Trade-Off Economics for Plant Turnarounds

TURNAROUND INDUSTRY NETWORK CONFERENCE
An Owners Only Forum for Industry Best Practices

TINC 2008
June 16-19, 2008

Trade-Off Economics in Plant and Refinery
Turnarounds
Jan A. Jackson
Senior Consultant – AP-Networks

TINC 2007 – “The Continuum of TA Excellence”
2008
1

In case you did not know…

“Smoking is one of the leading causes for
…..statistics.”

2008
2

Background
Purpose 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

2008
3

Background
Proposed Methodology

I. ESSENTIAL CONCEPTS II. DATA PRESENTATION

 Constraints  TA Duration
 Trade-Offs  TA Size (hrs, $)
 Optimization  Labor Productivity
 Opportunity Costs  Work Intensity

III. CASE STUDY IV. SUMMARY

 Shift Pattern
 Refining Margin Conclusion


2008
4

Background ECONOMY

Increasing volatility in refinery margins

350

300

250
Cents/Gallon of Gasoline

200 Price of Gasoline1 (left axis)
Crude Oil2
150 Refinery Margins3

100

50

0
JAN-86 JUN-95 JAN-02 APR-08
1 Spot Price EIA New York Harbor Conventional Gasoline Regular FOB, 2Cushing OK WTI Spot, 3NWE Brent Cracking

2008
5

Background INDUSTRY

US Refiners approach 1980‟s capacity with ½ the plants

100.0
Utilization3
320 95.0

90.0
Number of Refineries

270 85.0

Capacity2 80.0
220
75.0
Input
70.0
170
65.0

60.0
120

55.0

70 50.0
1949 1980 2006
1 Information provided by www.eia.doe.gov, 2 Capacity and Input are displayed w/o axis. 3 Right axis is for Utilization

2008
6

Background REFINERY

Refinery portion of Gasoline Prices in „07 varied greatly
3.80
3.60
3.40
US$/gallon for gasoline production

3.20
3.00
2.80
2.60 ~$0.34
2.40 Misc. Taxes
2.20 ~$1.26
2.00
1.80
1.60
Refinery
Crude Oil
1.40
Gasoline
1.20
1.00 Cost of Crude
0.80
0.60
0.40
0.20
-
2007
1 Information provided by www.eia.doe.gov, FRS

2008
7

Background REFINERY

The Refinery Cost Structure1 is dominated by crude
2.9% Refinery Net Income
1.6%
4.5% Other Refining Expenses

9.0% Other2

Refined Product Costs
36.0% Product
Purchases
100.0%
91.0%

Processed
55.0%
Raw Material

1 Information provided by www.eia.doe.gov

2008
8

Background
Context – 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

2008
9

I. Essential Concepts
What 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

cost

performance time

2008
10

Constraints in the “real” world are not just „triple‟ but manifold

cost
personnel company
skills objectives

scope schedule

refinery
objectives personnel
availability
reliability

2008
11

Optimization of the „Cost Curve‟
cost • Decreased labor productivity
• More complex field management
• Higher number of safety incidents • Increased general conditions
• Expediting charges • Indirects
• Inefficiencies in coordination • Rental Equipment
3
cost (crash)

MINIMUM Cost Curve
1
TIME
TRADE
TRADE
cost (opt.1) 2

time
t(crash) t(opt.1) t(normal)

2008
12

Opportunity Costs and the „Cost Curve‟
cost

Cost Curve
-revised-
3
cost (crash)

cost (opt.2) MINIMUM 4 Cost Curve
1
TIME

cost (opt.1) 2

Opportunity Costs

time
t(crash) t(opt.2) t(opt.1) t(normal)

2008
13


“There are three kinds of lies:
lies, damn lies, and statistics.”
- Benjamin Disraeli -

2008
14

II. Data Presentation
Labor Performance1 deteriorates with increasing TA size

1.70
LABOR PERFORMANCE INDEX

1.50

(+)100,000 hrs = (+)0.10
1.30

1.10
1.0

0.90

TOTAL TA HOURS
0.70
0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000

1 Labor Performance Index (LPI) is calculated by dividing Actual Hours Incurred and Planned Hours

2008
15

Higher Work Intensity1 adversely impacts Labor Performance2

1.55
LABOR PERFORMANCE INDEX

1.45

1.35

1.25
~500 personnel / shift

1.15
~270 personnel / shift
1.05
1.0

0.95

0.85

HRS WORKED / DAY (Work Intensity)
0.75
0 5,000 10,000 15,000 20,000 25,000
1 Work Intensity is defined as „Hours Worked per Day‟ 2 See previous slide

2008
16

Higher Work Intensity increases potential for Safety Incidents1

50

45

40
SAFETY INCIDENTS

35

30

25

20 ~270 personnel / shift

15

10

5
WORK INTENSITY (HOURS WORKED / DAY)
0
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000
1 Safety Incidents here are defined as the sum of (a.) First Aids and (b.) OSHA Recordable Incidents

