Introduction

Petroleum is widely used and is vital to many industries. The importance of

petroleum has evolved slowly and at present, this is of grave importance as a large
section of the population is relying on petroleum for the purpose of transportation.
India has been importing the crude oil from countries to meet the increasing
demand of the country.
The distribution of oil and gas industry is generally divided into three primary
sectors: upstream, midstream and downstream.
Upstream: The upstream sector involves the searching for potential underground or underwater
oil and gas fields, drilling of exploratory wells, and subsequently operating the wells that assist in
bringing the crude oil and raw natural gas to the wells surface. This sector is also named as he
exploration and production(E&P) sector.
Midstream: The midstream deals with storing, marketing and transporting
petroleum crude oil, natural gas, natural gas liquids such as ethane, propane etc.
and byproduct Sulphur. Midstream operations might as well include in the
downstream category at times.
Downstream: The downstream sector involves the refining of petroleum crude oil
as well as processing of the natural gas. It includes the selling and distribution of
products derived from petroleum crude oil such as gasoline or petrol, LPG, jet fuel,
diesel, other fuel oils and petroleum coke.
The distribution of petroleum products widely depends on policy designed by
government; prices are controlled by the Government adds up to the complexity.
The demand for petroleum products are high in comparison to their controlled
supply in India. Oil Marketing Companies (OMCs) such as Indian Oil Corporation
Limited have great pressure of distributing these products in India while keeping in
mind the different government policies. Other concern for OMCs is of distribution of
highly inflammable and serious liquids and gaseous products throughout the
targeted market.
Here, we are addressing such key issues by analyzing the optimum distribution
strategies of Indian Oil Corporation Limited (IOCL) by which they can cope up with
high demand of petroleum products using the tactical concepts of Operation
Research.

IndianOil The Energy of India

Indian Oil Corporation (IndianOil) is India's Largest Commercial Enterprise, with a net profit
of 103.99 billion (US$1.5 billion) for the financial year 2015-2016.
IndianOil has been successfully sufficing the energy demands of India for more than five decades
now. With a corporate vision to be 'The Energy of India' and aspiring to become A
globally admired company', IndianOil's business interests straddle the entire
hydrocarbon value-chain from refining, pipeline transportation and marketing of
petroleum products to exploration & production of crude oil & gas, marketing of
natural gas and petrochemicals, and is also focusing on alternative energy and
globalization of downstream operations. It has a strong workforce of 33,000
employees and accounts for nearly half of Indias petroleum products market share
35% national refining capacity and 71% downstream sector pipelines through capacity.

The IndianOil Group owns and operates 11 of India's 23 refineries with a combined
refining capacity of 80.7 MMTPA (million metric tonnes per annum) including the
refineries owned by Chennai Petroleum Corporation Ltd. IndianOil's cross-country
pipeline network, for transportation of crude oil to refineries and finished products
to high-demand centres, spans over 11,220 km. IOCL owned refineries across India
are Digboi Refinery, Guwahati Refinery, Bongaigaon Refinery, Barauni Refinery,
Gujrat Refinery, Haldia Refinery, Mathura Refinery, Panipat Refinery and
Paradip Refinery.

Figure 1: Distribution process of crude oil and finished products

The Problem
In an effort to optimize the refinery operations of IOCL,
integrated and
coordinated decision making across various geographically distributed refinery
manufacturing and storage sites is required. While manufacturing facilities
management are viewed as an integral part of enterprise-wide optimization,
transportation logistics and finished product distribution management remain core
components of the refinery supply chain. We are tackling the problem of distribution
through three tools.

Use of Assignment
For the demonstration of Assignment tool, we are considering three refineries which
are located in Assam. Those being Digboi, Bangaigaon and Guwahati Refinery. As
shown in figure 1, the refineries and transporting petroleum to the depots/terminals
via tankers and viable pipelines. Assuming the transportation to the depots is via
tankers in this case, we have found out the distances of the depots in the eastern
regions from the three refineries and found out which refineries is supplying to a
particular depot. Here, the logic incorporated is that one depot will be able to
receive from a single refinery.
The depots here in picture are nine in number, all located in Assam and adjacent
states.
The decision variables are x11, x12, x13, x14, x15, x16, x17, x18, x19x39, where
x11 is distance from Digboi to Betkuchi. Similarly, x39 = Distance between
Bongaigaon and Doimukh.
Objective: Minimize the transportation cost from refineries to depots and all depots
should receive
from only one refinery.

Subject to:
X11, X12.X39 >=0
X11, X12.X39 is binary
X11+X21+X31=1
X12+X22+X32=1
.
.
X19+X29+X39=1
Using solver, we have found the optimum distance.

Use of Transportation
The idea behind using transportation is to find out which depots are sufficing the
demands of each district. There might be situations in which one district will be
required to receive inputs from more than one depots to cater to the increasing
demand of the customers. Also, we are taking into consideration that the supply
from all the depots are utilized completely and is equal to the total demand of all
the districts. The logic for assigning depots to each district is again distance,
assuming that minimum distance will lead to minimum cost incurred and our
objective being cost minimization.
In order to show the calculations, we are considering 6 depots, 5 within the state
and one outside since any district will be acquiring product from the depot which is
nearest to it. There are 33 districts in Assam overall, and we have found out
distances of each district from these refineries.
Objective: Minimize the distance, thus the transportation cost from depots to all the
districts.
Subject to:
Demand Constraints

X11+X12+X13+X14+X15+X16 =
X21+X22+X21+X24+X25+X26 =
.
.
X33,1+X33,2+X33,3+X33,4+X33,5+X33,6 =
Supply Constraints

X11+X21+X331,1 =
X21+X22++X2,33 =

.
.
X61+X62++X6,33 =
Nonnegativity Constraint and Integer value
X11, X12.X33,6 >= 0
X11, X12.X33,6 is integer

We have found out the values using the Solver. Excel has been attached for the
same.

Spanning Tree
The spanning tree revolves around the fact that all the locations need to be covered
with the least possible distance. Also, there should not be any circuit formation.
Here, we are considering Koyali refinery situated in Gujarat and have tried to find
out the most feasible routes to the locations which are connected via pipelines as
distribution via tanker is difficult. The key factor again being the distance as it has a
direct relationship with the cost. Thus, minimizing distance will automatically lead to
reduction in cost.
We have found out the distances and created a network flow diagram. From the
diagram, we are creating the spanning tree keeping in mind to cover all places in
least cost.
Network Model
Post identification of cost of different routes by finding out the distances between
two locations, we have mapped the network diagram. The difference between
network diagram and spanning tree is that the former will project all the routes
possible including the circuits while the latter would not.

Figure 2: Network Diagram

Spanning tree
Keeping in mind the shortest path algorithm, and using Excel we have been able to
arrive on the spanning tree. This will give us the shortest distance covering all the
points. Feeding in all the distances between two places in Excel and arranging the
distances in ascending order, we get the spanned tree with 22 nodes and 21 edges.

Figure 3: Spanning Tree

Learnings
Our aim was to analyze real time problems in a prestigious and powerful company
like IndianOil and try to use the operations research tools wherever possible. The
models (Transportation, Assignment, Integer programming and Network flow) that
we have used are based on real time data and with slight modifications, these can
be used by the company to address the issues. The project has given a sense of
satisfaction and fulfilment that as we have been able to apply the concepts that we
have learnt in real life scenarios.