Disc Contents © IPA, 2006 - 1st Annual Convention Proceedings, 1972
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140 PROCEEDINGS INDONESIAN PETROLEUM ASSOCIATION
First Annual Convention, June 1972
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INTEGRAL OPTIMIZATION OF CRUDE ALLOCATION,
REFINING AND PRODUCT DISTRIBUTION.
THE NATURE OF THE PROBLEM
The business in which an oil company like
Pertamina is engaged starts from searching
and producing crudes, processing, transporting
and ends with the distributing of oil products.
The crudes may come from own fields,
import or from shares obtained by contract
of work and production sharing. These crudes
may in fact be processed to provide the
requirement of domestic demand for petroleum
products o r exported to obtain foreign
currency.
There are a number of refineries in different
geographical locations, which may receive and
process these crudes.
Within each refinery there are alternative
processing routes, to obtain the finished
products of certain slate in such a way that
the subsequent transportation to all distributi-
on terminah contributes to the over-all objec-
tives of the business.
The structure of the fields of responsibility is
divided into three major technical functions
production, transportation and refining. These
functions work “in series” along the flow
path of the crudes. This necessarily entails
strong interdependence of the different functi-
ons, since the output of one function serves
as an input to the next. At the same time,
however, each major function or activity is
composed of parallel elements - for instance
5 refineries are operating “side by side” to
serve and satisfy the demand of the same
market. These combined aspects, functional
interdependence and choice of alternatives,
lead naturally to the notion of “allocation”
and ”optimization”.
The notion of optimization arises from the
fact that the different alternative routes entail
costs which are in general different.
It is not sufficient to assign activity levels or
allocate funds merely to ensure a feasible
plan. Rather, the ultimate objective is to
allocate funds or resources t o maximize the
aver-all profitability of the integrated business.
‘ KOENORO*)
MATHEMATICALPROGRAMMING
The underlying implication of a formal
programming approach is to describe the
economic or business processes under consider-
ation in mathematical laguage - much the
same as the physicist employs mathematical
expressions to describe natural phenomena.
Consequently we can take advantage of the
analytical power of mathematical techniques
combined with the capabilities of modern,
highspeed computing machines.
The first step in a mathematical programm-
ing procedure is t o define the quantifiable
factors which are pertinent to the functioning
of the business system under consideration.
This definition implies, in particular, specifica-
tion of those factors which are, o r might be,
considered controllable and those factors
which are not.
The former are called variables, while the
latter may be daignated as parameters or
coefficients.
The next step is formulating the appropriate
mathematical expressions which represent the
inter relationships of these variables and
parameters. Such formulations, reflecting the
interdependence of the actual operations as
well as the various limitations imposed on the
activity of the business, represent in effect, a
mathematical model of the business system.
Such a model, describing the technology, the
economics, the physical and even policy
restrictions contained in the business system
consists essentially of a set of simultaneous
equations and inequalities. The ultimate step
in mathematical programming is the deter-
mination of what is called the optimum
solution t o fhe set of model equations and
inequalities. This implies finding numerical
values for all the controllable variables in
such a manner as to satisfy the interrelations
and limitations characterizing the business
*) Perusaham Pertambangan Minyak dan Gas Bumi
Negara (Pertamna)

