Fundamentals of Supply Chain Management for

Refining
By Ara Barsamian - Refinery Automation Institute

1. Elements of Refining Supply Chain Management

The refining "Supply Chain Management" (SCM) tools support the activities for running tan oil
refinery, from feedstock selection to optimized planning of operations using feasible schedules, to
finished product blend planning and scheduling, and finally, optimizing the distribution of products
from the refinery to bulk distribution terminals. The purpose of this paper is to provide an
overview of these activities and typical tools used in every work in running a modern refinery.

2. Crude Feedstock Selection and Evaluation

Generally, most refineries run a mixture of a number of crudes, sometimes blended to improve
the feed "diet" and obtain better yields. If there are many crude choices available, there are tools
that allow crude blending optimization that calculates an optimal blend recipe based on the crude
distillation unit yield vectors (used as specs) and crude blend components assay data..

There are three common methods of crude valuations, from the simplest to the most complex,
but profitable [4]:

1. Gravity and sulfur-based valuation

2. Assay-based cutpoints product valuation
3. LP Model product-based valuation

All these methods use crude oil assay information as the input for the various yields and
corresponding valuation calculations. There are roughly three kinds of crude assay data
available: The US Bureau of Mines, The Oil &Gas Journal, and proprietary assays by producers
of crude. They vary from cursory data to comprehensive data provided by crude oil producers
(which includes also yield and property data for reforming, cat cracking, etc).

The gravity and sulfur-based valuation: This is the oldest method, and it considers the
differentials based on gravity and sulfur differences, e.g. the market relative crude value is Y=
a+b*API+c*Wt%S

The assay-based cutpoints product valuation: It uses the crude oil assay set of boiling-point
defined distillation cuts to represent the product yields to which the corresponding product market
prices are applied to value the crudes.

LP Model product-based valuation: It uses the crude assays together with a Linear Program
(LP) refinery model which together with product prices simulates the refinery operations which
produces a yield of products that maximizes the total value of products refinable from a given
crude.

For a given refinery, the "relative value in use" between crudes A and B is the difference in value
between the marketable products that can be made from crude A or B.

The complete evaluation of a crude has to be done in the context of the "normal" operation
already running a mixture of crudes as a feed to the crude unit, and running"delta" cases with
and without the crude being evaluated. In addition, if one choses to optimize the feed diet, this
requires non-linear blending of crude assay data for each of the crude blend components, in
addition to calculating an"optimal" blend diet recipe. This, obviously is practical only when using
the LP model-based tool.
3. Crude Scheduling

Crude scheduling refers to the logistics of handling the crude deliveries and corresponding tank
allocations, crude runs, and crude inventories, with the objective of optimizing a feasible daily
crude operations sequence while meeting constraints (e.g. available tankage).

The structure of a crude scheduler consists of a time dependent picture at-a-glance of receipts,
inventories, and crude runs, with either daily (OK for rough scheduling) or hourly granularity
(allows to see problems with tankage, inventories, etc. and be able to take action, e.g. modify
tank service allocation, change blends, run rates, etc.).

A crude scheduler uses the following type of information:

• Crude Receipts (via tanker, pipeline, by crude type)

• Crude unit runs (for multiple CDU's, individually, by crude types)
• Crude inventories (by crude type, calculated as Opening inventory+Receipts-Runs)
• Crude rates (by crude type)
• Tank min/max capacities and service allocation
• Equipment availability flags(tanks or CDU's out of service, etc)
• Crude assays
• Crude prices
• Product prices
Typically, a coastal refinery receives crude via ship and pipelines. The crudes are fed to one or
more Crude Distillation Units (CDU), some of which must operate on blocked runs to meet
specialty product demands, like lubes. The crude operations coordinator/scheduler must set
crude blocks and rates to contain the crudes in the available tankage as well as meet the planned
crude runs for the month. The crude scheduling tools allow the crude coordinator to follow
inventories and the effect of the planned runs on a hourly/daily basis, for up to 3o to 45 days.

The technology can vary from spreadsheets to sophisticated mixed integer linear programming
(MIP) for event sequence optimization, to expert systems encapsulating refinery scheduler know-
how in the form of "knowledge-based" rules. The man-machine interface can be tabular and/or
graphical, but this is secondary to its practical usefulness.

