Key work practices lower refinery operating costs

The most successful refineries in today's competitive market are those that monitor their performance, identify key weaknesses, and correct those weaknesses.

Other factors common to profitable refineries include understanding the urgent need for change, identifying underlying economics, and focusing on the strongest competitors.

These are the views put forth by Thomas C. Anderson, vice-president of Solomon Associates Inc., Dallas, in an unpublished report titled, "The Race to Survive in Refining." The report compared regional economics and enumerated the practices employed by successful refineries.

Solomon Associates conducts a well known study of competitive refinery practices.

Operating expenses

Three principles are key to survival for refineries, according to Anderson:

Refineries selling into competitive markets must maintain competitive operating costs.
Refineries with the highest operating costs will survive only if they sell specialty products (lube stocks, chemicals, or specialty fuels), or if they have geographic or political barriers to competition.
Refining costs vary geographically, even within a single country.

Fig. 1 [53559 bytes] shows cash operating expenses by region, compared to the U.S. average. The figure is based on typical industry performance during 1994 and 1995.

"The range of performance within each region is enormous," says Anderson, "with some refineries having more than triple the cost of the most efficient plants."

The most-efficient plants in each region are located in areas of intense competition, says Anderson. Examples of such regions are the U.S. Gulf Coast, Singapore, and Northwest Europe, and Caribbean and Middle East export refineries.

The least-efficient plants are those that produce domestic products with geographic barriers or product import restrictions. These regions include Japan, Latin America, and the Rocky Mountains, and Middle East domestic refineries.

The least-efficient refineries typically have high maintenance costs, low energy efficiency, and high personnel usage, says Anderson. He continues:

"This group generally has poor operating performance, with more unplanned process disruptions, more on-the-job injuries, and more environmental releases. Higher costs result from poor operating practices, lack of focus on improvement steps and economic value, wasteful spending on repairs and turnarounds, and management practices which create poor morale in the work force."

Refineries with poor operating and management practices become weaker, over time, with respect to their competitors. For example, Fig. 2 [54569 bytes] shows maintenance cost trends in the Asia/Pacific region. Maintenance costs for the high-cost half of the group increase considerably each year, while costs for the low-cost half increase only moderately.

Anderson says this discrepancy reflects differences in routine and turnaround maintenance practices, maintenance responsibilities, and technology usage for problem solving.

Successful refineries

Anderson listed six areas in which successful refineries outperform high-cost refineries. Successful plants:

Use economics to guide all decisions at all levels
Focus on customer needs (primarily low-cost products)
Monitor performance daily or monthly in each plant function, and use the results to improve practices
Make people at all levels accountable for their actions, whether positive or negative
Promote values, work standards, and ethics
Accept deregulation as a fact of life.