2016

Hindustan Petroleum
Corporation Limited

SUBMITTED BY: GROUP F-2

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 HPCL Visahk Refinery, Vizag: An application Of Linear Programming Concepts

About The Company

Hindustan Petroleum Corporation Ltd (HPCL) is a Fortune Global 500 Company ranked at 327,
HPCL refinery located at Gajuwaka in Visakhapatnam was established by Chevron Corporation,
USA establishment Caltex Oil Refining (India) Ltd. in 1957 with a capacity of 0.65 MMTPA
(metric million tons per annum). Later Caltex was merged with HPCL in 1978 by Government of
India under the CORIL-HPCL Amalgamation Order.
The initial installed capacity of 0.65 MMTPA was increased to 4.5 MMTPA in 1985 and then to
7.5 MMTPA in 1999, later through a series of expansion programs capacity was raised to 8.3
MMTPA at present and a major expansion to 15 MMTPA capacity is in progress.
The major products of the refinery are Petrol, Diesel, LPG, Kerosene, Naptha, Aviation Turbine
fuel, Turbojet Diesel, Power Petrol, Lubricants and furnace Oil. Visakh refinery has been
recertified for Integrated Management System for good standards and practices in Quality
management, Environment Management and Occupational Safety and Health Management.
The Single Point Mooring (SPM) crude oil receipt facility and associated shore tank farm that
receives crude oil in very large crude carriers have helped in reducing freight charges and
improving flexibility in crude oil selection. These specialized infrastructure facilities will aide in
future developments of the refinery. The crude distillation process is depicted in Exhibit 1.
Problems at Refinery
We are addressing four potential problems that can arise for the HPCL Visakh refinery.

1. Blending problem- HPCL produces two types of diesel. The Normal diesel and the
Turbojet diesel where the latter costs more than the former. Two types of crude are mixed
in proportions in the production of the two types of diesel. We are trying to find the
optimal blending quantities of both the crude that will satisfy the product characteristics,
considering the supply and demand constraints to bring the company maximum profits.
2. Goal optimization- The Blending problem is addressed by prioritizing the constraints of
supply of crude and maximizing profit the refinery has to achieve.
3. Network Flow- The refinery gets crude and transfers oil during the process of refining
through pipelines. We are formulating a linear program to maximize the flow of oil
through the pipes to achieve maximum utilization.
4. Transportation- The Fuel is transported from various storage terminals to petrol pumps
throughout the country. We are trying to formulate a linear programming model to
minimize the costs of transportation.
 The above problems are discussed in detail in the following sections.
Blending Problem
BPCL manufactures two types of diesel according to the Bharat stage IV emission standards.
One is the Normal diesel which is used in heavy commercial vehicles, buses, tractors, motor
cars, agricultural pump sets and in various other industrial diesel engines and other utility
vehicles. The second is the Branded Diesel which is marketed under the brand name Turbojet
and is preferred by new generation vehicles such as passenger cars, trucks and buses. Turbojet
contains multifunctional additive that enhances the performances of new generation vehicles and
ensures peak engine performance. The Turbojet diesel is expensive when compared to normal
diesel. Each type is produced by blending two types of crude oil known as sweet crude oil
(Sulphur content < 0.5%) and sour crude oil (Sulphur content > 0.5%). The Brent crude oil also
known as sweet crude oil is priced at 49.69$/Barrel which converts to 21.36 INR/Litre and the
Sour crude oil is priced at 46.88$/Barrel which converts to 20.15 INR/Litre. The Refinery
Transfer Price given for diesel as 24.83 INR/Litre as on 1st Dec 2016 states that the processing
cost in case of ..The sales price per litre of each type of diesel is mentioned in table
below.
Revenue Table
Type Normal diesel Branded diesel
Price/litre (INR/ Litre) 54.65 57.66
Delhi

Crude Price Table

Type Sour Crude( Gulf Sour Crude) Sweet Crude ( Brent Crude)
Price /litre (INR/ Litre) 20.15 21.36

Crude Characteristics
Type Cetane Rating Sulphur Content (%)
Sweet(Low Sulphur) 43 0.1
Sour(High Sulphur) 55 0.5

HPCL visakh refinery has a processing of 8.3 MMTPA which can be calculated to 22,739.72
Tons a day and it converts to 22.73 Million liters a day. As sweet crude is more expensive than
sour crude we have assumed that more of sour crude is imported than sweet crude (60-40 ratio).
The sour crude processed is 13.643 Million liters a day and the sweet crude processed is 9.095
Million liters a day. The two types of diesel differ in their cetane rating and sulfur content. The
crude oil blended to form normal diesel must have an average cetane rating of at least 48 and
contain at most 0.25% of sulfur. The crude oil blended to form the hi-speed diesel must have an
average cetane rating of at least 51 and contain at most 0.2% sulfur.

