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Managing complexity, optimising integration and reassuring investors
The value of employing an experienced strategic licensor.
Refinery projects can encounter problems if they become unexpectedly complex or fail owing to insufficient integration between the distillation, conversion, treating and emissions control processes. The impact on a business can be devastating but, by following a different approach, such issues can usually be avoided.
Astounding levels of complexity can be encountered during the installation of new process units owing to the overwhelming number of interfaces with other parts of the plant. For instance, the Pearl GTL development in Qatar involved 800 pipelines crossing between contracts, and there were over 2,600 cases where it was necessary to pass process data among contractors.
There were more than 3,600 construction interface points, including those for the exchange of schedule information and overlapping responsibilities for cross-contract system hydrotesting. This is clearly not an assignment for the faint-hearted. As a general rule of thumb, every interface increases project complexity by a square factor; it is not unusual for a project’s complexity to mushroom.
There are various forms of interface, including technical interfaces that occur between structures and process units, and organisational interfaces. Investigation revealed failures in the latter category to be the cause of the Three Mile Island nuclear incident in 1979.
At Qatar, the project schedule was maintained because the complexity was mitigated with tried-and-tested techniques. Seamless integration among contractors was achieved through sophisticated work processes that facilitated communication and data exchange, and by an interface database that consolidated all the interface points and issued weekly status reports. On highly complex capital projects, the value of experience and best practices cannot be overstated.
Decisions made during the front-end development phase can have a major influence on complexity. For instance, I have heard of refiners that have licensed multiple technologies from different suppliers only to find out – sometimes when it was too late – that they do not match at the interfaces. Often, the cause is that they were designed to different standards or philosophies.
Sourcing from multiple suppliers is the traditional approach, as it enables solutions to be cherry-picked and the various suppliers to be beaten down on price. Increasingly, however, the progressive refiners are realising the substantial value that is at risk with this approach: delays, rework costs and plant underperformance.
Sourcing from a limited number of licensors can help to avoid this. For instance, an owner can license a package of residue upgrading technologies that combines the high vacuum unit, the hydrocracker and the solvent dewaxing unit from one supplier. Many customers find this to be a much better way of executing a project because their dealings are only with one party – the strategic licensor. It then becomes the strategic licensor’s responsibility to ensure, for instance, that the numerous interfaces match and that the schedule is optimised. It also promotes safety.
As a strategic licensor that has operational experience, Shell Global Solutions strives to take a holistic approach during projects because it sees opportunities to be the architect of
value creation across the business, not just within an individual project or activity. Our value creation architecture provides the platform for this.
A wide-ranging portfolio of refinery processes is also a prerequisite for this approach, which is why, at Shell Global Solutions, we actively seek strategic technical alliances with
specialist companies that offer leading-edge technologies in areas where we do not have a proprietary technology.
A good example of this is the Shell Sulphur Technology Platform through which we license a suite of technologies that can handle sulphur in any form: in crude, products and emissions, and also as a solid. Many of these are proprietary technologies, but we also have agreements with, for example, Cansolv Technologies Inc. (now owned by Shell), Merichem, Praxair, Sandvik and Sulzer to complete our portfolio.
The Grupa LOTOS DAO hydrocracker demonstrates the customer value of such an alliance. As discussed in 'Straight talk on next-generation hydrocracking technology' , the quality of the DAO feed from KBR’s SDA unit to Shell Global Solutions’ DAO hydrocracker was pivotal. In theory, Grupa LOTOS could have licensed a standalone SDA unit, but that option would have missed the opportunity to optimise the interface between those two crucial processes. Because of our alliance, we were able to work with KBR to optimise the feed. You cannot optimise units individually and expect to maximise the refinery’s overall performance.
Customers also receive consistent guarantees that are aligned with their overall objectives, which can be extremely reassuring, especially to financiers. This can also minimise the potential for liability disputes.
I heard of a refinery that installed a Claus unit that was too big: they could not turn it down sufficiently for it to operate. It seems that the licensor, which was not an operator, designed in contingency capacity in all the upstream units that resulted in a delivered unit so large that there was not enough hydrogen sulphide in the refinery to fill it, even at maximum
turndown. Integrating new process units is rarely straightforward, but experience can often prove invaluable.
Employing a strategic licensor that has itself operated large, complex industrial facilities might also help you to address investor concerns and, as a result, secure preferable terms for finance and insurance. In financiers’ eyes, it helps to mitigate the completion risks associated with complexity and integration; it is much less risky than having multiple partners.
Shell Global Solutions has multiple strategic technical alliances with specialist technology providers, some of which date back decades. In addition, we leverage relationships with our affiliates such as Criterion and our in-house trading teams (for crude supply optimisation and product offtake deals). All of these share a common fundamental objective: to help us work with customers to enhance the value that we deliver to them.
General Manager, Process Licensing, Shell Global Solutions International BV
Avoid these three common refinery project problems
1. Overwhelming complexity: “We identified processes that would achieve our objectives. But when it came to licensing the technologies from different suppliers…the complexity was just overwhelming.”
Best practices are key. A strategic licensor should be experienced at co-ordinating the interfaces and will supply units that leverage the same design standards.
2. Poor solution integration: “To get the best performance out of our new unit, we have to compromise on other processes downstream. This is so frustrating.”
Optimising the overall performance of the refinery requires wide-ranging expertise across multiple disciplines. There is no single ideal process line-up; that is contingent on the
available crudes, the desired product slate and the boundary conditions in terms of emissions. Within that box, a strategic licensor with operational experience should be able to unlock value.
3. Inability to secure funding: “I know that the project will deliver on its objectives. But making the case to investors and their banks is another matter; they are not so enthusiastic and that is reflected in the terms that they are offering.”
Having a strategic licensor on board that has operational and technical experience and a track record of acting as both an adviser and a project manager on major energy projects around the world tends to make a difference. It provides reassurance that the development will be delivered on schedule, within budget and to world-class benchmarks.
Criterion is the world’s largest supplier of hydroprocessing catalysts, which includes catalysts for hydrotreating, hydrocracking, hydrogenation and isomerization.