Oil Refining and Petrochemicals – 2017 Forecast
Refinery crude intake in 1Q17 is forecasted to grow by only a modest 310 kb/d, after growing by only 350 kb/d growth in 4Q16. The rally in crude prices following the announcement of coordinated OPEC/non-OPEC action may further squeeze refining margins, prompting product stock draws first on the way to market rebalancing.
The refining business has just started to show some relief. However, crude price uncertainty is raising concerns among owners around margin. Many refiners are still looking for ways to optimize operations while improving plant availability and safety and reducing expenses in the process. The environmental aspect is a challenge in many areas of the globe—especially in Europe, Canada, and the United States. With the new political administration taking office in the US, owners may see some relief with regulations in that region. As for greenfield construction, the Asia Pacific region will have some new plants coming on line in 2017.
Owners will experiencing similar issues for petrochemicals as for refining. About 700 projects, primarily in China, the US, and Iran, will bring a lot of new capacity on line by 4Q17. The market is anticipated to be oversupplied, eroding prices and returns on the new projects. The oversupply will also impact projects in future years.
The talent pool for all aspects of the business is a global issue. Owners are looking for ways to accelerate the learning curve of new resources. Technology infusion is a big component to deal with resources capabilities and capacity shortage, and is key for the optimization of operations.
Geographic Market Disruption
The regional nature of the energy disruptions means economic success for refining and petrochemicals will be determined locally. Companies are looking at the refining and chemicals business with a global perspective to compensate for market supply and demand rebalance in many areas and new markets. (See figure 1)
Figure 1 – Geographic Market Disruption
Controllable Economic Levers
To weather the market uncertainty, there are four controllable economic levers that can transform how refineries and chemicals plants operate in the next few years. Plants and market integration, innovative operational excellence, building talent pools, and technology infusion are top priorities for 2017 and will need to be worked in tandem. (See figure 2) 
Figure 2 – Controllable Economic Levers
Refining and Petrochemicals Hot Spots
Refinery hot spots are prime targets for innovation and value creation for refineries and chemical plants. Looking at the key hot spots of asset optimization, operations optimization (including energy), and commercial optimization, plants need to gauge their positions in the maturity cycle and develop accelerated plans to close the gaps in each of the levers as they relate to the hot spots. (See figure 3) 
Figure 3 - Refining and Petrochemicals Hot Spots
Approach to Rapidly Deliver Sustainable Business Results
Many companies struggle to achieve Operational Excellence (OE) but may not be able to deliver on Dynamic Capabilities (DC). Leadership plays a key role in the overall process. There is a need to be visible, have and communicate clear directions, align performance management to the corporate goals, drive understanding of root causes and a standard way of working, and lastly instil a continuous improvement culture in the organization.
Some companies create departments, processes, and leadership positions to drive OE and DC. It is a good idea at the beginning of the transformation process; however, the real value is with everyone in the organization. The new OE and DC leaders require a short period of external expert support at the beginning of the process, but it needs to quickly become part of their regular job.
The typical support comes in three phases and is evolving (see figure 4):
- Value Potential/Confirmation (typically 4 to 6 weeks/site): rapid identification of opportunities or innovations to improve and chart the course to higher performance
- Value Creation (typically 6 to 12 months): Agile and Lean implementing changes to strategy, processes, and capabilities to realize the identified operating and financial value
- Value Delivery (ongoing): stabilize new ways of working and continue to improve performance over multiple cycles of learning
Figure 4 - Approach to Deliver DC and OE
Summary
The future for refining and chemicals for 2017 is full of uncertainties; however, controllable levers in specific refinery and chemicals hotspots could be used to mitigate economic risks. Owners need to concentrate on the top four controllable levers to stay competitive: (1) plants and market integration, (2) innovative operational excellence, (3) building talent pools, and (4) technology infusion. Given the high priority to improve the business in a sustainable way, some companies may utilize cross-company or external support to identify opportunities, develop road maps, and provide support during the implementation.
How Can BRG Help?
Using in-depth industry knowledge and experience, BRG’s Oil and Gas consulting practice experts specialize in advising clients on understanding issues, developing solutions, and supporting execution. Our team has deep experience in helping to drive value through upstream, midstream, downstream, and petrochemical operations.
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