C K Mukhopadhyay, DGM(T), RHQ

In the end, all business operations can be

reduced to three words: people, product, and profit.

Lido Anthony "Lee" Iacocca (Chairman, Chrysler Corporation)

Broad Topics for Deliberation

Crude oil selection and GRM Refinery configuration and GRM

Operational efficiency and GRM

Energy efficiency and GRM

A Little Recap?

What is Gross Refinery Margin (GRM) and Net Refining Margin (NRM) ?
calculate its Gross Refinery Margin. GRM is the difference between crude oil price and total value of petroleum products produced by the refinery. The difference in dollars per barrel between its product revenue (sum of barrels of each product multiplied by the price of each product) and the cost of raw materials (crude oil and other inputs). The Net or Cash Margin is equal to the gross margin minus the operating costs (excluding income taxes, depreciation and financial charges).
Gross Refining Margin (GRM) = Value of petroleum products cost of crude

One way to represent the economics of a refinery is to

A Little Recap?

What are the factors that influence Refinery GRM? The factors that contribute towards GRMs are
Crack Spread Cost of sourcing crude oil Manufacturing reliability and efficiency Ability to produce quality transportation fuels Flexibility of crude oil receipt and product evacuation infrastructure Demand - Supply mismatch of the products

A Little Recap?

What is a Crack Spread?

Refiners profits are tied directly to the spread, or difference, between the price of crude oil and the prices of major refined products gasoline and diesel. This spread is referred to as a crack spread. It is named such because the refining process that cracks crude oil into its major refined products. The most common type of crack spread is the simple 1:1 crack spread, which represents the refinery profit margin between the refined products (gasoline) and crude oil. The crack spread is quoted in dollars per barrel.

A Little Recap?

What is Multiple-product crack spreads?

The most common multiple-product crack spread is the 3:2:1

crack spread. A 3:2:1 crack spread reflects gasoline and diesel production revenues from refining industry, which generally produces roughly 2 barrels of gasoline for every barrel of diesel. The 3:2:1 crack spread is calculated by subtracting the price of 3 barrels of oil from the price of 2 barrels of gasoline and 1 barrel of diesel.
3-2-1 Crack Spread ($/Bbl) = (2 x Gasoline Price +1 x Distillate Price -3 x Crude Oil Price)/3

Additional ratios used for multiple-product crack spreads include 5:3:2 and 2:1:1.

Factors that Influence Refinery GRM

Crude Oil Cost Impact FY 2011-12 data for all eight refineries (Balance Sheet)

Total value of Production Total value of Crude Oil Total value of other inputs Gross Refinery Margin = = = = Rs 24885782 Lac Rs 22846480 Lac Rs 1251721 Lac Rs 787581 Lac (100%) (91.81%) (5.03%) (3.16%)

Impact of Crude Cost

India will be among the countries that feel the pinch of rising oil prices, given its high dependence on imports. For the financial year 2011-12, Indias oil import bill has risen 40% to over USD 140 billion, and this accounts for nearly one-third of all imports.

Impact of Crude Cost

It is essential to reduce crude oil cost to improve margin and stay competitive. The differential in crude oil price and processing costs are the most influential factors that determine crude selection. Normally Low Sulphur crude oils are costlier than High Sulphur crude oils Tough / Dirty crudes are cheaper and can lead to better margin. As per worldwide trends, at present, the refining industry is processing opportunity crude oils, as benchmark crude prices are hovering around $100/bbl. These crude oils are available at cheaper prices due to inferior qualities (High S, TAN, Residue).

Crude Quality vs Cost

Impact of Crude Cost

Processing tough/dirty crude is a challenge due to
Cost primarily associated with hydro-processing and residue evacuation . Fuel specifications have become more stringent with stricter environmental regulations. Processing tough/dirty crude may give less value-added product, but still product demand has to be met.

