REFINING
A forward look at the
refinery of the future
A forecast of the way business and operating fundamentals in a long-established
industry are likely to affect future technical applications. The author sees present
and emerging technology providing the adaptability to deal with plant disruptions
T
he refining industry has been
operating in a difficult environ-
ment for over two decades. There
have been only a few years since the
early 1980s when refiners produced
decent returns on their assets. As a
result, capital investments decreased
because of a lack of performance. The
good news is that the industry seems to
be on the verge of a new era of perfor-
mance that is attainable if companies
are willing to transform the fundamen-
tals of how they operate their business.
Though certainly not peculiar to the
refining industry, consolidation among
major oil companies as well as inde-
pendent refiners in markets such as the
USA and Europe has been the name of
the game of late. For example, not too
long ago few industry observers would
have thought that only 10 companies
would own over 80% of US refinery
capacity. This surefire sign of industry
maturing is generally accepted as a per-
manent state that has been caused by
the levelling-off of demand for refined
products. Lower demand caused the
capacity reductions that have been
observed since the early 1980s.
Even so, there is slightly more refin-
ery capacity today than demand for
those products. And most of the time,
refining overcapacity translates into
low profitability. When refinery mar-
gins, prices or profits increase, it is usu-
ally due to the alignment of factors like
crude supply constraints, weather, local
demand, refinery outages, pipeline
operating problems, or new product
grade introductions.
Even though refining is a tough busi-
ness, it remains a good business seg-
ment for oil companies. Refining
generates cash, stabilises cash flow and
earnings, provides a connection to end-
markets and customers, offers a secure
outlet for crude, and is the key enabler
for the upstream exploration and pro-
duction industry. Refining is an essen-
tial business to all the world’s
economies – there are no current eco-
nomically priced alternatives to prod-
Calvin B Cobb
Invensys Inc
ucts derived from crude oil that can
supply energy demands.
Thus, the industry finds itself in a
paradox. Despite having a unique mar-
ketplace, market conditions can at best
be classified as neutral to unfavourable.
Expectations for return on investments
(ROI) are low, despite ever-increasing
need for large capital investments
because of increasingly stringent
requirements for cleaner-burning fuels.
Industry executives anticipate continu-
ing high investment requirements in
the foreseeable future for refining pro-
cess technology, because it is expensive
to produces fuels that have lower sul-
phur content, lower aromatics content,
oxygenates, and other cleaner burning
formulations
Enabling systems
In addition to investments in new pro-
cess technology, companies have been
forced to make other large capital
investments. As the world readied itself
for the anticipated Year 2000 computer
complexities, nearly all refiners took
the opportunity to install new enter-
prise resource planning (ERP) software,
primarily SAP. Given the massive effort
to replace most of the legacy computer
systems within a company, the costs
were very high. In many cases, ERP
installation costs reached or exceeded
the capital costs for clean fuels processes
such as hydrotreaters.
The refining industry landscape in
all of the world’s mature regions (USA,
Europe and Japan) continues to be
changeable. Without the strong pull of
product demand growth, the many fac-
tors that affect refinery financial perfor-
mance can line up to increase margins
or decrease them. In this setting, refin-
ers must work to make their businesses
more adaptive to the disruptions that
accompany the business dynamics in
those mature economies.
These scenarios place enormous pres-
sure on downstream executives to
improve financial performance when
the fundamentals are not conducive to
21
P T Q SPRING 2004
w w w. e p t q . c o m
higher profits and return on capital.
What strategies will work? First, consid-
er the challenges accompanying the
industry’s situation.
Today’s challenges
The challenges facing the refining busi-
ness include its capital-intensive
nature, excess gasoline production
capacity, and mass merchandisers in
the retail marketing segment, among
others. Beyond those, perhaps the
largest challenge is dealing with the
disruptions to business operations that
are inherent in industry. Disruptions
are a way of life in refining and most
executives plan on them continuing.
Companies usually can’t control all the
factors that cause disruptions, so they
need to learn to adapt to them.
First among the possible sources of
disruption is the use of diverse technol-
ogy in one of the world’s longest and
most complex supply chains. No other
industry deals with a value chain begin-
ning at a natural resource in the ground
and continuing all the way through to
the end-use consumer, from wellhead
to pump. The visibility of this long
chain adds to the complexity of run-
ning and optimising the business.
Another unique disruption coming
to the industry is the anticipated “grey-
ing” of the workforce and the great
“crew change” of the future. Many of
the experienced professionals in the
industry are reaching retirement and
companies are increasingly aware that
their workforce will change dramatical-
ly in as few as six years, when an esti-
mated 30% to 50% of the
professionally trained workforce
becomes eligible for retirement. Indeed,
much of the intellectual property
embodied in today’s cadre of technical
workers will go out the door when they
leave. That’s because there is a huge
shortage of trained talent waiting in
the wings to replace the experienced
workers.
New technological changes are in
the offing as well. Two are of a “game

