Operational Excellence Builds Refineries’ Profit Margin

Operational Excellence Builds Refineries’ Profit Margin

The refinery industry is one of the essential pillars of the petroleum sector. The Egyptian government has given great attention to this important industry, where Egypt is ranked as the second-highest oil refining country in Africa by refining about 23% of the total domestic refined oil in the continent.

Refining Sector in GDP

According to data issued by the Ministry of Planning and Economic Development (MPED), the refining sector contributed a total of EGP 236.7 million to the Gross Domestic Product (GDP) during the fiscal year (FY) 2019/2020, jumping by 24.6% compared to the FY 2018/2019 when it recorded 189.9 million. Additionally, the data showed that the refining share in the GDP hit its highest level since FY 2014/15, reaching 4.3% compared to 3.7% during the previous year and 4.1% during FY 2014/15.

Furthermore, the refining sector’s share in the petroleum extraction GDP increased to 25.1% during FY 2019/20 compared to 22.4% in the FY 2018/19. These high results pushed the total refining sector share in the total GDP over the past six years, up to EGP 944.2 billion, rising by 131% since FY 2014/15 when it was estimated at EGP 102.3 million. However, the refining investments has dropped to EGP1.1 billion or by 70.8% during FY 2019/20 after reaching EGP 3.7 billion in FY 2018/19.

When it comes to the petroleum exports, the data issued by Central Bank of Egypt (CBE) showed that exports have increased by 86.4% during FY 2019/20 to EGP 848 million versus EGP 115.5 million during FY 2018/19. On the same note, the petroleum products exports recorded $2.42 billion during the first quarter of FY 2019/20 compared to $2.78 billion during the same period of FY 2018/19 due to the decline in global prices. On the other hand, the petroleum imports decreased by 13% to $2.7 billion due to the same reason.

Profit Margins Optimization

Refiners are considered one of the best investments that can enhance the state’s economy, increase the overall contribution to the GDP, and impact the economy positively. Additionally, as long as investments in refineries increase, the demand for petroleum products can be sufficiently met which helps in reducing exports and saving more money for the country.

This pushes governments in cooperation with the operators and investors to find ways to optimize the refineries’ profit margins. Hossam Mahmoud, Process Safety Engineer, highlighted to Egypt Oil and Gas (EOG), that the main challenge that faces the investors is “how to gain high profit with low cost.”

Integrated Sustainable Approach

An article published by a Consultancy.UK entitled “Improving Margins at Oil Refineries through Operational Excellence”, stated that oil companies and governments can sustain and improve refineries profit margins through applying integrated strategies and roadmaps for operational excellence which would help save costs and lead to higher profits margin. The article showed that the refiners can fall into one of four categories when seeking operational excellence.

The first category is the survival mode; in this case, the company tries to operate normally but frequently uses inappropriate and inefficient solutions due to a lack of personnel competency. The second category refers to the path of stability, where the company’s interest directs to occupational safety and key technical aspects of the operation system. Consequently, the third category aims at having first quartile OPEX levels. Finally, the fourth category is that of leadership pace setters where all aspects of the operation are implemented according to a unified operational system, personnel involvement and compliance with a system’s principles under the continuous training and leadership from the administration’s side.

Furthermore, the article stated that all four elements should be implemented together in order to achieve the highest level of efficiency. In addition, there are other components that should be added to such categories to achieve an integrated approach. This includes developing and introducing the most advanced technical system via pilot projects and developing the competencies and skills among all employees from fresh graduates to managerial roles. Also, optimizing raw materials is essential; this includes increasing conversion per ton of crude oil processed as refineries with a higher level of conversion will have a better adaptation to market changes. Additionally, reducing energy consumption should be taken into consideration in order to reduce costs. Furthermore, balancing maintenance costs with reliability should be executed to create cost structure that helps in generating consistent profitability during low-margin periods.

The Process Safety Engineer said that “the operator should have enough experiences and skills for optimizing operation and rapid response for maintenance”.

Process Simulation Technology

Application of process simulation technology becomes the best method for refineries to achieve operational excellence. An article published by Processing Magazine entitled “Maximizing Refinery Profit Margins Through Process Engineering”, elaborated that “process simulation technologies have advanced sustainability to help refineries on a broad range of processes that span operational troubleshooting, crude selection, refinery planning, profit margin analysis and turnaround planning”. Process simulation can be applied through various stages.

Process simulation can be used for the maintaining operations of heat exchangers which is a critical part of the refining process and plays a significant role in determining energy efficiency, so developing a prioritized maintenance schedule for heat exchangers mitigates technical and financial concerns for the system.

Mahmoud said that “the operators can improve the profit margin through reducing the possible troubles that may lead to the shutdown of a certain unit or maybe several units in the refineries, affecting profits.” According to the article, this issue can be resolved by simulation solutions, which offer refineries visibility and the ability to better document their emission levels.

Additionally, this technology can give the process engineer the ability to maintain and update the planning models in order to make decisions on how to manage and control their operations. It, also, can offer a precise and accurate analysis for the refinery operations and assess the economic impact of possible strategic reconfiguration projects.

Egypt’s Efforts & Strategies

The Ministry of Petroleum and Mineral Resources (MoP) has put a strategy since 2016 to achieve the self-sufficiency of petroleum products in line with the Modernization project. MoP has been working on fulfilling this strategy by establishing new refineries and developing the existed ones. The Minister of Petroleum and Mineral Resources, Tarek El Molla, pointed out the important role that refineries have to play in meeting and securing the local market needs for petroleum products by giving directives to accelerate the digital transformation of refineries.

Several refining projects have been completed lately. In 2020, increasing efforts were exerted to implement the ministry’s strategy to increase capacities to more than 41 million tons (mmt) of petroleum products. The most important of which, was the inauguration of the Mostorod Petrochemical Refinery at the Egyptian Refinery Company (ERC) with investments worth of $4.3 billion and a production capacity of 4.7 mmt per year. Moreover, the MoP is working on implementing the expansion of the Middle East Oil Refinery (MIDOR), which began in 2017 with investments of $2.2 billion and is expected to be completed in 2022. In addition, it signed an agreement for a $2.8 billion new hydrocracking complex in the Assiut refinery.

There are, also, many projects to be implemented during the upcoming years in addition to strategies and plans to increase refineries’ investments. Mahmoud said that it is important for the government to facilitate obtaining the official requested papers for establishing projects and getting lands, as well as to dissolve any possible troubles that stakeholders may face in the future. He, also, noted, that the government should help in providing rapid residence cards for foreign experts.


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