By Ara Barsamian
In the current global economic downturn, we can increase profit margins in the face of constantly increasing fuel and operating costs by using a bunker blend optimization tool. By optimization, we mean maximizing profit, and as such, money has to be explicitly included in blend optimization calculations.
There are three types of blend optimizers:
In this article, we will concentrate on the Single Blend Single Product Optimizer because in terms of value (“Bang-per-buck”), it easily provides multimillion dollar benefits for a modest 10 to 20 thousand dollars investment and essentially zero risk.
MBOs provide tens of millions of dollars in benefits, mostly in reduction of inventory and freeing tank storage capacity, but at a much higher initial investment cost (in the order of 200 to 400k$) and additional complexity (e.g., links to a refinery LP planning tool).
OBOs are a necessity for large (50 kBPD or more) in-line blenders, typical benefits being in the range of 5 to 10M$/yr or more for a significant investment in control system and on-line analyzers of the order of 1 to 2M$.
Blend optimization applies equally to bunker, marine distillates, gasoline, diesel, and other fuels, although our examples will focus on marine bunker.
A single blend optimizer does the following:
The optimizer calculations require the following data:
All this information is stored on a small spreadsheet-based “local” database, in the form of a “Case.” You can store different cases for making IFO 380HS or IFO 380LS, IFO 180HS, etc.
The results of the blend optimization provides:
An illustration is shown below:
As a trader, and potentially an independent blender or refiner, when you have an opportunistic cargo of a blendstock, say, cracker bottoms, should you buy it? Can you make any money with it?
The fastest way is to run a blend for the product spec and quantity you need. This requires doing the following:
Then you can run a case with cracker bottoms and without them and compare the gross profit per mt. In the example below, the gross profit/mt without the cracker bottoms is $16.97 vs. $35.15 with the cracker bottoms, for exactly the same specs and blend quantity.
Many times we are faced with a situation to make room in a tank to either put in an opportunistic cargo, have an emergency rundown to the tank, or simply inventory buildup that threatens a tank overflow.
A single blend optimizer allows us to quickly evaluate a reasonable option by manually forcing the use of “X”-barrels out of the subject tank to make both room in the tank for something else while we make a finished product blend still meeting specs, albeit at possibly a reduced profit. However, we know what to expect BEFORE we actually do it. In the example below, we forced an increased use of Visbreaker Resid from 34914 mt to 40000 mt in the blend to make room for a new resid cargo, the penalty being a decrease in gross profit from $0.50/mt to $0.30/mt.
Yes, you can do much better money-wise with a MBO over a longer period of time, say ten days to a two weeks time horizon, rather than having a myopic view of a single blend. However, it takes much more information, more expertise in using the MBO software, and the MBO software itself is in the 200 to 400k$ cost range vs. less than 10k$ for the single blend optimizer.
Optimization deals (mathematically) with a multiplicity of variables and constraints simultaneously (see illustration below for a small number of specification constraints). This is impractical to do with just a pencil and paper.
Tools were developed after World War II to optimize military logistics problems, and in 1950, they were extended to refining and fuels blending problems.
In the context of marine bunkers, the bunker fuel market involves interactions between refiners (which provide the bunker blend making ingredients, known as blend components), the suppliers that buy components or semi-finished bunkers such as HFO and make the finished bunker fuel, the traders that either buy bunker or bunker blend components from refiners or suppliers and sell the finished bunker fuel to ship owners, and of course, the ship owners themselves who interact with both traders, suppliers, and refiners, depending on the opportunity.
The ship owners are in a very difficult financial situation, since they are being pressured to buy very expensive lower Sulfur fuels such as 0.5%S or MGO, whether at open sea or in emission control areas. More than 50% of the ship operating costs are the cost of fuel. The price differential between an IFO 380-4.5%S and a MGO is around $300 to $400/mt; so to stay in business, the ship owners have to very carefully select the lowest cost bunkers that meet specs.
Optimization helps suppliers and refiners produce bunkers that meet specs while also having reasonable profit margins; so, it becomes a "win-win" situation for everybody in the marine bunker supply chain.
In this article, we illustrated the main benefits from the use of a single blend, single bunker product optimizer to improve bunker profit margins; the same points apply to marine distillate blending, gasoline, diesel, or other fuels. It provides millions of dollars of annual benefits for a modest investment of approximately 20k$, and without elaborate training and support costs.
I am grateful to Dr. Ward Davis and Steve Graybill of NexIdea Systems for permission to use their Model-BF gasoline blending optimizer software.