changing” nature. Most industry lead-
ers are vigorously pursuing gas-to-liq-
uids (GTL) technology advances very
hard. If successful, the conversion of
natural gas to clean energy products
will forever change the characteristics
of today’s refineries in terms of feed-
stock and product slate.
New automobile technology will
likewise forever change transportation
fuel demand and supply dynamics.
New automobile power plants such as
hydrogen, fuel cells, and natural gas
will cause refineries to adapt to the
change in product slates. Given these
diverse challenges, there will not be
one magic solution that can lead to
increased short-term or long-term per-
REFINING
formance. Each refiner is challenged to
find the proper strategies using today’s
technologies to drive performance
higher.
There is good news, however. The
economic incentives are more than
adequate to be attractive investment
opportunities for refiners. Plus, today’s
technologies are capable of much more.
Technology solutions
In the refinery landscape previously
described, along with its many chal-
lenges, it is imperative for refiners to
raise their operations to new levels of
performance. Merely extending today's
performance incrementally will fail to
meet most company’s performance
22
P T Q SPRING 2004
goals. The central question is how?
Two strategies are gaining momen-
tum. First, the concept of reshaping the
refining business to be more adaptive
to changing business and economic
conditions is gaining wider acceptance.
At the same time that refiners are learn-
ing to adapt, they must also be trans-
forming the way they run their
business. Combing both strategies pro-
vides a path to higher performance.
Implementing these strategies won’t
be easy and will not occur overnight.
Indeed, that is why the Centre for
Hydrocarbon Business Innovation was
formed to look to the future of the oil,
gas, and chemical industries and explore
how the technology and methodology
of refinery operations can be translated
into increased profitability.
Through research and discussions
with industry executives, the Centre
has identified two main strategies for
successfully engineering increased per-
formance. They are:
Business transformation. Melding the
people, business processes, and informa-
tion technology into a focused whole
that raises performance in a step change
fashion rather than incrementally
Adaptive processes. Processes that can
adapt to changing markets, learn from
experience, and can be built into the
refinery of the future.
The most compelling business trans-
formation strategy must involve the
huge information technology (IT)
investments refiners made in the late
90s. Most companies invested heavily
in IT – an estimated $300 billion – and
yet most have not yet achieved the
promised results.
The shortfall appears to have
occurred because companies did not
transform the basic ways they do busi-
ness to take advantage of those powerful
computer systems. The “back-office”
processes were transformed to install
new systems but the task of a complete
overhaul of the front office was too
monumental to undertake simultane-
ously. Today, most executives recognise
the need to integrate people, business
processes and technology in order to
drive performance. This is a change
from previous years. Now, nearly every-
one has come to the conclusion that
installing software, no matter how
sophisticated, is not the complete
answer to higher performance.
But there’s yet another component
to business transformation that
research from the Centre for Hydrocar-
bon Business Innovation believes of
vital importance to fundamental indus-
try transformation. Centre research
indicates there is more valuable busi-
ness data and information existing at
the refinery and operations level than

