The combination of US tax reforms and changes to the global bunker fuel specifications in 2020 as part of the International Maritime Organization’s (IMO) new regulations are set to turn US oil and gas downstream into a cash cow. However, refiners shouldn’t rest on their laurels and must improve their bottom line to stay ahead of rivals and remain profitable in a highly competitive landscape. Here Mark Routt, chief economist at KBC, discusses how they should go about making the most of this new opportunity.
Why technology leads to profitability
Digitalization has become a major trend in global heavy industry, with IIoT and Industry 4.0 initiatives driving innovative new technologies like intelligent, outcome-oriented, remote unit monitoring and digital twin modeling. The business case for investing in new technology is becoming more apparent as companies take a closer look, with bottom line improvements in yield and asset availability able to justify the cost of technology investments. Many oil companies have already nominated C-level executives to lead their digitalization efforts. They look at digitalization implementations by other industries and see how far oil refining still has to go. That has led to new strategic programs to keep them aligned with this rapidly evolving market space.
Operationally, yield and energy optimization projects can help refiners to maximize the exploitation of their assets; filling hydraulic spaces and improving the yields of the highest value products (molecule management) while economically optimizing energy consumption. Investment in intelligent unit monitoring and preventative maintenance help keep assets highly available, safe, and drive value from increased uptime and less frequent, shorter maintenance cycles.
Refiners may also choose to look at portfolio optimization strategies to ensure they have the right assets on the ground in the right locations. This includes enhancing storage and logistics assets for operational flexibility, smaller-scale petrochemicals investments to boost plant margins, and technology investments to optimize refinery scheduling to better manage working capital requirements.
This is also an excellent opportunity to invest in people. With staffing levels at all-time lows, companies can invest in training programs to ensure their refinery personnel have the right skills in place to both operate their plants and take advantage of these new digital solutions. Conventional trades and engineering disciplines are being joined by new skills in mathematics, electronics and IT. Developing staff for tomorrow’s capabilities in parallel with the deployment of new technologies will see companies ensure they are fit for a higher technology future. And companies that are at the forefront of the digitalization revolution will attract the best talent ahead of competitors.
Embracing a shift in organizational culture
Our own research shows that leading refiners have cultures that use technology to transform themselves into knowledge-based organizations. These are organizations that have forgone the traditional blue-collar/white-collar view of the world and are focused on leveraging knowledge and information to drive business improvement via innovative business management practices. By aligning operations capabilities with higher level business goals, the entire organization learns and evolves toward a higher technological maturity.
Conventional wisdom might suggest that when the operator’s span of control increases, so too would operator loading. However, our own data shows that where staff typically have significant oversight of their respective facility, operator loading levels drop significantly. From our broad data set, we see operations staff required to manually and repetitively conduct tasks, either due to poor technology implementation or the lack of technology itself. On a deeper level, we’ve identified that more ‘disciplined’ operators need to intervene less into the system’s normal operation. Better information handling and less repetitive workload (e.g. alarm response, set point adjustment) mean that the operators have a more intuitive knowledge-based understanding of the drivers behind optimized performance.
Organizations that have strong technical leadership, a willing team, and a commitment to drive to the top are best positioned to exploit opportunities like the tax reform / IMO nexus. These organizations will be top quartile in terms of safe, reliable and profitable operations. By deploying digitalization and advanced technologies, they will attract the best talent, will perform the best, and will sustain their competitive advantage by both minimizing production cost and maximizing revenue. No matter where your organization is on the maturity curve, it is time to mobilize to embrace digitalization. This is a journey that will see your company evolve from its present structure to “digital ready” and then start to implement new technology to benefit from the operational improvements it can offer.
Read more in our whitepaper 'US oil and gas downstream pivots to digitalization to sustain excellence'.