Opportunity crude oils not only influence the processing cost due to hydrogen deficiencies, but they also produce more by-products and residues that must be upgraded or blended off with cutter stocks such as kerosene/diesel or as lower-cost fuel oils (FOs). Residue is the key focus for refinery profitability as without residue-upgrading facilities, such as Delayed Coker, Solvent De-waxing, Visbreaker, etc., the residues have to be evacuated at the lowest cost.

REDUCING INPUT COST: HS CRUDE PROCESSING

Past Performance - Actual
100 80
60 66

Future Plan
74

(Figs in %wt.)

81

67

40 20
0

Actual HS Processing is in line with value addition using LP Model

2014-15

2016-17

2019-20

2021-22

Equivalent to 92% HS on Imported Crude Facility Addition Plan

Coker at Haldia Resid Upgradation at Mathura @ 11 Further Upgrader at Panipat @ 18 Further Upgrader at Gujarat @ 23

Facility Addition
Coker & HCU at Panipat OHCU at Haldia Coker at Gujarat

Year
2006-07 2009-10 2010-11

Year
2015-16 2017-18 2018-19 2020-21 2020-21

Current HS Processing Capability is 57 % and will increase to 66% post PDRP.

New Refinery with Upgrader

Crude Quality vs Cost

CRUDE NAME
Sulphur API LPG+GAS Naphtha C5-90 Naphtha 90-100 c CRU Feed 100-110 C Heavy Naphtha 110-140 ATF 140-240 KEROSENE 240-270 LGO 270-320 HGO 320-360 DISTILLATE HVGO 360-540 Vac Slop (540-550) VACCUM RESIDUE(550+) Crude Price (May - July 12)

BONNY LIGHT
0.15 34.52 1.32 5.36 1.77 1.79 5.22 18.63 7.61 13.62 10.22 65.53 25.75 0.87 7.80

KUWAIT
2.57 30.76 1.39 5.06 0.59 1.38 5.46 14.74 4.79 7.69 6.13 47.23 24.74 1.22 26.81

MANGALA
0.14 27.49 0.05 0.09 0.10 0.11 0.40 4.43 2.94 7.82 7.39 23.33 42.30 1.87 32.55

MAYA
3.28 21.35 0.53 2.96 0.48 1.01 3.91 11.63 3.90 6.60 5.40 36.42 23.00 1.28 39.28

47840

42705

38880

38821

Refinery configuration and GRM

One solution is to design a grass-root refinery designed specifically for these types of tough/dirty crude oil. For existing refineries, the real challenge is to equip the refinery through concrete time-bound actions to process these crudes profitably by improving configuration. Configurations of refineries in India have changed dramatically over the last three decades. In 60s and 70s, Indian refineries were built based on processing of either indigenous crudes from the northeast region or imported crude oils. These refineries were of low capacity. The largest being of about 3MTPA and were characterized by simple configurations consisting of AVU, CRU, DCU and treating units for LPG, Kerosene etc.

Refinery configuration and GRM

SIMPLE REFINERY PROCESSING ASSAM CRUDE OIL

Refinery configuration and GRM

The oil price shock of the 1970s necessitated re-examining of refinery processing schemes . It was realized that there was a need for additional secondary processing facilities to upgrade heavy residues to value added distillates. Accordingly, this period saw a significant emphasis on the installation of FCC Units in existing refineries as well as grass root refinery projects.

Refinery configuration and GRM

FCC technology also gave advantages of producing more LPG as well as gasoline. But unlike units installed in USA and Europe, these units were first of their type in the sense that they were designed to operate at low severity and to selectively produce more middle distillate. In 80s, major increase in the demand of middle distillates were foreseen. Hydro-cracking option offered a technically acceptable route to maximize the production of middle distillates of very high quality and to offer the flexibility of upgrading existing refinery streams to the desired product quality by blending. Hydro cracking units were installed in Gujarat Refinery, Mathura Refinery, Panipat Refinery, Mangalore and NRL.

