The Hydrocarbon Value Chain
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The Hydrocarbon Value Chain: Business Process and Performance James McCoy General Manager, Petroplus Marketing AG
description
The Hydrocarbon Value Chain: Business Process and Performance James McCoy General Manager, Petroplus Marketing AG. The Hydrocarbon Value Chain. The Assets. Stations and C-Stores. Secondary Distribution. The Brand. Primary Distribution. Refining. Logistics. Exploration & Production. - PowerPoint PPT Presentation
Transcript of The Hydrocarbon Value Chain
The Hydrocarbon Value Chain:Business Process and Performance
James McCoyGeneral Manager, Petroplus Marketing AG
The Hydrocarbon Value Chain
The Markets
The Assets
Exploration&
Production
Logistics
Refining
PrimaryDistribution
TheBrand
SecondaryDistribution
Stationsand
C-Stores
CrudeMarkets
FOB
CrudeMarkets
CIF
SpotProducts
BulkProducts
InTransit
BulkProducts
AtTerminal
ProductsDealer Tank
Wagon
A Pure Demand-Pull Value Chain
End Consumer DistributionManufacturingLogisticsSuppliers
Sales?Trades?Buys?
NoNo
Bulk Sales?Wholesalers?Retailers?
NoNo
Volume Signal
The Hydrocarbon Value Chain
Existence of markets allows for arbitration of the normalvolume signal
Exploration&
Production
Logistics
Refining
PrimaryDistribution
TheBrand
SecondaryDistribution
Stationsand
C-StoresSupply Push
Market
Market
Market
Market
Market Demand Pull
The Hydrocarbon Value Chain
Exploration&
Production
Logistics
Refining
PrimaryDistribution
TheBrand
SecondaryDistribution
Stationsand
C-Stores
Supply Push
Demand Pull
Option to SellOption to Sell
Option to BuyOption to Buy
Option to Ship, Process
Option to Ship, Process
A Generic Value Chain Planning Process
Potential Variation in the System
+
-
Final Outcome
Forecast(Heads-up)
n-3
Plan(Getting
Prepared)
n-2
Schedule(Executing)
n-1
Measure and Control(Firefighting)
n
The “Event”
Post-Audit(Learning)
n+1
Observations
“Make what you sell, sell what you make” isn’t necessarily true
“Make,” “buy,” or “sell” decisions occur at each step in the value chain
Decisions are made for future events, so processes and tools must match
Exploration&
Production
LogisticsRefining
PrimaryDistribution
TheBrand
SecondaryDistribution
Stationsand
C-Stores
Financial Optimization of Assets
The vertebrae of the value chain backbone
Exploration&
Production
CrudeTrans-
portation
Manu-facturing
PrimaryDistribution
Marketing
SecondaryDistribution
RetailMarketing
Reserves
Ships,Pipelines
Refineries
Pipelines The Brand
TruckFleet
Stations &C-Stores
Refinery Asset: Some Characteristics
Engineered facility with limited flexibility Initial design optimized for particular crude and product slate
The Theory of Constraints Applies To Gross Margin Typically represented by model due to complexity. Main elements:
Process Unit Sub-Models Stream Routing Product Specification Tables Blending Equations
High Fixed Costs Approaching 70% of Total Cash Costs Variable Costs Are Largely Energy Very High Capital Employed
PPE will most likely be in billions of US Dollars Working capital will most likely be 20-30 days
Low Margin, High Volume Global Business…
US North- South- North-Gulf west east westCoast Europe Asia Europe
% Revenues
Product Revenues 121.42 123.48 118.24 100%Feedstock Costs -110.03 -113.94 -110.97 92% Gross Margin 11.39 9.54 7.27 8%Variable Costs -2.23 -2.51 -1.95 2% Margin On Variable Costs 9.16 7.03 5.32 6%Fixed Costs -1.16 -1.68 -1.88 1% Cash Operating Margin 8.00 5.35 3.44 4%
Historical2011 YTD 7.7 4.20 3.002010 average 4.46 3.50 0.502009 average 3.04 2.01 0.272008 average 9.09 7.34 1.772007 average 12.6 5.75 2.252006 average 12.54 5.88 0.90
US Dollar/bblAug-11
Yield On Crude
Source: TOTAL Crude Oil Marketing
C1-C4 Gas
Light Naphtha
Heavy Naphtha
Kerosene
Gasoil
VGO
Residue
Yield In Hydroskimming Refinery
Source: TOTAL Crude Oil Marketing
LPG
Mogas+Naphtha
Kerosene
Gasoil
Fuel Oil
Yield In Cracking Refinery
Source: TOTAL Crude Oil Marketing
LPG
Mogas+Naphtha
Kerosene
Gasoil
Fuel Oil
Refineries Operate Between Two Global Commodity Markets
Simple Refineries Have Consistently Low or Negative Margins
Asset Optimization: Typical Models
Crude Assay and Assay “cutter” Provides “technical value” for the crude oil Ignores constraints and synergies
Linear Programing Model Considers constraints and synergies. Attempts to saturate as many constraints to derive maximum value. Incremental or marginal analysis; therefore only variable costs.
