trade-off economics for plant turnarounds
DESCRIPTION
TRANSCRIPT
TINC 2007 – “The Continuum of TA Excellence”1
2008
TURNAROUND INDUSTRY NETWORK CONFERENCEAn Owners Only Forum for Industry Best Practices
TINC 2008
June 16-19, 2008
Trade-Off Economics in Plant and Refinery TurnaroundsJan A. Jackson
Senior Consultant – AP-Networks
TINC 2007 – “The Continuum of TA Excellence”2
2008
In case you did not know…
“Smoking is one of the leading causes for
…..statistics.”
TINC 2007 – “The Continuum of TA Excellence”3
2008
BackgroundPurpose of Presentation
1. Describe various types of economic trade-off scenarios in the turnaround environment
2. Present some on-going high-level turnaround data research and emerging trends.
3. Provide a conceptual framework for your turnaround decision-making and trade-off considerations
TINC 2007 – “The Continuum of TA Excellence”4
2008
BackgroundProposed Methodology
Constraints Trade-Offs Optimization Opportunity Costs
I. ESSENTIAL CONCEPTS
TA Duration TA Size (hrs, $) Labor Productivity Work Intensity
II. DATA PRESENTATION
Shift Pattern Refining Margin
III. CASE STUDY
Conclusion
IV. SUMMARY
TINC 2007 – “The Continuum of TA Excellence”5
2008
BackgroundIncreasing volatility in refinery margins
0
50
100
150
200
250
300
350
JAN-86 JUN-95 APR-08
Cen
ts/G
allo
n o
f G
aso
line
JAN-02
Price of Gasoline1 (left axis)
Crude Oil2
Refinery Margins3
1 Spot Price EIA New York Harbor Conventional Gasoline Regular FOB, 2Cushing OK WTI Spot, 3NWE Brent Cracking
ECONOMY
TINC 2007 – “The Continuum of TA Excellence”6
2008
BackgroundUS Refiners approach 1980’s capacity with ½ the plants
70
120
170
220
270
320
50.0
55.0
60.0
65.0
70.0
75.0
80.0
85.0
90.0
95.0
100.0
1949 20061980
Nu
mb
er o
f R
efin
erie
sUtilization3
Input
Capacity2
INDUSTRY
1 Information provided by www.eia.doe.gov, 2 Capacity and Input are displayed w/o axis. 3 Right axis is for Utilization
ARAB-ISRAELI WAR 1973
IRAN / IRAQ WAR
IRANIAN REVOLUTION
PERSIAN GULF WAR 1991
SUEZ CRISIS
TINC 2007 – “The Continuum of TA Excellence”7
2008
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
3.60
3.80
BackgroundRefinery portion of Gasoline Prices in ‘07 varied greatly
2007
Cost of Crude
Refinery
Misc. Taxes~$0.34
US
$/g
allo
n f
or
gas
olin
e p
rod
uct
ion
REFINERY
~$1.26
1 Information provided by www.eia.doe.gov, FRS
Crude Oil
Gasoline
TINC 2007 – “The Continuum of TA Excellence”8
2008
BackgroundThe Refinery Cost Structure1 is dominated by crude
REFINERY
Re
fin
ed P
rod
uc
t C
ost
s
2.9%
4.5%
91.0%
1.6%Refinery Net Income
Other Refining Expenses
9.0%
36.0%
55.0%
Other2
Product Purchases
Processed Raw Material
100.0%
1 Information provided by www.eia.doe.gov
TINC 2007 – “The Continuum of TA Excellence”9
2008
BackgroundContext – Summary
Increasing volatility in refinery margins U.S. has reached almost same capacity in 2007 with
149 refineries as in 1980 with 320 Major extraneous constraints are present on all levels:
Economy: Oil Prices set by World Market and events
Industry: Increasing regulatory requirements (safety, environmental, fuels, etc.)
