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SARAS S.p.A. Platts 6th Annual Refining Conference 1

Platts 6th Annual European Refining Markets Conference – 24th Sep 2012 Dario Scaffardi – General Manager, Saras S.p.A.

Maintaining Europe’s refining industry – independent perspective


• Structural challenges for the EU refining sector • Governments’ actions to defend a strategic industry • Initiatives of “self-help” – Saras’ case study

Agenda


Increasing prices and volatility

Structural challenges for the EU refining sector

Sources: IEA, Wood MacKenzie, CONCAWE and EUROPIA

Shrinking Oil Demand in OECD New Refining Capacity Additions

Environmental regulatory pressure


Governments’ actions to defend a strategic industry

Given the truly strategic role of this industry…

…EU Governments are considering various defensive measures

EU

Administrative simplifications for conversions and clean-ups

Green label for EU production,

to avoid “environmental

dumping” Stable and uniform

regulation across EU countries

Support to investments dedicated to increasing

competitiveness

Reconsidering time-frame for

development of bio-fuels

Energy Security

Mobility & transport

Reduction in greenhouse gas

emissions

Employment & job creation

Integration with other industries


“Self-help” to pursue “Operational Excellence” Saras' Case study: Project “Focus” 2010-12

SARAS S.p.A. 5

Platts 6th Annual Refining Conference

A project conceived to pursue excellence…

As independent refinery Saras recognized that one of its main levers of value creation was operational excellence

…structured in 3 waves of intervention and supported by Boston Consulting Group

• New Organization • Asset Mgmt focus • Energy saving (step1)

• Labour cost & HR restructuring

• Product yields

• Commercial activities • Supply & Trading • Energy investments

Operational Excellence

Ener

gy

effic

ienc

y

Asse

t int

egrit

y &

fixe

d co

st

optim

isat

ion

Prod

uctio

n yi

elds

op

timis

atio

n

Asse

t bac

ked

Trad

ing

Asset Reliability & Efficiency Reactiveness to market dynamics

Wave 1 (2010) "Start the

change"

Wave 2 (2011) "Embed the

change"

Wave 3 (2012) "Enlarge the

change"


Energy is today’s most relevant operating cost To tackle this, several initiatives launched during the Programme

6 6 SARAS S.p.A.

Energy has become 60%+ of refinery operating costs...

Source: Saras elaboration, BCG, EMC and Platts

2 1 0

2004-08 2009-10 2011 1H12 2001-03

$/bl

4

3

6 5

EMC Margin + variable costs C&L1

70

60

50

40

0 1H12 2011 2010 2007 2006 2009 2008 2005 2004

Energy cost as % of Opex

$ 38 $ 55 $ 65 $ 72 $ 97 $ 62 $ 80 Brent Price $ 111 $ 113

1. Consumption & Losses

... and Energy consumption is a key driver of profitability

$/bbl

Selection of Energy Efficiency initiatives


Flare losses reduction (-73% vs. 2008 baseline)

Fuel furnace optimization (-50% of 2008 extra-consumption

vs. technical specs)

Heat exchanger and flows re-routing

Steam and condensate system optimization (-8% vs. 2008 baseline)


Asset integrity and fixed costs optimisation: Levers should address both “demand”, “supply” and “execution”

SARAS S.p.A. 7


Cost Savings vs. annualized cost basis:

• approx. –15% of maintenance costs • approx. –20% of other fixed costs (excl. personnel)

Improved performance vs. 2009 baseline:

• +0.7% in Operational Availability (~10% reduction on oil to oil time on critical TA)

"Demand" "Supply" "Execution"

•Review and optimize maintenance policies

•Root cause analysis and bad actors removal

•Challenge "turn around" scope of work

•Challenge of real needs for “non core” services

•Review make vs. buy policies – E.g. in-source ordinary

maintenance

•Foster competition among suppliers

•Encourage and incentivise suppliers productivity

•Reduce TA complexity allowing for workers productivity increase

•Minimize TA downtime – Challenge TA critical

paths – Optimize shutdown &

restart sequences

•Maximize "tool time"

+


Production yield optimisation: 3 areas addressed to reach full technical performances

SARAS S.p.A. 8

Process units yields

Maximisation of yields to achieve technical specification of process units, i.e.: • VGO recovery • VSB conversion • MHC conversion • Topping LE recovery

Give Away

Reduction of losses and give-away of high-quality products, blended into lower grades, i.e.: • ULSD in Heating Oil • Slop reduction

H2 network

Optimisation of the Hydrogen network, to full exploit available H2 @ high netback process units


+ +


Three main dynamics in current oil markets ... Platts 6th Annual Refining Conference