Typical benefits realized by using a crude scheduler are:

• Better resolution of potential conflicts with the timing of crude oil receipts; this allows
reduction of safety stocks by at least one day.
• Better management of refinery crude tankage to optimally blend crude oils. This reduces
freight costs by allowing receipt of bigger parcels.
• Minimization of feedstock switches to the crude units, thereby maximizing yields and
minimizing off spec products and reruns.
• Maximizing the length of crude runs improves the optimization of refinery performance to
meet product demand and minimize reblends.
• Invaluable tool in troubleshooting operating problems experienced with some type of
crudes, or evaluating impact of refinery upsets or equipment failures and evaluating
alternatives
• Improved communication between planning and operations

4. Refinery Planning and Scheduling

Traditionally, there is a confusing vocabulary when describing planning and scheduling of refinery
operations, intimating that they are one and the same, except for the time element. NO, they are
not the same, because they have different objectives [3]:

Planning tools develop a refinery operating plan while attempting to maximize profits and
minimize costs while making a variety of products and meeting tight environmental requirements.
This is done through the use of process units models and using an optimizer to
maximize/minimize the desired parameters. The results are the best long term "average"'
operation targets for the process units to meet the specified economic objectives.

Scheduling tools are concerned with practical feasibility, not economic optimization, and by its
very nature, it is a time dependent problem. Scheduling handles the practical aspects of
implementing a feasible refinery operations plan - a doable operations sequence schedule, on a
daily basis, taking into account inventories, liftings, availability of process equipment and tanks.

In terms of commercially available software, there are both separate programs for planning and
separate packages for scheduling, or hybrids, using planning software with a multiple time period
"staging" functionality to simulate a scheduler's day-by-day activities.

5. Refinery Operations Planning

Typically, an operating plan is made for the next year (long range planning), 6 months (medium
range), monthly (short range plan) and a weekly plan (the one that is passed to the scheduler for
feasible scheduling purposes.

Plans are always averages over the time horizon, developing a good set of operating goals for a
future period. As a consequence, the results are the best "average"' operation targets for the
process units to meet the specified economic objectives.

The tools use either commercially available process simulators coupled with an optimizer, or
Linear Programming (LP) with non-linear optimizers with built-in process models as part of the
structure of the LP equations. The difference between the two is in the accuracy of the process
unit models embedded in the tools. The models in the process simulators are quite accurate,
because process simulators have other uses, such as process design and troubleshooting; for
operations planning, it might be an overkill, given the time horizons involved and the uncertainty
of data used in the models. The Linear Programming (LP) with non-linear optimizers use less
accurate process models to find quickly a single feasible best solution given a possible range of
conditions, and generally are the major planning tool of choice in with refinery planning and
economics departments.

Both techniques use a refinery model built of individual process units. One can use a full scale,
highly accurate model of each process, or limited mini-models incorporating only the critical
processing limitations. A variation of the mini-model is the Extreme Point Modeling LP formulation
(EPLP) of the refinery, which is an extremely condensed version of a full scale refinery model
which, when given the same input data (crude price and availability, product volumes and values,
and unit capacities), will give the same answer as the detailed refinery model. The "condensing"
is done by representing only the major handles /modes that are available to the planner to alter
the operations.

EPLP planning models have two major parts:

1. The Base case, which is an optimized refinery plan operation for some period, say, one
month; it contains feed purchases, product sales, intermediate volumes, capacity
utilization, and key product qualities based on results from a detailed refinery model.
2. Delta feed and process shift logic, which defines the ultimate yield effects on a refinery-
wide basis, and delta capacity utilizations for changing feeds or varying process
alternatives, again, the data being based on results from a detailed refinery model.
The planning tool outputs usually are detailed reports with the operating targets, yield, balance
and stream data for the process units, and a summary of refinery economics. The reports are
usually tabular, with some limited graphical summaries of key results. As one expert planner with
many years of experience put it, "the relevant information of an LP output is often submerged in a
sea of detail. The LP should provide a clear message on business drivers, constraints, and
flexibility…on one "A4" page" [2].

6. Refinery Operations Scheduling

The scheduling objective is to come up with the BEST practical (feasible) daily work plan on how
to sequence crudes, provide instructions on running the process units, what tanks to use, what
product blends to do in what sequence (so one does not run out of components), and finally, the
product shipment sequence.

