Logistics in Petrochemical

Company

ByAnurag Chordia (13)

Avradeep Mallik (28) Prasanna (43) Prerna Sharma (58)

INTRODUCTION The petrochemical industry in India has been one of the fastest growing industries in the country. Since the beginning, the Indian petrochemical industry has shown an enviable rate of growth. This industry also has immense importance in the growth of economy of the country and the growth and development of manufacturing industry as well. It provides the foundation for manufacturing industries like construction, packaging, pharmaceuticals, agriculture, textiles etc. The Characteristics of Indian Petrochemical Industry Petrochemical Industry in India is a cyclical industry. This industry, not only in India but also across the world, is dominated by volatile feedstock prices and sulky demand. India has one of the lowest per capita consumptions of petrochemical products in the world. Top Petrochemical Companies in India Though the Indian petrochemical industry is highly dominated by only a few players, however, there are a number of petrochemical companies in India, doing their share of business. Some of the top companies can be listed as below:

Reliance Industries Ltd. Haldia Petrochemicals Ltd. Indian Oil Corporation Ltd. Gas Authority of India Limited etc.

LOGISTICS IN PETROCHEMICAL INDUSTRIES Mode Wise Transportation of Petroleum Product

Railway

Traditionally, Railways have been the largest transporter of POL; developed since earlier days and cover substantial parts of the country. Besides petroleum products, railways also transport goods and passengers. Capacity of railways has already been over-stretched. With continuing growth on all spheres, railways transportation capacity would fall short of the transportation requirements. Due to cross-subsidisation, the freight for petroleum products is high. Rail transportation also leads to high energy consumption, environmental pollution and transit losses. Coastal Since the major consumption centers of the country are located in the hinterland, the movement of petroleum products through tankers is somewhat limited. Tankers are used for movement between coastal locations.This mode also suffers from capacity constraints in terms of draft availability, navigational facilities, jetties etc Road Plays a crucial role in countrys transport sector for goods and passengers. For movement of petroleum products over long distances, road transportation is not very cost effective and efficient. Feasible only for short distances and secondary movement of petroleum products. Though movement by road results in excessive consumption of diesel and is a potential safety and environmental hazard, it still enjoys a large share in the modal mix due to unavoidable short distance movement from bulk depots to retails outlets Pipelines An Introduction The term pipeline in broader sense means a facility used to transport commodities from point of receipt to the point of delivery. Many commodities are transported through pipelines.Crude oil, petroleum products and gas are perhaps the most common commodities transported by pipelines. Introduction of Pipelines in Oil Transportation

The first cross country oil pipeline was laid in Pennsylvania 1879 from Bradford to Allen town, about 109 miles long and 6in diameter. The long distance pipeline transportation got a boost during World War II when coastal tanker traffic was disrupted. Discoveries of giant oil fields in remote parts of the world led to planning and execution of correspondingly large pipeline networks. Pipeline industry has grown in parallel with the development of world oil industry over the last one century.

Development of Pipelines in India Most of the earlier Refineries in India were installed at coastal locations, thus depending on coastal movement of crude oil. Further, the refining capacities being low, the products were

either consumed locally or transported to the consumption centres by rail or road. After 1960, most of the Refineries were installed in land-locked locations necessitating laying of crude & product pipelines.

Advantages of Pipeline Transportation Lower cost of transportation Lower transit losses Lower energy intensiveness Economies of scale Safety and Reliability -minimum disruptions Environment friendliness

