational
planning in many areas. When planning,
the proper questions to ask of an LP are:
•• Does the refinery have the ability to produce
the products being demanded?
•• Approximately how much shortfall will need
to be factored in?
•• How much surplus is available to sell, and in
what time frame?
Case
Studies >
When scheduling, the questions to ask
of the LP are:
•• Given what the refinery is now producing,
what feedstocks should be imported?
•• What are the shortfalls of blendstocks?
•• Where are the products stored and how are
they sent to the process units?
•• How are the components blended into
finished products, stored and exported?
•• What is the procedure for disposing of
surplus blendstocks?
For both scheduling and planning exercises, linear
extrapolation around a known operating point may
provide answers to these and similar problems.
However, any errors or inaccuracies are “mopped
up” by having adequate storage, passing on errors
from one round of planning to the next. The solution
is never identified as truly optimum, with feasibility
being the overarching goal.
 The engagement used the following approach:
Case History #1:
• All optimization cases run on each computer
Proving the value of the achieved the same optimum consistency.

molecular approach • Run times for the initial optimization cases where
crude composition was varied were approximately
30 minutes.
A 150-Mbpd refinery—with multiple
crudes and varying levels of density, • Run times for the secondary optimization
cases where crude composition was fixed, and
sulphur and volume fractions—was
operating conditions and crude rates were
investigating how advanced kinetic between 4.5 to 5 hours.
reactor models could improve feedstock
selection and operations planning, and The engagement clearly demonstrated that after
the crude slate was set by the LP, the refinery-wide
achieve enhanced strategic investment/
simulation model could then optimize the operations
capital allocation outcomes. The initial of various process units. This refinery was able to take
task involved validation of the preexisting advantage of the detailed non-linear reactor models,
process models and calculations for and of the more differentiated hydrocarbon stream
the conversion units, plus detailed tray- characterization capabilities (Fig. 3). In addition, the
to-tray calculations of the distillation refinery was able to carry out more precise operational
plans without having to rely on LP directionality.
columns.
Rigorous models captured the nonlinear responses,
including the effects of feed and operational severity
on catalyst deactivation, the impact of distillation SIMULATION TOOLS
Library of models: reactors,
overlap on product specifications, and the separations, etc.
pumparound or condenser duty constraints.
OVERALL
Thirty optimization cases of increasing levels REFINERY
of complexity were conducted. Initially, crude MODEL UNIT
Steady-state
composition was varied with the crude rate, and simulation
OPTIMIZATION
Set operational
unit operating conditions were kept constant. Later, including kinetic targets
reactor models,
crude composition was fixed, and the operating tray-to-tray
conditions and crude rates were varied. distillation, etc.

The refinery constraints were kept simple and similar OVERALL REFINERY
OPTIMIZATION
to the LP. However, they now included the flexibility Help set operational targets
of using more detailed constraints with the refinery- for entire refinery, assist in
crude selection
wide simulation model. The updated constraints
were representative of column flooding limits, feed
or product pump setpoints, heater constraints and TIME FOR
more. Multiple standard desktop computers ran the REFINERY-WIDE OPTIMIZATION
software applications. A non-linear algorithm was
also used.
FIG. 3. FOR MARGINAL REFINERS, REFINERY-WIDE OPTIMIZATION
EFFORTS TAKE ADVANTAGE OF KINETICS-BASED, NONLINEAR
MODELS AND LIBRARIES TO IMPROVE CONSTRAINTS IN LPS,
THEREBY DRIVING OPERATIONS TO GREATER EFFICIENCIES AND
PROFITABILITY.