Refinery configuration and GRM

During last decade, product specifications are being closely reviewed / revised from environmental stipulations point of view as well as optimum performance of the automotive industry. Products like diesel and gasoline are being specifically targeted for quality improvement. The main implications of the changes in the product quality are: a) Increasing use of hydro-conversion to upgrade heavy stocks into

b)

value added product as well as improve the quality of distillates. Installation of Gas sweetening, Sulphur Recovery (99% min) to meet environmental stipulations.

Fuel Quality (Auto Fuel Policy)

HOW MS QUALITY EVOLVED

Parameter
Sulphur ppm max. Benzene Vol% max Aromatics Vol% max. Olefins Vol% max. RON (#) Premium grade

BIS-2000 1000 5/3 88/93(#)

BS-II 500 3 88/93(#)

BS-III 150 1 42 21(18#) 91/95(#)

EU-IV Eq 50 1 35 21(18#) 91/95(#)

HOW HSD QUALITY EVOLVED Parameter BIS-2000 BS-II BS-III Sulphur ppm max. 2500 500 350 Cetane No. * 48 48** 51** Cetane Index (CI)* 46** 46** Distillation 0C at 95% max. 370 370 360 Polycyclic Aromatics (Wt % max.) 11 * Lower by 3 nos. for Assam Crude ** Either Cetane No. or CI EU-IV Eq 50 51** 46** 360 11

Refinery configuration and GRM

Refinery configuration and GRM

These requirements have lead to significant investments but without a corresponding premium on the product prices. To improve GRM, refineries have to look at ways and means to improve their product pattern to generate more value added products, improve the energy efficiency so that total operating costs can be minimized.

What are these ways and means?

Refinery Product Slate Improvement and GRM

Refinery product slate comprises of Gas, Distillate, Heavy Ends, Own Fuel (+Loss) and Intermediate Stock Differential (ISD). Among these, Distillate is the only value added product and must be maximized for better GRM.

Distillation Improvement
Distillation is one of the most important operations in the petroleum refinery. It is used throughout the refinery to separate process products, either from the CDU/VDU or from conversion processes. Efficiency opportunities exist in the heating side and by optimizing the distillation column parameters. The optimization of the reflux ratio of the distillation column can produce significant energy savings. Avoid excessively purifying products. Purifying top product to 98%, when 95% is acceptable is not necessary. Proper reflux ratio helps in decreasing Reboiler duty and save money.

Distillation Improvement
One of the most important factor influencing distillation column efficiency is overhead condenser condition and circulating water temperature. Proper upkeep of these two systems helps distillate improvement significantly. For plants that are in locations that experience sharp difference between day-night temperature or summer-winter temperature, judicious adjustment in column pressure (according to a decrease in cooling water temperature) can result in significant energy saving. This can be easily achieved through multivariable control (Reflux Temp as DV). Damaged or worn column internals may result in increased operation costs due to efficiency reduction and pressure drops rise. Replacing the trays with new ones or adding a high performance packing can improve distillation efficiency and result in higher distillate yield.

Value Addition : Distillate Yield (%)

Past Performance - Actual
78 77 76 75 74 73 72 71 70 69 68 67 66 65

Future Plan - Projection

Distillate Yield, %wt.
77.8

75.2
72.1

75.3

75.4
%wt.

72.5

73.7

05-06

06-07

07-08

08-09

09-10

10-11

11-12

84.0 83.0 82.0 81.0 80.0 79.0 78.0 77.0 76.0

82.6 80.7
79.7

82.7

78.7

2013-14

2015-16

2016-17
Year

2017-18

2021-22

Facility Added
Coker & HCU at Panipat OHCU at Haldia
Coker & VGO HDT at Gujarat

Year
2006-07 2009-10
2010-11

Facility Addition Plan

FCC revamp at Mathura Coker at Haldia & Indmax at BGR Resid Upgradation at Mathura @ 11 MMTPA Further Upgrader at Panipat @ 18 MMTPA