Refinery: Limited options for capacity expansion, resource attrition
Turnaround: Contracting and labor, skill level
Turnarounds are being executed in an increasingly difficult context
TINC 2007 – “The Continuum of TA Excellence”10
2008
I. Essential ConceptsWhat are “Constraints”? What are “Trade-Offs”?
The “Triple Constraint1“ of (Turnaround) Management Constraints exist due to (inter-) dependencies Constraints are an artifact of scarcity They force us to consider trade-offs
performance
cost
time
TINC 2007 – “The Continuum of TA Excellence”11
2008
I. Essential ConceptsConstraints in the “real” world are not just ‘triple’ but manifold
scope
cost
schedule
reliability
company objectives
refinery objectives
personnel skills
personnel availability
TINC 2007 – “The Continuum of TA Excellence”12
2008
I. Essential ConceptsOptimization of the ‘Cost Curve’
cost (crash)
cost (opt.1)
t(crash) t(opt.1)time
cost
t(normal)
• Decreased labor productivity• More complex field management• Higher number of safety incidents• Expediting charges• Inefficiencies in coordination
• Increased general conditions
• Indirects• Rental Equipment
TRADETRADE
MINIMUMTIME 1
2
3
Cost Curve
TINC 2007 – “The Continuum of TA Excellence”13
2008
I. Essential ConceptsOpportunity Costs and the ‘Cost Curve’
cost (crash)
cost (opt.1)
t(crash) t(opt.1)time
cost
t(normal)
Opportunity Costs
t(opt.2)
cost (opt.2)1
2
4MINIMUMTIME
3
Cost Curve
Cost Curve-revised-
TINC 2007 – “The Continuum of TA Excellence”14
2008
In case you did not know…
“There are three kinds of lies:
lies, damn lies, and statistics.”- Benjamin Disraeli -
TINC 2007 – “The Continuum of TA Excellence”15
2008
II. Data PresentationLabor Performance1 deteriorates with increasing TA size
0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,0000.70
0.90
1.10
1.30
1.50
1.70
TOTAL TA HOURSLA
BO
R P
ER
FO
RM
AN
CE
IN
DE
X
1.0
(+)100,000 hrs = (+)0.10
1 Labor Performance Index (LPI) is calculated by dividing Actual Hours Incurred and Planned Hours
TINC 2007 – “The Continuum of TA Excellence”16
2008
0 5,000 10,000 15,000 20,000 25,000 0.75
0.85
0.95
1.05
1.15
1.25
1.35
1.45
1.55
LA
BO
R P
ER
FO
RM
AN
CE
IN
DE
X
~270 personnel / shift
~500 personnel / shift
1.0
II. Data PresentationHigher Work Intensity1 adversely impacts Labor Performance2
HRS WORKED / DAY (Work Intensity)
2 See previous slide
1 Work Intensity is defined as ‘Hours Worked per Day’
TINC 2007 – “The Continuum of TA Excellence”17
2008
II. Data PresentationHigher Work Intensity increases potential for Safety Incidents1
0 2,000 4,000 6,000 8,000 10,000 12,000 14,0000
5
10
15
20
25
30
35
40
45
50
WORK INTENSITY (HOURS WORKED / DAY)
SA
FE
TY
IN
CID
EN
TS
~270 personnel / shift
1 Safety Incidents here are defined as the sum of (a.) First Aids and (b.) OSHA Recordable Incidents
TINC 2007 – “The Continuum of TA Excellence”18
2008
0 200,000 400,000 600,000 800,000 1,000,000 1,200,0000.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
ACTUAL TOTAL TA HOURS
PO
RT
ION
OF
INC
L. S
UP
PO
RT
HO
UR
SIndirect manhour portion increases by 1% per each additional 20,000 hours in size for turnarounds up to 400,000 hours in size. 30% in support hours appears to be the upper limit.
27.5%
II. Data PresentationLarger TAs have increasing portion of ‘support hours’
TINC 2007 – “The Continuum of TA Excellence”19
2008
II. Data PresentationTurnaround Durations by Shift Pattern
0.80
1.00
1.20
1.40
1.60
1.80
2.00
6-10s 7-10s
SHIFT TYPE
LA
BO
R P
ER
FO
RM
AN
CE
7-12s
MEANMEAN
7-10s and 7-12s show wide range of outcomes and strong potential for labor hour overruns of 40-60%. 6-10s are very predictable with few ‘catastrophic’ outcomes.
TINC 2007 – “The Continuum of TA Excellence”20
2008
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
$90,000,000
$100,000,000
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
$110.00
$120.00
$130.00
$140.00
$150.00 1. Total TA Costs and Labor Hours strongly correlated2. Up to 300,000 hrs data have very tight fit to trend-line3. “All-In Rate” level is elevated between 300-500,000 hrs
II. Data PresentationTurnaround Costs by Man-hours (left axis) and All-In Rate
TA SIZE IN MANHOURS
1
All-In Rate2
3
TO
TAL
TU
RN
AR
OU
ND
CO
ST
S
TINC 2007 – “The Continuum of TA Excellence”21
2008
II. Data PresentationMan-hours and Turnaround Duration
0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,00010
20
30
40
50
60
70
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000 TA
DU
RA
TIO
N I
N C
Ds
TA SIZE IN MANHOURS
HRS/CD
1
2
3
TINC 2007 – “The Continuum of TA Excellence”22
2008
In case you did not know…
"The bigger the real-life problems, the greater the tendency for consultants to retreat into a
reassuring fantasy-land of abstract theory and technical manipulation.“ (revised)
- Tom Naylor -
TINC 2007 – “The Continuum of TA Excellence”23
2008
III. Case StudyCreating the Base Case
28211470 35 42 49 56
Baseline Shift: 5-8sEstimated Dur.: 49 CDsNo. avail. Men: 1,428Scope Hours: 400,000
DIRECT
DIRECT LABOR
INDIRECT LABOR
23.0%
68.0%
09.0%
INDIRECT
MATERIAL
EQUIPMENT
GENERAL COND.
