Tuesday, September 10, 2013

Logistics Analysis Proves Crude Oil Carriage by Rail Unprofitable

Careful Modelled Analysis Can Define Viability of New Projects
Shipping News Feature

FINLAND – Carriage of oil by rail can be one of the most price sensitive sectors of overland logistics, the large quantities and complex operational factors making this a difficult, and financially hazardous area, even for experienced operators. The rail yard at Neste Oil’s refinery in Porvoo handles 20,000 tank wagons a year and the company recently planned to invest in new rail unloading facilities there to reduce the logistics costs of a particular type of crude. Even a cursory set of calculations soon revealed that the profitability of the investment was relying on so many independently changing variables that a simple, standard calculation of costs was not sufficient.

Heikki Tegelberg, HSEQ manager at Neste Oil explained that the company had never unloaded this particular type of crude from tank cars in Porvoo and that with the variation for example in the size, model and quantity of tank cars from day to day and week to week, plus the high viscosity of the crude being affected by air temperature, the company needed to be sure that what first appeared to be an easy way to reduce logistics costs and streamline operations, was in fact viable.

To simulate the process over a long period, the company decided to use sophisticated modelling and analysis provided by the technology, engineering and project management company Neste Jacobs, formed as a joint venture between Neste Oil and the US group Jacobs Engineering in 2004. Tegelberg continues:

“To figure out just how these factors would affect the outcome of the project, a lot of different information had to be fed into the model, such as daily temperature changes over several years. With a normal spread sheet calculating programme it would have been impossible to calculate how all these independently changing variables would interact over the year and where the possible bottlenecks would be. The modelling tool clearly showed that the solution we had in mind would not be profitable at the moment.”

The modelling service which Neste Jacobs provides always starts with a series of workshops that lay the foundation for the process. In many cases, the first workshop is in fact the first time people from different parts of the customer’s organisation meet face to face. Andreas Frejborg, Manager of Process Calculation and Information at Neste Jacobs, explains that the strength of the modelling tool is that it gives the background for investment decisions based strictly on facts, transforming many ambiguous factors into an easy to understand basis for a decision, for or against (as in the Neste Oil case). He continues:

“To get accurate information we need the input of key persons throughout the customer’s organisation. When people realize that the aim is not to judge their individual jobs, the process usually gets up and running and we can begin to throw facts and ideas into the modelling tool.”

Neste Jacobs has a track record with around fifty similar feasibility studies of this kind for tank farms and production units as well as for overall logistics as well as maintenance and performance improvement in Europe, North and South America, Asia and the Middle East. The company now aims to extend the services of its thousand or so employees into the expanding markets of the Middle East and Russia in particular.

Photo: Tank wagons at the Porvoo refinery rail yard.