MATERIAL HANDLING AND STORAGE OF PETROLEUM PRODUCTS Diesel, gasoline and lubricating/hydraulic oils are used widely on farms today. Management and storage of these products presents a financial (by increasing cost), environmental (small amounts of these products may cause adverse effect) and fire safety concerns (as the products are highly flammable) to a farm. Liquid petroleum products like gasoline, diesel, and kerosene should be stored safely to prevent leaks and drips. Petroleum products can pollute underground as well as surface water sources. A leakage of only one drop a second can release around 400 gallons of petroleum in the environment in 1 year. It takes only a few quarts of leaked fuel to rigorously pollute underground drinking water. Small amount of these petroleum products suspended in water is tough to distinguish because it is more or less impossible to smell or taste them. Water that seems pure may be contaminated and hence can badly affect an individuals health. Explosions are another potential risk from stored petroleum or its products. Vapors from an underground leak can gather in basements, pits, sumps or other underground structures, and can explode. The explosion hazard, which occurs from leaking, above ground storage tanks, is even larger. Piping, Underground storage tanks and aboveground storage tanks must all be secluded from corrosion when in contact with the ground. Large losses can occur if the small underground pipes are not adequately protected from corrosion. New tanks and piping may also leak if not properly installed. Various means of Storage of Petroleum products are:
1. Small Fuel Tanks - Fuel tanks which are less than 230 liters must meet the transportation

regulations.
2. Large Fuel Tanks - Fuel tanks between 230 - 4450 liters should be stored outside

buildings, either above or below ground. They should be constructed in accordance with the accepted engineering practices. They should have separate openings for fill and vent.

3. Underground Fuel Tanks - The following should be used on underground fuel storage tanks exceeding 250-litre capacity: secondary containment for all tanks and piping corrosion protection for all steel tanks and piping leak detection an overfill protection mechanism for the tank a spill containment mechanism at the fill nozzle 4. Above Ground Fuel Tanks 5. Mobile Fuel Tanks - Mobile Fueling Station gives the ability to refuel your equipment at your discretion even in the most remote locations. 6. Indoor Fuel Tanks - Fuel tanks that are used for dispensing fuel and are located within a building must meet Fire Code requirements.

A Well Planned Farm Fuel Storage Site Problems in Storage of Petroleum Products:
1. Dispenser (nozzle, hose, pump) - Proper equipment (designed and tested for dispensing

fuel) is essential to meet legislation and to avoid accidental spills that arise from overfilling or siphoning. Small amounts of fuel in the surface or ground water may cause serious harm to human beings and animals, and are often not detectable by taste. Only approved dispensers are acceptable under Liquid Fuels Handling Code.
2. Distance between petroleum storage to the nearest surface water Legal implications

apply, mainly after there is a leak or spill that reaches surface water and causes damage.

3. Distance between petroleum storage and well - Greater the separation distance, greater

the prospect for soil to filter the polluted water before it reaches the well. Finer the texture of soil, slower the water moves through the soil, permitting more opportunity for water filtering.
4. Security - Fuel storage must be adequately protected in order to avoid accidental spills or

unofficial usage.
5. Type of the tank and external safeguard against corrosion (Above ground tanks) To

prevent a leak or spill incident, it is extremely essential to have an approved tank that also resists corrosion.
6. Type of the tank and external safeguard against corrosion (Underground tanks) -

Corrosion and leaks of underground tanks are not easily detected and special precautions are required. All underground fuel storages must be registered with the Fuels Safety Program, TSSA or be properly removed as required by the Fuels Safety Program, TSSA.

DISTRIBUTION OF PETROLEUM PRODUCTS For proper functioning of the petroleum sector, the distribution of the refined products is very important. This takes place on a vast scale. Every day, round the clock, hundreds of millions of customers, consumers and companies buy these products from their outlets. To this, if we include the indirect users then the actual figures shoots up to billions worldwide. An industry of this size needs proper distribution. Take anything for example, you need power to drive it and in todays tech age, we still use petroleum products to a huge extent. The refined product market is very much different from the crude oil market. The scale is smaller than that of the crude oil We have to take special care while handling them as some of them are much more flammable in refined form than crude form. The opportunities are also more as there is a lot of price variation in the variants of the refined products and these prices keep on changing very frequently according to the location as well. Thus the traders use this to get better price and higher profits.

The

basic derivatives of petroleum are: FUELS - LPG, Gasoline, Kerosene, Jet fuels AGRICULTURE - Fertilizers and Pesticides OTHER DERIVATIVES - Plastics, Wax for frozen food, Sulphuric acid and Tar.

