Interviews

An interview with Jaafar Oklany, Principal Consultant, Consultancy

02/07/2008

Oil & Gas News

Questions for Jaafar Oklany, Principal Consultant, Consultancy, Shell Global Solutions International B.V

1. What according to you, will be the issues/challenges refineries will face with the proposed capacity expansion in the global refining industry?

Apart from growing demand for fuel, refineries also face stringent environmental requirements, as governments legislate for the reduction of greenhouse gas emissions from fuel. In addition, refiners have to address the expectations of shareholders concerned about cost inflation, over-capacity and long-term industry returns, and of customers requiring better fuel performance, better fuel economy and lower emissions.
The refining industry is responding to these challenges by increasing capacity, and is now enjoying the largest refinery expansion programme since the early 1970s, with total increases in distillation capacity of 8–12 million barrels a day expected by 2010.
Increased investment in refining capacity has led to high project activity which in turn has led to increased costs for raw materials, such as steel, construction, skilled labour and the like. In the last five years we have seen almost a doubling in projects costs. This poses a huge challenge for refineries that are faced with keeping a project with escalating capital costs on time and on budget. 
Taken as a whole, in order to complete projects effectively and efficiently in today’s challenging business environment, refiners will have to work on providing a solution to the following questions:

• How do you select the right project that is successful at high and low margin cycles?
• How do you ensure that the project is well defined and delivered?
• How do you ensure that the project is executed in an aggressive schedule to capitalize on the high margin cycle?
• How can you ensure financing in a tough credit market?
  How do you ensure project is on budget in the mid of capex escalation environment?
• How do you ensure smooth operation from first time start-up? And how do you ensure that the organization is ready?
• How do you ensure that no safety and environmental incidents occur during construction or start-up?
• How do you ensure a stable and sustainable operation?
• How do you ensue that you maximize the utilization of the assets?
• How do you ensure that the facility can be maintained?

2. In that context, how can refineries ensure smooth operations? What do they need to do to be ready to face the complexities?
There are a number of things that refineries/owners can do to ensure smooth operations, even in this challenging environment.
Firstly, refiners need to be responsive to the changing business environment and to growing demands from multiple stakeholders.
They also need to respond to global supply and demand issues. There are regional product imbalances, with Europe exporting gasoline to the USA and importing diesel from Russia and the former Soviet republics, and the Far East increasing imports of crude oil from the Middle East. Successful refiners will be those that understand how supply and demand plays out not only on a local and regional, but also on a global basis and invest in projects that are robust over the margin cycle. All aspects of supply and demand – not just local/country considerations - need to be addressed in the master plan for a new refinery.
A third consideration is ensuring project definition and execution excellence. This is about sound project management projects perfectly, from development, to start-up. In addition, the increase in project activities are leading to increased contractors backlog, decreased contractors appetite, increased delivery time, increased risk of non-performance of suppliers and increased reluctance of contractors to accept contractual risks and liabilities. All of these are putting more pressure on owners having the right competencies.
Once the project is started up, it is about operational excellence and continuous improvement. Operational excellence translates into cost leadership, reliability and availability. You can only enjoy high margins if your refineries are running. Coupled with this is margin improvement - looking for ways of getting more margin out of the existing kit. Energy efficiency and supply chain optimisation can both present opportunities for margin uplift.

3. What are the essentials of designing and delivering a robust project and w hat is the right approach which can help deliver a complex project in the oil and gas industry?
Strong growth in demand for refined products in recent years and the global shortage of refining capacity means that the construction of grassroots refineries can bring significant benefits. Constructing a grassroots refinery is an enormous undertaking but it can result in an excellent return on investment.
The first step is to identify the most robust investment option in strategic, economic and technical terms. This is no easy task as there are usually many different options that could be selected to meet the needs of a market. This can be achieved by carrying out a robust masterplan. The next step is to make a robust and compelling case to investors through qualitative and quantitative risk analysis and technical assurance.
Once the investment plan is in place and has backing, the focus is on defining and designing a project that will deliver. Several key decisions need to be made at this stage, from ensuring that the process units are well integrated and that the overall configuration is optimised to ensuring the long-term security of feedstock supply and product take-off.
Poor project implementation can ruin the good work done in the development phase. Good project implementation depends on the right people addressing the right issues at the right time. Operational start-up of a plant is a challenging time, although at Shell Global Solutions we work with customers to aspire to achieving a completely faultless start-up through our Operations Implementation Plan–Flawless Project Delivery. This involves developing a fully integrated action plan that embraces all activities including project work, commissioning and start-up. It can also include establishing management systems for activities such as maintenance, planning and scheduling, human resources and information management. 
As shown in Figure 1 below, where the plant performance can be visualized against time, refineries can face many problems in the initial period of operation. The “ideal” start-up is represented by the red curve. The blue curve represents what frequently happens – start-up can commence later than planned and problems can occur as a result of which the ramp up to the planned production cannot be realized. Sometimes, serious problems can occur that have a significant impact on production before they are resolved. Furthermore, in some occasions a short “down period” is required to make a plant change that appears to be necessary to realise full production. Eventually, the aspired throughput is realised, but a significant amount of money is left on the table.

Figure 1: Plant performance after mechanical completion.  © Shell Global Solutions, 2008

Once the refinery has achieved normal operation, it is important to focus on maximising the utilisation of the assets. We help customers to achieve this through Framework Agreements, Opportunity Confirmation Programmes and Business Improvement Programmes. All of these activities are performed with customers to leverage the combined experience and expertise of all the parties involved and to facilitate the opportunity for knowledge transfer, which helps to make changes sustainable.

4. What kind of investments does this approach entail?
With this type of approach, the focus is on getting the project right from the start.  This involves investment on:

• Selecting the right project by carrying out a masterplan
• Making sure the focus of the project is well-defined in the early stages of project implementation
• Ensuring that the latest technology is incorporated in the project and that the organization is ready
• Ensuring flawless start-up

However, as shown in Figure 2 below, the decisions made early on in a project have the highest influence on its overall costs and profitability, so high quality definition is paramount. In other words, the return on investment made at the beginning of a project significantly outweighs the investment itself. As the project unfolds, there is significant value to be achieved through proficient project execution. Furthermore, this approach mitigates the need for time consuming, and potentially costly, adjustments at a later stage in the project lifecycle.

Figure 2: Shell Global Solutions helps customers with the decisions that can have a major impact on overall value.  © 2008 Shell Global Solutions International B.V