Year
2013-14 2015-16 2017-18 2018-19 2020-21

Distillate yield for IOC Refineries is projected to increase to a level of 79% post Paradip Refinery

Further Upgrader at Gujarat @ 23 MMTPA

New Refinery with Upgrader

2020-21

Value Addition Efforts

A) Upgrade Low Value & Surplus Products
Naphtha Conversion to Petro-Chemicals Kerosene Conversion to LAB Petcoke to Hydrogen, Power & Chemicals

B) Product Stream Sharing

Sharing of streams, feedstock & intermediaries stepped up to optimize capacity utilization & enhanced profitability. : Major Stream Sharing Activities
Transfer of Reformate between refineries as per need to maximise MS make. Naphtha transfer between Refineries as PX, PNCP feed and CRU feed for MS. Propylene transfer from Mathura for Poly-Propylene at Panipat CLO transfer from Guwahati for Needle Coke Production at BGR. GRM Gain from Stream Sharing :Rs. 336 Crore ($0.17/bbl approx.) in 2011-12

C) Further Value Addition

Group-II/III LOBS Production from Hydrocracker Bottom at Haldia. Propylene maximization at Mathura & Panipat. Ethylene Maximization utilizing Coker & RFCC dry gas

Process Heater Improvement

Over 60% of all fuel used in the refinery is used in furnaces and boilers. The average thermal efficiency of furnaces is estimated at about 75-90%. The efficiency of heaters can be improved by improving heat transfer characteristics, enhancing flame luminosity, installing recuperators or air pre-heaters and improved controls. Regular maintenance of burners, draft control and pass balancing is essential to maintain safe and energy efficient operation of a process heater. Excess air in furnace should be limited to 2-5% oxygen to ensure complete combustion. Air preheating is an efficient way of improving the efficiency and increasing the capacity of a process heater.

Process Heaters Improvement

Heating and cooling are operations used in all units throughout the refinery. Within a single process multiple streams are heated and cooled multiple times. Therefore this is a major improvement area. Optimal use and design of heat exchangers is a key area for margin improvement. Fouling, a deposit build-up in units and piping that impedes heat transfer, requires the combustion of additional fuel. Currently, various methods to reduce fouling focus on process control, temperature control, regular maintenance and cleaning of the heat exchangers (either mechanically or chemically). With the trend of more and more processing of heavy / HS crude (Opportunity crude), the need of more intense monitoring of fouling and timely rectification has become essential.

Heat and Process Integration

Heat Integration or Pinch Technology refers to the exploitation of potential synergies that are inherent in any system that consists of multiple components working together. In plants that have multiple heating and cooling demands, the use of process integration techniques may significantly improve efficiencies through appropriate exchange of enthalpy. Heat integration is the art of ensuring that the exchanging streams are well suited and matched in terms of size, function and capability. Pinch analysis takes a systematic approach to identifying and correcting the performance limiting constraint (or pinch) in any manufacturing process. It was developed in the late 1970s in response to the energy crisis of the 1970s and the need to reduce steam and fuel consumption by optimizing the design of heat exchanger networks.

Heat and Process Integration

Typically process integration studies focus on the integration of stream flows within processes and between processes. Sometimes it is possible to improve the efficiency by retaining the heat in intermediate process flows from one unit to another unit. This reduces the need for cooling or quenching in one unit and reheating in the other unit. Total Site Pinch Analysis has been applied by over 40 refineries around the world to find optimum site-wide utility levels by integrating heating and cooling demands of various processes. Major refineries that have applied total site pinch analysis are: Amoco, Agip (Italy), BP, Chevron, Exxon (in the Netherlands and UK), and Shell (several European plants). Typical savings identified in these site-wide analyses are around 10-30%.