Rail (TW) Life Span (yrs) Initial cost Operating cost Bulk shipment

Road (TT)

Coastal (Tanker) 20 High Low High

Pipeline 40 plus V. High V. Low High

Basic Price

14.77

38.9% 4.2% 38.4% 16.7% 1.9%

15 10 High Low High V. High Moderate Low

Customs Duty 1.58 Excise Duty Sales Tax 14.59 6.33

Dealer Margin 0.70

From the storage tanks, the petroleum products are transported by various means which are rail, road, coastal tankers and pipelines. Coastal transport is chosen when we have to transport huge volumes of petroleum products between two cities which have the advantage of a port. Say from Mumbai port to Chennai port. Rail transport is preferred when we have to transport to inner regions like Nasik etc. although this can be done by road, the main disadvantage of roadways is at a time the volume of shipment is very low and thus to match the demand, road is not sufficient. Roadways are generally preferred when we have to ship from a local depot to an outlet generally within the same city or close by locations. Pipelines are generally used when there is a continuous demands of the petroleum for example the airports or the diesel locomotive shed etc. Again, no refinery is capable enough to meet the demands of the all the products in the nearby regions. Hence a major part of the distribution is of the surplus products to meet the deficits of the other areas. These distribution patterns generally keep on changing with time, but the general flow remains the same and hence the prices are set accordingly. Thus the marketing and the distribution of the petroleum products is not that simple as it looks. If there is a petrol or LPG strike or deficit, it creates havoc amongst the residents. To avoid this, proper forecasting should be done and the demand and supply graphs are monitored closely to meet the ever rising needs of the people. With time as we are going forward, the needs are increasing day by day and hence the distribution has to be matched properly with the increasing needs. We need to develop our distribution system to the optimum level for proper balance of demand, supply and price.

Future of Logistics related to Petroleum Industry in India Logistics related to petroleum products in India will need following developments:

Construction of new pipelines to reduce dependency on road and rail transportation to minimize transit losses. Road and rail transportation of petroleum products incur higher costs.

Construction of safe and modern storage tanks to reduce the costs associated with evaporation of the petroleum products and industrials accidents leading loss of property and lives.

Transportation of the petroleum products by coastal transportation and inland water transportation using container ships and barges will minimize the cost associated with transportation.

Location of new refineries in land locked regions will lead to cost effective delivery of the petroleum products.

Conclusion
More efficient and cost effective supply chain practices in the petroleum industry represent important factors for maintaining continuous supplies of crude oil, the reduction of lead times, and lowering of production and distribution costs. Due to the inflexibility involved in the petroleum industrys supply chain network, logistics represent a great challenge. However, it is only one of several challenging factors. Integrated process management, information systems and information sharing, organizational restructuring, and cultural reorientation are equally important. Despite the great challenges in the petroleum industrys supply chain, opportunities for improvements and cost savings do exist along the supply chain. One major area for improvement and cost savings lies in the logistics function. Companies in the petroleum industry have become increasingly reliant on the services of third-party logistics companies to manage their supply chains. Companies in the petroleum

industry took the outsourcing idea a step further to collaborate with competitors and found shared solutions to their supply chain challenges. This form of collaboration is referred to as a systematic cooperative reciprocal barter, or swaps. Collaboration among competing companies in the form of swaps is a practice that can offer companies huge savings and introduce new opportunities. However, despite its wide use and benefits, especially in the oil and petrochemical industries, the subject has not received the attention it deserves in the operations management literature. Currently, judgmental methods and the aid of spreadsheets are the only approaches utilized when attempting swap decisions. Although great savings are realized by companies using swap practices, the approaches used for making such decisions cannot guarantee an optimal solution, and hence, opportunities to utilize the full capability of swap practices are not fully exploited. Therefore, the next step would be the utilization of management science techniques, presumably mathematical/simulations models. These methods will significantly enhance the capability of such forms of collaboration and will represent valuable tools for practitioners to use.