Procurement planning in oil refining industries considering blending operations

This paper addresses procurement planning in oil refining, which has until now only had limited attention in the literature. We introduce a mixed integer nonlinear programming (MINLP) model and develop a novel two-stage solution approach, which aims at computational efficiency while addressing the problems due to discrepancies between a non-linear and a linearized formulation. The proposed model covers realistic settings by allowing the blending of crude oil in storage tanks, by modeling storage tanks and relevant processing units individually, and by handling more crude oil types and quality parameters than in previous literature. The developed approach is tested using historical data from Statoil A/S as well as through a comprehensive numerical analysis. The approach generates a feasible procurement plan within acceptable computation time, is able to quickly adjust an existing plan to take advantage of individual procurement opportunities, and can be used within a rolling time horizon scheme. Key words: Procurement planning • oil refining industry • mixed integer non-linear programming • solution approach • crude oil scheduling • decision support 1. Introduction At oil refineries, crude oil is processed and refined into petroleum products such as gasoline, kerosene and diesel oil. Due to increased competition and low refining margins oil refining activities need to be operated efficiently. Furthermore, the oil refining industry is one of the most complex chemical industries, with many different processes and chemical reactions, and the industry is regulated by strict environmental regulations. Challenges in oil refining operations range from strategic to operational, and from purchasing raw materials to distribution and sales. There is great economic potential in enterprise-wide optimization; however, a lack of comprehensive optimization models and computational tools are Published as: Oddsdottir, T.A.; Grunow, M.; Akkerman, R. (2013) Procurement planning in oil refining industries considering blending operations. Computers & Chemical Engineering, Vol. 58, pp. 1-­‐13. 2 one of the major issues that must be addressed (Shah et al. 2011; Grossmann, 2012). In this paper, we are presenting a step to this direction by presenting a decision support model for procurement planning. Planning the procurement of crude oils is strongly linked to crude oil scheduling, as it has to be assured that the procured crude oils can be processed by the refinery. However, there are a number of marked differences between the crude oil purchasing problem and the crude oil scheduling problem. The main and most obvious difference is the procurement decision that is at the center of the crude oil purchasing problem, whereas in crude oil scheduling, all procurement decisions are assumed to be given. Crude oil purchasing is an extremely important step in refinery operations, since it directly impacts finished goods quality and quantity and can result in large economic benefit. A second key difference is that procurement planning and crude oil scheduling have significantly different planning horizons. Crude oil scheduling problems are usually treated with a time horizon of 7 – 10 days, whereas procurement planning is usually carried out with a planning horizon of up to three months. Accordingly, the planning granularity is days or longer periods in procurement planning and hours in crude oil scheduling. In the next section, the procurement planning problem is defined. An overview of the existing literature related to procurement planning in the oil refining industries is given in Section 3. In Section 4 we introduce a MINLP model for the problem presented in Section 2. A corresponding two-stage solution approach for the planning model is presented in Section 5. In Section 6 we illustrate the dynamic application of the proposed approach by using real life examples. In Section 7 we perform a comprehensive numerical analysis, in which we test the quality of the proposed solution method. Finally, a summary of the main findings is given in Section 8. Published as: Oddsdottir, T.A.; Grunow, M.; Akkerman, R. (2013) Procurement planning in oil refining industries considering blending operations. Computers & Chemical Engineering, Vol. 58, pp. 1-­‐13. 3 2. Procurement planning in the oil refining industry The main input to oil refineries is crude oil, including condensate. Refineries are generally designed to process a wide range of crude oil types into finished goods, such as gasoline, diesel oil and jet fuel. Refineries have the flexibility to shift between crude oils and process various crude blends to adjust to market conditions. Crude oils can be transported from the petroleum fields to the refinery in various ways. The most common modes of transportation are pipeline and marine transportation. The trading unit of a refinery is responsible for all purchasing decisions that relate to raw material supply. Some refineries get most of their supply through long-term contracts, whereas others buy crude on the spot market. Either way, the timing of purchase is always important. The crude commodity market is very dynamic; prices fluctuate constantly. Factors such as a sudden increase in demand, refinery outages, and supply cutbacks, significantly affect the market prices. Procurement planners aim at procuring crude oil with high refining margins, which is defined as the difference between purchasing price of crude oil (including shipment costs) and value of the refined petroleum products. Crude oil arrives at the refinery according to reached agreements, and is allocated to crude oil storage tanks. The storage tanks have floating roofs in order to minimize evaporation losses. Because of these floating roofs, each tank always requires a minimum crude oil level to avoid damage to the roof when the tank goes empty. In order to make sure that the procurement decisions are feasible and optimal to the refinery, it is necessary to consider the purchasing decisions, the arrival of purchased shipments, the flow of material into storage tanks, the tank connections, and the feed into crude distillation units (CDUs). Figure 1 illustrates the typical procurement process. Crude oil is usually classified based on three key components: sulfur, specific gravity content and a total acid number (TAN). The specific gravity is the industry’s measure of density and it gives an Published as: Oddsdottir, T.A.; Grunow, M.; Akkerman, R. (2013) Procurement planning in oil refining industries considering blending operations. Computers & Chemical Engineering, Vol. 58, pp. 1-­‐13. 4 indication whether the crude is heavy or light. Similarly, the sulfur amount in crude oil indicates if a crude is referred to as sweet our sour. The TAN represents a composite of acids present in the oil. Tracking these key components is important, since they affect the downstream processing, including product yields and product profitability. It is therefore crucial for refineries to have a clear overview of what kind of crude oil or crude oil blend is stored in each storage tank. In practice, refineries often blend similar crude oils to preserve qualities and to make it easier to respect the processing limits of the CDUs in the further processing of the crude oils or their blends. Planning support, such as the work presented in this paper, should therefore also be able to account for product quality in relation to the blending of crude oils – both in the storage tanks and in subsequent processing. Oil refineries operate 24 hours a day. A shut down is extremely costly; it results in major material losses and extreme cleaning and security activities. A procurement planner must make sure that there is always enough supply to the refinery to avoid shutdowns. At the same time, the supply should not exceed the storage capacities of the refinery and the quality of the supply has to be feasible for the downstream processing units. Crude oil trade Crude oil vessels C2 C1