system, while at the same time maximizing
profits, or minimizing costs, or some other
objective. In as much as each of thevariables
employed in the model formulation serves
to designate a specific operation or level of
activity, the mathematical solution provides
a direct description of an optimum operating
plan.
RESTRICTION OF USE OF THE OUTCOME
OF MATHEMATICAL PROGRAMING
It should have t o be understood, however,
that mathematical programming does not offer
the equivalent of an automatic decision making
device.
In particular, the establishment of criteria
IS to what is actually best for a business
enterprise is altogether beyond the realm of
mathematics. Steering the course of a business
enterprise requires the consideration and
weighing of intangible factors, which have to
be evaluated by intuition, judgement and
experience. Mathematical programming should
be viewed essentially as a helpful supplement
to judgement and intuition. The help that it
can provide stems from its ability to deal
efficiently with a vast body of information
and to deal systematically with great number
of alternatives and restrictions characterizing
the functioning of a complex business system.
ILLUSTRATION OF MODEL FORMU-
LATION
To illustrate the formulation of a model,
let us take an integrated oil company's
operation whose function is producing and
processing crude and despatching ail products
to sales terminals.
To simplify the illustation, suppose the
company is only dealing with two types of
crudes : €ight and heavy ; with 3 classesof
products : gasoline, kerosene and fuel, to
be despatched t o only one terminal. The
company has furthermore 2 refineries and has
also a running contract to supply crudes t o
an outside party. The company has also a com-
mitment to supply fixed quantities of pro-
ducts, which may also be supplied from
outside purchase in w e its own refined
products fall short of demand. The way in
which the variables can be devised t o obtain
a basic description of this business system is
showninExhibits I and 11.
The description consists h t of all of a
series of balance equations, which link one
activity of the system t o the next. These
balance equations are shown inside full-line
141
boxes. For instance, equations of type 1 list
the quantities of crude production from the
various oil-fields and state that these quantities
of crudes are transferred to the transportation
activity. Equations of type 2 describe the
distribution of crudes between direct sales and
refinery allocations. Equations of type 3 and
4 define the relationships between crude
allocations to the refineries and the resulting
slates of finished products, i.e. gasoline,
kerosene and fuel. These relations, greatly
simplified for purposes of this example, corres-
pond to a description of refinery yields, based
on the consideration of certain yield coeffici-
ents, ag, ak af, bg, . . . etc.
The final set of relations required t o com-
plete the description of the flow of crudes and
products throughout thc system is illustrated
by expressions 5, 6 and 7, which represent
the demand conditions. These conditions
relating the amounts of crudes and products
generated by the system to the external
demands are particularly significant since they
actually dictate the behavior of the entire
system.
Aside from the statements of balance or
equality, the description of the business system
also requires a representation of the various
limitations imposed upon or existing within
the system
These limitations, pertaining to the many
practical considerations which can only be
stated in a somewhat indefinite form, are
mathematically expressed by means of ine-
qualities (shown in broken-line boxes in ex-
hibit I).
The relations of type 1 serve t o show that
the amount of crude taken from each oillfield
cannot exceed the production capacities K1,
K2, . . . . . K5 of respective fields.
Relation 2 expresses the fact that the total
amount of crude sent through the pipeline
to the sales terminals cannot exceed the
pipeline capacity K6.
Expessions 3 and 4 serve t o show that the
refinery throughput cannot exceed the maxi-
mum capacity K7 and Kg of refinery A and
B resp. Relation 5 may represent a policy
stipulation, in which product imports must
not exceed Kg,K10 and K11 for resp. gasoline,
kerosene and fuel.
To complete the picture, the flow of cash
(costs & revenue) associated with each
activity must also be represented mathematic-
ally. This can be accomplished by conddering
v-
CRUDE POOL
AVAILABI-
-. AUOCATIDN

TRAYSPORTATION
ro SALES TRANSPORTA~
--
L.
REFININS
REFINERY REFINERY
-- PURCHASE
PURCHASE OF
r T
SALES OF

SALES
SALES OF
c
.CRUDE SOURCES-
_- ~ LlTY
RESTRICT-
RESTRICTION,,
n
YIELDS
- - RESTRlCTlON_-
-CAPACITY ,FINISHED PRODUCTS,
7
AND RESTRICTIONS
CRUDEL-
7
PRODUCTS
-+
ION
- X reprelents VARIABLES
- ali other Idlers n p n s c n t
PARAMETERS
K, K,, c a pi cily or other phyricil Iimllr
$ 7 yield coeft l a i l g h t crude
“I af yeld melt for+wavy c r d e
Fa
OL Dh demands IorIighI and heaycruoer
4 3, Df demand5 fGr gasoline kerosene 2nd luel
Exhibit I
Variables :