Refinery operations scheduling is one of the most challenging activities, where the technology
and tools have not been successful across the board. The reasons for this is COMPLEXITY,
covering the crude system logistics, process units, blending, offsites, and shipping, each with
vastly different time constants, economic models, procedures, and constraints. In addition, the
scheduler has to react to daily process and business variability, human interaction
unpredictability, and time consuming integration of data from various disparate information
sources. As a consequence, traditional scheduling activities were divided into:

1. Crude scheduling
2. Process unit scheduling
3. Blending and offsites dispatching scheduling

The crude scheduling is concerned with crude tank allocation, optimal sequence of crude
batches in pipelines, and optimal crude blending operations to feed the best crude diets for crude
distillation. The tools and techniques were reviewed previously.
Process unit scheduling is concerned with determining unit operating conditions, unit by unit,
time period by period, product status, characteristics of each stream and each tank period by
period - this is what we are reviewing here, in this section.

Blending and offsites shipments scheduling is concerned with the sequence of product
blends and optimal recipes so as to optimize component and product inventories, status of
receipts and shipments period by period, oil movements schedule, and the status each tank or
group of tanks quantity and quality, period by period. The tools and techniques will be reviewed in
the next section.

Many years ago, the thinking was to use the refinery planning tools, by running it sequentially for
multiple time periods, that is, a normal planning model is dropped into an LP system multiple
times. The models are tied together with variables that represent transfer of streams (for
example, inventories) from one time period to the next. The disadvantage of this approach is that
the information is inadequate for scheduling, (e.g. pooled qualities vs. individual tank qualities),
and the scheduler gets swamped with information that is not relevant to scheduling activities, so
he has to spend more time "fishing out" what he needs - not exactly very efficient when you run
on low manpower levels, and you are pressed for time to exploit "opportunistic" commercial
purchases and sales.

The next evolution in thinking was to divide the scheduling tools into three distinct categories for
crude scheduling, process unit scheduling, and blending/offsites scheduling, addressing the
specific requirements and idiosyncrasies of these operations. There are individual
schedulers/coordinators to handle each one of these areas. THIS IS CURENTLY THE MOST
USED APPROACH.

Finally, modern scheduling systems are optimized for efficient and rapid generation of feasible
and optimal operations schedules. The approach is to use a generic refinery model
encompassing both the crude system, process units, the piping network, and the offsites
facilities, together with a knowledge base to introduce the scheduler experience and constraints,
an event-driven optimizer to handle equipment status/mode of operation, and an object-oriented
graphical data base for easy human manipulation and customization.

The scheduling "time horizons" are generally a week to ten days (to cover a week with a long
weekend holiday) to a month to a month and a half; obviously, the quality and credibility of the
data decrease with a longer time horizon. The typical granularity of schedules are daily, hourly,
(although some vendors provide minute resolution, this is an overkill unless you are doing the
scheduling for a fast reactor….)

The result is a "PRODUCTION SCENARIO", including crude blends, process unit instructions
(cut points, severity, feed rates, etc), tank levels and quality profiles. The scheduler can modify
the production scenario interactively. Although graphical user interfaces are in vogue, a tabular
display provides equal or more meaningful information for quick assimilation or modification by
the scheduler.
7. Product Blending Planning and Scheduling

The product blending operations are generally batch blends of multiple components, using either
sequential pumping to a blend tank, or inline blending to a tank or pipeline or ship. The blend
components come from a mixture of closed tanks, running tanks and direct process unit
rundowns.

Blending is also special because of the intimate interactivity between blend planning and
scheduling: scheduling of blends is dependent on planned recipes which themselves are
dependent on component availability and tank containment problems, which, of course, are
caused by recipe determined component drawdowns…that is why, generally, blending uses
INTEGRATED planning and scheduling tools.

To complicate matters, the new environmental rules and regulations, products have to meet 20 to
30 property specs simultaneously, compared with 2 to 3 specs 20 years ago. With the new
mergers, acquisitions and consolidations, numerous merchant refineries blend products for
others marketers, so one has to produce numerous slightly different grades of products (e.g. it is
not unusual to see 60 different grades of gasolines made by one independent refiner).

