Thesis Eric Initial Version PDF

國立成功大學
化學工程研究所
碩士論文
(初稿)
Department of Chemical Engineering
National Cheng Kung University
根據奈許合作議價模式的兩階段計算策略設計具
公平利益分配方案之分散型供應鏈
A Two-Step Computation Strategy for Designing
Decentralized Supply Chains with Fair Profit
Allocation Plans Using Nash Cooperative
Bargaining Model
研究生: Eric Yonathan 陳利勇

指導教授: Chuei-Tin Chang 張珏庭
中華民國一百零八年七月
Abstract
Traditional supply-chain management methods often treated the given system as a whole,
without considering the conflicting interests of its participants. Game theory was adopted in a
number of prior studies to identify fair prices and throughputs of the intermediates so as to
maintain sustainable operations. In particular, the mathematical frameworks of a series of
fictitious systems have already been proposed in the literature. The proper designs of distributed
processing systems were generated to facilitate implementation of a decentralized optimization
strategy. In these supply chains, the supplier-produced intermediates were bought by consumers
to manufacture the final products. However, when the total profit of a supply chain is maximized
without constraints, the maximum total profit may not be divided and allocated to every actor
fairly. This deficiency could lead to various negative impacts, including dissatisfaction of actors,
instability of coalition, loss of markets, and reduction in revenue. For this reason, a cooperative
game theory has already been applied to generate fair-profit allocation plans among the
supplier(s) and consumer(s) so as to establish a long-term working relationship. The present
work developed a two-step approach addresses this issue. Finding the maximum total profit of
the whole chain is the primary task of the first step, while the Nash cooperative bargaining
approach is adopted in the second step so as to distribute the total proﬁt among the actors fairly.
Consequently, the corresponding intermediate prices and throughputs can also be estimated as
well. Finally, various case studies in fictitious systems and the petroleum supply chain are
provided as examples to demonstrate the feasibility of the proposed approach.
Keywords: Game theory; Optimization; Fair profit allocation; Nash cooperative bargaining
approach
I
List of Contents
Abstract ........................................................................................................................................ I
List of Contents .......................................................................................................................... II
List of Figures ............................................................................................................................. V
List of Tables ........................................................................................................................... VII
Chapter 1 ..................................................................................................................................... 1
1.1 Background ................................................................................................................... 1
1.2 Literature Review ......................................................................................................... 1
1.3 Research Objectives ...................................................................................................... 4
1.4 Thesis Structure ............................................................................................................ 4
Chapter 2 ..................................................................................................................................... 5
2.1 Incentive for More Studies ........................................................................................... 5
2.2 Existing Approach ........................................................................................................ 6
2.2.1 Model Structure ..................................................................................................... 6
2.2.2 Mathematical Model .............................................................................................. 8
2.2.3 Optimization Formulation ................................................................................... 13
2.2.4 Example 1 ............................................................................................................ 14
2.3 Revenue Sharing Scheme (Yue and You, 2014) ........................................................ 17
2.4 Nash Cooperative Bargaining Method ....................................................................... 18
II
2.5 The Proposed Solution Procedure .............................................................................. 19
2.5.1 Step 1................................................................................................................... 19
2.5.2 Step 2: ................................................................................................................. 19
2.6 Simple Examples ........................................................................................................ 20
2.6.1 Example 1: 1 Supplier, 1 Consumer and 1 Intermediate Product ....................... 20
2.6.2 Example 2: 1 Supplier, 2 Consumers and 2 Intermediate Products .................... 21
2.6.3 Example 3: 1 Supplier, 2 Consumers and 1 Intermediate Product ..................... 24
Chapter 3 ................................................................................................................................... 28
3.1 Model Structure .......................................................................................................... 28
3.2 General Model Formulations ...................................................................................... 44
3.2.1 Model I – the separation process .......................................................................... 45
3.2.2 Model II – the reaction-separation process........................................................... 46
3.2.3 Model III – the storage process ............................................................................ 48
3.2.4 Profit and cost models .......................................................................................... 49
3.3 Specific Unit Models .................................................................................................. 51
3.3.1 Atmospheric distillation (S)................................................................................. 51
3.3.2 LPG retailer (C1) ................................................................................................. 53
3.3.3 Reformer (C2) ..................................................................................................... 53
3.3.4 Naphtha cracker (C3)........................................................................................... 54
3.3.5 Kerosene retailer (C4) ......................................................................................... 55
3.3.6 Hydrotreater (C5) ................................................................................................ 56
3.3.7 Vacuum distillation (C6) ..................................................................................... 57
III
3.4 Extension .................................................................................................................... 57
3.4.1 Gasoline retailer (E1) .......................................................................................... 61
3.5 Objective Functions .................................................................................................... 61
3.5.1 Base case ............................................................................................................. 61
3.5.2 Extended case ...................................................................................................... 62
Chapter 4 ................................................................................................................................... 64
4.1 Base Case .................................................................................................................... 64
4.2 Extended Case............................................................................................................. 70
4.3 Grouping Structures .................................................................................................... 83
4.3.1 Structure I ............................................................................................................ 83
4.3.2 Structure II .......................................................................................................... 92
4.3.3 Concluding remark ............................................................................................ 102
Chapter 5 ................................................................................................................................. 103
5.1 Conclusions .................................................................................................................. 103
5.2 Future Works ................................................................................................................ 103
References ............................................................................................................................... 105
IV
List of Figures
Figure 2.1. Supply-chain model for a system with 1 supplier, 1 consumer and 1 intermediate.. 7
Figure 2.2. Standard process configurations for supplier and consumer. .................................... 9
Figure 2.3. Standard process configurations for actor ............................................................... 10
Figure 2.4. The optimal solution for 1 supplier, 1 consumer and 1 intermediate ..................... 16
Figure 2.5. Revenue sharing scheme in a simple supply chain ................................................. 17
Figure 2.6. Optimal allocation results of 1 supplier, 1 consumer and 1 intermediate product .. 21
Figure 2.7. Reaction-separation processes considered in Example 2 ........................................ 21
Figure 2.8. Optimal allocation results for one supplier two consumers two intermediates ...... 24
Figure 2.9. Supply-chain structure in Example 3 ...................................................................... 24
Figure 2.10. Optimal allocation results for one supplier two consumers one intermediate ...... 27
Figure 3.1. General Framework of Petroleum Supply Chain .................................................... 29
Figure 3.2. Research Scope ....................................................................................................... 30
Figure 3.3. Base-Case Structure of Petroleum Supply Chain ................................................... 31
Figure 3.4. The generalized separation process ......................................................................... 45
Figure 3.5. The generalized reaction-separation process .......................................................... 46
Figure 3.6. The generalized storage process.............................................................................. 48
Figure 3.7. Atmospheric Distillation ......................................................................................... 52
Figure 3.8. LPG Retailer ........................................................................................................... 53
Figure 3.9. Reformer ................................................................................................................. 54
Figure 3.10. Naphtha Cracker.................................................................................................... 55
Figure 3.11. Kerosene Retailer .................................................................................................. 55
V
Figure 3.12. Hydrotreater .......................................................................................................... 56
Figure 3.13. Vacuum Distillation .............................................................................................. 57
Figure 3.14. Extension of Base-Case Structure of Petroleum Supply Chain ............................ 58
Figure 3.15. Scenario 1 in Extended Case ................................................................................. 60
Figure 3.16. Scenario 2 in Extended Case ................................................................................. 60
Figure 3.17. Gasoline retailer .................................................................................................... 61
Figure 4.1. Base Case Results ................................................................................................... 65
Figure 4.2. Profits and bargaining powers of all actors in the base case ................................... 70
Figure 4.3. Extended Case Results for First Scenario ............................................................... 72
Figure 4.4. Extended Case Results for Second Scenario ........................................................... 73
Figure 4.5. Profits and bargaining powers of all actors in the first scenario of the extended case
................................................................................................................................................... 80
Figure 4.6. Profits and bargaining powers of all actors in the second scenario of the extended
case ............................................................................................................................................ 80
Figure 4.7. First grouping structure ........................................................................................... 84
Figure 4.8.First grouping structure results ................................................................................ 86
Figure 4.9. Profits and bargaining powers of all the groups in the first grouping structure ...... 90
Figure 4.10. Second grouping structure .................................................................................... 93
Figure 4.11. Second grouping structure results ......................................................................... 96
Figure 4.12. Profits and bargaining powers of all the groups in the second grouping structure
................................................................................................................................................. 100
VI
List of Tables
Table 2.1. Model variables and parameters for a supply chain with 1 supplier, 1 consumer and
1 intermediate ............................................................................................................... 7
Table 2.2. Additional variables and parameters for supply-chain model with 1 supplier, 1
consumer and 1 intermediate ........................................................................................ 8
Table 2.3. Parameters used for modeling simple case in Figure 2.2 ......................................... 15
Table 2.4. First-step results of Example 1 ................................................................................. 15
Table 2.5. Model Parameters used in Example 2 ...................................................................... 22
Table 2.6. Model Parameters used in Example 3 ...................................................................... 25
Table 3.1. Model variables for base-case petroleum supply chain ............................................ 32
Table 3.2. Model parameters for base-case petroleum supply chain......................................... 36
Table 3.3. Model variables for gasoline retailer unit ................................................................. 59
Table 3.4. Model parameters for gasoline retailer unit.............................................................. 59
Table 4.1. Optimal throughputs of atmospheric distillation unit and product selling prices for
the base case ............................................................................................................... 66
Table 4.2.Optimal throughput of LPG retailing unit and product selling price for the base case
.................................................................................................................................... 67
Table 4.3. Optimal throughputs of reformer and the product selling prices for the base case .. 68
Table 4.4. Optimal throughputs of naphtha cracker unit and the product selling prices for the
base case ..................................................................................................................... 68
Table 4.5. Optimal throughput of kerosene retailing unit and its selling price for the base case
.................................................................................................................................... 69
VII
Table 4.6. Optimal throughputs of hydrotreater and the product selling prices for the base case
.................................................................................................................................... 69
Table 4.7. Optimal throughputs of vacuum distillation unit and products selling prices for the
base case ..................................................................................................................... 69
Table 4.8. Optimal throughputs of atmospheric distillation unit and product selling prices for
the extended case ........................................................................................................ 74
Table 4.9. Optimal throughput of LPG retailing unit and product selling price for the extended
case ............................................................................................................................. 76
Table 4.10. Optimal throughputs of reformer and the product selling prices for the extended
case ............................................................................................................................. 77
Table 4.11. Optimal throughput of kerosene retailing unit and its selling price for the extended
case ............................................................................................................................. 77
Table 4.12. Optimal throughputs of hydrotreater and the product selling prices for the
extended case .............................................................................................................. 77
Table 4.13. Optimal throughputs of naphtha cracker unit and the product selling prices for the
extended case .............................................................................................................. 78
Table 4.14. Optimal throughputs of vacuum distillation unit and products selling prices for the
extended case .............................................................................................................. 79
Table 4.15. Optimal throughput of gasoline retailing unit and its selling price for the extended
case ............................................................................................................................. 79
Table 4.16. A comparison between the base case and the extended case ................................. 81
Table 4.17. Optimal throughputs of G1 and product selling prices for Structure I. .................. 88
VIII
Table 4.19. Optimal throughputs of G4 and products selling prices for Structure I ................. 88
Table 4.21. A comparison between Structure I and base case .................................................. 90
Table 4.22. Optimal throughputs of G1 and product selling prices for Structure II ................. 98
Table 4.23. Optimal throughputs of G2 and the product selling prices for the Structure II ...... 99
Table 4.24. A comparison between second grouping structure and first scenario of extended
case ........................................................................................................................... 101
IX
Chapter 1
Introduction
1.1 Background
The traditional mathematical models for supply-chain management usually treated the
given system as a whole, without considering the conflicting interests of its actors. The actors
in a supply chain were usually viewed as a set of suppliers producing several intermediates to
be purchased by another set of consumers. Generally speaking, when the total profit of a supply
chain is maximized without constraints, the maximum profit may not be distributed to each actor
fairly. This deficiency could lead to various negative impacts, including dissatisfaction of actors,
instability of coalition, loss of markets, and reduction in revenue. For this reason, a cooperative
game theory has already been applied to generate fair-profit allocation plans among the
supplier(s) and consumer(s) so as to establish a long-term working relationship (Okamoto, 2008;
Teng et.al, 2017). However, only simple fictitious systems were considered in these previous
works.
1.2 Literature Review
Over the past decades, the optimization of decentralized supply chains in the process
industry has received extensive attention in the literature. Dealing with dissatisfaction is one of
the practical issues in designing the supply chain. Game theory is a powerful tool for modeling
and understanding strategies that can satisfy all actors involved. Von Neumann and Morgenstern
1
(2007) identified two approaches. The first is referred to as the strategic or non-cooperative
game, whereas the second is called coalitional or cooperative game.
Torres et al. (2015; 2016) and Torres and Stephanopoulos (2016) have developed a game-
theoretic framework to facilitate proper design of a distributed processing system via
decentralized optimization strategies in the spirit of non-cooperative game. However, for proper
profit allocation in multi-actor supply chain, the assumption of non-cooperative game may not
be valid. A fair profit-allocation scheme should be drafted more properly based on the
cooperative game theoretic approach. According to Myerson (1991), the players interact with a
common purpose in a cooperative game. The main purpose of cooperative game theory is to
allocate profits accrued in the cooperation among the participating players. Since it is desirable
to use cooperative game theory approach, the crucial matter is to determine the way to allocate
profits among participating players.
Researchers often used the transfer price or the price-only contract to distribute profit
fairly in supply chains (Liu et.al, 2014; Hwang, 2017; Liu and Papageorgiou, 2018). Transfer
prices reflect the values of goods and services transferred from one entity to another. A
cooperative game constructed by Rosenthal (2008) fairly allocated the net profit using transfer
prices, considering both the perfect information and the asymmetric information environments.
Leng and Parlar (2012) developed a cooperative game to determine optimal transfer prices for
fair-profit allocation within a two-echelon supply chain in which there are one upstream division
and multiple downstream ones. Mokhlesian and Zegordi (2014) developed a nonlinear model
concerning the coordination of pricing and inventory decisions in a multiproduct two-stage
supply chain with one manufacturer and multiple retailers. Liu et al. (2016) proposed a mixed
2
integer linear programming model for optimizing the transfer prices of a two-echelon supply
chain. Amirtaheri et al. (2017) also modelled a decentralized manufacturer-distributor supply
chain to find the optimal fair policies for the manufacturer that included the wholesale price, the
advertisement expenditure and the production interval, etc. and, for the distributor, including
the markup percentage, the local advertising expenditures, and the assignment of markets
demands to the depots, etc.
Beside the price-only contract, the revenue-sharing contract was also considered to
facilitate fair profit allocation. According to Dana and Spier (2001), with a revenue-sharing
contract, the supplier willingly reduces its wholesale price and makes money by earning the
shared revenues from retailers. Similar works have also been done by Giannoccaro and
Pontrandolfo (2004). They proposed methods for implementing revenue-sharing contract to a
multi-echelon serial supply chain. Cachon and Lariviere (2005) used a revenue-sharing policy
to deal with profit allocation issues in supply chain. The effectiveness of revenue-sharing
contract to coordinate supply chain has been investigated by Yao et.al (2008). They found that
in a decentralized system, the revenue-sharing contract can achieve a better supply-chain
performance when compared to the price-only contract. Furthermore, Qin and Yang (2008)
studied the revenue-sharing contract in a two-echelon supply chain and found that the revenue-
sharing contract is more profitable.
In the present study, the cooperative supply-chain design problems are first modeled
based on the Nash cooperative bargaining approach (Nash, 1950; Gjerdrum et al., 2001, 2002;
Roth, 2012, Zhang et al., 2013, Yue and You, 2014) and the revenue-sharing contract is then
adopted to generate the fair profit-allocation plans. To ensure fairness in profit distribution, the
3
total profit is divided and allocated according to the player’s negotiating power. Yue and You
(2014) have successfully developed a model for profit-allocation strategy in cellulosic
bioethanol supply chains under Nash cooperative bargaining model and revenue-sharing
contract. Although satisfactory results were reported, a better method is needed to improve the
supply chain performance by guarantying fair profit of each individual actor while achieving
the maximum total profit of the entire supply chain.
1.3 Research Objectives
The research works reported in this thesis were performed to address the aforementioned
issues. Specifically, our research objectives are:
1. to develop a rigorous approach for generating fair profit-allocation plan in any given supply
chain while achieving the maximum total profit for the entire chain;
2. to apply the proposed approach to design the manufacturing networks in a petroleum supply
chain.
1.4 Thesis Structure
The rest of this thesis is organized as follows. In Chapter 2, the general frameworks of
supplier-consumer chains with previous approach is discussed. For illustration convenience, the
new approach to generate a profit allocation plan in the supply chains is also presented together
with simple examples and extended version. A realistic case study, which is concern with
designs of petroleum supply chain, is given in the Chapter 3 to implement the proposed approach.
Next, the results and discussion of the three cases regarding the realistic petroleum supply chain
adopting the new approach are presented in the Chapter 4. Finally, conclusions and possible
future research directions are outlined in the Chapter 5.
4
Chapter 2
General Frameworks of Supplier-Consumer Chains
As mentioned in Chapter 1, the problem at hand is to find the fair profit allocation plan
among supplier(s) and consumer(s) in a supply chain. A good and sustainable working
relationship must be established between every pair of supplier and consumer. Since the two are
bound to have different business objectives, they tend not to cooperate without additional
incentives. Giannoccaro and Pontrandolfo (2004) proposed methods for implementing revenue-
sharing contract to a multi-echelon serial supply chain. Cachon and Lariviere (2005) used a
revenue-sharing policy to deal with profit allocation issues in supply chain. They had
successfully applied the policy for a two-stage distributor-retailer scenario. Torres et al. (2015;
2016) and Torres and Stephanopoulos (2016) developed a game-theoretic framework to
facilitate proper design of a distributed processing system via a decentralized optimization
strategy.
2.1 Incentive for More Studies
The actors in a supply chain are usually described as a set of suppliers producing several
intermediates to be purchased by another set of consumers. The decision of which intermediate
is each supplier going to produce or consumer going to buy, is independently made by each
actor. The optimality conditions of every actor could be characterized with the necessary
conditions for minimizing Lagrangian (Torres and Stephanopoulos, 2016) by summation all of
the corresponding’s actor profit. The coordination among the members of a supply chain involve:
5
(i) deciding how much each intermediate is to be exchanged and (ii) reaching an agreement on
its price.
Using the above method often yielded multiple solutions even in the simple 1-supplier-1-
consumer scenario and some may fail to allocate fair profits for both actors. Therefore, the
aforementioned authors tried next to identify a match between the optimal outlet flowrate of
supplier and optimal inlet flowrate of consumer under different intermediate prices. The
intersection of the corresponding curves in a 2-D plot (flowrate versus price) represents the Nash
equilibrium point. However, if the supply chain involves more than 2 actors, it becomes difficult
to pinpoint such an intersection point in high dimension. Furthermore, notice that the above
solution was obtained essentially in the spirit of non-cooperative game. For proper profit
allocation in multi-actor supply chain, this assumption may not be valid.
2.2 Existing Approach
To facilitate clear understanding, the existing method is first explained with the simplest
case, i.e., the one-supplier-one-consumer system, in the present subsection.
2.2.1 Model Structure
As shown in Figure 2.1, the processing network consists of one supplier (actor 1), who
produces one intermediate that is used by one consumer (actor 2).
6
Figure 2.1. Supply-chain model for a system with 1 supplier, 1 consumer and 1
intermediate
The symbols used in this figure are defined below:
Table 2.1. Model variables and parameters for a supply chain with 1 supplier, 1
consumer and 1 intermediate
Notation Definition
𝑑 vector of design variables for supplier (variable)

1
𝑑 vector of design variables for consumer (variable)

2
𝑓1 amount of supplier’s raw material (variable)
𝑓2 amount of consumer’s products (variable)
𝑝1 price of intermediate product sold by the supplier (variable)
𝑝2 price of intermediate product purchased by the consumer (variable)
𝑥2 amount of intermediate product purchased by the consumer (variable)
𝑦1 amount of intermediate product sold by the supplier (variable)
𝛼 price of raw material (parameter)
𝛽 price of consumer’s product (parameter)
7
2.2.2 Mathematical Model
The operational goal of each actor is to maximize its own proﬁt, that is
 For supplier (actor 1) :
max 𝑃1 = 𝑝1 𝑦1 (𝑓1 , 𝑑1 ) − 𝑐1 (𝑓1 , 𝑑1 ) − 𝛼𝑓1 (2.1)

𝑓1 ,𝑑1 ,𝑝1
s.t. 𝑃1 > 0
0 ≤ 𝑓1 ≤ 𝑓1𝑎𝑣
𝑑1 ∈ 𝐷1
 For consumer (actor 2) :
max 𝑃2 = 𝛽𝑓2 (𝑥2 , 𝑑2 ) − 𝑐2 (𝑥2 , 𝑑2 ) − 𝑝2 𝑥2 (2.2)

