USE OF LP MODELS IN REFINERIES

Petroleum refining in the new millennium will continue to be an extremely competitive

business. This program is designed to provide participants with an understanding of the
use of LP models to boost refining margins. The presentation begins with an overview
of refinery economic terms and the fundamentals of crude oil trading and transportation.
The remainder of the program covers the use of LP models to explore options for
increasing refinery margins. A series of class exercises will be completed to model the
impact of crude type, crude throughput and refinery configuration on profit margins. If
possible, those attending should bring their own laptop computer with Excel and the
Solver add-in.

The program will be presented by a senior LP planning specialist from KBC Advanced
Technologies, Inc. The presentation consists of a series of discussion topics and
classroom exercises that provide an overview of the fundamentals of refinery
economics and practical instruction on the use and interpretation of the LP results for
day-to-day decision support.

The program is designed for anyone who is concerned with improving refinery
processing economics and is ideal for refinery planning personnel, refinery engineers
and analysts, and those in refining coordination, scheduling and optimization groups.
Personnel from crude trading companies, product marketers, LP modeling companies
and service and consulting companies will also find the program very useful and
informative.

PROGRAM OUTLINE

1. Importance of Refinery Economics

• Crude Analysis, Evaluation and Crude Oil Selection
• Processing Optimization/Guidance for Operations
• Product Optimization and Investment Decisions

2. Fundamentals of Crude Trading and Transportation

• Crude Oil Pricing - Mechanisms and Price Reporting
• Basic Principles of Risk Management
• Crude and Product Transportation
• Cargo Markets and Freight Differential Calculations

3. Definition of Refinery Economic Terms

• Gross, Net, and Marginal (Incremental) Economics
• Overall Optimal Crude Mix
• Overall Optimization of Refining and Petrochemical
 Assets
• Profits – Average and Incremental
Class Exercise – Calculation of gross margin for four
crude oils.

4. LP Fundamentals
• What is Linear Programming? Terms and Concepts
• How Do LPs Work? Graphical Solution Example
• Analysis and Interpretation of LP Results
• Understanding Marginal Economics from LP
Solutions (Shadow Prices)
Class Exercise – Run simple LP problem using
Excel Solver.

5. LP Application for Decision Support

Evaluation Techniques for Crude Oil Including the Following:
• Single Crude Evaluation
• Multiple Crude Optimization Against Multiple Constraints
• Crude Oil Substitution Value Analysis
Class Exercise – Crude mix optimization and crude oil
substitution analysis example using Excel Solver.
Evaluation techniques for refinery feedstocks including:
• Refinery and Petrochemical Feedstock Evaluations
• Evaluations Depending on Downstream Destinations,
Alternative Processing Options, Capacity Constraints
• Transfer Price Analysis and Calculations
Class Exercise – Cracker feedstock purchase evaluation.
Factors for gasoline optimization will be covered
including:
• Product Prices and Specifications
• Component Type and Availability
• Processing Flexibility
• Alternative Processing, Sales and Transfer Options
Class Exercise – Gasoline blending evaluation example.

6. Planning Best Practices

• Overall Organization and Activities for Planning
and Economic Evaluations - Review of overall
supply chain. Planning and analytical support for
various decision points (crude selection, unit
operations, blending, etc.).
• Crude Evaluation and Selection – Spot and term
crude oil evaluation analysis and practices.
• Refinery Process Optimization and Asset
Utilization – Daily, weekly, monthly plans and
schedules.
• Product Blend Planning, Scheduling and
Optimization – Blend optimization, inventory
Issues, quality giveaway, etc.
• De-bottlenecking and Investment Evaluations –
Example of simple de-bottlenecking analysis.
• LP Model Refinery Representations and Model
Maintenance Practices – Best practices for LP
 representation of refinery processing, model
accuracy issues. Back-casting process.
• Global Optimization Practices – Multi-refinery,
multi-period, global crude and product
allocation to marketing regions, transportation
optimization, etc.

PROGRAM INSTRUCTOR
Mike Tucker is a senior staff consultant with KBC Advanced Technologies, Inc. He has
35 years of experience in refinery LP planning, economic analysis and LP modeling. He
is experienced in process planning, investment planning, refinery planning and
scheduling, supply planning, logistics, trading, and regional multi-functional planning.
Before joining KBC in 1998, he held numerous LP Planning positions with Chevron
Research Company, Chevron Products Company, and Caltex Petroleum Corporation.
He holds a B.S. degree in Chemical Engineering from Purdue University.