Cost Efficiency : Energy Reduction

90 80 70 60 50
IOC INDUSTRY

(MBTU/BBL/NRGF)

Future Plan is to bring down MBN to 51 by 201617 through ENCON Measures

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 85 89 77 84 77 81 73 77 71 74 67 71 64 69 62 69 59 66 57 63

Major ENCON projects implemented in refineries

Flare gas recovery system Switch over from Naphtha to Natural Gas as feed in HGUs & as fuel in GTs/HRSGs. Hydrogen Recovery from off-gases ex CRU,CCRU, DHDT & HCU/OHCU. Helitower, Packinox type exchanger in CRU, CCRU, DHDT Stepless control in MUG compressors

IOCL Refineries have achieved savings of about 300,000 SRFT during last 5 years at an avg. of ~ 60,000 SRFT/yr ~ Rs. 160 Cr/Yr.

Other Operational Improvement Areas

Flare Gas Recovery Flare gas recovery (or zero flaring) is a strategy evolving from the need to improve environmental performance. Conventional flaring practice has been to operate at some flow greater than the manufacturers minimum flow rate to avoid damage to the flare. Reduction of flaring not only results in reduced air pollutant emissions, but also in increased energy efficiency replacing fuels, as well as less negative publicity around flaring. Emissions can be further reduced by improved process control equipment and new flaring technology. Reduction of flaring can be achieved by improved recovery systems, including installing recovery compressors and collection and storage tanks.

Other Operational Improvement Areas

Boiler Performance Boiler Feed Water quality : This is important for reduced blow down, reduced chemical use, maintenance, and waste disposal costs Improved Process Control : Flue gas monitors and oxygen monitors are used to maintain optimum flame temperature, and to monitor CO, oxygen and smoke. Reducing Excess Air: The more air is used to burn the fuel, the more heat is wasted in heating air. For gas and oil-fired boilers, approximately 15% excess air is adequate.

Other Operational Improvement Areas

Steam Distribution Proper sizing : During steam line sizing, it is very important judiciously decide the velocity and pressure drop. This reduces the risk of oversizing a steam pipe, which is costly and also lead to higher heat losses. On the other hand a pipe too small may lead to erosion and increased pressure drop. Maintain and Improve Insulation : Crucial factors in choosing insulating material include low thermal conductivity, dimensional stability under temperature change, resistance to water absorption, and resistance to combustion. Also It is often found that after repairs, the insulation is not replaced. Energy and money can be saved by a regular insulation inspection and maintenance system. Maintain and Improve Steam Traps : Modern thermostatic steam traps can reduce energy use while improving reliability. A simple program of checking steam traps to ensure that they operate properly can save significant amounts of energy.

Other Operational Improvement Areas

H2 Recovery Hydrogen recovery is an important technology development area to improve refinery margin. It reduce the costs of hydrogen (one of the most valuable streams in refinery) production. Hydrogen can be recovered indirectly by routing low-purity H2 streams to the hydrogen plant. Hydrogen can also be recovered from off-gases by routing it to the existing purifier of the hydrogen plant, or by installing additional purifiers to treat the off-gases and vent-gases. Suitable gas streams for hydrogen recovery are the off-gases from the hydrocracker, hydrotreater etc. The cost savings of recovered hydrogen are around 50% of the costs of hydrogen production. Hydrogen can be recovered using various technologies, of which the most common are PSA (pressure swing absorption), cryogenic distillation, and membranes.

Other Operational Improvement Areas

Motors Electric motors are used throughout the refinery, and represent over 80% of all electricity use in the refinery. The major applications are pumps (60% of all motor use), air compressors (15% of all motor use), fans (9%), and other applications (16%). Sizing of Motors : Motors and pumps that are sized inappropriately result in unnecessary energy losses. Where peak loads can be reduced, motor size can also be reduced. Higher Efficiency Motors : High efficiency motors reduce energy losses through improved design, better materials, tighter tolerances, and improved manufacturing techniques. Typically, high efficiency motors are economically justified when replacing a motor, but are not economically feasible when replacing a motor that is still working. We should plan accordingly. Replacing a motor with a high efficiency motor is often a better choice than rewinding a motor.