𝑥2 ,𝑑2 ,𝑝2
s.t. 𝑃2 > 0
0 ≤ 𝑓2 ≤ 𝑓2𝑑𝑒
𝑑2 ∈ 𝐷2
The additional symbols used in the equations (2.1) and (2.2) are defined below:
Table 2.2. Additional variables and parameters for supply-chain model with 1 supplier, 1
consumer and 1 intermediate
Notation Definition
𝑐1 total annual cost for supplier (variable)
𝑐2 total annual cost for consumer (variable)
𝑓1𝑎𝑣 maximum available amount of raw material (parameter)
𝑓2𝑑𝑒 maximum demand of final product (parameter)
𝑃1 supplier’s annual profit (variable)
𝑃2 consumer’s annual profit (variable)
8
The outlet flowrate of the supplier is a function of the supplier’s inlet flowrate and
design variables, i.e, y1  y1  f1 , d 1  , while the output flowrate of the consumer is related to the
consumer’s inlet flowrate (intermediate product flowrate) and design variables, i.e.
f 2  f 2  x2 , d 2  .
Supplier Consumer
Figure 2.2. Standard process configurations for supplier and consumer.
Torres and Stephanopoulos (2016) assumed that each actor consists of 1 reactor and 1
separator as shown in Figure 2.2. In either reactor, it is assumed that there are two first-order
𝑘1𝑠 𝑘2𝑠
reactions connected in series. For the supplier, the reactions are 𝐴𝑆 → 𝐵𝑆 → 𝐶𝑆 , where the
amount of 𝐴𝑆 equals to the amount of feed fed to supplier’s reactor (𝑚𝑟𝑒𝑎𝑐𝑡𝑜𝑟 = 𝑚𝑆,𝑅 ) which is
the sum of raw material flowrate (𝑓1 ) and recycle flowrate, and 𝑘1𝑠 and 𝑘2𝑠 are the kinetic
constants of the above two reactions, respectively. On the other hand, the reactions of the
𝑘1𝑐 𝑘2𝑐
consumer are 𝐴𝐶 → 𝐵𝐶 → 𝐶𝐶 , where the amount of 𝐴𝐶 equals to the amount of feed fed to
consumer’s reactor (𝑚𝑟𝑒𝑎𝑐𝑡𝑜𝑟 = 𝑚𝐶,𝑅 ) which is the sum of intermediate flowrate (𝑥2 ) and
recycle flowrate, and 𝑘1𝑐 and 𝑘2𝑐 are the kinetic constants of consumer’s reactions. Notice that
9
𝐵𝑆 is produced by the supplier as the intermediate product and upgraded by the consumer to
become the final product 𝐵𝐶 . In Figure 2.2, there are 2 design variables for each actor to choose,
i.e., conversion and recycle ratio. Specifically, 𝑋𝑆 is the conversion of 𝐴𝑆 in the supplier’s
reactor and 𝑋𝐶 is the conversion of 𝐴𝐶 in the consumer’s reactor; 𝑅𝑆 is the recycle ratio of the
supplier’s separator and 𝑅𝐶 is the recycle ratio of the consumer’s separator.
The functional relationship between the input flowrate (𝑚𝑓𝑒𝑒𝑑 ) and the output flowrate
(𝑚𝑝𝑟𝑜𝑑𝑢𝑐𝑡 ) of each actor is derived bellow:
Figure 2.3. Standard process configurations for actor
First, let us assume the reactor is tubular, the reaction rate of A expressed as a function of the
residence time can be written as:
𝑑𝐶𝐴
rA= = −𝑘1 𝐶𝐴 (2.3)
𝑑𝜏
𝑉
where τ is residence time, 𝜏 = 𝜐 . The integration result of equation (2.3) is
𝐶𝐴 (𝜏)=𝐶𝐴0 ′𝑒 −𝑘1𝜏 (2.4)
The rate expression of B is:
10
𝑑𝐶𝐵 ′ −𝑘1 𝜏
𝑟𝐵 = = 𝑘1 𝐶𝐴 − 𝑘2 𝐶𝐵 = 𝑘1 𝐶𝐴0 𝑒 − 𝑘2 𝐶𝐵 (2.5)
𝑑𝜏
Equation (2.5) can be rearranged as follows
𝑑𝐶𝐵 ′ −𝑘1 𝜏 (2.6)

+ 𝑘2 𝐶𝐵 = 𝑘1 𝐶𝐴0 𝑒
𝑑𝜏
which is a first-order linear differential equation of the form
𝑑𝑦
+ 𝑃𝑦 = 𝑄
𝑑𝑥
By multiplying through with the integrating factor 𝑒 ∫ 𝑃 𝑑𝑥 the solution is
y𝑒 ∫ 𝑃 𝑑𝑥 = ∫ 𝑄𝑒 ∫ 𝑃 𝑑𝑥 + constant
Applying this general procedure to the integration of equation (2.6) we find that the integrating
𝑘 𝐶′
factor is 𝑒 𝑘2 𝜏 . The constant of integration is found to be 𝑘 1−𝑘𝐴0 from the initial condition 𝐶𝐵0 =
1 2
0 at 𝜏 = 0, and the final expression for the concentration of B is
′
𝑘1 𝐶𝐴0
𝐶𝐵 (𝜏)= (𝑒 −𝑘2𝜏 − 𝑒 −𝑘1 𝜏 ) (2.7)
𝑘1 − 𝑘2
′ −𝑘1 𝜏
Since 𝐶𝐴 (𝜏)=𝐶𝐴0 𝑒 = 𝐶𝐴0 ′(1 − 𝑋𝐴 (𝜏)) and 𝑋𝐴 denotes the conversion of reactant 𝐴, the
above equation can be rewritten as
′ 𝑘2
𝑘1 𝐶𝐴0
𝐶𝐵 (𝜏) = ((1 − 𝑋𝐴 (𝜏))𝑘1 − (1 − 𝑋𝐴 (𝜏))) (2.8)
𝑘1 − 𝑘2
The above equation can be further modified by multiplying the volumetric flowrate:
′ ′ 𝑘2
𝑘1 𝐹𝐴0 𝑘1 𝐹𝐴0
𝐹𝐵 = (𝑒 −𝑘1𝜏 + 𝑒 −𝑘2 𝜏 ) = (𝑋𝐴 + (1 − 𝑋𝐴 )𝑘1 − 1) (2.9)
𝑘1 − 𝑘2 𝑘1 − 𝑘2
′
Based on the Figure 2.3, one can find the expressions of 𝐹𝐴0 from mass balance.
11
′ ′
𝐹𝐴0 = 𝐹𝐴0 + 𝑅𝐹𝐴 = 𝐹𝐴0 + 𝑅𝐹𝐴0 (1 − 𝑋𝐴 ) (2.10)
′
𝐹𝐴0 𝑚𝑓𝑒𝑒𝑑 (2.11)
𝐹𝐴0 = =
1 − (1 − 𝑋𝐴 )𝑅 1 − (1 − 𝑋𝐴 )𝑅
′
Then, by substitute 𝐹𝐴0 to equation (2.9) one can obtain the general relation between input
flowrate (𝑚𝑓𝑒𝑒𝑑 ) and output flowrate (𝑚𝑝𝑟𝑜𝑑𝑢𝑐𝑡 ) of each actor.
𝑚𝑓𝑒𝑒𝑑 𝑘1 𝑘2
𝑚𝑝𝑟𝑜𝑑𝑢𝑐𝑡 = ( ) (𝑋 + (1 − 𝑋)𝑘1 − 1) (2.12)
1 − (1 − 𝑋)𝑅 𝑘1 − 𝑘2
where 𝑚𝑝𝑟𝑜𝑑𝑢𝑐𝑡 and 𝑚𝑓𝑒𝑒𝑑 are 𝑦1 and 𝑓1 for the supplier respectively, and 𝑚𝑝𝑟𝑜𝑑𝑢𝑐𝑡 and 𝑚𝑓𝑒𝑒𝑑
are 𝑓2 and 𝑥2 for the consumer respectively. The cost functions for the two actors can be
expressed below.
𝑐1 (𝑓1 , 𝑑1 ) = 𝑎𝑟𝑒𝑎𝑐𝑡𝑜𝑟 1 𝑚0.6

𝑟𝑒𝑎𝑐𝑡𝑜𝑟 1 (𝑓1 , 𝑑1 ) + 𝑏𝑟𝑒𝑎𝑐𝑡𝑜𝑟 1 𝑚𝑟𝑒𝑎𝑐𝑡𝑜𝑟 1 (𝑓1 , 𝑑1 ) + (2.13)
𝑎𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 1 𝑚0.6
𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 1 (𝑓1 , 𝑑1 ) + 𝑏𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 1 𝑚𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 1 (𝑓1 , 𝑑1 )
𝑐2 (𝑥2 , 𝑑2 ) = 𝑎𝑟𝑒𝑎𝑐𝑡𝑜𝑟 2 𝑚0.6

𝑟𝑒𝑎𝑐𝑡𝑜𝑟 2 (𝑥2 , 𝑑2 ) + 𝑏𝑟𝑒𝑎𝑐𝑡𝑜𝑟 2 𝑚𝑟𝑒𝑎𝑐𝑡𝑜𝑟 2 (𝑥2 , 𝑑2 )+ (2.14)
0.6
𝑎𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 2 𝑚𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 2 (𝑥2 , 𝑑2 ) + 𝑏𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 2 𝑚𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 2 (𝑥2 , 𝑑2 )
where 𝑎∗ is the annualized capital cost coefficient of unit ∗ and 𝑏∗ is the annual operating cost
coefficient of unit ∗. On the other hand, 𝑚𝑟𝑒𝑎𝑐𝑡𝑜𝑟 can be derived from the mass balance as
follows.
𝑚𝑟𝑒𝑎𝑐𝑡𝑜𝑟 = 𝐹𝐴0 + 𝑅(𝐹𝐴 + 𝐹𝐶 ) (2.15)
𝐹𝐴0 = 𝐹𝐵 + (1 − 𝑅)𝐹𝐴 + (1 − 𝑅)𝐹𝐶
𝐹𝐴0 − 𝐹𝐵 − (1 − 𝑅)𝐹𝐴 (2.16)

𝐹𝐶 =
(1 − 𝑅)
12
′ (1
𝐹𝐴 = 𝐹𝐴0 − 𝑋𝐴 ) (2.17)
′
𝐹𝐴0 = 𝐹𝐴0 (1 − (1 − 𝑋𝐴 )𝑅) (2.18)
′
It should be noted that 𝐹𝐴0 = 𝑚𝑟𝑒𝑎𝑐𝑡𝑜𝑟 and 𝐹𝐴0 = 𝑚𝑓𝑒𝑒𝑑 . By substituting equations (2.9), (2.16) -
(2.18) into equation (2.15) and rearranging the resulting equation, 𝑚𝑟𝑒𝑎𝑐𝑡𝑜𝑟 can be expressed
as follows.
𝑘2
𝑘1
1 − 𝑅 + 𝑅 (𝑋 − ( ) (𝑋 + (1 − 𝑋)𝑘1 − 1)) (2.19)
𝑚𝑓𝑒𝑒𝑑 𝑘1 − 𝑘2
𝑚𝑟𝑒𝑎𝑐𝑡𝑜𝑟 =
1 − (1 − 𝑋)𝑅 1−𝑅
( )
On the other hand, 𝑚𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 can be derived from mass balance around the separator as follows.
𝑚𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 = 𝐹𝐴 + 𝐹𝐵 + 𝐹𝐶 (2.20)
Next, substituting equations (2.9), (2.16) - (2.18) into equation (2.20) yields.
𝑘1 𝑘2 (2.21)
1 − (1 − 𝑋)𝑅 − 𝑅𝑋 ( ) (𝑋 + (1 − 𝑋)𝑘1 − 1)
𝑚𝑓𝑒𝑒𝑑 𝑘1 − 𝑘2
𝑚𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 =
1 − (1 − 𝑋)𝑅 1−𝑅
( )
where 𝑚𝑓𝑒𝑒𝑑 can be replaced by 𝑓1 and 𝑥2 for supplier and consumer, respectively.
2.2.3 Optimization Formulation
Therefore, the procedure to find the Nash equilibrium point can be summarized below:
 for supplier:
1. Formulate a mathematical model based on equations (2.12), (2.13), (2.19), (2.21)
and (2.22), and construct the GAMS code accordingly.
13
2. Execute the GAMS code using the BARON solver to determine the optimal
outlet flowrate (𝑦1 ) according to a given intermediate price (Λ).
3. Repeat steps 1 – 2 at different values of Λ.
4. Plot the optimal outlet flowrate (𝑦1 ) vs intermediate price (Λ)
 for consumer:
1. Formulate a model mathematical model based on equations (2.12), (2.14), (2.19),
(2.21) and (2.22), and construct the GAMS codes accordingly.
2. Execute the GAMS code using the BARON solver to determine the optimal inlet
flowrate (𝑥2 ) according to a given intermediate price (Λ).
3. Repeat steps 1 – 2 at different values of Λ.
4. Plot the optimal inlet flowrate (𝑥2 ) vs intermediate price (Λ).
 Determine the common flowrate of intermediate product to be exchanged between
the actors (𝑦1 and 𝑥2 ) and the corresponding intermediate price (Λ) by locating the
intersection point of the aforementioned two curves.
2.2.4 Example 1
This first example is taken from Torres and Stephanopoulos (2016) which has already
been described in Figure 2.2. The data and parameters used in this case are displayed in Table
2.3. After solving the problem with the method presented above, it was found that 𝑓1 = 100
kg/h, 𝑓2 = 50kg/h, 𝑋𝑆 =0.591, 𝑅𝑆 =0.683, 𝑋𝐶 =0.46, 𝑅𝑆 =0.898. It also can be observed from
Table 2.4 that, although the maximum total profit is the same ($399.5), the intermediate price
can be varied to allocate the individual profits differently. The Nash equilibrium solution is
identified in Figure 2.4, where the flowrate of intermediate product to be exchanged between
14
the actors is 63.976 kg/h at an intermediate price $1.96 with the profit of supplier and consumer
are $60.525 and $338.96 respectively.
Table 2.3. Parameters used for modeling simple case in Figure 2.2
Parameter Supplier Consumer

Inlet flowrate 𝑓1 ≤ 𝑓1𝑎𝑣 = 100 kg/h Decision variable ( x2 )
Product flowrate Decision variable (𝑦1 ) 𝑓2 ≤ 𝑓2𝑑𝑒 = 50 kg/h
Feed price  = $0.1 Decision variable : 𝑝

Product price Decision variable : 𝑝  = $10
Capital cost parameter reactor 𝑎𝑟𝑒𝑎𝑐𝑡𝑜𝑟 1 =0.5 𝑎𝑟𝑒𝑎𝑐𝑡𝑜𝑟 2 =0.5
Operational cost parameter 𝑏𝑟𝑒𝑎𝑐𝑡𝑜𝑟 1 =0.03 𝑏𝑟𝑒𝑎𝑐𝑡𝑜𝑟 2 =0.075
reactor
Capital cost parameter separator 𝑎𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 1=0.5 𝑎𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 2=0.45
Operational cost parameter 𝑏𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 1=0.2 𝑏𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 2=0.0625
separator
Kinetic constant first reaction k1s = 1.5 k1c = 0.5
Kinetic constant second k 2 s = 0.75 k 2c = 0.2

reaction
Table 2.4. First-step results of Example 1
𝑝 P1 P2 P𝑇
1.6 37.8102 361.675
1.7 44.1199 355.365
1.8 50.4296 349.055
399.485
1.9 56.7393 342.746
2.0 63.049 336.436
2.1 69.3587 330.126
2.2 75.6684 323.817
15
2.3 81.9781 317.507
2.4 88.2878 311.197
2.5 94.5975 304.888
2.6 100.907 298.578
2.7 107.217 292.268
2.8 113.527 285.958
2.9 119.836 279.649
3.0 126.146 273.339
3.1 132.456 267.029
3.2 138.765 260.72
3.3 145.075 254.41
3.4 151.385 248.1
3.5 157.695 241.791
3.6 164.004 235.481
3.7 170.314 229.171
3.8 176.624 222.861
3.9 182.933 216.552
4 189.243 210.242
Figure 2.4. The optimal solution for 1 supplier, 1 consumer and 1 intermediate
Dashed line: the optimal outlet flowrate for supplier (𝑦1 ). Dotted line: the inlet flowrate for the
consumer (𝑥2 )
16
Notice that, when the supply chain involves more than 2 actors competing for multiple
intermediate products, it becomes necessary to locate the intersection points in three or more
dimensions. This is a very difficult task. Furthermore, the above result is obtained under the
assumption of non-cooperative game, while a cooperative game seems to be more suitable for
fair profit allocation in a multi-actor supply chain. Therefore, let us modify the aforementioned
approach and take a two-step solution strategy as follows.
1. Determine the maximum total profit by summation all of the actor’s profit, Pi
max ∑ 𝑃𝑖 (2.22)
𝑓1 ,𝑝𝑖 ,𝑥𝑖 ,𝑑𝑖
𝑖=1
where 𝑛 is the number of actors in the whole supply chain.
2. Using the Nash cooperative bargaining method (Yue and You, 2014) to generate a fair
profit allocation plan.
2.3 Revenue Sharing Scheme (Yue and You, 2014)
The generalized revenue-sharing scheme for a simplified supply chain is depicted below.
p1 ; ΦS,C p2 ; ΦC,E
S C E
yS=xC yC=xE
Figure 2.5. Revenue sharing scheme in a simple supply chain

To illustrate the revenue-sharing mechanism, let us consider a simple supply chain
producing a single product as shown in Figure 2.5. Actor S is the material sender of actor C, and
actor C the material sender of actor E. The solid-line arrows represent material flows, and the
dashed-line arrows represent monetary flows. The revenue-sharing contract can be characterized
17
with two parameters, i.e., (1) the transfer price where consumer pays per unit material
transferred (denoted by 𝑝𝑠 ) and (2) the share ratio of suppliers in the consumer’s revenue
(denoted by Φ𝑆,𝐶 ). Under this revenue-sharing scheme, the profit of actor S equals to transfer
payment received from actor C plus the revenue shared by actor C minus its own cost. The other
actors can also be characterized by similar models. The profit of each actor can thus be
formulated as follows:
𝜋𝑆 = 𝑦𝑆 𝑝1 + Φ𝑆,𝐶 𝑅𝐶 − 𝑐𝑆 (2.23)
𝜋𝐶 = (1 − Φ𝑆,𝐶 )𝑅𝐶 − 𝑐𝐶 (2.24)
𝜋𝐸 = (1 − Φ𝐶,𝐸 )𝑅𝐸 − 𝑐𝐸 (2.25)
In the above equations, the revenues of actors C and E are expressed as.
𝑅𝐶 = 𝑦𝐶 𝑝2 + Φ𝐶,𝐸 𝑅𝐸 (2.26)
𝑅𝐸 = 𝑦𝐸 𝑝3 (2.27)
2.4 Nash Cooperative Bargaining Method
It is important to consider the negotiation power of each actor in a supply chain. It is
reasonable to expect that a participant with higher bargaining power receives a larger share of
profit than the weaker participants. Roth (2012) presented a generalized Nash bargaining
solution with the formula below:
max ∏(𝜋𝑖 − 𝑑𝑖 )𝛾𝑖 (2.28)

𝜋>𝑑
𝑖
18
where, 𝜋𝑖 is the profit of participant 𝑖; 𝑑𝑖 is the status-quo point of participant 𝑖 and it is the
minimum acceptable profit level defined by Gjerdrum et.al.(2002); 𝛾𝑖 is the negotiation-power
indicator of participant 𝑖. Let us assume that the bargaining power of each participant can be
determined by the corresponding participant’s cost, i.e., 𝛾𝑖 = 𝑐𝑖 . In order to build a long-term
working relationship, most people assume that the participants start from equal positions to get
fair profit allocation (Brock, 1979). Therefore, without loss of generality, we set the status quo
points (𝑑𝑖 ) to be zero in this research.
2.5 The Proposed Solution Procedure
2.5.1 Step 1
1. Formulate a mathematical programming model based on equations (2.12), (2.13), (2.14),
(2.19), (2.21) and (2.22), and construct the corresponding GAMS code.
2. Execute the GAMS code using the BARON solver to determine the maximum total
profit.
2.5.2 Step 2:
1. Treat the maximum total profit obtained in step 1 as a model parameter and the
intermediate price as a variable.
2. Formulate a mathematical programming model based on equations (2.12), (2.13), (2.14),
(2.19), (2.21), (2.22), and (2.23)-(2.28), and construct the GAMS code accordingly.
3. Execute the GAMS code using the BARON solver to determine the flowrate of
intermediate product to be exchanged between the actors, the corresponding
intermediate price, share ratio, reaction conversion, recycle ratio, amount of raw material,
and amount of final product.
19
2.6 Simple Examples
Three illustrative examples are provided below to facilitate better understanding of the
proposed two-steps solution procedure.
2.6.1 Example 1: 1 Supplier, 1 Consumer and 1 Intermediate Product
For the sake of illustration convenience, let us first list all models used in the improved method.
 Mathematical programming model for step 1 can be constructed according to equations
(2.12), (2.13), (2.14), (2.19), (2.21) and (2.22).
 Mathematical programming model for step 2 is listed below:
𝑚𝑎𝑥(𝜋1 𝑐1 × 𝜋2 𝑐2 ) (2.29)
s.t.
𝑃1 + 𝑃2 = 𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡 (2.30)
𝜋1 = 𝑃1 + Φ𝑅2 (2.31)
𝜋2 = 𝑃2 − Φ𝑅2 (2.32)
𝑅2 = 𝛽𝑓2 (2.33)
The optimization results of the first step have already been presented in Table 2.4 with
the maximum total profit equal to $399.485. The optimization results of the second step are
summarized in Figure 2.6. Specifically, the intermediate price and flowrate were found to be
p =$2.302 and 𝑦1 = 𝑥2 =63.971 kg/h, respectively. The corresponding per pass conversion and
recycle ratio for actor 1 are 𝑋𝑆 = 0.591 and 𝑅𝑆 = 0.683 respectively, and those for actor 2 are
20
𝑋𝐶 = 0.46 and 𝑅𝐶 = 0.898 respectively. The profits of supplier and consumer are $210.9 and
$188.6, respectively. Notice that the cost of actor 1 is larger than actor 2 and, thus, the former
gains a higher profit. The share ratio from consumer to supplier, 𝜙, is 0.243.
Share ratio ( ɸ )=0.243
y1=x2=63.971
Supplier p1 =p2=2.302 Consumer
f1=100 f2=50
α =0.1 Xs=0.591 XC=0.46 β2 =10
Rs=0.683 RC=0.898
Cost = 47.781 Cost=42.734

Profit=210.881 Profit=188.604
Figure 2.6. Optimal allocation results of 1 supplier, 1 consumer and 1 intermediate

product
2.6.2 Example 2: 1 Supplier, 2 Consumers and 2 Intermediate Products
Figure 2.7. Reaction-separation processes considered in Example 2
21
Let us consider the scenario in the Figure 2.7. The supplier consists of one reactor and
two separators, while each consumer consists of one reactor and one separator. It is assumed
that there are two first-order reactions connected in series in the reactor of every actor. All
kinetic constants are given in Table 2.5. Component 𝐵𝑆 is the intermediate to be exchanged
between the supplier and consumer 1. It is produced by the supplier and then upgraded by the
consumer 1 to form the final product 𝐵𝐶1. On the other hand, component 𝐶𝑆 is the intermediate
to be exchanged between the supplier and consumer 2. It is produced by the supplier and
upgraded by the consumer 2 to become the final product 𝐵𝐶2. There are 2 design variables for
characterizing each actor, i.e., conversion (𝑋) and recycle ratio (𝑅). The cost function and
correlation function between input flowrate (𝑚𝑓𝑒𝑒𝑑 ) and output flowrate (𝑚𝑝𝑟𝑜𝑑𝑢𝑐𝑡 ) of each
actors can be derived using the same concept in section 2.2.2 according to mass balance
concerning each unit. The model parameters in the following table were used in Example 2.
Table 2.5. Model Parameters used in Example 2
Parameter Supplier Consumer 1 Consumer 2