$
hrs10% - 30%
70% - 90%
TINC 2007 – “The Continuum of TA Excellence”24
2008
0.400
0.500
0.600
0.700
0.800
0.900
1.000
1.100
CALENDAR DAYS
EX
PE
CT
ED
DA
ILY
PR
OD
UC
TIV
ITY
RA
TE
6-12s
6-10s6-10s
5-10s
Baseline Case 5-8s 1.0
P1 P2 P3 P4
0 7 21 28 80
7-10s
7-12s
III. Case StudyProductivity Profiles1
1 In
TINC 2007 – “The Continuum of TA Excellence”25
2008
III. Case StudyMajor Observations
Total Scope is base-lined as 400,000 Earned Hours on 49 CDs (5-8s). Each shift pattern meets final scope target on a different day due to
productivity differentials.
TINC 2007 – “The Continuum of TA Excellence”26
2008
III. Case StudyCreating the Base Case
DIRECT LABOR5-8s
$80.0MM
$40.0MM
$20.0MM
$60.0MM
MATERIAL
PER DIEM
IND. LABOR
EQUIP. / GC
DIRECT LABOR6-10s
IND. LABOR
MATERIAL
PER DIEM
EQUIP. / GC
PREMIUM 15%
+ $10MM
49 Days 39 Days 37 Days 33 Days- 10 Days - 2 Days - 4 Days
DIRECT LABOR7-10s
IND. LABOR
MATERIAL
PER DIEM
EQUIP. / GC
PREMIUM 23%
+ $7MM
DIRECT LABOR7-12s
IND. LABOR
MATERIAL
PER DIEM
EQUIP. / GC
PREMIUM 32%
+ $7MM
DIRECT LABOR7-14s
IND. LABOR
MATERIAL
PER DIEM
EQUIP. / GC
PREMIUM 32%
+ $6MM
30 Days- 3 Days
TINC 2007 – “The Continuum of TA Excellence”27
2008
III. Case StudyTurnaround Durations by Shift Pattern
BASE (5-8s)
A- (7-14s)
B-(6-10s)
C-(6-10s)
D-(6-12s)
E-(7-10s)
F-(7-12s)
20 25 30 35 40 45 50
CALCULATED TA DURATION
PR
OD
UC
TIV
ITY
ST
UD
Y A
ND
SH
IFT
PA
TT
ER
N4 CDs
2
19 CDs
10 CDs
33 CDs
37 CDs
39 CDs
30 CDs
49 CDs
TINC 2007 – “The Continuum of TA Excellence”28
2008
III. Case StudyTrade-Offs (e.g. capacity 200,000 bbl/d)
20 25 35 45 50 554030
$50.0MM
$60.0MM
$70.0MM
$80.0MM
$40.0MM
$6.00 margin bbl
$12.00 margin bbl
$2.00 margin bbl
7-12s 7-10s 6-10s 5-8s
+ $10MM
+ $7MM
+ $7MM
33 37 39 49
$4.00 margin bbl
30
7-14s
+ $6MM
1
2
TINC 2007 – “The Continuum of TA Excellence”29
2008
III. Case StudyCompression v. Acceleration
28211470 35 42 49 56
2
3
1
4
FEASIBLE RANGE
Compression increases degree of concurrency (t(conc.)/total duration) => increasing demand on coordination/supervision skills
TINC 2007 – “The Continuum of TA Excellence”30
2008
IV. Summary
Larger TAs tend to have worse Labor Performance Index (LPI). The complexity of these events is not fully valued.
LPI development changes significantly at ~270 and ~500 personnel/shift
Portion of support hours increases by 1% for every 20,000 hrs up to 400,000 hrs, and then log to lim. 28%
All-In Rate is highest for TAs between 300-500,000 hrs. Higher work intensity accelerates safety incidents. Larger TAs have higher work intensity Impact of 7-day shift schedules on LPI often
underestimated
TINC 2007 – “The Continuum of TA Excellence”31
2008
IV. SummaryThe Need For Post-Turnaround Reviews of Data
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 3721-JUL 27-AUG
STEAM LEAK STRIKE
LESS IMPACTED PERIOD IMPACTED PERIOD LEARNING
ERROR ?
ADDED CO HRS
7,200 HRS LOSS
Cumulative Productivity
Incremental Productivity