Quantities of crude production f r o m ) heavy x1, x2, x3

various o i l f i e l d s ) light x4, x5

Heavy crudes transported t o gathering s t a t i o n X6

Light crudes transported t o gathering s t a t i o n x7
Heavy crudes a l l o c a t e d t o r e f i n e r i e s A and B X8, X9
Light crudes a l l o c a t e d t o r e f i n e r i e s A and B x10, x11
Heavy crudes a l l o c a t e d t o outside s a l e s x12.
Light crudes a l l o c a t e d t o outside sales X13
Q u a n t i t i e s of gasoline produced a t r e f i n e r i e s A and B X14, X15
Q u a n t i t i e s of kerosene produced a t refs. A and B X16, X17
Q u a n t i t i e s of i n d u s t r i a l f u e l produced a t refs.A and B X18, x19.
Q u a n t i t i e s of imported g a s o l i n e x20.
Quantities of imported kerosene x2 1
Q u a n t i t i e s of imported i n d u s t r i a l f u e l x22.

Parameters :

Maximum production capacity of o i l f i e l d s K1, K2, K3, KLI, K5,

Maximum p i p e l i n e capacity K6.
Maximum processing capacity of r e f i n e r y A K7.
Maximum processing capacity of r e f i n e r y B K8.
Maximum q u a n t i t i e s of imported g a s o l i n e , K9, K l O , Kl1.
Kerosene and i n d u s t r i a l f u e l (supposed t o represent po-
l i c y matter K9, K 1 0 , K11.
Maximum committed q u a n t i t i e s of crudes f o r outside
sales DL, DH*
Supply commitment of gasoline, kerosene and i n d u s t r i a l

fuel DG, DK, D ~ ’

Yields of gasoline, kerosene and i n d u s t r i a l f u e l o f
heavy crudes proceseed i n r e f i n e r y A ag, ak’ af’
Yields of g a s o l i n e , kerosene and i n d u s t r i a l f u e l of hea-
vy crudes processed i n r e f e n i r y B bg’ bk’ b f .
Yields of g a s o l i n e , kerosene and i n d u s t r i a l f u e l Qf light
crudes processed i n r e f i n e r y A
dg’Bk’ 04f.
Yields of g a s o l i n e , kerosene and i n d u s t r i a l f u e l of l i g h t
crudes processed i n r e f i n e r y B
P g ’ pk, pf.
Exhibit I1
144
appropriate unit-cost and unit-revenue Foeffi-
cients which enable us to express the expen-
ditures and revenues of each activityin!ems
of the corresponding operational variable?.
For instance, it may cost c1 dollars to produce
one barrel of heavy crude from oil field No. 1.
Accordingly, the expenditure associated with
the production of X1 barrels from this oil
field will be ~ 1 x 1 while
, the expenditure
corresponding to the production of heavy
crude from oil field No. 2 will be ~ 2 x 2 .
Similarly, the expenditures associated with
the transportation of crudes to the central
gathering station will be c6x6 for the heavy
crudes, c7X7 for the light crudes, etc.
The revenue corresponding to the sale of X12
barrels of heavy crude will be r12X12, that
corresponding to the sale of X i 4 barrels of
gasoline will be ‘14x14 etc.
In general, we can see that when the cost
and revenue coefficients are known, the cash
flow picture of the business system is readily
obtained by simple algebraic summation of
the successive expenditures and revenues
associated with each activity.
Thus the total outgoing cash flow for the
system would be described by the following
expression:
z c = ClXl + c2x2 + . . . . . . . + c22x22.
The expression Zc is usually referred t o as
the “cost function” or more generally, the
“objective function”. It descfibes the parti-
cular objective - in the above case, the total
costs - in terms of which the operation of
the system is to be studied. Various other
econamic criteria or objectives for the business
system can be studied and formulated. For
instance, if we want to consider gross profits
rather than costs, we would define a profit
function as follows :
This profit function is obtained simply by
multiplying all the volumes of crudes and
products sold by the corresponding unit
fevenues, r, and then substracting the previous-
ly defined cost function Zc.
Determining the best plan of action or the
“optimum solution” for an integrated business
system consists of finding a set of values for
all the variables so as to maximize - or t o
minimize - the objective funqtion while at
the same time satisfying all the structural
relatiop which describe the physical operation
of the.system.
APPLICATION TO INDONESIAN OIL - LO.
GISTICS
Mathematical programming techniques have
been applied to solve the optimization of oil
logistics in Indonesia.
The over-all picture of the problem is shown
in exhibit 111. A map showing the locatcon
of oil-fields, refineries and distribution ter-
minals is contained in exhibit IV.
The crude production distribution, refining
capacity distribution and the product demand
distribution are shown in exhibit V
DISTRIBUTION TERMINALS
The petroleum fuel products consumed in
Indonesia consist of aviation gasoline and
‘turbine fuel, motor gasoline, kerosene, auto-
motive diesel oil, industrial and marine diesel
fuel, underboiler and marine fuel oil.
These products are distributed by tankers
and lighters through 3 1 terminals for further
inland distribution.
About 213 of all the products are consumed
in Java and mainly supplied through Djakarta,
Tjilatjap, Semarang and Surabaja. From these
terminals products are distributed further
mostly by road tank lorries and railway;
REFINERIES
There are refineries in 8 locations with total
capacity of approx. 430 MBCD, mainly situat-
ad in Sumatra (80%) and Kalimantan (17%).
Pangkalan Brandan, Tjepu and Wonokromo
refineries are of local significance only, and
are further excluded from the model.
Dumai refinery consists of one topping
unit of 100,000 bpsd. Because of the proximi-
ty to the Minas field, the refinery is assumed
t o process only Minas crude. A Catalytic
reforming unit is now under construction
(to be completed mid 73). Before the comple-
tion of this plant, straight-run naphtha of low
octane number, should havk to be disposed.of
as chemical feedstock or sent to Pladju for
octane improvement.
S. Pakning refinery. At present this has a
topping unit of 30,000 bpsd which cuts. the
crude only into 2 fractions, d u l l a t e and
I ‘INDEGENOUS CRUDES