Inlet flowrate 𝑓𝑆 ≤ 𝑓𝑆𝑎𝑣 = Decision variable
Decision variable (𝑥2 )
100 kg/h (𝑥1 )
Product flowrate Decision 𝑑𝑒 𝑑𝑒
𝑓𝐶1 ≤ 𝑓𝐶1 = 𝑓𝐶2 ≤ 𝑓𝐶2 =
variable (𝑦𝑆1 ) 50 kg/h 30 kg/h
Decision
variable (𝑦𝑆2 )
Feed price  = $0.1 Decision variable : 𝑝1 Decision variable : 𝑝2
Product price Decision 𝛽𝐶1 = $10 𝛽𝐶2 = $5
variable : 𝑝1
Decision
variable : 𝑝2
Capital cost
parameter reactor 0.5 0.5 0.01
(𝑎𝑟𝑒𝑎𝑐𝑡𝑜𝑟 )
22
Operational cost
parameter reactor 0.03 0.075 0.05
(𝑏𝑟𝑒𝑎𝑐𝑡𝑜𝑟 )
Capital cost
parameter separator 0.5 0.45 0
1(𝑎𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 1 )
Operational cost
parameter separator 0.2 0.125 0.0125
1 (𝑏𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 1 )
Capital cost
parameter separator 0.5
2 (𝑎𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 2 )
Operational cost
parameter separator 0.2
2 (𝑏𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 2 )
Kinetic constant
𝑘1𝑆 = 1.5 𝑘1𝐶1 = 1 𝑘1𝐶2 = 1
first reaction
Kinetic constant
𝑘2𝑆 = 0.75 𝑘2𝐶1= 0.2 𝑘2𝐶2 = 0.2
second reaction
The optimization results obtained in step 1 is the maximum total profit equal to $283.41.
The optimization results of the second step are summarized in Figure 2.6. Specifically, the price
and flowrate for first intermediate product were found to be 𝑝1 =$5.4 and 𝑦𝑆1 = 𝑥1 = 32.391
kg/h, and the price and flowrate for second intermediate product were found to be 𝑝2 =$1.7 and
𝑦𝑆2 = 𝑥2 = 67.609 kg/h. The corresponding per pass conversion and recycle ratio for supplier
are 𝑋𝑆 = 0.997 and 𝑅𝑆 = 0.322 respectively, those for consumer 1 are 𝑋𝐶1 = 0.997 and
𝑅𝐶1 =0.38 respectively, and those for consumer 2 are 𝑋𝐶2 =1 and 𝑅𝐶2 =0.411 respectively. The
profits of supplier, consumer 1, and consumer 2 are $223.2, $53.7, and $6.5, respectively. Notice
that the cost of supplier is larger than consumer 1 and 2 and, thus, the former gains a higher
profit. Also, cost of consumer 1 is larger than consumer 2, thus consumer 1 gains a higher profit
23
than consumer 2. The share ratio from consumer 1 to supplier, 𝜙1 , is 0.187, and share ratio from
consumer 2 to supplier, 𝜙2 , is 0.149.
Share ratio ( ɸ1 )=0.187
Cost=34.225
Profit=53.739
yS1=x1=32.391 Consumer
1
pS1 =pC1=5.418 fC1=32.391
Supplier XC1=0.997 β1 =10
fs=100 RC1=0.38
α =0.1 Xs=0.997 yS2=x2=67.609 Consumer
Rs=0.322 pS2 =pC2=1.73 fC2=30
2
β2 =5
XC2=1
Cost = 142.145 RC2=0.411
Profit=223.189
Cost=4.128
Profit=6.481
Figure 2.8. Optimal allocation results for one supplier two consumers two
intermediates
2.6.3 Example 3: 1 Supplier, 2 Consumers and 1 Intermediate Product
x1, p Consumer fC1

1 β1
fs yS
Supplier
α
x2, p fC2
Consumer
β2
2
Figure 2.9. Supply-chain structure in Example 3
24
Let us consider the example of 1 supplier and 2 consumers competing for 1
intermediate product. To facilitate better understanding, the corresponding numerical
results are presented in the sequel. It is assumed that each actor consists of 1 reactor and 1
separator. In either reactor, it is also assumed that there are two first-order reactions
connected in series. The model parameters in the following table were used in Example 3.
Table 2.6. Model Parameters used in Example 3
Parameter Supplier Consumer 1 Consumer 2

Inlet flowrate 𝑓𝑆 ≤ 𝑓𝑆𝑎𝑣 = Decision variable
Decision variable (𝑥2 )
100 kg/h (𝑥1 )
𝑑𝑒 𝑑𝑒
Product Decision 𝑓𝐶1 ≤ 𝑓𝐶1 = 𝑓𝐶2 ≤ 𝑓𝐶2 =
flowrate variable (𝑦𝑆1 ) 30 kg/h 15 kg/h
Decision
variable (𝑦𝑆2 )
Feed price Decision variable :
 = $0.1 Decision variable : 𝑝
𝑝
Product price Decision 𝛽𝐶1= $10 𝛽𝐶2= $5
variable : 𝑝
Capital cost
parameter
0.5 0.5 0.5
reactor
(𝑎𝑟𝑒𝑎𝑐𝑡𝑜𝑟 )
Operational cost
parameter
0.03 0.075 0.075
reactor
(𝑏𝑟𝑒𝑎𝑐𝑡𝑜𝑟 )
Capital cost
parameter
0.5 0.45 0.45
separator
1(𝑎𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 1)
Operational cost
parameter
0.2 0.125 0.125
separator 1
(𝑏𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟 1)
25
Kinetic constant
𝑘1𝑆 = 1.5 𝑘1𝐶1 = 1 𝑘1𝐶2 = 1
first reaction
Kinetic constant
𝑘2𝑆 = 0.75 𝑘2𝐶1 = 0.2 𝑘2𝐶2 = 0.2
second reaction
The optimization results obtained in step 1 the maximum total profit equal to $201.999.
The optimization results of the second step are summarized in Figure 2.10. Specifically, the
price for the intermediate product were found to be 𝑝 = $0.13 and the flowrate of the
intermediate product go to consumer 1 were found to be 𝑦𝑆1 = 𝑥1 = 43.415 kg/h, while the
flowrate of the intermediate product go to consumer 1 were found to be 𝑦𝑆2 = 𝑥2 = 21.726 kg/h.
Form the results, it’s about 66.6% of the intermediate product go to consumer 1. The
corresponding per pass conversion and recycle ratio for supplier are 𝑋𝑆 =1 and 𝑅𝑆 =0.333
respectively, those for consumer 1 are 𝑋𝐶1 =0.891 and 𝑅𝐶1 =0.331 respectively, and those for
consumer 2 are 𝑋𝐶2 =0.892 and 𝑅𝐶2 =0.331 respectively. The profits of supplier, consumer 1,
and consumer 2 are $98.281, $67.333, and $36.385, respectively. Notice that the cost of supplier
is larger than consumer 1 and 2 and, thus, the former gains a higher profit. Also, cost of
consumer 1 is larger than consumer 2, thus consumer 1 gains a higher profit than consumer 2.
The share ratio from consumer 1 to supplier, 𝜙1 , is 0.556, and share ratio from consumer 2 to
supplier, 𝜙1 , is 0.044.
26
Cost=60.214
Profit=67.333
yS1=x1=43.415 Consumer
p=0.13 1
fC1=30
Supplier XC1=0.891 β1 =10
fs=65.141 yS=65.141
RC1=0.331
α =0.1 Xs=1 yS2=x2=21.726 Consumer
Rs=0.333 p=0.13 fC2=15
2
β2 =5
XC2=0.892
Cost = 73.735 RC2=0.331
Profit=98.281
Cost=32.538
Profit=36.385
Figure 2.10. Optimal allocation results for one supplier two consumers one intermediate
27
Chapter 3
Mathematical Model of a Petroleum Supply Chain
To facilitate clear explanation, let us consider the mathematical model of a realistic
petroleum supply chain.
3.1 Model Structure

Figure 3.1 shows the schematic of a petroleum supply chain reported in Kuo and Chang
(2008). Its primary feedstock, crude oil, is separated and/or reacted to produce ethylene,
propylene, liquefied petroleum gas, butadiene, benzene, toluene, xylene, gasoline, kerosene,
diesel, and other byproducts. A complete petroleum supply chain consists of at least 13 different
processing units, that is, the atmospheric distillation units, the vacuum distillation units, the
cokers, the fluid catalytic cracking units, the naphtha crackers, the butadiene extraction units,
the hydrotreaters, the aromatics extraction units, the reforming units, the xylene fractionation
units, the parex units, the xylene isomar units, and the tatory units.
28
Figure 3.1. General Framework of Petroleum Supply Chain
29
It should be noted first that our research scope is limited. The atmospheric
distillation unit is treated as the supplier in the supply chain and the crude oil is its feedstock,
while only 6 downstream units are considered to be the consumers, i.e., (1) the LPG tank
farm that stores LPG, (2) the reforming unit that consumes light naphtha, (3) the naphtha
cracking unit that consumes heavy naphtha, (4) the kerosene tank farm that stores kerosene,
(5) the hydrotreater that processes light and heavy oil, and (6) the vacuum distillation unit
that consumes the auto-thermal residue (ATR). On the other hand, since gasoline is one of
the products of reforming unit and also the naphtha cracker, the supply chain may be further
extended by treating gasoline as a second-level intermediate and the gasoline storage facility
as its consumer. An overall picture of the research scope of the present study is shown in
Figure 3.2 below.
Figure 3.2. Research Scope
30
To facilitate a clearer illustration of the above structure, all model variables and
parameters used for characterizing the base-case structure of a petroleum supply chain (see
Figure 3.3) are defined in Table 3.1 and Table 3.2, respectively.
ΦS,C1
fpS,1 ; βS,1 fC1 , αC1

LPG Retail LPG (fpC1,1 ; βC1,1)
LPG Retailer
Gasoline (fpC2,1 ; βC2,1)
fC2 , αC2 Reformer oil
fpS,2 ; βS,2 XC2 (fpC2,2 ; βC2,2)
Light Naphtha
C9 (fpC2,3 ; βC2,3)
RC2 (1-RC2)
Untreated light naphtha (fpC2,4 ; βC2,4)
Reformer
ΦS,C2 Pyrolisis gas oil (PGO) (fpC3,1 ; βC3,1)
Pyrolisis Fuel Oil (PFO) (fpC3,2 ; βC3,2)
Gasoline (fpC3,3 , βC3,3)
H2 (fpC3,4 ; βC3,4)
Acethylene (fpC3,5 ; βC3,5)
Ethylene (fpC3,6 ; βC3,6)
fpS,3 ; βS,3 fC3 , αC3 Propylene (fpC3,7 ; βC3,7)
Heavy Naphtha XC3
C3 (fpC3,8 ; βC3,8)
C4 (fpC3,9 ; βC3,9)
fS , α S C4 raffinate (fpC3,10 ; βC3,10)
Crude Oil Fuel Gas (fpC3,11 , βC3,11)
Butadiene (fpC3,12 ; βC3,12)
Benzene (fpC3,13 ; βC3,13)
Toluene (fpC3,14 ; βC3,14)
ΦS,C3 Xylene (fpC3,15 ; βC3,15)
RC3 (1-RC3)
Untreated heavy naphtha (fpC3,16 ;βC3,16)
Naptha cracker
Kerosene Retail kerosene (fpC4,1 ; βC4,1)
Kerosene retailer
ΦS,C4 (fpC5,1 ; βC5,1)

Diesel
Light and Heavy Oil XH
H2S (fpC5,2 ; βC5,2)
Atmospheric Distillation
Hydrotreater
ΦS,C5 Pyrolisis Fuel Oil (PFO) (fpC6,1 ; βC6,1)
Vacuum Gas Oil (VGO) (fpC6,2 ; βC6,2)
Autothermal Residue (ATR)
Vacuum Residue (fpC6,3 ; βC6,3)
Vacuum Distillation
ΦS,C6
Figure 3.3. Base-Case Structure of Petroleum Supply Chain
31
Table 3.1. Model variables for base-case petroleum supply chain
Notation Definition
Indices
𝑢 unit
Sets
U the set for all process type unit
UA the set for all separation process type unit
UB the set for all reaction-separation process type unit
UC the set for all storage process type unit
Atmospheric Distillation Unit (S)

𝑓𝑆 amount of raw material for atmospheric distillation unit (crude oil)
𝑓𝑝𝑆,1 amount of LPG sold by atmospheric distillation unit
𝑓𝑝𝑆,2 amount of light naphtha sold by atmospheric distillation unit
𝑓𝑝𝑆,3 amount of heavy naphtha sold by atmospheric distillation unit
𝑓𝑝𝑆,4 amount of kerosene sold by atmospheric distillation unit
𝑓𝑝𝑆,5 amount of light and heavy oil sold by atmospheric distillation unit
𝑓𝑝𝑆,6 amount of ATR sold by atmospheric distillation unit
𝐹𝑆𝐶𝑆 total feed storage cost for atmospheric distillation unit
𝑂𝐶𝑆 total cost for atmospheric distillation unit
𝑃𝑆 atmospheric distillation unit’s annual profit
𝑃𝑆𝐶𝑆 total product storage cost for atmospheric distillation unit
𝑅𝐶𝑆 total raw material cost for atmospheric distillation unit
𝑅𝑉𝑆 atmospheric distillation unit’s revenue
𝑇𝐶𝑆 total transportation cost for atmospheric distillation unit
𝑉𝑂𝐶𝑆 total operating cost for atmospheric distillation unit
𝛽𝑆,1 price of LPG sold by atmospheric distillation unit
𝛽𝑆,2 price of light naphtha sold by atmospheric distillation unit
𝛽𝑆,3 price of heavy naphtha sold by atmospheric distillation unit
𝛽𝑆,4 price of kerosene sold by atmospheric distillation unit
𝛽𝑆,5 price of light and heavy oil sold by atmospheric distillation unit
𝛽𝑆,6 price of ATR sold by atmospheric distillation unit
𝛾𝑆 atmospheric distillation unit’s bargaining power
𝜋𝑆 atmospheric distillation unit’s bargaining profit
𝜙𝑆,𝐶1 share ratio of atmospheric distillation unit in the LPG retailer’s revenue
𝜙𝑆,𝐶2 share ratio of atmospheric distillation unit in the reformer unit’s revenue
𝜙𝑆,𝐶3 share ratio of atmospheric distillation unit in the naphtha cracker unit’s
revenue
𝜙𝑆,𝐶4 share ratio of atmospheric distillation unit in the kerosene retailer’s
revenue
32
𝜙𝑆,𝐶5 share ratio of atmospheric distillation unit in the hydrotreater’s revenue
𝜙𝑆,𝐶6 share ratio of atmospheric distillation unit in the vacuum distillation’s
revenue
LPG Retailer Unit (C1)

𝑓𝐶1 amount of LPG purchased by LPG retailer unit
𝑓𝑝𝐶1,1 amount of LPG tank’s products
𝐹𝑆𝐶𝐶1 total feed storage cost for LPG retailer unit
𝑂𝐶𝐶1 total cost for LPG retailer unit
𝑃𝐶1 LPG retailer unit’s annual profit
𝑃𝑆𝐶𝐶1 total product storage cost for LPG retailer unit
𝑅𝐶𝐶1 total raw material cost for LPG retailer unit
𝑅𝑉𝐶1 LPG retailer’s revenue
𝑇𝐶𝐶1 total transportation cost for LPG retailer unit
𝑉𝑂𝐶𝐶1 total operating cost for LPG retailer unit
𝛼𝐶1 price of LPG purchased by LPG retailer unit
𝛾𝐶1 LPG retailer unit’s bargaining power
𝜋𝐶1 LPG retailer unit’s bargaining profit
Reformer Unit (C2)

𝑓𝐶2 amount of light naphtha purchased by reformer unit
𝑓𝑝𝐶2,1 amount of gasoline product
𝑓𝑝𝐶2,2 amount of reformer oil product
𝑓𝑝𝐶2,3 amount of C9 product
𝑓𝑝𝐶2,4 amount of untreated light naphtha
𝐹𝑆𝐶𝐶2 total feed storage cost for reformer unit
𝑂𝐶𝐶2 total cost for reformer unit
𝑃𝐶2 reformer unit’s annual profit
𝑃𝑆𝐶𝐶2 total product storage cost for reformer unit
𝑅𝐶2 separator recycle ratio for reformer unit
𝑅𝐶𝐶2 total raw material cost for reformer unit
𝑅𝑉𝐶2 reformer unit’s revenue
𝑇𝐶𝐶2 total transportation cost for reformer unit
𝑉𝑂𝐶𝐶2 total operating cost for reformer unit
𝑋𝐶2 reactor conversion for reformer unit
𝛼𝐶2 price of light naphtha purchased by reformer unit
𝛾𝐶2 reformer unit’s bargaining power
𝜋𝐶2 reformer unit’s bargaining profit
33
Naphtha Cracker Unit (C3)
𝑓𝐶3 amount of heavy naphtha purchased by naphtha cracker unit
𝑓𝑝𝐶3,1 amount of pyrolysis gas oil (PGO) product
𝑓𝑝𝐶3,2 amount of pyrolysis fuel oil (PFO) product
𝑓𝑝𝐶3,3 amount of gasoline product
𝑓𝑝𝐶3,4 amount of H2 product
𝑓𝑝𝐶3,5 amount of acetylene product
𝑓𝑝𝐶3,6 amount of ethylene product
𝑓𝑝𝐶3,7 amount of propylene product
𝑓𝑝𝐶3,10 amount of C4 raffinate product
𝑓𝑝𝐶3,11 amount of fuel gas product
𝑓𝑝𝐶3,12 amount of butadiene product
𝑓𝑝𝐶3,13 amount of benzene product
𝑓𝑝𝐶3,14 amount of toluene product
𝑓𝑝𝐶3,15 amount of xylene product
𝑓𝑝𝐶3,16 amount of untreated heavy naphtha
𝐹𝑆𝐶𝐶3 total feed storage cost for naphtha cracker unit
𝑂𝐶𝐶3 total cost for naphtha cracker unit
𝑃𝐶3 naphtha cracker unit’s annual profit
𝑃𝑆𝐶𝐶3 total product storage cost for naphtha cracker unit
𝑅𝐶3 separator recycle ratio for naphtha cracker unit
𝑅𝐶𝐶3 total raw material cost for naphtha cracker unit
𝑅𝑉𝐶3 naphtha cracker unit’s revenue
𝑇𝐶𝐶3 total transportation cost for naphtha cracker unit
𝑉𝑂𝐶𝐶3 total operating cost for naphtha cracker unit
𝑋𝐶3 reactor conversion for naphtha cracker unit
𝛼𝐶3 price of heavy naphtha purchased by naphtha cracker unit
𝛾𝐶3 naphtha cracker unit’s bargaining power
𝜋𝐶3 naphtha cracker unit’s bargaining profit
Kerosene Retailer Unit (C4)

𝑓𝐶4 amount of kerosene purchased by kerosene retailer unit
𝑓𝑝𝐶4,1 amount of kerosene tank’s products
𝐹𝑆𝐶𝐶4 total feed storage cost for kerosene retailer unit
𝑂𝐶𝐶4 total cost for kerosene retailer unit
𝑃𝐶4 kerosene retailer unit’s annual profit
𝑃𝑆𝐶𝐶4 total product storage cost for kerosene retailer unit
𝑅𝐶𝐶4 total raw material cost for kerosene retailer unit
34
𝑅𝑉𝐶4 kerosene retailer unit’s revenue
𝑇𝐶𝐶4 total transportation cost for kerosene retailer unit
𝑉𝑂𝐶𝐶4 total operating cost for kerosene retailer unit
𝛼𝐶4 price of kerosene purchased by kerosene retailer unit
𝛾𝐶4 kerosene retailer unit’s bargaining power
𝜋𝐶4 kerosene retailer unit’s bargaining profit
Hydrotreater Unit (C5)

𝑓𝐶5 amount of light and heavy oil purchased by hydrotreater unit
𝑓𝑝𝐶5,1 amount of diesel product
𝑓𝑝𝐶5,2 amount of H2S product
𝐹𝑆𝐶𝐶5 total feed storage cost for hydrotreater unit
𝑂𝐶𝐶5 total cost for hydrotreater unit
𝑃𝐶5 hydrotreater unit’s annual profit
𝑃𝑆𝐶𝐶5 total product storage cost for hydrotreater unit
𝑅𝐶𝐶5 total raw material cost for hydrotreater unit
𝑅𝑉𝐶5 hydrotreater unit’s revenue
𝑇𝐶𝐶5 total transportation cost for hydrotreater unit
𝑉𝑂𝐶𝐶5 total operating cost for hydrotreater unit
𝑋𝐶5 reactor conversion for hydrotreater unit
𝛼𝐶5 price of light and heavy oil purchased by hydrotreater unit
𝛾𝐶5 hydrotreater unit’s bargaining power
𝜋𝐶5 hydrotreater unit’s bargaining profit
Vacuum Distillation Unit (C6)

𝑓𝐶6 amount of ATR purchased by vacuum distillation unit
𝑓𝑝𝐶6,1 amount of pyrolysis fuel oil (PFO) product
𝑓𝑝𝐶6,2 amount of vacuum gas oil (VGO) product
𝑓𝑝𝐶6,3 amount of vacuum residue product
𝐹𝑆𝐶𝐶6 total feed storage cost for vacuum distillation unit
𝑂𝐶𝐶6 total cost for vacuum distillation unit
𝑃𝐶6 vacuum distillation unit’s annual profit
𝑃𝑆𝐶𝐶6 total product storage cost for vacuum distillation unit
𝑅𝐶𝐶6 total raw material cost for vacuum distillation unit
𝑅𝑉𝐶6 vacuum distillation unit’s revenue
𝑇𝐶𝐶6 total transportation cost for vacuum distillation unit
𝑉𝑂𝐶𝐶6 total operating cost for vacuum distillation unit
𝛼𝐶6 price of ATR purchased by vacuum distillation unit
𝛾𝐶6 vacuum distillation unit’s bargaining power
𝜋𝐶6 vacuum distillation unit’s bargaining profit
35
Table 3.2. Model parameters for base-case petroleum supply chain
Notation Definition Value