ever before in history. This data can
and should be effectively used to drive
performance to higher levels. Indeed,
intelligently linking technology and
business offers the greatest avenue to
improved performance, and at the
same time addressing the issue of
adaptability, for dealing with disrup-
tions. Real time integrated operations
are possible today through the applica-
tions of both existing and emerging
technology.
Strategies
Operational and logistical challenges
provide the reason for designing new
refinery business processes that com-
bine the benefits of flexible hardware
with technology-enabled decision-mak-
ing. The three key operational chal-
lenges facing refiners are managing
commodity risk, validating feedstock
margins once the feedstocks have been
processed, and balancing operational
stability with commercial flexibility.
Logistical challenges include cargo
schedule optimisation, pipeline
scheduling integration with refinery
scheduling, and managing and moni-
toring feedstock quality throughout the
supply chain. Yet another challenge is
recognising that there are more supply
chains that intersect the refinery in
addition to oil. Among these are the
power, gas and hydrogen supply
chains. Some companies are beginning
to address planning for four supply
chains instead of just one. Process chal-
lenges include sulphur species manage-
ment, naphthenic acid mitigation, and
matching hardware to “cocktail” feed-
stocks and intermediates.
In the Centre’s vocabulary, hardware
flexibility includes increased fractiona-
tion, feedstock blending and employ-
ment of various sulphur removal
technologies. Technology should be
used to match feedstock-to-hardware
availability, including real time feed-
stock blending, feedstock characterisa-
tion, broader use of real time feedstock
analysers (such as NIR and NMR) and
optimisation of the crude unit.
Technology-enabled business pro-
cesses will improve the modelling
fidelity and molecular characterisation
of refinery streams, particularly for sul-
phur species and multi-ringed hydro-
carbons. With the integration of
information technology and knowl-
edge capture, crude slates will be bal-
anced more and more in a real time
planning environment that will max-
imise value.
Technology-enabled business pro-
cesses and event management have the
potential of dramatically changing the
way refiners operate and manage their
plants in the future. Many convention-
REFINING
al paradigms of refinery operation will
be challenged. Most of the technology
elements are available today but require
enlightened thought and change-man-
agement leadership to implement and
capture.
Workflow
As already described, the refinery of the
future must implement a number of
key strategies, but one common ele-
ment of the transformation will revolve
around the central theme of workflows.
In simple terms, workflow-centred
transformation begins by identifying
business improvement goals, like mar-
gin, costs, safety, etc. Company leaders
always know these goals and good
management make these straightfor-
ward and easy to comprehend. Once
established, the company creates diag-
nostic and design efforts to achieve the
goals. Ultimately, the result can be sim-
ply stated as defining what manage-
ment wants people to do in their jobs
and providing them with the proper
data, information, and knowledge to
make better decisions.
Towards this end, key processes and
workflows must be identified in order
to gain the greatest potential benefits.
The three most important among them
are:
— Refinery reliability and predictive
operations/maintenance
— Advanced planning and modelling
— Agile operations.
Can process and workflow optimisa-
tion really be achieved? Invensys has
completed three projects that connect-
ed plant-level systems-to-business sys-
tems with the objective of increasing
performance. All three – a crude oil pro-
duction/pipeline/heavy oil upgrading
facility, an LNG liquefaction plant, and
a petrochemical plant – demonstrated
what had been missing in the ERP
implementations as well as how the
gaps could be filled in order to operate
the businesses for greater profit.
In all three cases, information from
plant smart devices, including program
logic controllers, DCS systems etc, were
connected to a middle technical layer,
then to the business systems.
Today, technological advances like
Invensys’ ArchestrA open framework
provides the interoperability to connect
all the information sources in a refinery
and map the data and information to
the knowledge workers who can make
better decisions. This therefore provides
the confidence in asserting that the
refinery of the future will include the
three previously noted key elements.
Predictive operations
In terms of refinery reliability and pre-
dictive operations/maintenance, refin-
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P T Q SPRING 2004
ers abhor unplanned shutdowns.
Reducing their number and frequency
is always a primary objective. One
refiner recently responded to a
reporter’s question about how many
unplanned shutdowns were acceptable
with a short quote: “Zero”. While the
refinery of the future may not consis-
tently reach the zero objective every
year, it will utilise real time plant infor-
mation to predict equipment and pro-
cess health to reduce unplanned
downtime by one to two percent of
today’s average of around 4%.
This will be achieved by integrating
equipment monitoring technology and
predictive maintenance, predictive pro-
cess degeneration (heat exchanger foul-
ing, catalyst activity, furnace
efficiency), and dynamic performance
management. Technology to accom-
plish the individual steps exists today
but it is not integrated or mapped to the
work processes of refinery engineers.
The ArchestrA system is again an exam-
ple of technology that can link the tech-
nologies together and provide operators
and engineers the predictive capabilities
to improve refinery reliability.
Advanced planning
In terms of advanced planning and
modelling, crude oils are becoming
highly variable, with higher concentra-
tions of sulphur. At the same time,
more stringent anti-pollution regula-
tions are forcing greater restrictions on
fuel specifications. But chemists know
there are fundamental limitations on
how far empirical systems can go in
achieving proper control over processes
that require new knowledge for their
solution.
Today’s regulatory constraints are
written in terms of aromatics and sul-
phur, not boiling range “lumps”. The
only way to change this is to change the
basic information by which all process
calculations are based. In other words,
infuse the system with new knowledge
that, in turn, will provide the opportu-
nity to develop new knowledge.
While it is not often that there are
radical leaps in technology in the
hydrocarbons industry, it may now be
possible to think about refining streams
as a chemist would; that is, by consid-
ering the molecular components of
crude oil rather than as pseudo compo-
nents characterised by the traditional
boiling fraction methods.
Historical attempts to build molecu-
lar refinery linear programs (LP) were
limited to the lighter boiling compo-
nents (those that boil at less than
400°F) because molecular level physical
property data were not readily available
for higher boiling components. Inven-
sys’ first experience in building such