DISTRIBbTION

CENTRAL PALEMUAUO

TALANO AKAR PENDOrO

11
MINAS

TARAKAN
suwu
I
-
DISTRI0UTION
e
DISTRl8UTION

DISTRIBUTION
-
m
Exhibit I11
146
 GEOGRAPHICAL DISTRIBUTION
( PERCENTAGE )
FINISH PRODUCT
CRUDE PRODUCTION REFINING CAPACITY
REQUIREMENT

96.9 80.2 21. I

0.2 2.3 66.9

3. KALIMANTAN 2.4 17.5 3.8

4. SULAWESI - 5.2

5 NUSA TENGGARA - I .7

6 . MALUKU /lRlAN 8. 0.5 I. 3

-1 843 MBCD 4 3 0 MBCD 143 MBCD

Y ld quarter '71

Exhibit V
148
residue. After the completion of expansion
(completed end 1972), the unit will be able
to process 50,000 bpsd and make several
fractions i.e, naphtha, kerosene and gasoil
cuts.
Also because of the proximity with the Minas
Crude source and because of contractual
commitments, this refinery is assumed to
process only Minas crude.
Pladju refinery, has 4 crude distilling units
with a total capacity of 110,000 bpsd, which
can be run independently on several crudes.
Naphtha, kerosene, gasoil and residue obtained
from several crudes can either be mixed or
segregated, depending on the proparfie8 of
these fractions or on t he wbsequent PFO~~SS-
ing of these fractions.
Low octane naphtha can be reformed
(thermally) t o improve the knocking quality.
Low octane naphtha can also be extracted to
make aromatic rich fraction by the Edeleanu
process- with a good knocking quality. This
same Edeleanu process is also used to extract
the aromatic constituents from kerosene
fraction t o improve the burning quality.
Residue can either be cracked (thermally)
t o produce more gasoline and fuel oil
components, or processed in a high vacuum
unit t o obtain more gasoil and fuel oil
components.
The light-ends are processed in separate units
t o produce gasoline polymer and L. Alkylate,
either for aviation gasoline or motor gasoline.
The choice of processing routes for such
refinery with this kind of configuration will
be dictated by the product slate requirement
and processing cost.
Sungai Gerong Refinery has 3 crude pipe
stills with a total capacity of 80,000 bpsd,
which can also be run independently on several
crudes. This refinery is provided with both
thermal and catalytic cracking units. Light
ends are also processed t o make polymer
gasoline and L. Alkylate. Besides, it also has a
paraffin wax plant.
Together with Pladju, which is under the
same management, S u n p i Gerong refinery
provides a flexible combination in serving
the domestic market.
Balikpapan refinery has 3 crude distilling
unitswith a total capacity 6f 75,000 bpsd,
which can also be run on several crudes
independently. It has a high vacuum unit and
a paraffin wax plant.
This refinery consists essentl-alfy of primary
processing umts unlike Pladju and S. Gerong-
As far as choice of processing route is concern-
ed it is more or less fixed. Crude oil allocati-
ons, which in practice have no appreciable
degree of freedom, will determine a certain
product spectrum.
F.Balikpapan also has a paraffin wax plant.
The 5 above refinenes are taken up in the
corporatemodel, which starts from allocating
crude and ends with the product distribution.
Optimization is done in the context of this.
integrated model.
CRUDES & FEEDSTOCKS
Crudes in Indonesia at present are mainly
produced onshore by Caltex (CPI), Stanvac
(PTSI) and Pertamina. Off-shore crude pro-
duction has only recently started.
Through “contract of work‘’ and production
sharing” with foreign companies, the govern-
ment/Pertamina obtained a share a€ the pro-