Atmospheric Distillation Unit (S)
𝑓𝑆𝑙𝑜 minimum available amount of crude oil 0 lb/mon
𝑢𝑝
𝑓𝑆 maximum available amount of crude oil 1,000,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝑆,1 lower limit demand for LPG product 10,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝑆,1 upper limit demand for LPG product 20,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝑆,2 lower limit demand for light naphtha product 150,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝑆,2 upper limit demand for light naphtha product 160,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝑆,3 lower limit demand for heavy naphtha product 60,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝑆,3 upper limit demand for heavy naphtha product 70,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝑆,4 lower limit demand for kerosene product 35,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝑆,4 upper limit demand for kerosene product 45,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝑆,5 lower limit demand for light and heavy oil product 150,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝑆,5 upper limit demand for light and heavy oil product 160,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝑆,6 lower limit demand for ATR product 565,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝑆,6 upper limit demand for ATR product 575,000,000 lb/mon
𝐹𝑂𝐶𝑆 fixed operating cost for atmospheric distillation unit 410 $/mon
𝐹𝑆𝐶𝑓𝑆 feed storage cost per unit feed for atmospheric 0.2 $/lb
distillation unit
𝑃𝑆𝐶𝑝𝑆,1 LPG product storage cost per unit product for 0.2 $/lb
atmospheric distillation unit
𝑃𝑆𝐶𝑝𝑆,2 light naphtha product storage cost per unit product 0.2 $/lb
for atmospheric distillation unit
𝑃𝑆𝐶𝑝𝑆,3 heavy naphtha product storage cost per unit product 0.2 $/lb
for atmospheric distillation unit
𝑃𝑆𝐶𝑝𝑆,4 kerosene product storage cost per unit product for 0.2 $/lb
𝑃𝑆𝐶𝑝𝑆,5 light and heavy oil product storage cost per unit 0.2 $/lb
product for atmospheric distillation unit
𝑃𝑆𝐶𝑝𝑆,6 ATR product storage cost per unit product for 0.2 $/lb
𝑇𝐶𝑓𝑆 transportation cost of crude oil to atmospheric 0.5 $/lb
distillation unit per unit feed
𝑇𝐶𝑝𝑆,1 transportation cost of LPG to other unit per unit 0.25 $/lb
product
𝑇𝐶𝑝𝑆,2 transportation cost of light naphtha to other unit per 0.25 $/lb
unit product
36
𝑇𝐶𝑝𝑆,3 transportation cost of heavy naphtha to other unit 0.25 $/lb
per unit product
𝑇𝐶𝑝𝑆,4 transportation cost of kerosene to other unit per unit 0.25 $/lb
product
𝑇𝐶𝑝𝑆,5 transportation cost of light and heavy oil to other 0.25 $/lb
unit per unit product
𝑇𝐶𝑝𝑆,6 transportation cost of ATR to other unit per unit 0.25 $/lb
product
𝑉𝑂𝐶𝑓𝑆 operating cost per unit feed for atmospheric 8 $/lb
distillation unit
𝛼𝑆 crude oil price per unit feed 300 $/lb
LPG Retailer Unit (C1)

𝑙𝑜
𝑓𝑝𝐶1,1 lower limit demand for LPG product 10,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶1,1 upper limit demand for LPG product 20,000,000 lb/mon
𝐹𝑂𝐶𝐶1 fixed operating cost for LPG retailer unit 410 $/mon
𝐹𝑆𝐶𝑓𝐶1 feed storage cost per unit feed for LPG retailer unit 0.2 $/lb
𝑃𝑆𝐶𝑝𝐶1,1 retail LPG product storage cost per unit product for 0.2 $/lb
LPG retailer unit
𝑇𝐶𝑓𝐶1 transportation cost of LPG to LPG retailer unit per 0.2 $/lb
unit feed
𝑇𝐶𝑝𝐶1,1 transportation cost of retail LPG to other unit per 0.2 $/lb
unit product
𝑉𝑂𝐶𝑓𝐶1 operating cost per unit feed for LPG retailer unit 0 $/lb
𝛽𝐶1,1 price of retail LPG product sold by LPG retailer unit 600 $/lb
per unit product
Reformer Unit (C2)

𝑙𝑜
𝑓𝑝𝐶2,1 lower limit demand for gasoline product 25,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶2,1 upper limit demand for gasoline product 35,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶2,2 lower limit demand for reformer oil product 100,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶2,2 upper limit demand for reformer oil product 110,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶2,3 lower limit demand for C9 product 10,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶2,3 upper limit demand for C9 product 20,000,000 lb/mon
𝐹𝑂𝐶𝐶2 fixed operating cost for reformer unit 250 $/mon
𝐹𝑆𝐶𝑓𝐶2 feed storage cost per unit feed for reformer unit 0.2 $/lb
rate constant of light naphtha become gasoline 0.2 min-1
𝑘𝐶2,1 reaction
rate constant of light naphtha become reformer oil 0.7 min-1
𝑘𝐶2,3 rate constant of light naphtha become C9 reaction 0.1 min-1
37
𝑃𝑆𝐶𝑝𝐶2,1 gasoline product storage cost per unit product for 0.342 $/lb
reformer unit
𝑃𝑆𝐶𝑝𝐶2,2 Reformer oil product storage cost per unit product 0.13 $/lb
for reformer unit
𝑃𝑆𝐶𝑝𝐶2,3 C9 product storage cost per unit product for 0.25 $/lb
reformer unit
𝑇𝐶𝑓𝐶2 transportation cost of light naphtha to reformer unit 0.5 $/lb
per unit feed
𝑇𝐶𝑝𝐶2,1 transportation cost of gasoline to other unit per unit 0.5 $/lb
product
𝑇𝐶𝑝𝐶2,2 transportation cost of reformer oil to other unit per 0.5 $/lb
unit product
𝑇𝐶𝑝𝐶2,3 transportation cost of C9 to other unit per unit 0.5 $/lb
product
𝑇𝐶𝑝𝐶2,4 transportation cost of untreated light naphtha to 0.5 $/lb
other unit per unit product
𝑉𝑂𝐶𝑓𝐶2 operating cost per unit feed for reformer unit 16.5 $/lb
𝛽𝐶2,1 price of gasoline product sold by reformer unit per 620 $/lb
unit product
𝛽𝐶2,2 price of reformer oil product sold by reformer unit 570 $/lb
per unit product
𝛽𝐶2,3 price of C9 product sold by reformer unit per unit 330 $/lb
product
𝛽𝐶2,4 price of untreated light naphtha sold by reformer 𝛼𝐶2 $/lb
Naphtha Cracker Unit (C3)

𝑙𝑜
𝑓𝑝𝐶3,1 lower limit demand for pyrolysis gas oil (PGO) 10,000,000 lb/mon
product
𝑢𝑝
𝑓𝑝𝐶3,1 upper limit demand for pyrolysis gas oil (PGO) 20,000,000 lb/mon
product
𝑙𝑜
𝑓𝑝𝐶3,2 lower limit demand for pyrolysis fuel oil (PFO) 1,000,000 lb/mon
product
𝑢𝑝
𝑓𝑝𝐶3,2 upper limit demand for pyrolysis fuel oil (PFO) 5,000,000 lb/mon
product
𝑙𝑜
𝑓𝑝𝐶3,3 lower limit demand for gasoline product 1,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,3 upper limit demand for gasoline product 10,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶3,4 lower limit demand for H2 product 100,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,4 upper limit demand for H2 product 1,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶3,5 lower limit demand for acetylene product 10,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,5 upper limit demand for acetylene product 100,000 lb/mon
38
𝑙𝑜
𝑓𝑝𝐶3,6 lower limit demand for ethylene product 10,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,6 upper limit demand for ethylene product 20,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶3,7 lower limit demand for propylene product 5,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,7 upper limit demand for propylene product 15,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶3,8 lower limit demand for C3 product 150,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,8 upper limit demand for C3 product 250,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶3,9 lower limit demand for C4 product 1,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,9 upper limit demand for C4 product 10,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶3,10 lower limit demand for C4 raffinate product 1,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,10 upper limit demand for C4 raffinate product 10,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶3,11 lower limit demand for fuel gas product 1,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,11 upper limit demand for fuel gas product 10,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶3,12 lower limit demand for butadiene product 100,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,12 upper limit demand for butadiene product 1,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶3,13 lower limit demand for benzene product 1,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,13 upper limit demand for benzene product 15,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶3,14 lower limit demand for toluene oil product 1,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,14 upper limit demand for toluene oil product 15,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶3,15 lower limit demand for xylene product 1,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶3,15 upper limit demand for xylene product 15,000,000 lb/mon
𝐹𝑂𝐶𝐶3 fixed operating cost for naphtha cracker unit 350 $/mon
𝐹𝑆𝐶𝑓𝐶3 feed storage cost per unit feed for naphtha cracker 0.2 $/lb
unit
rate constant of heavy naphtha become pyrolysis gas
𝑘𝐶3,1 oil (PGO) reaction 0.2301 min-1
rate constant of heavy naphtha become pyrolysis
𝑘𝐶3,2 fuel oil (PFO) reaction 0.0142857 min-1
rate constant of heavy naphtha become gasoline
𝑘𝐶3,3 reaction 0.063942 min-1
𝑘𝐶3,4 rate constant of heavy naphtha become H2 reaction 0.00142857 min-1
rate constant of heavy naphtha become acetylene
rate constant of heavy naphtha become ethylene
rate constant of heavy naphtha become propylene
𝑘𝐶3,8 rate constant of heavy naphtha become C3 reaction 0.002142857 min-1
𝑘𝐶3,9 rate constant of heavy naphtha become C4 reaction 0.0142857 min-1
39
rate constant of heavy naphtha become C4 raffinate
rate constant of heavy naphtha become fuel gas
rate constant of heavy naphtha become butadiene
rate constant of heavy naphtha become benzene
rate constant of heavy naphtha become toluene
rate constant of heavy naphtha become xylene
𝑃𝑆𝐶𝑝𝐶3,1 pyrolysis gas oil (PGO) product storage cost per 0.005 $/lb
unit product for naphtha cracker unit
𝑃𝑆𝐶𝑝𝐶3,2 pyrolysis fuel oil (PFO) product storage cost per 0.005 $/lb
unit product for naphtha cracker unit
𝑃𝑆𝐶𝑝𝐶3,3 gasoline product storage cost per unit product for 0.005 $/lb
naphtha cracker unit
𝑃𝑆𝐶𝑝𝐶3,4 H2 product storage cost per unit product for naphtha 0 $/lb
cracker unit
𝑃𝑆𝐶𝑝𝐶3,5 acetylene product storage cost per unit product for 0.05 $/lb
𝑃𝑆𝐶𝑝𝐶3,6 ethylene product storage cost per unit product for 0.012 $/lb
𝑃𝑆𝐶𝑝𝐶3,7 propylene product storage cost per unit product for 0.01 $/lb
𝑃𝑆𝐶𝑝𝐶3,8 C3 product storage cost per unit product for naphtha 0.012 $/lb
cracker unit
𝑃𝑆𝐶𝑝𝐶3,9 C4 product storage cost per unit product for naphtha 0.025 $/lb
cracker unit
𝑃𝑆𝐶𝑝𝐶3,10 C4 raffinate product storage cost per unit product 0.01 $/lb
for naphtha cracker unit
𝑃𝑆𝐶𝑝𝐶3,11 fuel gas product storage cost per unit product for 0 $/lb
𝑃𝑆𝐶𝑝𝐶3,12 butadiene product storage cost per unit product for 0.005 $/lb
𝑃𝑆𝐶𝑝𝐶3,14 benzene product storage cost per unit product for 0.005 $/lb
𝑃𝑆𝐶𝑝𝐶3,15 toluene product storage cost per unit product for 0.005 $/lb
𝑃𝑆𝐶𝑝𝐶3,16 xylene product storage cost per unit product for 0.005 $/lb
40
𝑇𝐶𝑓𝐶3 transportation cost of heavy naphtha to naphtha 0.21 $/lb
cracker unit per unit feed
𝑇𝐶𝑝𝐶3,1 transportation cost of pyrolysis gas oil (PGO) to 0.012 $/lb
𝑇𝐶𝑝𝐶3,10 transportation cost of C4 raffinate to other unit per 0.012 $/lb
unit product
𝑇𝐶𝑝𝐶3,11 transportation cost of fuel gas to other unit per unit 0.012 $/lb
product
𝑇𝐶𝑝𝐶3,12 transportation cost of butadiene to other unit per 0.012 $/lb
unit product
𝑇𝐶𝑝𝐶3,13 transportation cost of benzene to other unit per unit 0.012 $/lb
product
𝑇𝐶𝑝𝐶3,14 transportation cost of toluene to other unit per unit 0.012 $/lb
product
𝑇𝐶𝑝𝐶3,15 transportation cost of xylene to other unit per unit 0.012 $/lb
product
𝑇𝐶𝑝𝐶3,16 transportation cost of untreated heavy naphtha to 0.012 $/lb
𝑇𝐶𝑝𝐶3,2 transportation cost of pyrolysis fuel oil (PFO) to 0.012 $/lb
𝑇𝐶𝑝𝐶3,3 transportation cost of gasoline to other unit per unit 0.012 $/lb
product
𝑇𝐶𝑝𝐶3,4 transportation cost of H2 to other unit per unit 0.012 $/lb
product
𝑇𝐶𝑝𝐶3,5 transportation cost of acetylene to other unit per unit 0.012 $/lb
product
𝑇𝐶𝑝𝐶3,6 transportation cost of ethylene to other unit per unit 0.012 $/lb
product
𝑇𝐶𝑝𝐶3,7 transportation cost of propylene to other unit per 0.012 $/lb
unit product
product
product
𝑉𝑂𝐶𝑓𝐶3 operating cost per unit feed for naphtha cracker unit 23.5 $/lb
𝛽𝐶3,1 price of pyrolysis gas oil (PGO) product sold by 530 $/lb
naphtha cracker unit per unit product
𝛽𝐶3,2 price of pyrolysis fuel oil (PFO) product sold by 570 $/lb
𝛽𝐶3,3 price of gasoline product sold by naphtha cracker 620 $/lb
41
𝛽𝐶3,4 price of H2 sold by naphtha cracker unit per unit 560 $/lb
product
𝛽𝐶3,5 price of acetylene product sold by naphtha cracker 970 $/lb
𝛽𝐶3,6 price of ethylene product sold by naphtha cracker 680 $/lb
𝛽𝐶3,7 price of propylene product sold by naphtha cracker 820 $/lb
𝛽𝐶3,8 price of C3 product sold by naphtha cracker unit per 230 $/lb
unit product
𝛽𝐶3,9 price of C4 product sold by naphtha cracker unit per 230 $/lb
unit product
𝛽𝐶3,10 price of C4 raffinate sold by naphtha cracker unit per 230 $/lb
unit product
𝛽𝐶3,11 price of fuel gas product sold by naphtha cracker 407 $/lb
𝛽𝐶3,12 price of butadiene product sold by naphtha cracker 930 $/lb
𝛽𝐶3,13 price of benzene product sold by naphtha cracker 820 $/lb
𝛽𝐶3,14 price of toluene product sold by naphtha cracker 600 $/lb
𝛽𝐶3,15 price of xylene product sold by naphtha cracker unit 528 $/lb
per unit product
𝛽𝐶3,16 price of untreated heavy naphtha product sold by 𝛼𝐶3 $/lb
Kerosene Retailer Unit (C4)

𝑙𝑜
𝑓𝑝𝐶4,1 lower limit demand for kerosene product 35,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶4,1 upper limit demand for kerosene product 45,000,000 lb/mon
𝐹𝑂𝐶𝐶4 fixed operating cost for kerosene retailer 100 $/mon
𝐹𝑆𝐶𝑓𝐶4 feed storage cost per unit feed for kerosene retailer 0.2 $/lb
𝑃𝑆𝐶𝑝𝐶4,1 retail kerosene product storage cost per unit product 0.2 $/lb
for kerosene retailer
𝑇𝐶𝑓𝐶4 transportation cost of kerosene to kerosene retailer 0.2 $/lb
unit per feed
𝑇𝐶𝑝𝐶4,1 transportation cost of retail kerosene to other unit 0.2 $/lb
per unit product
𝑉𝑂𝐶𝑓𝐶4 operating cost per unit feed for kerosene retailer 0 $/lb
𝛽𝐶4,1 price of retail kerosene product sold by kerosene 400 $/lb
retailer unit per unit product
42
Hydrotreater Unit (C5)
𝑙𝑜
𝑓𝑝𝐶5,1 lower limit demand for diesel product 145,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶5,1 upper limit demand for diesel product 150,000,000 lb/mon
𝑙𝑜
𝑓𝑝𝐶5,2 lower limit demand for H2S product 5,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶5,2 upper limit demand for H2S product 7,000,000 lb/mon
𝐹𝑂𝐶𝐶5 fixed operating cost for hydrotreater unit 200 $/mon
𝐹𝑆𝐶𝑓𝐶5 feed storage cost per unit feed for hydrotreater unit 0.0135 $/lb
rate constant of light and heavy oil become diesel 0.967 min-1
𝑘𝐶5,2 rate constant of light naphtha become H2S reaction 0.033 min-1
𝑃𝑆𝐶𝑝𝐶5,1 diesel product storage cost per unit product for 0.0135 $/lb
hydrotreater unit
𝑃𝑆𝐶𝑝𝐶5,2 H2S product storage cost per unit product for 0.0135 $/lb
hydrotreater unit
𝑇𝐶𝑓𝐶5 transportation cost of light and heavy oil to 0.12 $/lb
hydrotreater unit per unit feed
𝑇𝐶𝑝𝐶5,1 transportation cost of diesel to other unit per unit 0.06 $/lb
product
𝑇𝐶𝑝𝐶5,2 transportation cost of H2S to other unit per unit 0.06 $/lb
product
𝑉𝑂𝐶𝑓𝐶5 operating cost per unit feed for hydrotreater unit 10.135 $/lb
𝛽𝐶5,1 price of diesel product sold by hydrotreater unit per 510 $/lb
unit product
𝛽𝐶5,2 price of H2S product sold by hydrotreater unit per 300 $/lb
unit product
Vacuum Distillation Unit (C6)

𝑙𝑜
𝑓𝑝𝐶6,1 lower limit demand for pyrolysis fuel oil (PFO) 55,000,000 lb/mon
product
𝑢𝑝
𝑓𝑝𝐶6,1 upper limit demand for pyrolysis fuel oil (PFO) 60,000,000 lb/mon
product
𝑙𝑜
𝑓𝑝𝐶6,2 lower limit demand for vacuum gas oil (VGO) 365,000,000 lb/mon
product
𝑢𝑝
𝑓𝑝𝐶6,2 upper limit demand for vacuum gas oil (VGO) 375,000,000 lb/mon
product
𝑙𝑜
𝑓𝑝𝐶6,3 lower limit demand for vacuum residue product 140,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐶6,3 upper limit demand for vacuum residue product 145,000,000 lb/mon
𝐹𝑂𝐶𝐶6 fixed operating cost for vacuum distillation unit 550 $/mon
𝐹𝑆𝐶𝑓𝐶6 feed storage cost per unit feed for vacuum 0.2 $/lb
distillation unit
43
𝑃𝑆𝐶𝑝𝐶6,1 pyrolysis fuel oil (PFO) product storage cost per 0.3 $/lb
unit product for vacuum distillation unit
𝑃𝑆𝐶𝑝𝐶6,2 vacuum gas oil (VGO) product storage cost per unit 0.15 $/lb
product for vacuum distillation unit
𝑃𝑆𝐶𝑝𝐶6,3 vacuum residue product storage cost per unit 0.25 $/lb
product for vacuum distillation unit
𝑇𝐶𝑓𝐶6 transportation cost of ATR to vacuum distillation 0.1 $/lb
unit per unit feed
𝑇𝐶𝑝𝐶6,1 transportation cost of pyrolysis fuel oil (PFO) to 0.1 $/lb
𝑇𝐶𝑝𝐶6,2 transportation cost of vacuum gas oil (VGO)to other 0.1 $/lb
𝑇𝐶𝑝𝐶6,3 transportation cost of vacuum residue to other unit 0.1 $/lb
per unit product
𝑉𝑂𝐶𝑓𝐶6 operating cost per unit feed for vacuum distillation 1.2 $/lb
unit
𝛽𝐶6,1 price of pyrolysis fuel oil (PFO) product sold by 570 $/lb
vacuum distillation unit per unit product
𝛽𝐶6,2 price of vacuum gas oil (VGO) product sold by 540 $/lb
vacuum distillation unit per unit product
𝛽𝐶6,3 price of vacuum residue product sold by vacuum 480 $/lb
distillation unit per unit product
3.2 General Model Formulations

The various processing units in this study can be classified into three general types,
i.e., the separation process, the reaction-separation process, and the storage process.
The throughput limit of every product of each unit is constrained as follows
𝑙𝑜 𝑢𝑝
𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 ≤ 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 ≤ 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 (3.1)
∀𝑢 ∈ U
𝑙𝑜 𝑢𝑝
where U is the set of all processing units, while 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 and 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 denote,
respectively, the minimum and maximum allowable throughputs of product i in unit u. The
𝑙𝑜 𝑢𝑝
parameter values for 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 and 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 , are determined based on the nominal
yields of products in this work. In particular, five percent of the nominal value of
44
𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 has been subtracted and added to obtain the lower and upper bounds
respectively. The generalized mathematical models of these three types of processes are
given as follows.
3.2.1 Model I – the separation process
Product-1
Product-2
Feed
Product-3
Product-n
Figure 3.4. The generalized separation process
The separation processes in this study are those in which only distillation operations
are present, i.e. the atmospheric distillation unit and the vacuum distillation unit. On the
basis of Figure 3.4, the functional relationship between the input flowrate (𝑚𝑓𝑒𝑒𝑑 ) and the
output flowrates (𝑚𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 ) can be established simply from the principle of mass balance,
i.e.
𝑚𝑢,𝑓𝑒𝑒𝑑 = ∑ 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 (3.2)

𝑖=1
∀𝑢 ∈ UA
where n is the number of separated products and UA is the set of all separation processes.
45
3.2.2 Model II – the reaction-separation process
Product-1
Ffeed,0
Feed X
Product-2
Product-n
R (1-R)
Untreated product
Figure 3.5. The generalized reaction-separation process
A sketch of the generalized reaction-separation process is provided in Figure 3.5,
which consists of one reactor and one separation systems. There are 2 design variables in
this case, i.e., reactor conversion and recycle ratio. The reformer and the naphtha cracker are
considered to be the reaction-separation processes in our study.
Next, let us assume that all reactions that take place in the reactor are pseudo first-
order in parallel. In other words, these reactions can be viewed as

𝑘1 𝑘2 𝑘𝑛
𝑓𝑒𝑒𝑑 → 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 − 1, 𝑓𝑒𝑒𝑑 → 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 − 2, … , 𝑓𝑒𝑒𝑑 → 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 − 𝑛 ,where 𝑘𝑖 is the rate
constant of the reaction for producing product-𝑖. The functional relationship between the
input flowrate (𝑚𝑓𝑒𝑒𝑑 ) and the output flowrate (𝑚𝑝𝑟𝑜𝑑𝑢𝑐𝑡 ) of the reaction-separation process
can be derived from the concept of reaction yield. Specifically, this yield for product-i can
be viewed as the ratio between the amount of product i formed (𝐹𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 ) and the reactant
consumed (𝐹𝑓𝑒𝑒𝑑,0 − 𝐹𝑓𝑒𝑒𝑑 ) in reactor, i.e.
𝐹𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖
Y𝑖 = (3.3)
𝐹𝑓𝑒𝑒𝑑,0 − 𝐹𝑓𝑒𝑒𝑑
And the reaction yield can also be defined as the ratio of the generation rate of a given
product to the consumption rate of the reactant, i.e.
46
𝑟𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖
Y𝑖 = (3.4)
−𝑟𝑓𝑒𝑒𝑑
where the rate expressions of feed and products are
−𝑟𝑓𝑒𝑒𝑑 = (∑ 𝑘𝑗 ) 𝐶𝑓𝑒𝑒𝑑 (3.5)