In addition, there is economic pressure to minimize working inventory and maximize the facilities
(tanks, pipelines, pumps, berths) utilization factors to reduce capital and operating costs.

The purpose of product blending planning and scheduling is to address these operating
objectives:

• Meet quality specifications

• Meet shipment schedules
• Minimize quality giveaway
• Minimize blend cost
• Maintain inventory targets within minimum/maximum levels
The time horizon for blending planning and scheduling is determined by two factors:

• Accuracy of information regarding product and components supply and demand

schedules
• The need to maintain an average inventory to satisfy a less accurate supply and demand
schedule

In practice, that means a two time period horizon, the first period covering one week to 10 days,
when the demand is quite accurately known, followed by a second "average" operation period, of
say 3 to 4 weeks, where the information might be "soft". This insures that the actual blends done
in the first week are not going to use all the "good" components, making it impossible to make
decent blends in the subsequent weeks.

The output from the blend planning and scheduling tools are:

• A detailed product blend schedule

• Optimal blend recipes
• Component and product tanks to use
• Predicted properties of the blend recipes
• Blend component and product inventories as a function of time

This information is usually included in a "pumping order" sent either electronically or via paper to
the offsites operations people for execution. Modern control systems use an on-line optimizer
(copy of the planning optimizer) together with an on-line multi-property analyzer to obtain the
benefits of an optimal blend recipe.

What are the benefits of a blending planning and scheduling system?

• Meet quality specifications without reblends

 • Meet shipment schedules and avoiding demurrage
• Minimize quality giveaway even under delivery time pressures
• Minimize blend cost by using the cheapest components available
• Minimize inventory levels without running out of components or overflowing tanks
• Minimize lab work load
• Lower component costs by adjusting component cuts/severity to match product grade
demand
• Buying/selling components to minimize costs
• Reacting quickly to opportunistic commercial demands

Typical benefits for 125,000 bpd gasoline blender exceeds $9 millions/year [5].

8. Data Reconciliation

Measurements used for applications such as planning, scheduling, and optimization are subject
to errors which affect the credibility and usefulness of the results of the applications that use
them, such as planning predictions. The errors can be random or systematic, and are due to
causes such as :

• Noise and vibration

• Drift
• Bias
• Deterioration of components
• Wear of parts
• Corrosion of sensors
• Fouling
• Improper calibration
• ….
The Data Reconciliation (DR) technique works only with errors that are normally distributed
random variables. Thus, the first step in the technique of data reconciliation is to identify and
eliminate gross (systematic) errors using statistical quality control procedures, and then develops
mass, volume, and energy balances around a process unit or a plant that must balance
EXACTLY. The imbalances from forcing an exact balance are then used to correct the raw
measurements using a mathematical "least square" minimization technique. DR uses various
linear and nonlinear optimizers to minimize the DR objective function, the sum of the squares of
the ratios of the measurements adjustments to the measurements standard deviation, subject to
the balance constraints.

The raw measurements used for DR must be from the steady-state operation of the process unit.
There are techniques to detect " steady-state" operation, but most frequently on can use the
readily available process variable hourly or daily averages in a DCS historical data base as the
"raw" values.

What are the DR benefits?

• More credible operating plans

• Better monitoring of process performance and higher accuracy of process yield
measurements
• Aid in detecting faulty instrumentation
• More accurate operating data for troubleshooting analysis and process improvement
• More accurate accounting and loss control

Aggregately, these DR benefits are in the range of 0.5 to 1.5 M$ in complex refineries.

9. Supply Chain Management Problems and Promises

Refining SCM has the potential to add 60 to 80M$/year in hard benefits accruing from increased
yields and thruputs, lower inventories, higher equipment utilization factors, and manpower
efficiency. What are some of the barriers to achieving this?

Integration

Today one might have a planning department responsible for planning and economics, plus 3 to
4 coordinators (crude, mogas, distillates, fuel oils). Each one of these use different sets of tools,
and have to get their data from widely scattered sources of information, some electronically,
some by FAX, some by phone, pieces of paper, etc. Then, this data needs to be checked, and
then integrated in the respective planning/scheduling tools, and then run test cases, and finally,
the case of interest today. This is very time consuming, and people in these jobs are under
enormous stress: the time factor, with ships coming, process unit upsets, missed pipeline
shipments, arguments with the Lab, problems with the blender controls or the on-line analyzers,
psychological impact of mergers, on and on.