Source: Saras elaboration, EMC, Platts

Crack (spot, $/bbl)

20

10

0 Jul 12 Apr 12 Jan 12

Inter-month spread ($/bbl)

0,0

-0,5

-1,0

Jul 12 Jan 12

Ural-Brent spread ($/bbl)

0

-2

-4

Jul 12 Apr 12 Jan 12

Dominant backwardation but with different patterns across products

Volatile crack curves driven by supply & demand structure of underlying products

Fluctuant but prevailing shrinking trend of “Light-Heavy” crudes differential (with correlated high price for HSFO)

Gasoline Dec-Nov Gasoil Dec-Nov

Gasoline crack Gasoil crack

... require speedy reactiveness and Asset Backed Trading in order to exploit volatility, while hedging risk

1

2

3


S&T can activate different optimization levers…

Inventory Mgmt

Planning of production

Crude Supply

& Trading

Oil Product

& Power

production

Pricing &

trading activity

(Reverse) Cash-and-carry

Third Parties

Deposits

Shift from an industrially optimized asset to a commercially optimized asset with an Asset Backed Trading approach

Optimized Asset Exploitation

Shift of crudes and prods slate

Dynamic Forward Trading

Crack Hedging

Crude reselling

Examples follow

Product Supply

& Trading

Whole-sale & Retail

Integrated logistical service

& pricing

Geo Arbitrage



Inventory management: direct financial impact while exploiting market's price structure Deep Dive

1

Complexity of our refinery both challenging and supporting our efforts on Advanced Inventory Management


Crude Supply & Trading

Oil Product & Power

production

Product Supply & Trading

Whole-sale & Retail

Pricing and trading activity

Inventory Mgmt

"Improved financial profile: cash generation was very strong leaving net debt at EUR 82m only.

This improvement is attributed to […] optimisation of inventories as part of Project Focus"

• 20% reduction of oil and product stocks in backwardated scenario

• > Availability of storage for cash & carry strategies

M ton 1,5

1,0

0,0

-20%

Exp 4Q Exp 3Q Avg 2011 Actual

2Q12 A 1Q12 A

SarrochStocks

"Net debt was the real surprise, […], mainly thanks to the reduction of working capital,

related to inventory optimisation and valuation"


Asset backed trading: value extracted by managing volatility and Dynamic Forward Trading Deep Dive

2


Crude Supply & Trading

Oil Product & Power

production

Product Supply & Trading

Whole-sale & Retail

Pricing & trading activity

Inventory Management

With an exposure of 10% for a 100 kbbl/day refinery, Dynamic Forward Trading has a potential value up to ~10 M$

• Leveraging on refinery natural long exposure to crack

• Creating additional value by

trading around hedging positions

• Enhancing a comprehensive perspective on margin evolution and its fundamentals

• 3 months pilot launched

1.4.12 1.5.12 1.6.12

10

8

6

Jul 2012 Gasoline crack vs. ICE Brent ($/bbl)

12

14

1.3.12 1.2.12 1.1.12


Evolution of Fuel Oil economics: HSFO prices in the MED expected to drop in the Mid-Term

13

Fuel oil supply continues to decrease... • Less complex refineries (high FO yield) are the first to exit the market ... while "non-switchable" FO demand is increasing • Conversion capacity addition destroys FO to the advance of higher value products

Large availability of natural gas at lower price than FO Strong reduction of emissions in the MED required by IMO (MARPOL convention) • 0.5% sulphur by 2020 • Vessels could be "retrofitted" with LNG engines

HSFO marginal price aligned with natural gas Increase of “Light-Heavy” differential and refining margin for complex site

Short-Term Fuel Oil Supply & Demand

unbalance

Mid-Term HSFO drop expected, with

substitutes in bunker

Potential impact on refining margin

1

2

This scenario will benefit conversion refineries with a special "premium" for IGCC plants

Deep Dive

3


30%

40%

50%

60%

70%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Ratio HSFO/GO [%]

14

Saras can take advantage of Mid-Term scenario for HSFO: thanks to its world largest gasification and power plant (IGCC)

Steam to refinery

Power to grid

IGCC simplified block diagram

TAR

Oxygen Hydrogen to refinery

Gasification Units

Gas turbine

SynGas purification & H2 separation

Steam turbine

SynGas

Saras’ Refinery business supported by a 575MW IGCC plant:

• The value of TAR is a function of its viscosity, the price of GO, and the price of HSFO

• ~1Mt of TAR (Heavy VisBreaking Residue) out of market

• High pressure Steam and pure Hydrogen to refinery units

maintaining europe’s refining industry – independent ... · pdf fileuniform...

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