Blending Problem Goal Maximization

In case of the blending problem faced by HPCL, certain constraints are to be prioritized in
comparison to others. The first priority is to minimize underutilization of sweet crude supply as it
is of less volume and of higher cost. The second priority is to minimize underutilization of sour
crude supply as its cost is less than that of sweet but is still available in only a certain quantity.
The last priority is to make sure that the refinery has a minimum profit of 62,534,230 INR/day
Network flow problem
HPCL visakh refinery is situated in Vizag, Andhra Pradesh. The crude arrives at Single Point
Mooring (SPM) crude oil receipt facility, Vizag Port and is transported to the storage tank. Both
sweet and sour crude moves through the same pipe at various intervals of time. From this point
the crude (both sweet and sour, at different times) is moved to the crude distillation unit. The
different distilled components from different types of crude moves through the pipes to different
component tanks. From these tanks the components are sent to the product tanks where the
required additives are added and the final product is made and kept ready to be transported to
different distributors. The network flow showing the capacity that flows through the pipelines,
from the arrival point to the product tanks are depicted in the following diagram. HPCL wants to
maximize flow to increase its utilization.
4 8

5 9
1 2 3
6
10
7

We are assuming that normal and high speed diesel are formed in tanks 8 and 9 from respective
crude components of sweet and sour from tanks 4 and 5. Tank 10 contains Naphtha.

The capacities of different pipes in different paths are shown below in the table
 Stage 1
Flow from port to Diameter of
Pipes
storage(kltr/hr) pipe(inches)
1-2 6000 40

Stage 2
Flow from
storage to crude Diameter of
Pipes
distillation unit pipe(inches)
(kltr/hr)
2-3 1500 20

Stage 3
Flow from crude
distillation unit Diameter of
Pipes
to component pipe(inches)
tanks (kltr/hr)
3-4 240 8
3-5 375 10
3-6 540 12
3-7 960 16

Stage 4
Flow from
component tanks Diameter of
Pipes
to product pipe(inches)
tanks(kltr/hr)
4-8 93.75 5
4-9 33.75 3
5-8 15 2
5-9 60 4
6-10 93.75 5
7-10 183.75 7

Transportation Problem
HPCL stores both Turbojet diesel and normal diesel in different Terminals across the country.
Fuel from Visakh refinery is stored across 6 Terminals in Andhra Pradesh, out of which 3 are
chosen from where fuel is to be transported by road to different petrol pumps in different cities.
HPCL wants to know the amount of quantity that has to move from one depot to a particular
petrol pump so that the demand, supply constraints are met and the total cost is minimized. The
cost of transporting fuel is given by the value 2.50 INR/TON/Km
The distance of transporting diesel between different Terminals and Cities are given in the
following table.

Distance City
Guntur Hyderabad Warangal Nellore
RAJAHMUNDRY
TERMINAL
Terminals

251 428 326 437

SURYAPET
TERMINAL
131 134 110 359
VIJAYWADA
TERMINAL
94 273 248 280
References
Types of crude used -
gas price from Bloomberg-
Ministry of petroleum data - http://petroleum.nic.in/docs/readyrecknor_May14.pdf
process details of refining - https://bharatpetroleum.in/our-business/refinery/mumbai-
refinery/products.aspx
diesel prices -
http://hproroute.hpcl.co.in/StateDistrictMap_4/ms_hsd_price.jsp?param=M
Characteristics of 2 crudes - http://www.petroleum.co.uk/sweet-vs-sour
 sweet crude prices - https://www.barchart.com/futures/quotes/CBN16
sour crude prices - https://www.barchart.com/futures/quotes/MTX16
amount of crude taken in a day -
normal diesel specifications
https://bharatpetroleum.com/pdf/MRL_High%20Speed%20Diesel%20Oil.pdf
hi speed diesel specifications - http://www.matrixbharat.in/pdfs/MSDS-HSD-BPCL.pdf ,
https://bharatpetroleum.in/pdf/MR/MR_High_Speed_Diesel_Oil_Bharat_StageIV.pdf
cost of production - - http://www.hpretail.in/documents/pdf/pb/pricebuildup_Diesel.pdf
About the company - http://www.hindustanpetroleum.com/refinerieshistory
demand for diesel and Turbojet equals sales value -
http://www.hindustanpetroleum.com/documents/pdf/2016 03 04 HPCL Analyst
Pres_Mumbai.pdf
transportation cost- https://books.google.co.in/books?id=aIc-
BAAAQBAJ&pg=PA132&lpg=PA132&dq=oil+transportation+cost+road+india&source
=bl&ots=rYhFHCwosH&sig=nCxk8ep-4ie_ic-
Vtn0HzM0QLuE&hl=en&sa=X&ved=0ahUKEwih9_aHx7rJAhWVj44KHWW8CnMQ6
AEIPzAJ#v=onepage&q=oil%20transportation%20cost%20road%20india&f=false
Expansion Information- http://www.thehindu.com/news/cities/Visakhapatnam/Refinery-
expansion-works-begin/article16643655.ece