This paper discusses how Operations Research is used in the supply chain and activity process for a Refinery run of an oil Company.

 

By 1940, spurred by the growing Philippine economy, a sizeable range of Shell products was being sold to more areas in the Philippines through installations and depots set up in strategic points throughout the country.

 

In 1960, Shell built its first crude refinery in Tabangao, Batangas, which commenced operations in 1962. This made Shell a complete downstream business engaged not only in trading, transport and distribution, but also in the manufacture and refining of petroleum products.

 

The birth of the refining era was accompanied by further business expansion.

 

Shell pursued interests in the marketing of chemicals and crop protection products to support the fast growth in the agricultural sector during the 1960s.

 

In the late 1970s, Shell began its involvement in upstream activities (oil and gas exploration and production) to reduce the country's dependence on imported oil.

 

To meet the rising demand for liquefied petroleum gas (LPG) in Asia, Shell began in the early 1980s the construction of a refrigerated LPG terminal that would supply domestic LPG needs of the Philippines and its Asian neighbors. The first of its kind in Asia, Shell's refrigerated LPG terminal began operations in 1983.

 

In the conduct of its business, Shell has always been conscious of its obligations to society. In 1982, Shell formed the Pilipinas Shell Foundation, Inc. to begin its direct participation in social development through industrial and agricultural skills training, livelihood and entrepreneurship training, promotion of science and technology education, and other community development programs around Shell work sites. The foundation has helped make a brighter future for thousands of out-of-school youths, farmers, students, military dependents and other disadvantaged segments of society.

 

In 1986, Pilipinas Shell took over majority ownership of Philippine Petroleum Corporation, the country's only lube oil refinery.

 

In 1990, Shell Philippines Exploration B.V. (SPEX) signed a service contract with Occidental Philippines Inc. to invest in oil and gas exploration in offshore Northwest Palawan. Using state-of-the-art technology in one of the deepest waters in the world, the joint venture discovered significant oil and gas reserves in the Malampaya/Camago field.

 

Further strengthening its commitment to meet the country's increasing fuel needs, Pilipinas Shell began in 1993 the construction of a bigger and more modern refinery adjacent to its existing facility in Tabangao. Completed in 1995, the 110,000 barrels per day refinery boosted Shell's refining capacity to 155,000 barrels per day, becoming Pilipinas Shell's share in helping the country move forward to a better future as envisioned in the government's Philippines 2000 program.

 

The new refinery enables Pilipinas Shell to produce petroleum products which are more responsive to the needs of the country and the environment. Its energy-efficient processing facility enables it to produce more middle distillates to augment the country's diesel fuel requirements. The new refinery is also capable of producing unleaded gasoline and low sulfur diesel.

 

This 1998, SPEX begins the development and construction of the Malampaya field for the commercial production of natural gas in the country by the year 2002. The gas-to-power project is seen as the largest and most significant investment in the history of Philippine business, with a total financing requirement of approximately US$2.0 billion. It is expected to generate a substantial income for the Philippine government over the life of the field, reduce reliance on imported fuels from 20% to 30%, and provide an alternative environment-friendly fuel for power generation.

References

Process/Activity Model of Shell by J. Aquino, Manager, Shell Logistics

F.S. Hillier and G.J. Lieberman. 2005. Introduction to Operations Research. McGraw-Hill Companies, Inc., New York.

Activity Model

Objective

Successful financial performance is essential to Shell’s sustainable future and contributes to the prosperity of society. Shell use recognized measures to judge their profitability. They seek to achieve robust profitability by:

• Reducing cost
• Improving margins
• Increasing revenues
• Manage working capital effectively

Solution Approach

The only existing model that any Oil Company would have, especially Petron and Shell is Linear/Goal Programming.

1. Planning network operations

Variables considered:

1. Activities (A) – activities done for the whole network/organization
2. Schedule  (S) – all possible schedules for implementation
3. Transportation (T) – available shipment

2. Scheduling the Distribution

Variables considered:

1. Transportation services (Ts)
2. Carriers (C)
3. Source (Sr) – distribution resources

3. Collecting product for transportation and storage

Variables considered

1. Transport facility (Tf)
2. Load (L)
3. Quantity (Qn)
4. Quality (QL)

4. Scheduling receipts

Variables considered

1. Storage facilities (Sf)
2. Time (Tm)

5. Receiving at storage facility

Variables considered

1. Arrival (Ar) – Transport facility arrival
2. Stocks (St) – products

6. Scheduling and administering stock in storage facility

Variables considered

1. Storage (Str) – available place for storage
2. Product blend (Bp)
3. Packing (P)
4. Container (Co) – inventory of the containers

7. Handling stock in storage facility

Variables considered

1. Blend (B)
2. Container (Co)
3. Quality (QL) – product quality control

8. Delivery

Variables considered

1. Arrival (Ar) – time of the transport arrival
2. Quantity (Qn)
3. Quality (QL)

9. Monitoring the progress of work

Variables considered

1. Work done (Wd) – quality of the work done
2. Time (Tm) – allocated hours of work
3. Incidents (I)

10. Completing the task

Variables considered

1. Time (Tm) – verified hours spent
2. Cost (Ct) – used for resource utilization.
3. Equipments (E)

***All variables (v) are assumed nonnegative, v ≥ 0.

Constraints

As Shell’s new refinery has been capable of producing unleaded gasoline and low sulfur diesel, the maximum percentage of sulfur content must be 0.03% mass as for the typical US gasoline content. Therefore,

        Let x = sulfur, such that for every Blend, B, the amount of sulfur must not exceed 0.03%mass

hence, x ≤ 0.03%.

Shell’s refinery storage capacity is up to 3.6 M barrels, hence

        Str ≤ 3.6 M barrels.

As of 2001, Shell had its highest earnings ever having the cost improvement on Gas & Power and Products yielding to $5.1 Billion, thus the goal has been to bit the $5.1 B and much minimize the cost,

                Ct < $5.1 Billion

The import / export and storage facility consists of a network of jetties and a tank farm linked to the new refinery. This integrated facility receives and stores crude oil from tankers, including Very Large Crude Carriers (VLCCs) of up to 320,000 Dead Weight Tons (DWT). It is also able to load liquefied petroleum gas (LPG) and other refined petroleum products onto barges or tankers for inter-island or international destinations.

                C ≤ 320,000 DWT.

Implications

        Shell uses Operations Research software for the determination of the Linear/Goal Programming model solution of their distribution processes. This is used for Refinery Run which is done on a weekly basis but revised daily.