duced crudes. From old fields in South
Sumatra and in East and South Kalimantan
Pertamina produces crude oil.
The crudes obtained by the government/
Pestamina can either be processed, exported
o r exchanged with other crudes. The govern-
ment/Pertamina can also import either crudes,
intermediate products or finished products
in satisfying the needs for petroleum products.
The policy of the government and the
international market of oil have the greatest
effect on the choice of the above alternatives.
Rantau crudes, which is produced in North
Sumaba, are mostly exported. A small part is
processed in Pangkalan Brandan for local
consumption. There is also the possibility of
sending Rantau crude t o Pladju for processing.
South Palembang, Djambi paraffinic, Djam-
bi asphaltic and central Palembang crudes are
produced in Pertamina‘s South Sumatra field.
Actually there is the alterqative t o export
these crudes, but in this model these crudes
are assumed to be processed in Radju refinery.
Lirik and Talang Akar Pendopo crudes are
produced by Stanvac (PTSI). These crudes,
which are obtained by the government/Per-
tamina through contract of work and by
exchange, can be prpcessed in Pladju and
S. Gerong. Tandjung, Warukin, Sembodja/
Sanga-sanea crudes are produced from south
and Pertamna‘s E a t Kajimsratan field. These
crudes are processed in Balikpapan.

Minas crude is produced by Caltex" The
government obtains part of this crude ky
contract of work. Unlike other crude^ the
available quantity is much greater, so tha? the
allocation of this crude is open to Iiumai,
S. Pakning, Pladju, S. Gerong and Balikpapan
refinery.
TRANSPORTATION
The cost coefficients in the objective
function associated with transport are unit
freight costs for each relevant route, for which
the effects of drafts and turn-itrounds have
been considered.
The criteria used in the transportation aspect
of the model, is just to aim at the best way
crude and product distribution should be
effected.
THE USES OF THE RESULTS
The basic use of mathematical programming
techniques on Indonesian oil-logistics is to
determine the best possible schedule Qf
operation for coming periods based on fore-
casts of a fixed set of conditions, i.e., a
certain demand for petroleum products and
the minimization of costs as objective, with
***
149
agiven set of operating costs and technoloBcai
parameters (e.g. yield coefficients, handling
and processing capacity). Because forecasts are
in generai obscured by uncertainties, in
particular involving product demands, the
availabihty of crude and prices, mathematical
programming techniques can be used to
explore the effects of a certain range of
variability of conditions.
Such an exercise can support the insight
of the business to take the best decision to
prepare the execution of the operation for
the period studied.
A second useful application is to seek the
economic interpretation of restrictions and
policies. Plant capacity or specification of
proddcts may form restriction of the system,
and have economic repercussions.
Certain policies may also have a similar
effect. If this is the case, a proposal for
improvement could be worked-out.
The technique can also assist in making
sensitivity analysis, e.g. effect of price changes
of products or processing costs on overall
operating cost can be work-out numerically.
So the management is informed on the
critical variables of the system.