First Principles Model Similar to Linear Programing Model Almost never used for economic optimization
Other Models-Scheduling Tools Makes translation from continuous to batch Includes inventory effects, batch size, timing
Asset Optimization: Use Of Models
How do you demonstrate that: The tool is pointing to
the optimum? The users understand
why?
Capability of the Tool
Capability of the Computer
Observations: Right Organization, Priority, Tools, People
Clear division of labor between optimization and scheduling activities The two efforts are linked, e.g. constraints, but must demand recognition
that the optimizer drives the scheduler
Use right tool for the job Typically Linear Program for optimization Scheduling and inventory tools for translation to batch
Error control in sub-models and model structures No a priori method to check model accuracy Monthly KPIs, followed by well-defined corrective process
Management discipline, resources and focus to Maintain KPIs Maintain a team of expert users-because:
Understanding the results is more important than the results themselves
Extracting Money from Markets
The discs of the value chain backbone
Exploration&
Production
Logistics
Refining
PrimaryDistribution
TheBrand
SecondaryDistribution
Stationsand
C-Stores
CrudeMarkets
FOB
CrudeMarkets
CIF
SpotProductMarkets
BulkProducts
inTransit
BulkProducts
atTerminal
Branded/Unbranded
in Truck
Market Approaches: Examples
Asset Optimization
Volume Signal
Transfer PricesNo Relationship To Market
Market Prices-All Volumes
Market Prices-Volume-Time
Pure Speculation
Market Prices-Volumes
Market
Internal “Free” Market
Market curve based on knowledge of markets
Internal value curvebased on knowledge ofassets
Value Creation=Run
Volume
Pri
ce
Value Creation=Sell
Observations
The combination of market knowledge and assets can create greater value
Functional “silos” don’t really matter Having a common language does matter
Economics with price-volume-time
An internal “free market” requires Accountability Transparency
Overall Value Chain: Petroplus Example
Exploration&
Production
Logistics
Refining
PrimaryDistribution
TheBrand
SecondaryDistribution
Stationsand
C-StoresSupply Push
Demand PullMarket
Market
Market
Market
Work Processes and Organization
Many companies including Petroplus have evolved to the role of “senior economic pilot”
Senior PILOTRefinery PILOT
Refinery Management Team
“Traders” or Commodity Managers
Markets
“Economic Pilot” Resposibilities
Setting and Re-setting the course that the operational departments follow to optimize overall profitability
Establish realistic but challenging goals by understanding compromise between external and internal factors
Maintain focus on meeting or beating the economic plan and understanding the alternatives.
“Trader” or Commodity Manager Decision Rights
Buy Smart Sell Smart Manage Risk Determine Inventory (Working Capital) Required to
Execute Plan Create Knowledge Determine Assets Required to Execute Strategy
“Trader” or Commodity Manager Capabilities
Market Analysis Developing a Point-of-View (on the market) Development and Ownership of a Strategy Negotiation Planning
Summary
Create value using a combination of market knowledge and assets
Understand your approach to the value chain; i.e., your business model
Define work processes first They may be unique
Define the Organization and Decision Rights Define the tools