𝑗=1
𝑟𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 = 𝑘𝑖 𝐶𝑓𝑒𝑒𝑑 (3.6)
Combining equations (3.3) and (3.4) gives
𝑟𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 𝐹𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖
= (3.7)
−𝑟𝑓𝑒𝑒𝑑 𝐹𝑓𝑒𝑒𝑑,0 − 𝐹𝑓𝑒𝑒𝑑
Based on the Figure 3.5, one can obtain the expressions of 𝐹𝑓𝑒𝑒𝑑,0 and 𝐹𝑓𝑒𝑒𝑑 .
𝐹𝑓𝑒𝑒𝑑,0 = 𝑚𝑓𝑒𝑒𝑑 + 𝐹𝑓𝑒𝑒𝑑 . 𝑅 (3.8)
𝐹𝑓𝑒𝑒𝑑 = 𝐹𝑓𝑒𝑒𝑑,0 . (1 − 𝑋) (3.9)
𝑚𝑓𝑒𝑒𝑑
𝐹𝑓𝑒𝑒𝑑,0 = (3.10)
1 − (1 − 𝑋)𝑅
Then substitute terms from equation (3.5), (3.6), (3.9), and (3.10) into equation (3.7) to
obtain the general relation between input flowrate (𝑚𝑓𝑒𝑒𝑑 ) and output flowrate (𝑚𝑝𝑟𝑜𝑑𝑢𝑐𝑡 ).
𝑘𝑖 𝐶𝑓𝑒𝑒𝑑 𝐹𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖
= (3.11)
∑𝑛𝑗=1 𝑘𝑗 𝐶𝑓𝑒𝑒𝑑 𝐹𝑓𝑒𝑒𝑑,0 − 𝐹𝑓𝑒𝑒𝑑,0 . (1 − 𝑋)
𝑘𝑖 𝐹𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 (3.12)
𝑛 =
∑𝑗=1 𝑘𝑗 𝐹𝑓𝑒𝑒𝑑,0 𝑋
𝑘𝑖 𝐹𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 (3.13)
𝑛 =
∑𝑗=1 𝑘𝑗 𝑚𝑓𝑒𝑒𝑑 𝑋
1 − (1 − 𝑋)𝑅
For a particular unit u, the above equation can be modified as
47
𝑚𝑢,𝑓𝑒𝑒𝑑 𝑋𝑢 𝑘𝑢,𝑖 (3.14)
𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 = 𝐹𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 = ( 𝑛 )
1 − (1 − 𝑋𝑢 )𝑅𝑢 ∑𝑗=1 𝑘𝑢,𝑗
∀𝑢 ∈ UB
where 0 ≤ 𝑋𝑢 ≤ 1 and 0 ≤ 𝑅𝑢 ≤ ∞ and UB is the set for all reaction-separation processes.
On the other hand, the amount of untreated feed of unit u is determined by the equation
below
𝑚𝑢,𝑓𝑒𝑒𝑑 (1 − 𝑋𝑢 )(1 − 𝑅𝑢 )
𝑚𝑢,𝑢𝑛𝑡𝑟𝑒𝑎𝑡𝑒𝑑 𝑓𝑒𝑒𝑑 = 𝐹𝑢,𝑓𝑒𝑒𝑑 . (1 − 𝑅𝑢 ) =
1 − (1 − 𝑋𝑢 )𝑅𝑢 (3.15)
Therefore, the overall mass balance on the Figure 3.5 can be expressed as
𝑚𝑢,𝑓𝑒𝑒𝑑 = ∑ 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 + 𝑚𝑢,𝑢𝑛𝑡𝑟𝑒𝑎𝑡𝑒𝑑 𝑓𝑒𝑒𝑑 (3.16)

𝑖=1
∀𝑢 ∈ UB
Since the recycle ratio (𝑅𝑢 ) term is irrelevant when the conversion (𝑋𝑢 ) equals 1, then
equation (3.14) can be written as
𝑘𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 (3.17)
𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 = 𝑚𝑢,𝑓𝑒𝑒𝑑 ( 𝑖=𝑛 )
∑𝑖=1 𝑘𝑢,𝑖
∀𝑢 ∈ UB
3.2.3 Model III – the storage process
Feed Product
Figure 3.6. The generalized storage process
48
For the storage process, the functional relationship between the input flowrate (𝑚𝑓𝑒𝑒𝑑 )
and the output flowrate (𝑚𝑝𝑟𝑜𝑑𝑢𝑐𝑡 ) is derived from the mass balance as follows:
𝑚𝑢,𝑓𝑒𝑒𝑑 = 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡 (3.18)
∀𝑢 ∈ UC
where UC is the set for all storage processes and U = UA ∪ UB ∪ UC.
3.2.4 Profit and cost models
The profit of each actor (𝑃𝑢 ) in the supply chain can be expressed as
𝑃𝑢 = 𝑅𝑉𝑢 − 𝑂𝐶𝑢 (3.19)
𝑃𝑢 > 0 (3.20)
∀𝑢 ∈ U
where 𝑅𝑉𝑢 and 𝑂𝐶𝑢 denote respectively, the total revenue secured from various product
sales and the total operating cost of the unit. The total sale revenue of an actor can be
expressed as
𝑅𝑉𝑢 = ∑ 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 𝛽𝑢,𝑖 (3.21)

𝑖=1
∀𝑢 ∈ U
where 𝛽𝑢,𝑖 represents the selling price of product-𝑖 of unit 𝑢.
There are six types of operating costs considered in this work: (1) the fixed operating
cost, (2) the variable operating cost, (3) the transportation cost, (4) the feed storage cost, (5)
the product storage cost, and (6) the raw material cost. Therefore, the total cost can be
expressed as
𝑂𝐶𝑢 = 𝐹𝑂𝐶𝑢 + 𝑉𝑂𝐶𝑢 + 𝑇𝐶𝑢 + 𝐹𝑆𝐶𝑢 + 𝑃𝑆𝐶𝑢 + 𝑅𝐶𝑢 (3.22)
49
∀𝑢 ∈ U
The fixed operating cost (𝐹𝑂𝐶𝑢 ) is considered as a model parameter. The variable operating
cost (𝑉𝑂𝐶𝑢 ) can be considered as the operation cost for processing the raw materials, i.e.,
𝑉𝑂𝐶𝑢 = 𝑚𝑢,𝑓𝑒𝑒𝑑 𝑂𝐶𝑓𝑢

(3.23)
∀𝑢 ∈ U
where 𝑂𝐶𝑓𝑢 is operating cost per unit amount of feed for process u. In general, the
transportation cost (𝑇𝐶𝑢 ) is expressed as
𝑖=𝑛
𝑇𝐶𝑢 = 𝑚𝑢,𝑓𝑒𝑒𝑑 𝑇𝐶𝑓𝑢 + ∑ 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 𝑇𝐶𝑝𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 (3.24)

𝑖=1
∀𝑢 ∈ U
where 𝑇𝐶𝑓𝑢 is transportation cost per unit amount of the feed, and 𝑇𝐶𝑝𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 is unit
transportation cost of the product-𝑖. The feed storage cost can be expressed as
𝐹𝑆𝐶𝑢 = 𝑚𝑢,𝑓𝑒𝑒𝑑 𝐹𝑆𝐶𝑓𝑢 (3.25)
∀𝑢 ∈ U
where 𝐹𝑆𝐶𝑓𝑢 is feed storage cost per unit amount of feed for process u. The product storage
cost of process u (𝑃𝑆𝐶𝑢 ) can be expressed as
𝑖=𝑛
𝑃𝑆𝐶𝑢 = ∑ 𝑚𝑢,𝑝𝑟𝑜𝑑𝑢𝑐𝑡−𝑖 𝑃𝑆𝐶𝑝𝑢,𝑖 (3.26)

𝑖=1
∀𝑢 ∈ U
where 𝑃𝑆𝐶𝑝𝑢,𝑖 is product storage cost per unit amount of product-𝑖 of process u. The raw
material cost of process u (𝑅𝐶𝑢 ) can be expressed as
𝑅𝐶𝑢 = 𝑚𝑢,𝑓𝑒𝑒𝑑 𝛼𝑢 (3.27)
∀𝑢 ∈ U
50
where 𝛼𝑢 represents the feed price for the unit 𝑢 . The feed price for all of units are
considered as variable, however the feed price for atmospheric distillation unit, 𝛼𝑆 is
considered as parameter.
3.3 Specific Unit Models
3.3.1 Atmospheric distillation (S)
In the petrochemical industry, atmospheric distillation is the first and most
fundamental step. Its raw material (crude oil) is an extremely complex mixture of
hydrocarbons and also small quantities of sulfur, oxygen, nitrogen and metals. Typically,
the crude oil contains millions of compounds, most of which cannot be identified. Only the
lightest species, i.e. methane, ethane, propane, benzene, xylene, toluene and so on, can be
identified. A fixed range of products, i.e. LPG, light naphtha, heavy naphtha, kerosene, light
and heavy oil, and ATR, are separated in the atmospheric distillation unit according to their
boiling points (see Figure 3.2). Notice that the light naphtha is fed to the reformer unit and
the heavy naphtha is usually consumed by the naphtha cracker. The LPG and kerosene are
sent to their storage tanks, respectively. Meanwhile the light and heavy oils are sent to the
hydrotreater and ATR to the vacuum distillation unit for further processing.
51
fpS,1 ; βS,1
LPG
fpS,2 ; βS,2
Light Naphta
fpS,3 ; βS,3
Heavy Naptha
fS , α S
Crude Oil
fpS,4 ; βS,4
Kerosene
fpS,5 ; βS,5
Light and Heavy
Oil
fpS,6 ; βS,6
Autothermal
Residue (ATR)
Figure 3.7. Atmospheric Distillation
Model I is applicable in the present case. The mathematical model of atmospheric distillation
unit can be built according to the general formulation given in section 3.2.1. Specifically,
 The correlation function between feed and product can be formulated according to
equation (2.15).
 Additional limits on the feed rate should be imposed as follows
𝑓𝑆𝑙𝑜 ≤ 𝑓𝑆 ≤ 𝑓𝑆𝑢𝑝 (3.28)
where 𝑓𝑆𝑙𝑜 and 𝑓𝑆𝑢𝑝 denote, respectively, the minimum and maximum flowrates of feedstock
of atmospheric distillation unit.
52
3.3.2 LPG retailer (C1)
Liquid petroleum gases (LPG), which consists principally of propane and butane, are
assumed to be sold directly to the market. Before being sold, LPG is stored in the product
tank farm.
fC1 ; αC1
Figure 3.8. LPG Retailer
Model III is applicable in this case. The corresponding model can be built based the general
formulation given in section 3.2.3.
 The correlation function between feed and product can be obtained from equation
(3.18).
 The feed rate can be expressed as
𝑓𝐶1 = 𝑓𝑝𝑆,1 (3.29)
3.3.3 Reformer (C2)
The reformer unit consists of two integrated units, the reactor section and the
product-recovery section. The reforming plant plays an important role in oil refinery, which
supplies almost of all gasoline demand and also produces light compounds with three and
four carbon atoms. Generally speaking, the main purpose of this operation is to convert
paraffin into aromatics and/or branched alkanes so as to enhance octane rating.
53
XC2
Reformer oil (fpC2,2 ; βC2,2)
Light Naphta
fC2 ; αC2 C9 (fpC2,3 ; βC2,3)
RC2 (1-RC2)
Untreated light naptha (fpC2,4 ; βC2,4)
Figure 3.9. Reformer
Model II is applicable in this case. The corresponding mathematical model can be built based
the general formulation given in section 3.2.2.
 The overall mass balance can be obtained from equation (3.16).
 To formulate the correlation function between feed and product-𝑖 for 𝑖=1-3 and for 𝑖=4,
we apply equations (3.14) and (3.15), respectively.
𝑓𝐶2 = 𝑓𝑝𝑆,2 (3.30)
3.3.4 Naphtha cracker (C3)
Steam cracking of hydrocarbons in the naphtha cracker produces ethylene, propylene,
butadiene, and other unsaturated compounds with higher molecular weights. When the
hydrocarbon chains are heated to around 800oC, the C-C and C-H bonds can be broken and
unstable radicals are generated. These radicals can react further to produce unsaturated
molecules. In addition, diolefins can cyclize with other olefins to yield aromatics. As a result,
various different aromatic components may appear in the pyrolysis gasoline. The pyrolysis
gasoline must be treated in hydrogenation process to remove olefins, diolefins, and sulfur
contents.
54
Pyrolisis gas oil (PGO) (fpC3,1 ; βC3,1)
Pyrolisis Fuel Oil (PFO) (fp2C3,2 ; βC3,2)

H2 (fpC3,4 ; βC3,4)
Heavy Naptha Propylene (fpC3,7 ; βC3,7)

XC3
C3 (fpC3,8 ; βC3,8)
fC3 ; αC3
C4 (fpC3,9 ; βC3,9)
C4 raffinate (fpC3,10 ; βC3,10)
Fuel Gas (fpC3,11 ; βC3,11)
Butadiene (fpC3,12 , βC3,12)
Xylene (fpC3,15 ; βC3,15)
RC3 (1-RC3)
Untreated heavy naphta (fpC3,16 ; βC3,16)
Figure 3.10. Naphtha Cracker
Model II is applicable in this case. Let us build the mathematical model based the general
formulation given in section 3.2.2.
 To formulate the correlation functions between feed and product-𝑖 for 𝑖=1-15 and for
𝑖=16, equations (3.14) and (3.15) are applicable, respectively.
𝑓𝐶3 = 𝑓𝑝𝑆,3 (3.31)
3.3.5 Kerosene retailer (C4)
Kerosene is assumed to be sold directly to the market. Before being sold, kerosene
should be stored in a tank farm.
fC4 ; αC4
Figure 3.11. Kerosene Retailer
55
Model III is applicable in this case. The corresponding mathematical model can be built
based the general formulation given in section 3.2.3.
 The correlation function between feed and product can be obtained according to
equation (3.18).
𝑓𝐶4 = 𝑓𝑝𝑆,4 (3.32)
3.3.6 Hydrotreater (C5)
Diesel hydrotreater or catalytic hydrogen treater is mainly to reduce the undesirable
species in feed fraction by reacting with hydrogen-rich gas. This unit produces diesel as the
main product and also hydrogen sulfide (H2S).
Diesel (fpC5,1 ; βC5,1)

fC5 ; αC5
Light and Heavy XC5
Oil
H2S (fpC5,2 ; βC5,2)
Figure 3.12. Hydrotreater
Model II is applicable in this case. The corresponding mathematical model can be obtained
based on the general formulation given in section 3.2.2.
 The correlation functions between feed and product- 𝑖 ( 𝑖 =1-2), equation (3.17) is
applicable.
𝑓𝐶5 = 𝑓𝑝𝑆,5 (3.33)
56
3.3.7 Vacuum distillation (C6)
Heavies from the atmospheric distillation column are heated to approximately 400˚C
in a fired heater and fed to the vacuum distillation column where they are fractionated into
pyrolysis fuel oil, vacuum gas oil, and vacuum residue.

fC6 ; αC6
Autothermal Vacuum Gas Oil (VGO) (fpC6,1 ; βC6,2)
Residue (ATR)
Figure 3.13. Vacuum Distillation
Model I is applicable in this case. The corresponding mathematical model can be constructed
according to the general formulation given in section 3.2.1.
 The correlation functions between feed and products can be obtained from equation
(2.15).
𝑓𝐶6 = 𝑓𝑝𝑆,6 (3.34)
3.4 Extension
The supply chain framework of base case is extended to that displayed in Figure 3.14, in
which the former is expanded by treating gasoline as a second-level intermediate and the
gasoline storage facility as its consumer.
57
ΦS,C1
fpS,1 ; βS,1 fC1 ; αC1

LPG Retailer
fE1 , αE1 Retail gasoline
(fpE1,1 ; βE1,1)
fC2 ; αC2 Reformer oil
fpS,2 ; βS,2 XC2 (fpC2,2 ; βC2,2)
Light Naphtha Gasoline Retailer
C9 (fpC2,3 ; βC2,3)
ΦC2,E1
RC2 (1-RC2)
Reformer
ΦS,C2 Pyrolisis gas oil (PGO) (fpC3,1 ; βC3,1)
H2 (fpC3,4 , βC3,4)
fpS,3 ; βS,3 fC3 ; αC3 Propylene (fpC3,7 , βC3,7)
Heavy Naphtha XC3
C3 (fpC3,8 ; βC3,8)
C4 (fpC3,9 ; βC3,9)
fS , α S C4 raffinate (fpC3,10 ; βC3,10)
Crude Oil Fuel Gas (fpC3,11 ; βC3,11)
Toluene (fpC3,14 , βC3,14)
ΦS,C3 Xylene (fpC3,15 ; βC3,15)
ΦC3,E1
RC3 (1-RC3)
Untreated heavy naphtha (fpC3,16 ; βC3,16)
Naptha cracker
Kerosene Retailer
ΦS,C4 (fpC5,1 ; βC5,1)

Diesel
Light and Heavy Oil XC5
H2S (fpC5,2 ; βC5,2)
Hydrotreater
ΦS,C5 Pyrolisis Fuel Oil (PFO) (fpC6,1 ; βC6,1)
Vacuum Distillation
ΦS,C6
Figure 3.14. Extension of Base-Case Structure of Petroleum Supply Chain
58
Table 3.3. Model variables for gasoline retailer unit
Notation Definition
𝑓𝐸1,1 amount of gasoline purchased by gasoline retailer unit from reformer unit
(scenario 2)
𝑓𝐸1,2 amount of gasoline purchased by gasoline retailer unit from naphtha
cracker unit (scenario 2)
𝑓𝐸1 amount of gasoline purchased by gasoline retailer unit
𝑓𝑝𝐸1,1 amount of gasoline tank’s products
𝐹𝑆𝐶𝐸1 total feed storage cost for gasoline retailer unit
𝑂𝐶𝐸1 total cost for gasoline retailer unit
𝑃𝐸1 gasoline retailer unit’s annual profit
𝑃𝑆𝐶𝐸1 total product storage cost for gasoline retailer unit
𝑅𝐶𝐸1 total raw material cost for gasoline retailer unit
𝑅𝑉𝐸1 gasoline retailer’s revenue
𝑇𝐶𝐸1 total transportation cost for gasoline retailer unit
𝑉𝑂𝐶𝐸1 total operating cost for gasoline retailer unit
𝛼𝐸1 price of gasoline purchased by gasoline retailer unit from reformer and
naphtha cracker unit (scenario 1)
𝛼𝐸1,1 price of gasoline purchased by gasoline retailer unit from reformer unit
(scenario 2)
𝛼𝐸1,2 price of gasoline purchased by gasoline retailer unit from naphtha cracker
unit (scenario 2)
𝛾𝐸1 gasoline retailer’s bargaining power
𝜋𝐸1 gasoline retailer’s bargaining profit
𝜙𝐶2,𝐸1 share ratio of reformer unit in the gasoline retailer’s revenue
𝜙𝐶3,𝐸1 share ratio of naphtha cracker unit in the gasoline retailer’s revenue
Table 3.4. Model parameters for gasoline retailer unit
Notation Definition Value

𝑙𝑜
𝑓𝑝𝐸1,1 lower limit demand for gasoline product 30,000,000 lb/mon
𝑢𝑝
𝑓𝑝𝐸1,1 upper limit demand for gasoline product 40,000,000 lb/mon
𝐹𝑂𝐶𝐸1 fixed operating cost for gasoline retailer unit 100 $/mon
𝐹𝑆𝐶𝑓𝐸1 feed storage cost per unit feed for gasoline retailer 0.2 $/lb
unit
𝑃𝑆𝐶𝑝𝐸1,1 retail gasoline product storage cost per unit product 0.2 $/lb
for gasoline retailer unit
𝑇𝐶𝑓𝐸1 transportation cost of gasoline to gasoline retailer 0.2 $/lb
unit per feed
59
𝑇𝐶𝑝𝐸1,1 transportation cost of retail gasoline to other unit per 0.2 $/lb
unit product
𝑉𝑂𝐶𝑓𝐸1 operating cost per unit feed for gasoline retailer unit 0 $/lb
𝛽𝐸1,1 price of retail gasoline product sold by gasoline 620 $/lb
retailer unit per unit product
Let us consider 2 scenarios concerning the gasoline prices:
1. The selling prices of gasolines from reformer and naphtha cracker are equal
(𝛽𝐶2,1 = 𝛽𝐶3,3 )
fpC2,1 ; βC2,1 fE1 ; αE1 fpE1,1 ; βE1,1 Retail

Reformer
Gasoline
Unit gasoline
Gasoline retailer unit
Naphtha fp ; β
C3,3 C3,3
Cracker
Unit
Figure 3.15. Scenario 1 in Extended Case
2. The selling prices of gasolines from reformer and naphtha cracker are not the same
(𝛽𝐶2,1 ≠ 𝛽𝐶3,3 )
fpC2,1 ; βC2,1 fE1,1 ; αE1,1

Reformer
Gasoline
Unit
fpE1,1 ; βE1,1
Retail
gasoline
Naphtha fpC3,3;βC3,3 fE1,2 ;αE1,2
cracker Gasoline
Unit
Gasoline retailer unit
Figure 3.16. Scenario 2 in Extended Case
It should be noted in the extended case that, since the price of gasoline (an intermediate)
from reformer (𝛽𝐶2,1 ) and naphtha cracker unit (𝛽𝐶3,3 ) cannot be determined a priori, they
are considered as a decision variable.
60
3.4.1 Gasoline retailer (E1)
Gasoline is assumed to be sold directly to the market. Before being sold, it is stored
in a tank farm.
fE1 ; αE1
Retail gasoline
(fpE1,1 ; βE1,1)
Figure 3.17. Gasoline retailer
Model I is applicable in this case. The corresponding mathematical model can be built
based the general formulation given in section 3.2.1.
 Correlation function between feed and product can be formulated according to equation
(2.15).
𝑓𝐸1 = 𝑓𝑝𝐶2,1 + 𝑓𝑝𝐶3,3 (3.35)
3.5 Objective Functions

The objective functions of the mathematical programs adopted in the proposed two-
steps optimization approach are presented below.
3.5.1 Base case
The objective function of the first step is:
𝑚𝑎𝑥 𝑃𝑆 + 𝑃𝐶1 + 𝑃𝐶2 + 𝑃𝐶3 + 𝑃𝐶4 + 𝑃𝐶5 + 𝑃𝐶6