Other Operational Improvement Areas

Pumps In the petroleum refining industry, about 59% of all electricity use in motors is for pumps, making pumps the single largest electricity user in a refinery. Studies have shown that over 20% of the energy consumed by these systems could be saved through equipment or control system changes. There are two main ways to increase pump system efficiency, aside from reducing use. These are reducing the friction in dynamic pump systems or adjusting the system so that it draws closer to the best efficiency point (BEP) on the pump curve. Correct sizing of pipes, surface coating or polishing and adjustable speed drives may reduce the friction loss, increasing energy efficiency. Correctly sizing the pump and choosing the most efficient pump for the applicable system will push the system closer to the best efficiency point on the pump curve.

Other Operational Improvement Areas

Power Generation System Compressors Fans Blowers Lighting Tank Farm / Product Despatch Catalyst / Chemicals

Energy and Margin

At overall IOC level, reduction of Fuel & Loss by 0.1% means

Saving of 55,000 Ton standard refinery fuel (SRFT) per year Benefit @ Rs 36,000 per Ton Rs 2,000,000,000 per year

Profit through better Monitoring & Control

Modern control systems are designed for improving productivity, product quality, energy efficiency and the efficiency of a production line. A well designed control systems and APC result in reduced downtime, reduced maintenance costs, reduced processing time, and increased resource and energy efficiency, as well as improved emissions control. Many Automation Vendors including ABB Simcon, Aspen Tech, Honeywell, Invensys, and Yokogawa supply advanced control systems for CDU, FCC HCU, DCU etc important units. Typical cost savings are $0.05 - $0.40/bbl of feed for these units. Payback periods are often as low as 2-3 months. Major process units of IOC are having APC. Proper and uninterrupted running of APC leads to substantial GRM improvement.

SUMMARY & MESSAGE

GRM is the difference between crude oil price and total value of petroleum products produced by the refinery.

Crude Oil cost has the biggest impact on refinery margin. Tough / Dirty crudes are cheaper and can lead to better margin.

In view of imbalance between crude and product cost, Refineries must look at ways and means to Improve operational efficiency etc to improve GRM.

We are paid for not only running refinery but running refinery WELL. We must not run our refineries COMFORTABLY but run them PROFITABLY.

Reduction of 0.1% of F&L means benefit of Rs 200 Crore / year for IOC refineries.

Refinery margin is EVERYBODYS BUSINESS.

Margin Improvement thru APC

Advanced Process Control (APC) APC Benefits : o 2-5 cents/ barrel for Crude Units o 10-40 cents/barrel for secondary units like FCC, HCU and Coker APC penetration
About 60-80% in Large scale industry leaders (Refinery, Petrochemical, Fertilizer) 47% of Potential units of Indian Oil are having Advanced Process Control.

APC benefit for IOC refineries :

At Present : 8 10 cents/ bbl After 70% penetration : 12 13 cents/ bbl

Blending Automation Under various stages of implementation Significant benefits envisaged by reducing Quality Give-away

Refinery configuration and GRM

Configuration / Complexity of a refinery depends upon: Nature/source of crude oils to be processed Demand pattern in the markets to be covered Current / future product quality Production of feed stocks for downstream units Own Fuel Requirement Environmental stipulations

SUMMARY & MESSAGE

GRM is the difference between crude oil price and total value of petroleum products produced by the refinery. Crude Oil cost has the biggest impact on refinery margin. Tough / Dirty crudes are cheaper and can lead to better margin. In view of imbalance between crude and product cost, refineries have to look at ways and means to improve operation, energy efficiency etc to improve GRM. Reduction of 0.1% of F&L means benefit of Rs 20 Crore/year for IOC refineries. We are paid for not only running refinery but running refinery WELL. We must not run our refineries COMFORTABLY but run them PROFITABLY. Refinery margin is EVERYBODYS BUSINESS.