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Case History #2: Sticking to the plan
A large, integrated refining and petrochemical business was involved in an internal
transformation program. The project focused on shifting from refinery to value-chain
optimization. A software and consulting company was tasked with developing a broad
scope of deliverables (FIG. 4). The project involved:

• Tools: selection and implementation of planning Implementation software tools were selected for the
and optimization tools, including: project, and the software and consulting company:

• Kinetic reactor models for LP vector
generation
• Global LP model development and vector
update
• Supply chain scheduling tool implementation
• Production accounting tool implementation.
• Business processes: definition and
implementation of world-class practices in
the areas of planning, scheduling, production
accounting and optimization.
• Organization and culture: human capability
assessment, and training program design and
delivery, with a strong focus on driving culture
change to eliminate functional silos.
• Developed and calibrated the required kinetic
models of the processes to provide data for the LP
model
• Built the LP utility and LP sub-models to arrange
the data transfer from kinetic-based simulation
models to LP data tables
• Updated the pre-existing, site-based LP models
and merged them into a global LP model
• Implemented the scheduling and production
accounting software packages, including model
construction, configuration, installation, testing,
training and startup assistance.
As part of the organization and culture work
stream, the structure, skills and capabilities of the
present organization were assessed, with a focus
on effectively and efficiently executing the defined
business processes. A training system was put into
place to bridge capability gaps, including training
and technology manuals, instructional guides and a
mechanism for training and certification of in-house
trainers.
Devising a sustainable roadmap
Marginal refiners need a new approach to survive
the constantly changing refining industry. Small- to
midsized refiners are challenged to compete against PROCESSES ORGANIZATION
Information flows /
larger, more efficient, export-oriented refineries. New Documentation /
& CULTURE
Responsibilities /
Communication /
crude supplies and finished product specifications Meetings /
Job descriptions /
Authorities / Delegation
mandate using a molecular approach to determine Monitoring /
Feedback / Learning
PLANS / Teamwork / Leadership
DECISIONS / Skills & training /
optimum planning and scheduling programs. ACTIONS Competencies

Marginal refiners must take bold actions to profit from

new crudes, while operating processing units at lower TOOLS
Price / Forecasting /
throughputs to meet market demand. Market demand / Linear
program / Scheduling /
Blending / Simulation
As shown in Fig. 4, operational excellence involves
aligning the organization and culture to implement
and stick with the new strategies. Fully utilizing
Best practice processes
advanced tools (kinetic-based models and software) Effective organization
Better Better Greater
Plans Decisions Profit
enables the redefinition of LPs to push process Accurate tools

operations into new areas, thus capitalizing on value

CRITICAL ELEMENTS OF PLANNING & OPTIMIZATION
creation across the supply chain, while still providing
flexibility and agility to meet ever-changing demand FIG. 4. SUCCESSFUL OPTIMIZATION STRATEGIES COMBINE
PROCESS TECHNOLOGIES, TOOLS AND ORGANIZATIONAL
conditions.
CULTURE TO SET AND MAINTAIN AN IMPROVEMENT PROGRAM.

Significant value is created for refiners by looking at

Supply Chain
Backcasting
the digital twin of both production management
Planning
facilities and their supply chains, made possible
Production
Planning
Production
Accounting
through the integration of process simulation,
Supply Chain Optimization

Production Management

hydrocarbon management and manufacturing

Production Yield & Energy
Scheduling
Process
Improvement execution system capabilities (Fig. 5). The integration
Plant-wide
Simulation
Unit of these capabilities enables a single version of
Optimization Monitoring
the truth to be leveraged more effectively across
Real-time
Optimization
Equipment
Monitoring
operational technologies (OT) and information
Operator
and APC
Training technologies (IT) to run the business more efficiently,
Operator Decision
Support
thereby capturing the benefit of OT/IT convergence.
Model-based decision support systems ensure
FIG. 5. SIGNIFICANT VALUE IS CREATED BY LOOKING AT THE
the necessary linkage between the business goals
DIGITAL TWIN OF BOTH PRODUCTION MANAGEMENT FACILITIES and plant floor execution. These systems serve
AND THEIR SUPPLY CHAINS.
as a rigorous and consistent platform on top of
which supply chain optimization strategies can be
implemented, as well as the necessary feedback loops
to maintain model relevance.

The result is supportive processes to mitigate risks

when moving to new operating conditions. Better
planning supports improved decision-making, leading
to improved profitability. The final piece to the puzzle
is partnering with experienced experts to find the
proper fit of technologies, tools and organizational
culture to implement optimization projects.

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