Strategies for Downstream Oil & Gas: Refining & Petrochemicals

The Future of Profitability in the Refining Sector

In the coming decades, the outlook for refining will depend on five key drivers:

Adopting Digital Tools and Capabilities. The use of digital in the oil refining sector will be integral in achieving cost reductions, increased safety, and faster optimization. Applications include AI for production process optimization, as well as materials management automation and digital asset management. For instance, companies can improve asset reliability through advanced maintenance management, using big data and machine-learning algorithms to optimize maintenance cycles and predict critical equipment failures.

“Digital twin” technology—in which a virtual replica is created and constantly updated—will also serve as a key strategic tool in supporting and creating efficiency in all three phases of life-cycle management: the planning phase, to estimate budgets and plan projects; the project development phase, moving from concept to construction; and the operations phase, when owners and operators have a final asset in use and can work toward business goals.

Achieving Operational Excellence. Refineries today are facing increasing regulations regarding product specifications and refinery emissions—changes that require big investments that won’t bring short-term returns. To succeed in this environment, refiners need to focus on operations excellence by developing a decision support system that aligns top management economic incentives and experience at the operational level:

• Prioritized plant KPIs that will drive economic performance in real time
• Challenging plant operation targets, according to optimized performance and real limits
• Powerful predictive algorithms, allowing for a full understanding of the process at each point of the plant
• Greater automation through advanced control of operations with an economic perspective
• Change management that includes upgrading operators’ accountability and engagement

Advanced Analytics in Planning and Scheduling Processes. Current refinery scheduling processes use a trial-and-error approach based on the schedulers’ experience. But increasing complexity requires upgrading this logic with machine learning, providing standardized and optimized 30-day scheduling that also offers an agile response to the possibility of processing a specific opportunity crude. Primary benefits include:

• Scheduling optimization based on economics
• Higher stability of refinery operations
• Quick reaction to unexpected events
• Increase in the number of high-margin crudes processed

Maintenance Digitization. Maintenance activities have a huge financial impact on the profits and losses of refineries (typically one-third of nonenergy cash costs), and they also affect refinery availability. When integrated into an industrialized ecosystem, big data and advanced analytics allow for optimized decision making, as well as better reliability, by providing:

• Predictive maintenance based on operational data and static characteristics
• Connected plant and maintenance workforce digitization
• Asset health systems

Optimizing Trading and Supply Chains. MARPOL implementation will result in market disruption for 2019 through 2022. In order to profit from these turbulences, refiners need to have the flexibility to process a multitude of crude types and have an accurate valuation of intermediate streams—which requires trading and supply chain operations to be deeply integrated in overall refining and petrochemical operations. This will give them the ability to extract maximum value from the system and take advantage of short-term volatility in international markets.

Disruptions and Opportunities in the Petrochemical Supply Chain

• Sustainability. Sustainability challenges are a top global priority, strongly influencing government regulations and consumer demand patterns. As we increasingly move toward a “circular economy,” end users and chemical players are pushing for change. Such a shift will have a significant impact on packaging, for example, and making strategic choices now will help companies come out ahead.
• Digitization. Leading chemicals organizations have begun to adopt digitization, but the industry overall is lagging and there’s huge potential for those that take advantage of digital disruption. The approach to transformation requires a focus along three fronts. First, put digital to work to transform the core of the business. Second, find new offerings that can be built through digital. And third, enable teams so that they can execute digital strategies effectively over the long term.
• Geostrategic Change. The chemicals industry in the Middle East is transitioning to higher-value products and focusing less on exports. China is also reframing its chemicals industry to be more focused on high-value products, and to be cleaner and more efficient. These trends, along with tariff shifts and changes to NAFTA and other trade agreements, will have an impact on the flow of goods and pricing across the value chain.
• New Manufacturing Materials & Methods. Polymer 3D printing is expected to grow to a $180 billion industry by 2035, presenting challenges and opportunities to the business models of resin companies as they consider materials suppliers and partners in manufacturing and design.
• Alternative Routes to Olefins. A reshaped fuel landscape changes feedstock economics, making methane-based routes to olefins more feasible—potentially reshaping the global supply curve and regional plays for ethylene and derivatives.
• Refining Landscape. MARPOL bunker fuel regulations will lead to a shift in refinery output, potentially impacting propylene supply. Further, a decline in gasoline demand will lead to excess naphtha and the potential for refinery shutdowns. (See above for more on the refining landscape.)

BCG has experience with more than 200 oil and gas downstream clients around the world over the past five years. We’ve had an on-the-ground presence in all key downstream segments and experience in international growth strategies, cost optimization, profit improvement, and organization and change management.