LPs was in 1985, when a refiner was
assisted in evaluating new refinery pro-
cessing schemes to deal with specific
components like benzene and C7 to C9
paraffins. Useful results were produced
but the usefulness of such models was
clearly limited by not being able to rep-
resent all the crude oil components.
Building molecular-based models is
not new, however. In 1897, C W Mar-
bury discovered that crude oil was com-
prised of a homologous series of
hydrocarbons. From 1926 to 1972, the
American Petroleum Institute funded
research on the subject, but it was ulti-
mately abandoned because of the com-
plexities. In 1982, J W Bunger
conceptualised a computational chem-
REFINING
istry approach based on structural
indices for digitising petroleum compo-
sition and properties. This method was
proven by 1995 in ARCO-sponsored
research conducted by Bunger and
Associates and given the trademarked
name Z-BaSIC, which stands for Z-
based structural index correlation
method. The method’s letter Z is the
hydrogen index that describes the
hydrocarbons in crude oil. The method
provides the following capabilities:
Represents a basis for new data and
knowledge refiners can potentially use
in a variety of ways to improve under-
standing of crude oils and refining
Allows true chemical composition mod-
elling instead of correlation-based mod-
26
P T Q SPRING 2004
elling techniques. It calculates the
property of a component through cor-
relation of the correlating Z number
and molecular weight, without having
to identify it uniquely (including heavy
ends which are traditionally beyond
the capabilities of conventional molec-
ular analysis techniques)
Allows a meaningful analysis and
modelling of the molecular composi-
tion of crude oil. Because a distribution
of crude oil constituents is not assumed
and individual molecules can be traced,
streams can be accurately analysed. The
method is able to analyse crude oil
management in greater detail, in a frac-
tion of the time and at lower costs than
traditional methods.
What can be done with this new
approach? The learned practitioner will
quickly recognise a myriad of benefits
from a molecular characterisation and
the advanced planning models in
which it can be placed. In addition to
molecular characterisation of refinery
streams, improved optimiser technolo-
gies will dramatically change the way
companies conduct refinery planning
and scheduling. By relying on first
principles, the new modelling environ-
ment will: converge the planning,
scheduling and yield accounting model
environments; populate inferential
characteristics of product properties
such as RVP, distillation, V/L, and
cetane with pure property predictions;
and greatly enhance model fidelity and
simplify planning, scheduling, and
yield accounting.
How can this analytical methodolo-
gy be turned into reality? Incorporating
Z-BaSIC into industry-leading refinery
models like the Invensys programs
PETRO (LP), PROII and ROMeo is a log-
ical starting point for using this new
technology. This effort will involve,
first building the Z-BaSIC physical
property characterisations and, second-
ly, rebuilding computational algo-
rithms to handle molecular-level
descriptions of complex hydrocarbon
streams.
While this process will require a
great deal of effort, it will provide new
tools to make major breakthroughs in
how refineries are operated. Further-
more, it will allow companies the abili-
ty to improve financial performance
significantly. Sulphur speciation is the
first practical application that fits with
the clean fuels projects being initiated
by most refiners where we can identify
and track the nearly 200 individual sul-
phur compounds through the refinery.
Agile operations
A senior executive stated recently: “I
want to make 10 decisions a month
that could add to our profitability, but
 REFINING