𝑓𝑆 ,𝑓𝐶1 ,𝑓𝐶2 ,𝑓𝐶3 ,𝑓𝐶4 ,𝑓𝐶5 ,𝑓𝐶6 ,
𝛽𝑆,1 ,𝛽𝑆,2 ,𝛽𝑆,3 ,𝛽𝑆,4 ,𝛽𝑆,5 ,𝛽𝑆,6 , (3.36)
𝛼𝐶1 ,𝛼𝐶2 ,𝛼𝐶3 ,𝛼𝐶4 ,𝛼𝐶5 ,𝛼𝐶6
The second step optimizes the following objective function:
𝛾 𝛾 𝛾 𝛾
𝑚𝑎𝑥 𝜋𝑆 𝑆 × 𝜋𝐶1𝐶1 × 𝜋𝐶2𝐶2 × 𝜋𝐶3𝐶3 × 𝜋𝐶4𝐶4 × 𝜋𝐶5𝐶5 × 𝜋𝐶6𝐶6
𝛾 𝛾 𝛾 (3.37)
61
where 𝑃𝑆 + 𝑃𝐶1 + 𝑃𝐶2 + 𝑃𝐶3 + 𝑃𝐶4 + 𝑃𝐶5 + 𝑃𝐶6 = 𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡 and the profit of each actor
can be expressed as :
𝜋𝑆 = P𝑆 + 𝜙𝑆,𝐶1 𝑅𝑉𝐶1 + 𝜙𝑆,𝐶2 𝑅𝑉𝐶2 + 𝜙𝑆,𝐶3 𝑅𝑉𝐶3 + 𝜙𝑆,𝐶4 𝑅𝑉𝐶4 + 𝜙𝑆,𝐶5 𝑅𝑉𝐶5
(3.38)
+𝜙𝑆,𝐶6 𝑅𝑉𝐶6
𝜋𝐶1 = P𝐶1 − 𝜙𝑆,𝐶1 𝑅𝑉𝐶1 (3.39)
𝜋𝐶2 = P𝐶2 − 𝜙𝑆,𝐶2 𝑅𝑉𝐶2 (3.40)
𝜋𝐶3 = P𝐶3 − 𝜙𝑆,𝐶3 𝑅𝑉𝐶3 (3.41)
𝜋𝐶4 = P𝐶4 − 𝜙𝑆,𝐶4 𝑅𝑉𝐶4 (3.42)
𝜋𝐶5 = P𝐶5 − 𝜙𝑆,𝐶5 𝑅𝑉𝐶5 (3.43)
𝜋𝐶6 = P𝐶6 − 𝜙𝑆,𝐶6 𝑅𝑉𝐶6 (3.44)
where the revenue of each actor is defined in equation (3.21) and the corresponding
negotiation powers can be expressed as :
𝛾𝑆 = 𝑂𝐶𝑆 ; 𝛾𝐶1 = 𝑂𝐶𝐶1 ; 𝛾𝐶2 = 𝑂𝐶𝐶2 ; 𝛾𝐶3 = 𝑂𝐶𝐶3 ; 𝛾𝐶4 = 𝑂𝐶𝐶4 ; 𝛾𝐶5 = 𝑂𝐶𝐶5 ;
(3.45)
𝛾𝐶6 = 𝑂𝐶𝐶6
3.5.2 Extended case
The objective function of the first step is:
𝑚𝑎𝑥 𝑃𝑆 + 𝑃𝐶1 + 𝑃𝐶2 + 𝑃𝐶3 + 𝑃𝐶4 + 𝑃𝐶5 + 𝑃𝐶6 + 𝑃𝐸1

𝑓𝑆 ,𝑓𝐶1 ,𝑓𝐶2 ,𝑓𝐶3 ,𝑓𝐶4 ,𝑓𝐶5 ,𝑓𝐶6 ,𝑓𝐸1 (3.46)
𝛽𝑆,1 ,𝛽𝑆,2 ,𝛽𝑆,3 ,𝛽𝑆,4 ,𝛽𝑆,5 ,𝛽𝑆,6 ,𝛽𝐶2,1 ,𝛽𝐶3,3
𝛼𝐶1 ,𝛼𝐶2 ,𝛼𝐶3 ,𝛼𝐶4 ,𝛼𝐶5 ,𝛼𝐶6 ,𝛼𝐸1
The second step optimizes the following objective function:
𝛾 𝛾 𝛾 𝛾 𝛾 𝛾
𝑚𝑎𝑥 𝜋𝑆 𝑆 × 𝜋𝐶1𝐶1 × 𝜋𝐶2𝐶2 × 𝜋𝐶3𝐶3 × 𝜋𝐶4𝐶4 × 𝜋𝐶5𝐶5 × 𝜋𝐶6𝐶6 × 𝜋𝐸1𝐸1
𝛾 𝛾 (3.47)
62
where 𝑃𝑆 + 𝑃𝐶1 + 𝑃𝐶2 + 𝑃𝐶3 + 𝑃𝐶4 + 𝑃𝐶5 + 𝑃𝐶6 + 𝑃𝐸1 = 𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡 and the profit of each
actor can be expressed as :
𝜋𝑆 = P𝑆 + 𝜙𝑆,𝐶1 𝑅𝑉𝐶1 + 𝜙𝑆,𝐶2 𝑅𝑉𝐶2 + 𝜙𝑆,𝐶3 𝑅𝑉𝐶3 + 𝜙𝑆,𝐶4 𝑅𝑉𝐶4 + 𝜙𝑆,𝐶5 𝑅𝑉𝐶5
(3.48)
+𝜙𝑆,𝐶6 𝑅𝑉𝐶6
𝜋𝐶1 = P𝐶1 − 𝜙𝑆,𝐶1 𝑅𝑉𝐶1 (3.49)
𝜋𝐶2 = P𝐶2 − 𝜙𝑆,𝐶2 𝑅𝑉𝐶2 + 𝜙𝐶2,𝐸1 𝑅𝑉𝐸1 (3.50)
𝜋𝐶3 = P𝐶3 − 𝜙𝑆,𝐶3 𝑅𝑉𝐶3 + 𝜙𝐶3,𝐸1 𝑅𝑉𝐸1 (3.51)
𝜋𝐶4 = P𝐶4 − 𝜙𝑆,𝐶4 𝑅𝑉𝐶4 (3.52)
𝜋𝐶5 = P𝐶5 − 𝜙𝑆,𝐶5 𝑅𝑉𝐶5 (3.53)
𝜋𝐶6 = P𝐶6 − 𝜙𝑆,𝐶6 𝑅𝑉𝐶6 (3.54)
𝜋𝐸1 = P𝐸1 − 𝜙𝐶2,𝐸1 𝑅𝑉𝐸1 − 𝜙𝐶3,𝐸1 𝑅𝑉𝐸1 (3.55)
where the revenue of each actor is defined in equation (3.21) and the corresponding
negotiation power can be expressed as :
𝛾𝑆 = 𝑂𝐶𝑆 ; 𝛾𝐶1 = 𝑂𝐶𝐶1 ; 𝛾𝐶2 = 𝑂𝐶𝐶2 ; 𝛾𝐶3 = 𝑂𝐶𝐶3 ; 𝛾𝐶4 = 𝑂𝐶𝐶4 ; 𝛾𝐶5 = 𝑂𝐶𝐶5 ;
(3.56)
𝛾𝐶6 = 𝑂𝐶𝐶6 ; 𝛾𝐸1 = 𝑂𝐶𝐸1
63
Chapter 4
Case Studies
The case studies presented below are used mainly to demonstrate the feasibility of
the proposed profit allocation approach in realistic applications.
4.1 Base Case
The base-case model in Chapter 3 is adopted in the present example. Since the selling
prices of the light naphtha and heavy naphtha from atmospheric distillation unit, i.e., 𝛼𝐶2
and 𝛼𝐶3 , and those from the reformer and naphtha cracker, i.e., 𝛽𝐶2,4 and 𝛽𝐶3,16 , are
assumed to be unavailable a priori, let us assume that 𝛽𝐶2,4 = 𝛼𝐶2 and 𝛽𝐶3,16 = 𝛼𝐶3 . In
addition, the two mathematical programming models adopted in the proposed two-step
approach were solved using BARON in the commercial software GAMS on a computer with
an Intel Core i7 CPU and 16GB RAM. For the first step, there are 114 real variables and
162 constraints (86 equality constraints and 76 inequality constraints) in the corresponding
NLP model and the execution time is about 0.047 s (CPU time). For the second step, there
are 149 real variables and 191 constraints (110 equality constraints and 81 inequality
constraints) in the corresponding NLP model and the execution time is about 1000.75s (CPU
time).
64
ΦS,C1 = 0.351

fpS,1 = fC1= 20,000,000
βS,1 = αC1 = 279.078 LPG Retailer
PC1 = 1,756,780,000
XC2= 1 Reformer oil (fpC2,2 ; βC2,2)

Light Naphtha
fpS,2 = fC2= 150,000,000 C9 (fpC2,3 ; βC2,3)
βS,2 = αC2 =323.002
PC2 = 30,364,900,000
Reformer
ΦS,C2 = 0.02 Pyrolisis gas oil (PGO) (fpC3,1 ; βC3,1)

H2 (fpC3,4 , βC3,4)
Heavy Naphtha Propylene (fpC3,7 ; βC3,7)
XC3= 1 (fpC3,8 ; βC3,8)
fpS,3 = fC3= 70,000,000 C3
C4 (fpC3,9 ; βC3,9)
βS,3 = αC3 = 294.444 C4 raffinate (fpC3,10 ; βC3,10)
PC3 = 23,395,800,000 Fuel Gas (fpC3,11 ; βC3,11)
Crude Oil
fS =1,000,000,000 Butadiene (fpC3,12 ; βC3,12)
αS = 300 Benzene (fpC3,13 ; βC3,13)
Toluene (fpC3,14 , βC3,14)
PS = 113,460,103,000 ΦS,C3 = 0 Xylene (fpC3,15 ; βC3,15)
Naptha cracker
Kerosene Retail Kerosene (fpC4,1 ; βC4,1)

fpS,4 = xC4= 35,000,000
βS,4 = αC4 =233.334 Kerosene Retailer
PC4 = 5,127,820,000
ΦS,C4 = 0 (fpC5,1 ; βC5,1)
Diesel
Light and Heavy Oil XC5=1
fpS,5 = fC5= 150,000,000 H2S (fpC5,2 ; βC5,2)
Atmospheric Distillation βS,5 = αC5 = 93.502
PC5 =21,898,400,000 Hydrotreater
ΦS,C5 = 0.5 Pyrolisis Fuel Oil (PFO) (fpC6,1 ; βC6,1)

fpS,6 = fC6= 575,000,000 Vacuum Residue (fpC6,3 ; βC6,3)
βS,6 = αC6 =477.966
PC6 = 19,728,401,000 Vacuum Distillation
ΦS,C6 = 0.026
Figure 4.1. Base Case Results
The maximum total profit obtained in first step was found to be 215,732,204,000
$/mon. The second-step optimization results can be found in the Figure 4.1. For illustration
clarity, these results are also presented in detail in the tables below. It is assumed that
1,000,000,000 lb/mon of crude oil is bought from the market at a price of 300 $/lb. The
65
product flowrates of the atmospheric distillation unit and their prices are presented in Table
4.1.
Table 4.1. Optimal throughputs of atmospheric distillation unit and product selling
prices for the base case
Flowrate Selling price

Products
(106.lb/mon) ($/lb)
LPG 20 279.078
Light naphtha 150 323.002
Heavy Naphtha 70 294.444
Kerosene 35 233.334
Light and heavy oil 150 93.502
ATR 575 477.966
The LPG retailing unit obtains 20,000,000 lb/mon of LPG from the atmospheric
distillation unit at a price of 279.1 $/lb. The throughput of this unit is presented in Table 4.2.
The share ratio from LPG retailing unit to atmospheric distillation unit, 𝜙𝑆,𝐶1 , was found to
be 0.351.
The reformer receives 150,000,000 lb/mon of light naphtha from the atmospheric
distillation unit at a price of 323.0 $/lb. The product flowrates of reformer are presented in
the Table 4.3. In this case, there was no untreated feed. The corresponding conversion for
reformer unit is 𝑋𝐶2 =1. Since the price of light naphtha is not too high when compared to
those of the products, all the raw material of this unit is completely converted into the more
valuable products. The share ratio from reformer to atmospheric distillation unit, 𝜙𝑆,𝐶2 , was
found to be 0.02.
The naphtha cracker processes 70,000,000 lb/mon of heavy naphtha delivered from
the atmospheric distillation unit at a price of 294.4 $/lb. The product flowrates of the naphtha
cracker are presented in the Table 4.4. The corresponding conversion for the naphtha cracker
66
unit is 𝑋𝐶3 =1. Since the price of heavy naphtha is relatively low when compared with those
of the products, the feed is completely converted into the more valuable materials. The share
ratio from naphtha cracker unit to atmospheric distillation unit, 𝜙𝑆,𝐶3 , was found to be 0.
The kerosene retailing unit receives 35,000,000 lb/mon of kerosene from the
atmospheric distillation unit at a price of 233.3 $/lb. The corresponding product flowrates
are presented in Table 4.5. The share ratio from the kerosene retailer to the atmospheric
distillation unit, 𝜙𝑆,𝐶4 , was found to be 0.
The hydrotreater buys 150,000,000 lb/mon of the light and heavy oil from supplier
(i.e., the atmospheric distillation unit) at a price of 93.5 $/lb. The optimal product flowrates
are given in Table 4.6. Notice that the flowrates of diesel and H2S were found to be
145,000,000 lb/mon and 5,000,000 lb/mon, respectively. The share ratio from hydrotreater
unit to its supplier, 𝜙𝑆,𝐶5 , was found to be 0.5.
The vacuum distillation unit obtains 575,000,000 lb/mon of ATR from the
atmospheric distillation unit at a price of 478.0 $/lb. The product flowrates are presented in
Table 4.7. The share ratio from vacuum distillation unit to atmospheric distillation unit, 𝜙𝑆,𝐶6,
was found to be 0.026.
Table 4.2.Optimal throughput of LPG retailing unit and product selling price for the
base case
Product
(106.lb/mon) ($/lb)
LPG 20 600*
*given parameter value
67
Table 4.3. Optimal throughputs of reformer and the product selling prices for the
base case
Products
(106.lb/mon) ($/lb)
Gasoline 30 620*
Reformer oil 105 570*
C9 15 330*
Untreated light naphtha 0 323.002
*given parameter values
Table 4.4. Optimal throughputs of naphtha cracker unit and the product selling
Products
(106.lb/mon) ($/lb)
PGO 16.107 530*
PFO 1 570*
Gasoline 4.476 620*
H2 0.1 560*
Acetylene 0.1 970*
Ethylene 10 680*
Propylene 9.067 820*
C3 0.15 230*
C4 1 230*
C4 raffinate 1 230*
Fuel Gas 1 407*
Butadiene 1 930*
Benzene 15 820*
Toluene 5 600*
Xylene 5 528*
Untreated heavy naphtha 0 294.444
68
Table 4.5. Optimal throughput of kerosene retailing unit and its selling price for the
base case
Product
(106.lb/mon) ($/lb)
Kerosene 35 400*
Table 4.6. Optimal throughputs of hydrotreater and the product selling prices for the
base case

Products
(106.lb/mon) ($/lb)
Diesel 145 510*
H2S 5 300*
Table 4.7. Optimal throughputs of vacuum distillation unit and products selling
Products
(106.lb/mon) ($/lb)
PFO 60 570*
VGO 375 540*
Vacuum Residue 140 480*
Figure 4.2 shows that the profit of each actor in a petroleum supply chain is primarily
governed by its bargaining power, 𝛾𝑢 . In this base case, the individual profits of atmospheric
distillation unit, LPG retailer, reformer, naphtha cracker, kerosene retailer, hydrotreater, and
vacuum distillation unit were found to be 113,460,103,000 $/mon, 1,756,780,000 $/mon,
30,364,900,000 $/mon, 23,395,800,000 $/mon, 5,127,820,000 $/mon, 21,898,400,000
69
$/mon and 19,728,401,000 $/mon, respectively. Since 𝛾𝑆 > 𝛾𝐶2 > 𝛾𝐶3 > 𝛾𝐶5 > 𝛾𝐶6 > 𝛾𝐶4 > 𝛾𝐶1,
therefore, 𝑃𝑆 > 𝑃𝐶2 > 𝑃𝐶3 > 𝑃𝐶5 > 𝑃𝐶6 > 𝑃𝐶4 > 𝑃𝐶1 .
120 12
Bargaining power atio

Profit × 109($/mon)
100 10
80 8
60 6
40 4
20 2
0 0
Atmospheric LPG Tank Reformer Naphtha Kerosene Hydrotreater Vacuum
Distillation Cracker Tank Distillation
Profit Bargaining Power
Figure 4.2. Profits and bargaining powers of all actors in the base case
4.2 Extended Case
The equality and inequality constraints in the mathematical models of the extended
case have already been described in Chapter 3. Two scenarios are considered in the present
example. The selling prices of gasoline from the reformer and the naphtha cracker are
assumed to be equal in the first scenario, while these two selling prices are allowed to be
different in the second. Since the selling prices of the light naphtha and heavy naphtha from
atmospheric distillation unit, i.e., 𝛼𝐶2 and 𝛼𝐶3 , and those from reformer and naphtha cracker,
i.e., 𝛽𝐶2,4 and 𝛽𝐶3,16 , are assumed to be unavailable a priori, let us assumed that, for
convenience, 𝛽𝐶2,4 = 𝛼𝐶2 and 𝛽𝐶3,16 = 𝛼𝐶3 in both scenarios. The mathematical
programming models adopted in the proposed two-step approach were solved using BARON
in GAMS on a personal computer with an Intel Core i7 CPU and 16GB RAM. For step 1 of
the first scenario, there are 123 real variables and 173 constraints (95 equality constraints
and 78 inequality constraints) in the corresponding NLP model and the execution time was
about 0.016 s (CPU time). For step 2 of the first scenario, there are 164 real variables and
70
213 constraints (128 equality constraints and 85 inequality constraints) in the corresponding
NLP model and the execution time was about 1003.22 s (CPU time). On the other hand, for
step 1 of the second scenario, there are 125 real variables and 176 constraints (98 equality
constraints and 78 inequality constraints) in the corresponding NLP model and the execution
time was about 0.016 s (CPU time). For step 2 of the second scenario, there are 166 real
variables and 216 constraints (131 equality constraints and 85 inequality constraints) in the
corresponding NLP model and the execution time was about 1002.76 s (CPU time)
$/mon in both scenarios, since the same model parameters have been adopted. The second-
step optimization results for the first and second scenarios can be found in the Figure 4.3 and
Figure 4.4, respectively. For illustration clarity, these results are also presented in detail in
the tables below. It is assumed that 1,000,000,000 lb/mon of crude oil is bought from the
market at a price of 300 $/lb. The product flowrates of the atmospheric distillation unit and
their prices for both scenarios are presented in Table 4.8. Since the maximum total profits
for both scenarios were the same, the only differences are in the selling prices of the
atmospheric distillation’s outputs.
71
ΦS,C1 = 0.494

fpS,1 = fC1= 20,000,000
βS,1 = αC1 = 193.53 LPG Retailer
PC1 = 1,756,860,000 fpE1,1 = 35,000,000
fpC2,1 =30,524,000
Gasoline βE1,1 = 620
βC2,1 = αE1 = 450.088
PE1 = 5,180,600,000
XC2 = 1 Reformer oil (fpC2,2 ; βC2,2)
Light Naphtha Gasoline Retailer Retail gasoline
fpS,2 = fC2= 152,618,000 C9 (fpC2,3 ; βC2,3)
βS,2 = αC2 = 230.118
PC2 = 33,563,400,000 ΦC2,E1 = 0.002
Reformer
Gasoline
H2 (fpC3,4 ; βC3,4) fpC3,3 = 4,476,000
Acethylene (fpC3,5 ; βC3,5) βC3,3 = αE1 = 450.088
XC3 = 1 (fpC3,8 ; βC3,8)
C3
fpS,3 = fC3= 70,000,000 (fpC3,9 ; βC3,9)
C4
Crude Oil PC3 = 23,278,200,000 Fuel Gas (fpC3,11 ; βC3,11)
fS = 1,000,000,000 Butadiene (fpC3,12 ; βC3,12)
αS = 300 (fpC3,14 ; βC3,14)
Toluene
PS = 107,877,000,000 ΦS,C3 = 0 Xylene (fpC3,15 ; βC3,15) ΦC3,E1 = 0
Naptha cracker

fpS,4 = fC4= 35,000,000
βS,4 = αC4 = 233.327 Kerosene Retailer
PC4 = 5,128,070,000
ΦS,C4 = 0
Light and Heavy Oil XC5 =1
fpS,5 = fC5= 150,000,000 H2S (fpC5,2 ; βC5,2)
ΦS,C5 = 0 Pyrolisis Fuel Oil (PFO) (fpC6,1 ; βC6,1)

fpS,6 = fC6= 572,382,000 (fpC6,3 ; βC6,3)
Vacuum Residue
βS,6 = αC6 = 477.027
ΦS,C6 = 0.034
Figure 4.3. Extended Case Results for First Scenario
72
ΦS,C1 =0.5

fpS,1 = fC1= 20,000,000
βS,1 = αC1 = 189.857 LPG Retailer fpE1,1 = 35,000,000
PC1 = 1,756,860,000 fpC2,1 = 30,524,000
Gasoline βE1,1 = 620
βC2,1 = αE1,1= 450 PE1 = 5,180,600,000
XC2= Reformer oil (fpC2,2 ; βC2,2)
Light Naphtha Gasoline Retailer Retail gasoline
1
fpS,2 = fC2= 152,618,000 C9 (fpC2,3 ; βC2,3)
βS,2 = αC2 =248.751
PC2 = 34,051,900,000 ΦC2,E1 =0
Reformer
Gasoline
H2 (fpC3,4 ; βC3,4) fpC3,3 =4,476,000
Acethylene (fpC3,5 ; βC3,5) βC3,3 = αE1,2 = 453.567
Heavy Naphtha XC3= Propylene (fpC3,7 ; βC3,7)
1 C3 (fpC3,8 ; βC3,8)
fpS,3 = fC3= 70,000,000 (fpC3,9 ; βC3,9)
C4
Crude Oil PC3 = 22,509,500,000 Fuel Gas (fpC3,11 ; βC3,11)
αS = 300 (fpC3,14 ; βC3,14)
Toluene
PS = 109,104,469,000 ΦS,C3 = 3.446613E-8 Xylene (fpC3,15 ; βC3,15) ΦC3,E1 =0.002
Naptha cracker
Kerosene Retail Kerosene (fpC4,1; βC4,1)

fpS,4 = fC4= 35,000,000
βS,4 = αC4 = 233.327 Kerosene Retailer
PC4 = 5,128,070,000
ΦS,C4 =0
fpS,5 = fC5= 150,000,000 H2S (fpC5,2 ; βC5,2)
ΦS,C5 =0.468 Pyrolisis Fuel Oil (PFO) (fpC6,1 ; βC6,1)

fpS,6 = fC6= 572,382,000 (fpC6,3 ; βC6,3)
Vacuum Residue
βS,6 = αC6 = 231.293
ΦS,C6 =0.5
Figure 4.4. Extended Case Results for Second Scenario