2008
17

Larger TAs have increasing portion of „support hours‟

0.40 Indirect 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.
PORTION OF INCL. SUPPORT HOURS

0.35

0.30
27.5%
0.25

0.20

0.15

0.10

0.05

0.00
0 200,000 400,000 600,000 800,000 1,000,000 1,200,000
ACTUAL TOTAL TA HOURS

2008
18

Turnaround Durations by Shift Pattern

6-10s 7-10s 7-12s
2.00
7-10s and 7-12s show wide range of outcomes and strong
potential for labor hour overruns of 40-60%. 6-10s are very
1.80 predictable with few „catastrophic‟ outcomes.
LABOR PERFORMANCE

1.60

1.40
MEAN
MEAN
1.20

1.00

0.80
SHIFT TYPE

2008
19

Turnaround Costs by Man-hours (left axis) and All-In Rate
$100,000,000 $150.00
1. Total TA Costs and Labor Hours strongly correlated
$90,000,000 2. Up to 300,000 hrs data have very tight fit to trend-line $140.00
3. “All-In Rate” level is elevated between 300-500,000 hrs
$80,000,000 $130.00
TOTAL TURNAROUND COSTS

1
$70,000,000 $120.00

3
$60,000,000 $110.00

$50,000,000 $100.00
All-In Rate
2
$40,000,000 $90.00

$30,000,000 $80.00

$20,000,000 $70.00

$10,000,000 $60.00

$0 $50.00
0 200,000 400,000 600,000 800,000 1,000,000
TA SIZE IN MANHOURS

2008
20

Man-hours and Turnaround Duration
70 HRS/CD
20,000

17,500
60

15,000
TA DURATION IN CDs

50 3
12,500
2

40 10,000
1

7,500
30

5,000

20
2,500

10 0
0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000
TA SIZE IN MANHOURS

2008
21


"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 -

2008
22

III. Case Study
Creating the Base Case

Baseline Shift: 5-8s MATERIAL 23.0%
Estimated Dur.: 49 CDs GENERAL
COND.
No. avail. Men: 1,428 09.0%
EQUIPMENT
Scope Hours: 400,000
INDIRECT
LABOR
68.0%
DIRECT
LABOR
$

10% - 30% INDIRECT hrs

70% - 90% DIRECT

0 7 14 21 28 35 42 49 56

2008
23

III. Case Study
Productivity Profiles1
1.100

Baseline Case 5-8s 1.0
EXPECTED DAILY PRODUCTIVITY RATE

1.000

5-10s
0.900

0.800
6-10s
6-10s
6-12s
0.700

7-10s
0.600

0.500
P1 P2 P3 P4 7-12s

0.400
0 7 21 28 CALENDAR DAYS 80
1 In

2008
24

III. Case Study
Major 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.

2008
25

III. Case Study
Creating the Base Case
49 Days 39 Days 37 Days 33 Days 30 Days
$80.0MM - 10 Days - 2 Days - 4 Days - 3 Days
+ $6MM
+ $7MM EQUIP. / GC
PER DIEM
EQUIP. / GC
$60.0MM + $7MM
PER DIEM
MATERIAL
+ $10MM EQUIP. / GC

PER DIEM MATERIAL
EQUIP. / GC

PER DIEM MATERIAL IND. LABOR
$40.0MM
EQUIP. / GC IND. LABOR
MATERIAL
PER DIEM IND. LABOR
PREMIUM PREMIUM
IND. LABOR PREMIUM 32% 32%
MATERIAL PREMIUM 23%
15%
$20.0MM DIRECT LABOR
IND. LABOR DIRECT LABOR 7-14s
DIRECT LABOR 7-12s
DIRECT LABOR
7-10s
6-10s
DIRECT LABOR
5-8s

2008
26

III. Case Study
Turnaround Durations by Shift Pattern

PRODUCTIVITY STUDY AND SHIFT PATTERN
F-(7-12s) 33 CDs 4 CDs

E-(7-10s) 37 CDs
2
D-(6-12s)

C-(6-10s) 39 CDs 10 CDs

B-(6-10s)

A- (7-14s) 30 CDs 19 CDs

BASE (5-8s) 49 CDs

20 25 30 35 40 45 50
CALCULATED TA DURATION

2008
27

III. Case Study
Trade-Offs (e.g. capacity 200,000 bbl/d)
$80.0MM 7-14s 7-12s 7-10s 6-10s 5-8s
$12.00 margin bbl

2

$70.0MM
+ $6MM

+ $7MM
$60.0MM $6.00 margin bbl

+ $7MM
$4.00 margin bbl
$50.0MM

+ $10MM $2.00 margin bbl
30 33 37 39 49
1
$40.0MM

20 25 30 35 40 45 50 55

2008
28

III. Case Study
Compression v. Acceleration

FEASIBLE RANGE
3

4

 Compression increases degree
of concurrency (t(conc.)/total
duration) 1
2
=> increasing demand on
coordination/supervision skills

0 7 14 21 28 35 42 49 56

2008
29

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

2008
30

IV. Summary
The Need For Post-Turnaround Reviews of Data

1.0
Cumulative Productivity
Incremental Productivity
0.9

0.8

0.7

0.6 ADDED CO HRS

0.5
7,200 HRS LOSS
LESS IMPACTED PERIOD IMPACTED PERIOD LEARNING
0.4

0.3
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37
21-JUL 27-AUG
STEAM LEAK STRIKE ERROR ?

2008
31

Trade-Off Economics for Plant Turnarounds

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