we do not have that capability today. We can make

one-month decisions and maybe one-week deci-
sions but we cannot make daily or hourly deci-
sions.”
He mused that he hoped seven of the 10 deci-
sions would be good ones recognising the inherent
uncertainty in making them. The scenario he
described can be summed up as “agile operations”,
a Holy Grail of sorts in today’s plant operating
environment. But is it attainable?
From Invensys’ view, today’s powerful comput-
ers combined with advancements in optimisation
solvers make it possible to enhance refinery capa-
bilities to reflect both the actual operational capa-
bility and the constraints of refineries. By
extending traditional linear optimisation to
include non-linear and mixed integer optimisa-
tion, large complex problems that were previously
not feasible can now be robustly solved with the
additional mathematical processing and advanced
solver technologies.
For example, advanced refinery-wide optimisa-
tion will improve refinery planning and schedul-
ing and result in better feedstock selection,
operational planning and target setting, and
blending decisions. Integrating these tools with
real time operational, scheduling and pricing
information in order to provide continuous advi-
sory alerts to key decision makers can further
extend the benefits. Continued advances in com-
puting power make the more sophisticated mod-
elling methods economical and allow technology
delivery of leading-edge tools, like some of those
previously described.

Opportunities
Dealing with disruption is possible and should be
considered a mission-critical objective of manage-
ment when considering the likely future course of
business events. 2004 will be yet one more step
down the road. Refiners are embarking on a busi-
ness transformation journey that will include real
time planning, non-linear optimisation mod-
elling, next generation product blending systems,
molecular modelling, predictive refinery main-
tenance, and interactive supply chain systems.
The refinery of the future will be able to adjust
refinery operations to maximise its risk-adjusted
profits. The agility will be guided by sophisticated
option analysis and uncertainty analysis capability
to properly weigh all the factors.
The concept of building adaptive business pro-
cesses that transform the things done today
affords a path to increased profit.

This article is based on a paper prepared for presenta-

tion at the NPRA annual meeting, San Antonio,
Texas, USA, March 2004.

Calvin B Cobb is vice president and general manager,

global hydrocarbons consulting, Invensys Inc, Hous-
ton, Texas, USA. He has 30 years’ experience in the
energy sector and heads the company’s hydrocarbons
consulting group, which includes the Centre for Hydro-
carbons Business Innovation.
E-mail: calvin.cobb@invensys.com

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