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March 19, 2018
Recapturing margin growth for a new golden age of refining
By: Taras Zyla

As the downstream oil and gas segment continues to consolidate, refiners have been paying renewed attention to finding synergies across their integrated value chains. Traditionally, downstream players have chosen to optimize individual assets based on their unique economic profiles, thereby missing opportunities to leverage the value multiple assets and integrated value chains offer. The assets that make up the hydrocarbon value chain, from crude purchase agreements, to logistics assets and refineries, can work together to change the overall economic profile, increasing overall margins for the enterprise.

Making this work often requires deep analytical and planning and scheduling capabilities that many players lack. Those that have been able to drive value out of their integrated networks have some common traits:

  • Centralized trading and scheduling functions. Traders who have a holistic view of the entire value chain are the engine of an integrated value chain. With the right incentives, your traders can help track and monitor the market to identify when opportunities exist to exploit an integrated value chain. Traders need to be supported with appropriate processes and tools to “see within the fence” to know of planned and unplanned needs that materially impact the value chain.

  • Integrated refinery planning and trading. Most oil and gas companies see their refinery planning exercises in a silo, choosing to optimize a given refinery or asset by itself. Integrating external planning tools with financial data from SAP and commodities trading systems, allows building an optimization model that sees opportunities elsewhere. If one of your markets (for example Jet in the Northeast US) is expecting to have outsized margins, you may choose to focus multiple refineries on max Jet mode, using non-standard distribution channels to get product from other regions to where it is needed. Most companies can take advantage of these opportunities today, but few can predict them or plan for them in advance.

  • Advanced analytics engines with historic and planning data. The power of big data and analytics is only just beginning to bear fruit. Powerful platforms, like SAP HANA, allow companies to consolidate the data from their key systems—ERP, CTRM and Refinery and Distribution Planning—to get unprecedented insight into the economics of their assets. Combining pricing data with margins and capacity forecasts will help lead to more consistent margins and optimization of the highest value sales channels.

Many downstream oil and gas companies fondly speak of the “golden age of refining” as though it will never come again. Companies could achieve the same level of margin growth as those fabled periods of time if they see assets as a network. With the right processes, tools and people, refiners can unlock hidden value in their hydrocarbon supply chains, improving margins and performance.

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