73
Table 4.8. Optimal throughputs of atmospheric distillation unit and product
selling prices for the extended case
Scenario 1 Scenario 2
Products Flowrate Selling price Flowrate Selling price
(106.lb/mon) ($/lb) (106.lb/mon) ($/lb)
LPG 20 193.5 20 189.9
Light 152.618 230.1 152.618 248.8
naphtha
Heavy 70 285.3 70 297.0
Naphtha
Kerosene 35 233.3 35 233.3
Light and 150 353.6 150 122.6
heavy oil
ATR 572.382 477.0 572.382 231.3
The LPG retailing unit obtains 20,000,000 lb/mon LPG from atmospheric distillation
unit at the prices of 193.5 $/lb and 189.9 $/lb, respectively, in the first and second scenarios.
The throughput of this unit for all scenarios is presented in Table 4.9. The share ratios from
LPG retailing unit to atmospheric distillation unit, 𝜙𝑆,𝐶1 , for the first and second scenarios
were found to be 0.494 and 0.5, respectively.
The reformer receives 152,618,000 lb/mon of light naphtha from atmospheric
distillation unit at the prices of 230.1 $/lb and 248.8 $/lb, respectively, in the first and second
scenarios. The product flowrates of reformer in both scenarios are presented in Table 4.10.
In both cases, there were no untreated feeds. The corresponding conversion for reformer unit
is 𝑋𝐶2 =1. Since the price of light naphtha is in general low when compared to those of the
products, all the raw material of this unit is completely converted into the more valuable
74
products. The share ratios from the reformer to the atmospheric distillation unit, 𝜙𝑆,𝐶2 , in
first and second scenarios, were found to be 0.1 and 0.058, respectively.
The naphtha cracker processes 70,000,000 lb/mon of heavy naphtha obtained from
the atmospheric distillation unit at the prices of 285.259 $/lb and 297.047 $/lb, respectively,
in the first and second scenarios. The products flowrate of naphtha cracker unit in these two
scenarios are presented in Table 4.13. The corresponding conversion for naphtha cracker
unit is 𝑋𝐶3 =1. Since the price of heavy naphtha is relatively low when compared with those
of the products, the feed is completely converted into the more valuable materials. The share
ratio from naphtha cracker unit to atmospheric distillation unit, 𝜙𝑆,𝐶3 , for both scenarios
were found to be approximately 0.
In both scenarios, the kerosene retailing unit receives 35,000,000 lb/mon of kerosene
from atmospheric distillation unit at a price of 233.327 $/lb. The corresponding product
flowrates are presented in Table 4.11. The share ratios from kerosene retailer to the
atmospheric distillation unit, 𝜙𝑆,𝐶4 , in the two scenarios were both found to be 0.
The hydrotreater buys 150,000,000 lb/mon of the light and heavy oils from supplier
(i.e., the atmospheric distillation unit) at the prices of 353.6 $/lb and 122.6 $/lb, respectively,
in the first and second scenarios. The corresponding optimal product flowrates are given in
Table 4.12. Notice that for both scenarios, the flowrates of diesel and H2S were found to be
145,000,000 lb/mon and 5,000,000 lb/mon, respectively. The share ratios from hydrotreater
unit to its supplier, 𝜙𝑆,𝐶5 , for the first and second scenarios were found to be 0 and 0.468,
respectively.
The vacuum distillation unit obtains 572,382,000 lb/mon of ATR from the
atmospheric distillation unit at the prices of 477.0 $/lb and 231.3 $/lb, respectively, in the
75
first and second scenarios. The corresponding product flowrates are presented in Table 4.14.
The share ratios from vacuum distillation unit to atmospheric distillation unit, 𝜙𝑆,𝐶6 , in the
first and second scenarios, were found to be 0.034 and 0.5, respectively.
In the first scenario, the gasoline retailing unit obtains 30,524,000 lb/mon of gasoline
from reformer and 4,476,000 lb/mon of gasoline from the naphtha cracker at the same price
of 450.1 $/lb. In the second scenario, the gasoline retailing unit obtains 30,524,000 lb/mon
of gasoline from the reformer at a price of 450 $/lb and 4,476,000 lb/mon of gasoline from
the naphtha cracker at a price of 453.6 $/lb. The corresponding product flowrates are
presented in Table 4.15. The share ratios from the gasoline retailing unit to the reformer,
𝜙𝐶2,𝐸1 , for the first and second scenarios were found to be 0.002 and 0, respectively. On the
other hand, the share ratios from the gasoline retailing unit to naphtha cracker, 𝜙𝐶3,𝐸1 , for
the first and second scenarios were found to be 0 and 0.002, respectively.
Table 4.9. Optimal throughput of LPG retailing unit and product selling price for the
extended case
Flowrate Selling price Flowrate Selling price
Product
(106.lb/mon) ($/lb) (106.lb/mon) ($/lb)
LPG 20 600* 20 600*

76
Table 4.10. Optimal throughputs of reformer and the product selling prices for the
extended case
Products Flowrate Selling price Flowrate Selling price
(106.lb/mon) ($/lb) (106.lb/mon) ($/lb)
Gasoline 30.524 450.1 30.524 450.0

Reformer oil 106.517 570* 106.517 570*
C9 15.577 330* 15.577 330*
Untreated
0 - 0 -
light naphtha
Table 4.11. Optimal throughput of kerosene retailing unit and its selling price for the
extended case
Product
(106.lb/mon) ($/lb) (106.lb/mon) ($/lb)
Kerosene 35 400* 35 400*

Table 4.12. Optimal throughputs of hydrotreater and the product selling prices for
the extended case
Products
(106.lb/mon) ($/lb) (106.lb/mon) ($/lb)
Diesel 145 510* 145 510*
H2S 5 300* 5 300*
77
Table 4.13. Optimal throughputs of naphtha cracker unit and the product selling
prices for the extended case
Products
(106.lb/mon) ($/lb) (106.lb/mon) ($/lb)
PGO 16.107 530* 16.107 530*
PFO 1 570* 1 570*
Gasoline 4.476 450.1 4.476 453.6
H2 0.1 560* 0.1 560*
Acetylene 0.1 970* 0.1 970*
Ethylene 10 680* 10 680*
Propylene 9.067 820* 9.067 820*
C3 0.15 230* 0.15 230*
C4 1 230* 1 230*
C4 raffinate 1 230* 1 230*
Fuel Gas 1 407* 1 407*
Butadiene 1 930* 1 930*
Benzene 15 820* 15 820*
Toluene 5 600* 5 600*
Xylene 5 528* 5 528*
Untreated 0 285.3 0 297.0
heavy
naphtha
78
Table 4.14. Optimal throughputs of vacuum distillation unit and products selling
prices for the extended case
Products
(106.lb/mon) ($/lb) (106.lb/mon) ($/lb)
PGO 60 570* 60 570*

VGO 372.382 540* 372.382 540*
Vacuum 140 480* 140 480*
Residue
Table 4.15. Optimal throughput of gasoline retailing unit and its selling price for the
extended case
Product
(106.lb/mon) ($/lb) (106.lb/mon) ($/lb)
Gasoline 35 620* 35 620*

Figure 4.5 and Figure 4.6 again show that that the profit of each actor in a petroleum
supply chain is primarily governed by its bargaining power, 𝛾𝑢 . In the first scenario, the
individual profits of atmospheric distillation unit, LPG retailer, reformer, naphtha cracker,
kerosene retailer, hydrotreater, vacuum distillation unit, and gasoline retailer were found to
be 107,877,000,000 $/mon, 1,756,860,000 $/mon, 33,563,400,000 $/mon, 23,278,200,000
$/mon, 5,128,070,000 $/mon, 20,612,100,000 $/mon, 17,547,100,000 $/mon, and
5,180,600,000 $/mon, respectively. On the other hand, the individual profits of atmospheric
distillation unit, LPG retailer, reformer, naphtha cracker, kerosene retailer, hydrotreater,
vacuum distillation unit, and gasoline retailer were found to be 109,104,469,000 $/mon,
79
1,756,860,000 $/mon, 34,051,900,000 $/mon, 22,509,500,000 $/mon, 5,128,070,000 $/mon,
19,931,400,000 $/mon, 17,280,800,000 $/mon, and 5,180,600,000 $/mon, respectively, in
the second scenario. Since 𝛾𝑆 > 𝛾𝐶2 > 𝛾𝐶3 > 𝛾𝐶5 > 𝛾𝐶6 >𝛾𝐸1 > 𝛾𝐶4 > 𝛾𝐶1, therefore, 𝑃𝑆 > 𝑃𝐶2 >
𝑃𝐶3 > 𝑃𝐶5 > 𝑃𝐶6 > 𝑃𝐸1 > 𝑃𝐶4 > 𝑃𝐶1 .
120 12
Bargaining power ratio

Profit × 109 ($/mon)
100 10
80 8
60 6
40 4
20 2
0 0
Figure 4.5. Profits and bargaining powers of all actors in the first scenario of the
extended case
120 12

100 10
80 8
60 6
40 4
20 2
0 0
Figure 4.6. Profits and bargaining powers of all actors in the second scenario of the
extended case
80
Table 4.16. A comparison between the base case and the extended case
First Scenario of Second Scenario of

Factor Base Case
Extended Case Extended Case
Total profit
215,732,204,000 214,943,595,000 214,943,595,000
($/mon)
Flowrate of
150,000,000
light naphtha 152,618,000 152,618,000
(lower limit)
(lb/mon)
Flowrate of
70,000,000 70,000,000 70,000,000
heavy naphtha
(upper limit) (upper limit) (upper limit)
(lb/mon)
Flowrate of
575,000,000 572,382,000 572,382,000
ATR (lb/mon)
Flowrate of
gasoline
34,476,000 35,000,000 35,000,000
product
(lb/mon)
It can be observed from Table 4.16 that, since the total profits achieved in the first
and second scenarios of the extended case are the same, the corresponding results are not too
much different. The main differences between the two scenarios are in the prices of
intermediate gasolines from the reformer and the naphtha cracker. Consequently, if these
prices are different, it would only alter the other intermediate prices and share ratios in the
supply chain.
On the other hand, if we compare the results of the base case with those of the
extended case in Table 4.16, we can see that the differences between the two cases are in the
amounts of the retail gasoline product and also in the light naphtha and ATR from
atmospheric distillation unit. Since in the extended case the gasoline retailer is treated as an
independent actor in the supply chain, the quantity of gasoline to be sold to the market should
be larger than that in the based case. Notice that the total amount of the gasoline product was
found to be 34,476,000 lb/mon in the base case model, while in the both scenarios of the
extended case the total amounts of the gasoline were found to be 35,000,000 lb/mon. This is
81
due to the fact that the gasoline retailer is bound to push its profit higher independently by
selling a larger volume of product.
Notice also that the existence of an extra gasoline retailer drives down the maximum
total profit of the supply chain slightly (from 215,732,204,000 $/mon to 214,943,595,000
$/mon). This is because a portion of the total profit must be allocated every independent
actor according to its bargaining power. Consequently, the profits for some actors are
reduced. The naphtha cracker sells the gasoline to the market at a price of 620 $/lb in the
base case, but in the extended cases it is sold to gasoline retailing unit at a price of 450.1 $/lb.
As a result, the profit of naphtha cracker is squeezed. Furthermore, the existence of gasoline
retailer makes the supply chain to produce more light naphtha and heavy naphtha as the raw
material to produce gasoline. Thus, it can be observed from Table 4.16 that the flowrate of
heavy naphtha reaches its upper limit (70,000,000 lb/mon) and the flowrate of light naphtha
is raised from 150,000,000 lb/mon to 152,618,000 lb/mon. However, these increases could
make the flowrates of other intermediates lower, e.g., ATR. The flowrate of ATR is lowered
from 575,000,000 lb/mon in the base case to 572,382,000 lb/mon in the extended cases.
Consequently, the profit of vacuum distillation unit becomes also lower.
Finally, there are two conclusions we may draw from the above discussions:
1. The differences in the impacts between selling intermediate gasoline at the same and
different prices are not significant, since the total profit of whole chain is the same
for both scenarios of the extended case.
2. The presence of gasoline retailing unit raises the flowrates of gasoline product, and
the light and heavy naphtha. However, it could also bring down the maximum total
profit of the whole chain.
82
4.3 Grouping Structures
For business purpose, a company may want to be grouped with another to raise the
overall profit. Let us consider two grouping structures to observe their effects on the overall
and individual profits.
4.3.1 Structure I
Let us consider 4 groups in the base-case supply chain (see Figure 4.7). The first
group (G1) consists of the atmospheric distillation unit, the LPG retailing unit, and the
kerosene retailing unit; The second group (G2) is composed of the reformer and the naphtha
cracker; The third group (G3) is the hydrotreater, while the fourth (G4) is the vacuum
distillation unit. These 4 groups are marked in Figure 4.7 by the red, green, purple and yellow
dashed lines, respectively. In the base case, the LPG and kerosene retailers buy their raw
materials from the atmospheric distillation unit at the mutually agreed prices. However, since
they now belong to the same group in Structure I, these costs can be ignored within G1.
The objective function of the first-step optimization formulation for this case can be
expressed as follows:
𝑚𝑎𝑥 𝑃𝐺1 + 𝑃𝐺2 + 𝑃𝐺3 + 𝑃𝐺4

𝑓𝑆 ,𝑓𝐶1 ,𝑓𝐶2 ,𝑓𝐶3 ,𝑓𝐶4 ,𝑓𝐶5 ,𝑓𝐶6 , (4.1)
𝛽𝑆,1 ,𝛽𝑆,2 ,𝛽𝑆,3 ,𝛽𝑆,4 ,𝛽𝑆,5 ,𝛽𝑆,6 ,
𝛼𝐶1 ,𝛼𝐶2 ,𝛼𝐶3 ,𝛼𝐶4 ,𝛼𝐶5 ,𝛼𝐶6
where, P𝐺1 = P𝑆 + P𝐶1 + P𝐶4 ; P𝐺2 = P𝐶2 + P𝐶3 ; P𝐺3 = P𝐶5 ; P𝐺4 = P𝐶6 . Notice that
P𝑆 , P𝐶1 , P𝐶4 , P𝐶2 , P𝐶3 , P𝐶5 and P𝐶6 have already been defined in Chapter 3 for the base case.
83
(fpC1,1 ; βC1,1)
LPG Retail LPG
LPG Retailer
XC2 Reformer oil (fpC2,1 ; βC2,2)
Light Naphtha
C9 (fpC2,2 ; βC2,3)
RC2 (1-RC2)
Reformer
H2 (fpC3,4 ; βC3,4)
fpS,3 ; βS,3 fC3 ; αC3 Propylene (fpC3,7 ; βC3,7)
Heavy Naphtha XC3
C3 (fpC3,8 , βC3,8)
C4 (fpC3,9 ; βC3,9)
fS , αS (fpC3,13 ; βC3,13)
Benzene
RC3 (1-RC3)
ΦG1,G2 Naptha cracker

Kerosene Retailer

H2S (fpC5,2 ; βC5,2)
Hydrotreater
ΦG1,G3 Pyrolisis Fuel Oil (PFO) (fpC6,1 ; βC6,1)
Vacuum Distillation
ΦG1,G4
Figure 4.7. First grouping structure
The objective function of the second-step optimization formulation is expressed as follows:
𝛾 𝛾 𝛾
𝑚𝑎𝑥 𝜋𝐺1𝐺1 × 𝜋𝐺2𝐺2 × 𝜋𝐺3𝐺3 × 𝜋𝐺4𝐺4
𝛾 (4.2)
where the bargaining profit for each group, 𝜋𝐺𝑖 , also can be written as:
𝜋𝐺1 = P𝐺1 + 𝜙𝐺1,𝐺2 𝑅𝑉𝐺2 + 𝜙𝐺1,𝐺3 𝑅𝑉𝐺3 + 𝜙𝐺1,𝐺4 𝑅𝑉𝐺4 (4.3)
84
𝜋𝐺2 = P𝐺2 − 𝜙𝐺1,𝐺2 𝑅𝑉𝐺2 (4.4)
𝜋𝐺3 = P𝐺3 − 𝜙𝐺1,𝐺3 𝑅𝑉𝐺3 (4.5)
𝜋𝐺4 = P𝐺4 − 𝜙𝐺1,𝐺4 𝑅𝑉𝐺4 (4.6)
where 𝜙𝐺1,𝐺𝑖 is the ratio of group-𝑖 revenue that is shared by group 1 (G1). The revenues of
groups 2 - 4 are:
4 16
𝑅𝑉𝐺2 = ∑ 𝛽𝐶2,𝑖 𝑓𝑝𝐶2,𝑖 + ∑ 𝛽𝐶3,𝑖 𝑓𝑝𝐶3,𝑖 (4.7)

𝑖=1 𝑖=1
𝑅𝑉𝐺3 = 𝛽𝐶5,1 𝑓𝑝𝐶5,1 + 𝛽𝐶5,2 𝑓𝑝𝐶5,2 (4.8)
𝑅𝑉𝐺4 = 𝛽𝐶6,1 𝑓𝑝𝐶6,1 + 𝛽𝐶6,2 𝑓𝑝𝐶6,2 + 𝛽𝐶6,3 𝑓𝑝𝐶6,3 (4.9)
The negotiation power of each group, 𝛾𝐺𝑖 , can be expressed as :
𝛾𝐺1 = (𝑂𝐶𝑆 + 𝑂𝐶𝐶1 + 𝑂𝐶𝐶4 ); 𝛾𝐺2 = (𝑂𝐶𝐶2 + 𝑂𝐶𝐶3 ) ; 𝛾𝐺3 = 𝑂𝐶𝐶5 ; 𝛾𝐺4 = 𝑂𝐶𝐶6 (4.10)
Since the selling prices of the light naphtha and heavy naphtha from the atmospheric
distillation unit, i.e., 𝛼𝐶2 and 𝛼𝐶3 , and those from reformer and naphtha cracker, i.e., 𝛽𝐶2,4
and 𝛽𝐶3,16 , are unavailable a priori, let us assumed for this first grouping structure that
𝛽𝐶2,4 = 𝛼𝐶2 and 𝛽𝐶3,16 = 𝛼𝐶3 .
The two mathematical programming models used in the proposed two-step approach
were solved using BARON solver in GAMS on a computer with an Intel Core i7 CPU and
16GB RAM. For step 1 of Structure I, there are 111 real variables and 156 constraints (84
equality constraints and 72 inequality constraints) in the corresponding NLP model and the
execution time was about 0.016 s (CPU time). For the corresponding step 2, there are 131
real variables and 176 constraints (101 equality constraints and 75 inequality constraints) in
the NLP model and the execution time was about 1001.32 s (CPU time).
85
fpS,1 = fC1= 10,000,000
LPG Retailer
XC2= Reformer oil (fpC2,2 ; βC2,2)
Light Naphtha 1
fpS,2 = fC2= 155,000,000 C9 (fpC2,3 ; βC2,3)
βS,2 = αC2 = 301.588
PG2 = 68,192,052,000
Reformer

H2 (fpC3,4 ; βC3,4)
XC3= 1 (fpC3,8 ; βC3,8)
fpS,3 = fC3= 70,000,000 C3
C4 (fpC3,9 ; βC3,9)
fS =1,000,000,000 Benzene (fpC3,13 ; βC3,13)
αS = 300 Toluene (fpC3,14 ; βC3,14)
PG1 =138,837,576,000
ΦG1,G2 = 0.028 Naptha cracker

fpS,4 = fC4= 35,000,000
Kerosene Retailer

fpS,5 = fC5= 155,000,000 H2S (fpC5,2 ; βC5,2)
PG3 =24,269,758,000 Hydrotreater
ΦG1,G3 = 0.5 Pyrolisis Fuel Oil (PFO) (fpC6,1 ; βC6,1)

βS,6 = αC6 = 224.714
PG4 = 21,160,082,000 Vacuum Distillation
ΦG1,G4 = 0.5
Figure 4.8.First grouping structure results
$/mon. The second-step optimization results are summarized in Figure 4.8. For illustration
clarity, the same results are also presented in detail in the tables below.
It is assumed that 1,000,000,000 lb/mon of crude oil is bought from the market at a
price of 300 $/lb. For group 1, the product flowrates and their prices are presented in Table
4.17. The LPG retailing unit obtains 10,000,000 lb/mon of LPG from atmospheric distillation
86
and the kerosene retailing unit receives 35,000,000 lb/mon of kerosene from the atmospheric
distillation unit, and then sell their products to the market.
In the case of group 2, the reformer receives 155,000,000 lb/mon of light naphtha
from the atmospheric distillation unit in G1 at a price of 301.6 $/lb. On the other hand, the
naphtha cracker processes 70,000,000 lb/mon of heavy naphtha from the atmospheric
distillation unit in G1 at a price of 121.9 $/lb. The product flowrates of the group 2 are
presented in Table 4.20. In the reformer and naphtha cracker, there are no untreated feeds,
i.e., the corresponding conversions are both equal to 1. Since the price of light naphtha and
heavy naphtha are relatively low when compared with those of the products, both feeds are
completely converted into the more valuable materials. The share ratio from group 2 to group
1, 𝜙𝐺1,𝐺2 , was found to be 0.028.
For G3, the hydrotreater buys 155,000,000 lb/mon of the light and heavy oil from
supplier (i.e., G1) at a price of 83.1 $/lb. The optimal product flowrates for group 3 are given
in Table 4.18. Notice that the flowrates of diesel and H2S were found to be 150,000,000
lb/mon and 5,000,000 lb/mon, respectively. The share ratio from group 3 to group 1, 𝜙𝐺1,𝐺3 ,
was found to be 0.5.
For G4, the vacuum distillation unit obtains 575,000,000 lb/mon of ATR from the
atmospheric distillation unit in G1 at a price of 224.7 $/lb. The product flowrates of group 4
are presented in Table 4.19. The share ratio from group 4 to group 1, 𝜙𝐺1,𝐺4 , was found to
be 0.5.
87
Table 4.17. Optimal throughputs of G1 and product selling prices for Structure I.
Products
(106.lb/mon) ($/lb)
Atmospheric distillation unit:
Light and heavy oil 155 83.1
ATR 575 224.7
LPG retailer unit:
LPG 10 600*
Kerosene retailer unit:
Kerosene 35 400*

Products
(106.lb/mon) ($/lb)
Hydrotreater unit:
Diesel 150 510*
H2S 5 300*
Table 4.19. Optimal throughputs of G4 and products selling prices for Structure I

Products
(106.lb/mon) ($/lb)
Vacuum distillation unit:
PFO 60 570*
VGO 375 540*
88
Products
(106.lb/mon) ($/lb)
Reformer unit:
Gasoline 31 620*
Reformer oil 108.5 570*
C9 15.5 330*
Untreated light naphtha 0 301.6
Naphtha cracker unit:
PGO 16.107 530*
PFO 1 570*
Gasoline 4.476 620*
H2 0.1 560*
Acetylene 0.1 970*
Ethylene 10 680*
C3 0.15 230*
C4 1 230*
C4 raffinate 1 230*
Fuel Gas 1 407*
Butadiene 1 930*
Benzene 15 820*
Toluene 5 600*
Xylene 5 528*
Untreated heavy naphtha 0 121.9
Figure 4.9 shows that the profit of each group (actor) in a petroleum supply chain is
primarily governed by its bargaining power, 𝛾𝐺𝑖 . In this first grouping structure, the group
profits of G1 – G4 were found to be 138,837,576,000 $/mon; 68,192,052,000 $/mon;
24,269,758,000 $/mon; and 21,160,082,000 $/mon; respectively. Since 𝛾𝐺1 > 𝛾𝐶2 > 𝛾𝐺3 >
𝛾𝐺4 , therefore, 𝑃𝐺1 > 𝑃𝐺2 > 𝑃𝐺3 > 𝑃𝐺4 .
89
140 13

