In 2015, the refining industry experienced record margins, so much so that businesses quickly reacted to the hot market by rushing design phases of projects and setting very aggressive schedule targets while setting conservative cost targets.
âMany companies were focused on strengthening its better-than-average refining margins, which resulted in schedule- driven projects with moderate costs and poor productivity,â stated Andras Marton, manager, hydrocarbon processing and transportation, Independent Project Analysis, at the recent Refining Engineering & Construction event in Houston. âMost of the projects were commodity projects where the lowest producers should get the market, not the company that comes first to market. Moreover, capital efficiency suffered, but the industry could afford it.â
Marton noted the market changed and a lack of demand resulted in a global slump in post commodity prices â once product storage filled up, margins got squeezed and cash flow diminished. Now refiners are playing catch-up with maintenance, with some even being hit by unplanned shutdowns caused by running flat-out for prolonged periods. Recently, the International Energy Agency reported the seasonal ramp-up in 3Q16 would be the largest on record.
Marton said it is essential to complete the scope of work as quickly and efficiently as possible to maximize availability, but not at the cost of safety. During unscheduled shutdowns, the pressure to get back on line is even higher, but cut corners result in complications that have a trickle effect, impacting supply chain issues.
Although next year is posed to be a difficult time for the downstream sector as oil prices are likely to stay in the $50 range and no significant demand growth is expected, operators âcanât afford inefficiency,â Marton noted. The measure of a projectâs success is typically against the cost estimate and duration agreed at an investment decision. Achieving a higher degree of accuracy and predictability of costs for capital projects is a key concern for many refiners. However, several key factors can improve capital delivery, he added.
If there is not a systematic approach to an alignment that identifies and manages project risks, then many capital projects do not fulfill the firmâs business objectives. Focusing on the front end of the project forces clarity and coherence in the companyâs goals.
âIf you ensure that business sponsor positions are always staffed by business people, then it helps to align the project with the objectives,â Marton said. âAlso, use formal practices or mechanisms to encourage/ force business engagement; they can help fix problems outside of a teamâs control.â
He also added by establishing cross-functional teams, the functional completeness and cooperation of the team help determine whether the planning is adequate, while the size of the unit determines whether the resources needed to react to surprises are available.
âProject management is the science of planning combined with the art of reacting to surprises,â Marton said.
Effective governance through a stage-gated process ensures projects are judged on the same bases and adds 2-5 percent to the expected net present value through better alignment with business, resulting in superior cost, schedule and operational performance, he stated.
Marton closed with a comment on bold leadership: Managers are responsible for their actions and need not to grow accustomed to their role as administrators. This responsibility will, in turn, create leaders who look over the horizon to see rising trends, while questioning existing ways of doing things. By doing this, each company will change the mindsets of its employees while creating a culture focused on safety.
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