All of the above activities and tools have been integrated before, done electronically and
automatically by some innovative refineries, but they are the exception. Planning and scheduling
systems create work orders/instructions sent automatically for execution by process control with
operator/supervisor approval [3].

There is no excuse for this state of affairs, given the cheap computing power available and
refinery-wide networks. Also, there is no excuse for lack of integration between commercial
vendors own software, that is, their planning software not "talking" with the scheduling software,
etc, by this, meaning automatic data transfers, without human intervention. The management
consulting companies and systems integration companies do this type of integration work, but
they charge "an arm and a leg", and you are still stuck with "one-of-a-kind", hard to maintain
system.

Databases

A modern relational data base is perfectly capable to hold years of process, performance, quality
and economics data. It can run on inexpensive PC-based servers connected to the refinery-wide
network, and can be accessed by the planning and scheduling tools running on PC's in the
refinery using industry standard interfaces. One central planning and scheduling data repository
eliminates the multiple "private" data bases used by each planner/coordinator, together with
discrepancies, redundant and inconsistent data or even wrong data.

Quality of Data and Models

One thing that has not changed from the beginning of the computer age is the "garbage in -
garbage out" dictum.

Data has to be checked for accuracy, validity, consistency, and completeness. This does not
have to be exaggerated, but has to be done, preferably with "automatic" data filters. The
accuracy has to be put in the context of how data is to be used; there is no point in having data
accurate to 1 part per million if 1% is the most the application can handle.

Models, similar to data, have to be suitable for the purpose. There is no point having a high
fidelity rigorous model with 100,000 equations when you are doing long, medium or short range
planning; it's a totally different story if you want to use the model for closed loop, real-time
optimization.

Expert Systems and Artificial Intelligence (ES/AI)

Cheap computing power made it possible to use (ES/AI) for:

• Establishing knowledge-based rules to handle difficult problems, like data filtering, or

scheduling conflict resolution
• Using neural networks for non-linear model development from historical data, and pattern
recognition for early problem detection
• Genetic algorithms for non-linear mixed integer optimization problems, thus avoiding a
host of mathematical problem handling issues
• Stochastic planning models using statistical methods to handle uncertainty (Monte Carlo
simulations together with Genetic Algorithm nonlinear optimizers)

What is needed are knowledgeable people working with vendors to widely incorporate these
advances in commercial tools.

The Web and the Internet

This new computer communication revolution holds great promise in increasing the cooperation
between various users of computer applications, and applications results, at a very low cost,
independent of the location of the users.

It relies on the use of Internet browsers with built-in "applets" to access BOTH applications and
data from "web-enabled" servers around the world.
"E-commerce" portals are Internet-based electronic exchanges and auction houses, making
instantly available to buyers and sellers information on what's available for sale, assay and
pricing information, etc. This opens up a completely new real-time trading opportunities for buying
and selling feedstocks and products online. Of course, this real-time trading will make planner
and scheduler's life more hectic and stressful by introducing the additional time pressures
associated with opportunistic trades.

The same browser technology allows planners and coordinators to access, no matter where they
are or in what time zone, the most up to date refinery information, and do their work remotely.
The results stored in a central data base will be available to all the other authorized users.

There are in fact, commercial application service providers (ASP), where one can "rent" a
planning application package; the ASP is responsible for supporting the application and applying
the latest and greatest updates and improvements, while the user benefits from all the
improvements at the lowest possible cost. The large bandwidth makes the use of application the
same as from a local PC desktop. There are other ASP's that specialize in providing data base
servers and process data historians for refineries to store many years of data. All these
capabilities are supported by large communication bandwidths, security firewalls, and multiple
redundancy.

And these are just a couple of recent examples…the beginning of new way of efficient working,
"distance engineering".

10. The Bottom Line

The SCM proved in practice that benefits of $0.50 to $1.00 /bbl potential refinery margin increase
are attainable by refineries applying an integrated approach. However, experienced people are
the key to success: software and computers, no matter how powerful and glitzy, are not
substitutes for understanding the refining business and processes.