120

11
100
9
80
7
60
5
40
20 3
0 1
Group 1 Group 2 Group 3 Group 4
Figure 4.9. Profits and bargaining powers of all the groups in the first grouping
structure
Table 4.21. A comparison between Structure I and base case
Factor Structure I Base Case

Total profit of supply chain
252,459,468,000 215,732,204,000
($/mon)
Profit of Group 1 ($/mon) 138,837,576,000 120,344,703,000

Flowrate of retail LPG 10,000,000 20,000,000
product (lb/mon) (lower limit) (upper limit)
Flowrate of retail kerosene 35,000,000 35,000,000
product (lb/mon) (lower limit) (lower limit)
Total flowrate of products
155,000,000 150,000,000
from reformer (lb/mon)
from naphtha cracker 70,000,000 70,000,000
(lb/mon)
155,000,000 150,000,000
from hydrotreater (lb/mon)
from vacuum distillation 575,000,000 575,000,000
(lb/mon)
90
In the first grouping structure, the atmospheric distillation unit, LPG retailing unit,
and kerosene retailing unit are combined into G1. Since the raw material costs for LPG and
kerosene retailers are ignored in G1 of the first grouping structure, it makes the profit of
group 1 significantly larger than the profit of any other group. It can be observed from Table
4.21 that the flowrate of retail kerosene product reaches its lower limit (35,000,000 lb/mon)
and the flowrate of retail LPG product is dropped from its upper limit (20,000,000 lb/mon)
to its lower limit (10,000,000 lb/mon). When the flowrates of LPG and kerosene products
reach the lower limits, the individual profits of G1 – G4 are found to be 138,837,576,000
$/mon; 68,192,052,000 $/mon; 24,269,758,000 $/mon; and 21,160,082,000 $/mon;
respectively. If the flowrate of LPG and kerosene products are not in the lower limit, it will
make the profit of group 1 overpower the others. The only way to manage the profit of group
1 not too superior to the other group’s profits is to reduce the flowrate of LPG and kerosene
products. Group 1 can’t bring down the flowrate of light naphtha, heavy naphtha, light and
heavy oil, and ATR, because the other groups require those products to get more profits by
treating them to more valuable products. The inclusion of LPG and kerosene retailing units
makes the profit of G1 more dominant when compared to the base case. For this reason, the
other groups in Structure I are bound to improve their profits as much as possible. For
examples, group 2 boosts its profit by increasing the total flowrate of its reformer products
from 150,000,000 lb/mon to 155,000,000 lb/mon and group 3 by raising the total flowrate
of its hydrotreater products from 150,000,000 lb/mon to 155,000,000 lb/mon. Consequently,
the maximum total profit of the whole chain is elevated from 215,732,204,000 $/mon to
252,459,468,000 $/mon. Based on the above discussions, we may infer that the maximum
total profit can be raised by reducing the number of groups in a supply chain.
91
4.3.2 Structure II
Let us consider only 2 groups in the first scenario of the extended case (see Figure
4.10). Specifically, the first group (G1) consists of the atmospheric distillation unit, the LPG
retailing unit, the kerosene retailing unit, and the hydrotreater. On the other hand, the second
group (G2) includes the reformer, the naphtha cracker, the vacuum distillation unit, and the
gasoline retailing unit. These 2 groups are marked in Figure 4.10 by the green and red dashed
lines, respectively. In the first scenario of extended case, the LPG retailer, kerosene retailer,
and hydrotreater buy their raw materials from the atmospheric distillation unit at mutually
agreed prices. Since these units all belong to the same group now in Structure II, the above
intermediate costs are not considered within G1. In addition, the gasoline retailing unit buys
the raw material from reformer and naphtha cracker at a definite price. Since the two units
belong to the same group (G2) in Structure II, its cost is also ignored.
The objective function of the first-step optimization formulation can be expressed as
follows:
𝑚𝑎𝑥 𝑃𝐺1 + 𝑃𝐺2

𝑓𝑆 ,𝑓𝐶1 ,𝑓𝐶2 ,𝑓𝐶3 ,𝑓𝐶4 ,𝑓𝐶5 ,𝑓𝐶6 ,𝑓𝐸1 (4.11)
𝛽𝑆,1 ,𝛽𝑆,2 ,𝛽𝑆,3 ,𝛽𝑆,4 ,𝛽𝑆,5 ,𝛽𝑆,6 ,𝛽𝐶2,1 ,𝛽𝐶3,3
𝛼𝐶1 ,𝛼𝐶2 ,𝛼𝐶3 ,𝛼𝐶4 ,𝛼𝐶5 ,𝛼𝐶6 ,𝛼𝐸1
where, P𝐺1 = P𝑆 + P𝐶1 +P𝐶4 +P𝐶5 and P𝐺2 = P𝐶2 + P𝐶3 + P𝐶6 + P𝐸1 . Notice that
P𝑆 , P𝐶1 , P𝐶4 , P𝐶2 , P𝐶3 , P𝐶5 , P𝐶6 and P𝐸1 have already been defined in Chapter 3 for the first
scenario of extended case.
92
LPG Retailer
fE1 ; αE1
Gasoline fpC2,1 ; βC2,1 (fpE1,1 ; βE1,1 )
fpS,2 ; βS,2 fC2 ; αC2 Retail gasoline
XC2 Reformer oil (fpC2,2 ; βC2,2)
C9 (fpC2,3 ; βC2,3)
RC2 (1-RC2)
Reformer
Gasoline
H2 (fpC3,4 ; βC3,4)
Acethylene (fpC3,5 ; βC3,5) fpC3,3 ; βC3,3
fpS,3 ; βS,3 Ethylene (fpC3,6 ; βC3,6)
fC3 ; αC3 (fpC3,7 ; βC3,7)
Heavy Naphtha Propylene
XC3 (fpC3,8 ; βC3,8)
C3
C4 (fpC3,9 ; βC3,9)
fS , αS Benzene (fpC3,13 ; βC3,13)
RC3 (1-RC3)
Naptha cracker
Kerosene Retail kerosene (fpC4,1; βC4,1)
Kerosene Retailer

H2S (fpC5,2 ; βC5,2)
Hydrotreater
Vacuum Distillation
ΦG1,G2
Figure 4.10. Second grouping structure
93
The objective function of the second-step optimization formulation is expressed as follows:
𝛾 𝛾
𝑚𝑎𝑥 𝜋𝐺1𝐺1 × 𝜋𝐺2𝐺2 (4.12)
where the bargaining profit for each group, 𝜋𝐺𝑖 , also can be written as:
𝜋𝐺1 = P𝐺1 + 𝜙𝐺1,𝐺2 𝑅𝑉𝐺2 (4.13)
𝜋𝐺2 = P𝐺2 − 𝜙𝐺1,𝐺2 𝑅𝑉𝐺2 (4.14)
where 𝜙𝐺1,𝐺2 denotes the ratio of group 2’s revenue to be shared by group 1. The
revenue of group 2 is:
𝑅𝑉𝐺2 = 𝛽𝐶2,2 𝑓𝑝𝐶2,2 + 𝛽𝐶2,3 𝑓𝑝𝐶2,3 + 𝛽𝐶2,4 𝑓𝑝𝐶2,4 + 𝛽𝐶3,1 𝑓𝑝𝐶3,1
16
+𝛽𝐶3,2 𝑓𝑝𝐶3,2 + ∑ 𝛽𝐶3,𝑖 𝑓𝑝𝐶3,𝑖 + 𝛽𝐶5,2 𝑓𝑝𝐶5,2 (4.15)

𝑖=4
+𝛽𝐶6,1 𝑓𝑝𝐶6,1 + 𝛽𝐶6,2 𝑓𝑝𝐶6,2 + 𝛽𝐶6,3 𝑓𝑝𝐶6,3 + 𝛽𝐸1,1 𝑓𝑝𝐸1,1
The negotiation power of each group, 𝛾𝐺𝑖 , can be expressed as :
𝛾𝐺1 = (𝑂𝐶𝑆 + 𝑂𝐶𝐶1 + 𝑂𝐶𝐶4 +𝑂𝐶𝐶5 ); 𝛾𝐺2 = (𝑂𝐶𝐶2 + 𝑂𝐶𝐶3 + 𝑂𝐶𝐶6 + 𝑂𝐶𝐸1 ) (4.16)
Since the selling prices of the light naphtha and heavy naphtha from the atmospheric
distillation unit, i.e., 𝛼𝐶2 and 𝛼𝐶3 , and those from reformer and naphtha cracker, i.e., 𝛽𝐶2,4
and 𝛽𝐶3,16, are assumed to be unavailable a priori, let us assumed for this second grouping
structure that 𝛽𝐶2,4 = 𝛼𝐶2 and 𝛽𝐶3,16 = 𝛼𝐶3 .
In addition, the two mathematical programming models used in the proposed two-
step approach were solved using BARON solver in the commercial software GAMS on a
computer with an Intel Core i7 CPU and 16GB RAM. For step 1 of the second grouping
structure, there are 117 real variables and 161 constraints (89 equality constraints and 72
inequality constraints) in the corresponding NLP model and the execution time was about
0.015 s (CPU time). For step 2 of the second grouping structure, there are 125 real variables
94
and 169 constraints (95 equality constraints and 74 inequality constraints) in the
corresponding NLP model and the execution time was about 1001.32 s (CPU time).
95
fpS,1 = fC1= 20,000,000 fE1 = 35,000,000
LPG Retailer
Gasoline fpC2,1 = 30,537,000 (fpE1,1 ; βE1,1 )
XC2= Reformer oil (fpC2,2 ; βC2,2) Retail gasoline
0.954
fpS,2 = fC2= 160,000,000 C9 (fpC2,3 ; βC2,3)
βS,2 = αC2 = 811.32
RC2 =0 (1-RC2)=1
Reformer
Gasoline
H2 (fpC3,4 ; βC3,4)
Acethylene (fpC3,5 ; βC3,5) fpC3,3 = 4,463,000
Heavy Naphtha XC3 = Propylene (fpC3,7 ; βC3,7)
0.997 C3 (fpC3,8 ; βC3,8)
fpS,3 = fC3= 70,000,000 C4 (fpC3,9 ; βC3,9)
βS,3 = αC3= 642.276 C4 raffinate (fpC3,10 ; βC3,10)
αS = 300 (fpC3,14 ; βC3,14)
Toluene
PG1 =222,246,730,000 Xylene (fpC3,15 ; βC3,15)
RC3 =0 (1-RC3)=1
Naptha cracker
PG2 =172,954,574,000
Kerosene Retail kerosene (fpC4,1; βC4,1)
fpS,4 = fC4= 35,000,000
Kerosene Retailer

H2S (fpC5,2 ; βC5,2)
Atmospheric Distillation fpS,5 = fC5= 150,000,000
Hydrotreater

βS,6 = αC6= 211.783
Vacuum Distillation
ΦG1,G2 =0
Figure 4.11. Second grouping structure results
96
$/mon. The second-step optimization results can be found in the Figure 4.11. For the sake of
illustration clarity, the same results are also reported in detail in the tables below.
It is assumed that 1,000,000,000 lb/mon of crude oil is bought from the market at a
price of 300 $/lb. For group 1, the product flowrates and their prices are presented in Table
4.22. From the atmospheric distillation unit within G1, the LPG retailing unit, the kerosene
retailing unit and the hydrotreater obtain 20,000,000 lb/mon of LPG, 35,000,000 lb/mon of
kerosene and 150,000,000 lb/mon of the light and heavy oil, respectively.
In the case of group 2, the product flowrates are given in Table 4.23. The reformer
receives 160,000,000 lb/mon of light naphtha from the atmospheric distillation unit at a price
of 811.3 $/lb. In this reformer unit, the untreated feed was found equal to 7,315,000 lb/mon.
The corresponding conversion and recycle ratio are 𝑋𝐶2 =0.954 and 𝑅𝐶2 =0, respectively.
Since the price of light naphtha is higher compared to those of the products, G2 prefers to
sell light naphtha to the market instead of processing them into other products. Next, the
naphtha cracker processes 70,000,000 lb/mon of heavy naphtha from the atmospheric
distillation unit at a price of 642.3 $/lb. In this naphtha cracker, the untreated feed was found
to be 207,000 lb/mon. The corresponding conversion and recycle ratio for the naphtha
cracker are 𝑋𝐶3 =0.997 and 𝑅𝐶3 =0, respectively. Since the price of heavy naphtha is
relatively high when compared with those of the products, the naphtha cracker unit considers
selling heavy naphtha to the market instead of processing them into other products. On the
other hand, the vacuum distillation unit buys 565,000,000 lb/mon of ATR from the
atmospheric distillation unit at a price of 211.8 $/lb. On the other hand, the gasoline retailing
unit obtains 30,537,000 lb/mon of gasoline from reformer and 4,463,000 lb/mon of gasoline
97
from naphtha cracker, then sells the gasoline product to the market. The share ratio from
group 2 to group 1, 𝜙𝐺1,𝐺2 , was found to be 0.
Table 4.22. Optimal throughputs of G1 and product selling prices for Structure II

Products
(106.lb/mon) ($/lb)
Atmospheric distillation unit:
ATR 565 211.8
LPG retailer unit:
LPG 20 600*
Kerosene retailer unit:
Kerosene 35 400*
Hydrotreater unit:
Diesel 145 510*
H2S 5 300*
98
Table 4.23. Optimal throughputs of G2 and the product selling prices for the
Structure II
Products
(106.lb/mon) ($/lb)
Reformer unit:
Reformer oil 106.848 570*
C9 15.3 330*
Untreated light naphtha 7.315 811.3
Naphtha cracker unit:
PGO 16.059 530*
PFO 0.997 570*
H2 0.099 560*
Acetylene 0.099 970*
Ethylene 9.969 680*
C3 0.149 230*
C4 0.997 230*
C4 raffinate 0.997 230*
Fuel Gas 0.997 407*
Butadiene 0.997 930*
Benzene 14.955 820*
Toluene 4.985 600*
Xylene 4.985 528*
Untreated heavy naphtha 0.213 642.3
Vacuum distillation unit:
PFO 60 570*
VGO 365 540*
Gasoline retailer unit:
Gasoline 35 620*
Figure 4.12 shows that the profit of each actor (group) in a petroleum supply chain
is primarily affected by its bargaining power, 𝛾𝐺𝑖 . In this second grouping structure, the
99
profits of group 1 and group 2 were found to be 222,246,730,000 $/mon; and
172,954,574,000 $/mon, respectively. Notice that the bargaining power of group 1 is larger
than group 2 and, thus, the former gains a higher profit.
250 1.8

200
1.6
150
1.4
100
1.2
50
0 1
Group 1 Group 2
Figure 4.12. Profits and bargaining powers of all the groups in the second grouping
structure
100
Table 4.24. A comparison between second grouping structure and first scenario of
extended case
Second Grouping Extended Case Model

Factor
Structure First Scenario
Total profit of the supply
395,201,304,000 214,943,595,000
chain ($/mon)
Selling price of light naphtha

811.32 278.72
($/lb)
Selling price of heavy naphtha
642.276 61.331
($/lb)
Flowrate of light naphtha 160,000,000
152,618,000
(lb/mon) (upper limit)
Flowrate of heavy naphtha 70,000,000 70,000,000
(lb/mon) (upper limit) (upper limit)
20,000,000 20,000,000
from LPG retailer (lb/mon)
Total flowrate of products 160,000,000
152,618,000
from reformer (lb/mon) (upper limit)
Total flowrate of products 70,000,000 70,000,000
from naphtha cracker(lb/mon) (upper limit) (upper limit)
from kerosene retailer 35,000,000 35,000,000
(lb/mon)
150,000,000 150,000,000
from hydrotreater (lb/mon)
from vacuum distillation 565,000,000 575,000,000
(lb/mon)
from gasoline retailer 35,000,000 35,000,000
(lb/mon)
Conversion in reformer unit
0.954 1
(𝑋𝐶2)
Conversion in naphtha
0.997 1
Cracker unit (𝑋𝐶3)
101
In the second grouping structure, the products of group 2 are in general more valuable
than those of group 1. However, bargaining power of group 1 is slightly higher than that of
group 2. For those reasons, it can be observed in Table 4.24 that, the selling prices of light
naphtha and heavy naphtha in Structure II are higher than those of the first scenario in the
extended case. As a result, the profit of group 1 in Structure II is still higher than the profit
of group 2. In the second grouping structure, there is incentive to sell the light and heavy
naphtha to the market due to their good prices. Consequently, the feed conversions in the
reformer (𝑋𝐶2) and naphtha cracker (𝑋𝐶3) are decreased from 1 in the extended case to 0.954
and 0.997, respectively, in Structure II. Also, since the selling prices of light and heavy
naphtha are higher than other products in G1, the flowrate of heavy naphtha reaches its upper
limit (70,000,000 lb/mon) and the flowrate of light naphtha raises from 152,618,000 lb/mon
to 160,000,000 lb/mon. Therefore, the profit of group 1 in Structure II is higher than the sum
of profits of the corresponding units in the first scenario of extended case.
On the other hand, the individual profit of group 2 in Structure II is also raised to a
level which is higher than the total profit of the corresponding units in the extended case.
This is due to the raw material cost of gasoline retailer unit are ignored in the present case,
and the total flowrate of products from reformer and naphtha cracker also reach its upper
limit. Consequently, the maximum total profit of the whole chain will be elevated from
214,943,599,000 $/mon to 395,201,304,000 $/mon.
4.3.3 Concluding remark
Finally, one may conclude from the above discussions that a higher total profit of the
supply chain may be achieved by reducing the number of actors in the chain.
102
Chapter 5
Conclusions and Future Works
5.1 Conclusions
A two-step approach has been developed in this work for the purpose of generating
fair profit-allocation plans in the supply chains. It can be observed from the optimization
results of various case studies in fictitious systems and the petroleum supply chain that this
goal can be achieved while still maintaining the maximum total profit.
5.2 Future Works
Although satisfactory results have been obtained in this work, there are still several
unsettled issues which require further attention. Specifically,
 In this research, the revenue-sharing contract (Yue and You, 2014) was adopted to
generate the fair-profit allocation plans. However, the other types of contracts, such as
the buy-back contract (Wang et al., 2016), the wholesale price contract (Hwang et al.,
2018), or even the combination of the existing contracts, can be considered to enhance
the performance of the supply chain.
 In fact, the reactions inside reformer, naphtha cracker, and hydrotreater are more
complicated than those modelled in this research. In order to characterize these realistic
systems more accurately, more sophisticated kinetic models should be adopted for the
future works.
 There are many additional factors that can influence the negotiation power of the actor,
e.g., the global demand and company reputation, etc. However, in this research,
negotiation power was only assumed to be the total operation cost of each actor.
103
 The petroleum supply chain structures proposed in this research were limited. The more
complete version of petroleum industry may be considered in the future.
104
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國立成功大學

研究生: Eric Yonathan 陳利勇

maintain sustainable operations. In particular, the mathematical frameworks of a series of

processing systems were generated to facilitate implementation of a decentralized optimization

supplier(s) and consumer(s) so as to establish a long-term working relationship. The present

provided as examples to demonstrate the feasibility of the proposed approach.

List of Contents .......................................................................................................................... II

List of Figures ............................................................................................................................. V

List of Tables ........................................................................................................................... VII

1.1 Background ................................................................................................................... 1

1.2 Literature Review ......................................................................................................... 1

1.3 Research Objectives ...................................................................................................... 4

1.4 Thesis Structure ............................................................................................................ 4

2.1 Incentive for More Studies ........................................................................................... 5

2.2 Existing Approach ........................................................................................................ 6

2.2.1 Model Structure ..................................................................................................... 6

2.2.2 Mathematical Model .............................................................................................. 8

2.2.3 Optimization Formulation ................................................................................... 13

2.2.4 Example 1 ............................................................................................................ 14

2.3 Revenue Sharing Scheme (Yue and You, 2014) ........................................................ 17

2.4 Nash Cooperative Bargaining Method ....................................................................... 18

2.5.1 Step 1................................................................................................................... 19

2.5.2 Step 2: ................................................................................................................. 19

2.6 Simple Examples ........................................................................................................ 20

2.6.1 Example 1: 1 Supplier, 1 Consumer and 1 Intermediate Product ....................... 20

2.6.2 Example 2: 1 Supplier, 2 Consumers and 2 Intermediate Products .................... 21

2.6.3 Example 3: 1 Supplier, 2 Consumers and 1 Intermediate Product ..................... 24

3.1 Model Structure .......................................................................................................... 28

3.2 General Model Formulations ...................................................................................... 44

3.2.1 Model I – the separation process .......................................................................... 45

3.2.2 Model II – the reaction-separation process........................................................... 46

3.2.3 Model III – the storage process ............................................................................ 48

3.2.4 Profit and cost models .......................................................................................... 49

3.3 Specific Unit Models .................................................................................................. 51

3.3.1 Atmospheric distillation (S)................................................................................. 51

3.3.2 LPG retailer (C1) ................................................................................................. 53

3.3.3 Reformer (C2) ..................................................................................................... 53

3.3.4 Naphtha cracker (C3)........................................................................................... 54

3.3.5 Kerosene retailer (C4) ......................................................................................... 55

3.3.6 Hydrotreater (C5) ................................................................................................ 56

3.3.7 Vacuum distillation (C6) ..................................................................................... 57

3.4.1 Gasoline retailer (E1) .......................................................................................... 61

3.5 Objective Functions .................................................................................................... 61

3.5.1 Base case ............................................................................................................. 61

3.5.2 Extended case ...................................................................................................... 62

4.1 Base Case .................................................................................................................... 64

4.2 Extended Case............................................................................................................. 70

4.3 Grouping Structures .................................................................................................... 83

4.3.1 Structure I ............................................................................................................ 83

4.3.2 Structure II .......................................................................................................... 92

4.3.3 Concluding remark ............................................................................................ 102

Chapter 5 ................................................................................................................................. 103

5.1 Conclusions .................................................................................................................. 103

5.2 Future Works ................................................................................................................ 103

References ............................................................................................................................... 105

Figure 2.3. Standard process configurations for actor ............................................................... 10

Figure 2.5. Revenue sharing scheme in a simple supply chain ................................................. 17

Figure 2.7. Reaction-separation processes considered in Example 2 ........................................ 21

Figure 2.9. Supply-chain structure in Example 3 ...................................................................... 24

Figure 3.1. General Framework of Petroleum Supply Chain .................................................... 29

Figure 3.2. Research Scope ....................................................................................................... 30

Figure 3.3. Base-Case Structure of Petroleum Supply Chain ................................................... 31

Figure 3.4. The generalized separation process ......................................................................... 45