SUPPLY CHAIN

MANAGEMENT IN ENERGY
WINFIELD TURPIN
VISTULA UNIVERSITY
FALL 2019
COURSE INFORMATION
• Days & Time: Thursdays 4:50pm - 6:45pm/ Fridays 10:10am -
12:05pm.
• Room: A3/ A1
• Office Hours: Fridays @ 2:30 pm in the professors' room (rm. 30).
• Email address: w.turpin@vistula.edu.pl
COURSE OUTLINE
• Lecture 1: Introduction to Supply Chain Management in Energy/
Crude Oil
• Lecture 2: Natural Gas
• Lecture 3: Oil Supply Chain
• Lecture 4: Crude Oil Prices
• Lecture 5: Alternative Forms of Energy
• Lecture 6: Final Presentations
PROGRAMS
• SCHOOLOGY: WWW.SCHOOLOGY.COM
COURSE INFORMATION, RESOURCES, ASSIGNMENTS, DISCUSSIONS,
ETC.
What is crude oil and what are petroleum products?

Crude Oil:
Is a mixture of hydrocarbons that formed from plants and animals that lived millions of years ago.
The remains of these animals and plants were covered by layers of sand, silt, and rock. Heat and
pressure from these layers turned the remains into what we now call crude oil. The
word petroleum means rock oil or oil from the earth.
Is a fossil fuel, and it exists in liquid form in underground pools or reservoirs, in tiny spaces within
sedimentary rocks, and near the surface in tar (or oil) sands.
Petroleum products are fuels made from crude oil and other hydrocarbons contained in natural
gas.
 Products made from crude oil

• After crude oil is removed from the ground, it is sent to a refinery where different parts of
the crude oil are separated into useable petroleum products. These petroleum products
include gasoline, distillates such as diesel fuel and heating oil, jet fuel, petrochemical
feedstocks, waxes, lubricating oils, and asphalt.
 • Petroleum refineries convert crude oil and
other liquids into many petroleum
products that people use every day. Most
refineries focus on producing
transportation fuels.
• On average, U.S. refineries produce, from a
Refining Crude 42-gallon barrel of crude oil, about 19 to
20 gallons of motor gasoline, 11 to 12
Oil By Barrel gallons of distillate fuel, most of which is
sold as diesel fuel, and 4 gallons of jet fuel.
More than a dozen other petroleum
products are also produced in refineries.
Petroleum refineries produce liquids the
petrochemical industry uses to make a
variety of chemicals and plastics.
Offshore Oil & Gas
How crude oil is refined into petroleum products

• Separation
• Conversion
• Treatment
Separation
• Modern separation involves piping crude oil through hot furnaces.
The resulting liquids and vapors are discharged into distillation units.
All refineries have atmospheric distillation units, while more complex
refineries may have vacuum distillation units.
• Inside the distillation units, the liquids and vapors separate into petroleum
components called fractions according to their boiling points. Heavy
fractions are on the bottom and light fractions are on the top.
• The lightest fractions, including gasoline and liquefied refinery gases,
vaporize and rise to the top of the distillation tower, where they condense
back to liquids.
• Medium weight liquids, including kerosene and distillates, stay in the
middle of the distillation tower.
• Heavier liquids, called gas oils, separate lower down in the distillation
tower, while the heaviest fractions with the highest boiling points settle at
the bottom of the tower.
Conversion
• After distillation, heavy, lower-value distillation fractions can be processed
further into lighter, higher-value products such as gasoline. This is where fractions
from the distillation units are transformed into streams (intermediate
components) that eventually become finished products.
• The most widely used conversion method is called cracking because it uses heat,
pressure, catalysts, and sometimes hydrogen to crack heavy hydrocarbon
molecules into lighter ones. A cracking unit consists of one or more tall, thick-
walled, rocket-shaped reactors and a network of furnaces, heat exchangers, and
other vessels. Complex refineries may have one or more types of crackers,
including fluid catalytic cracking units and hydrocracking/hydrocracker units.
• Cracking is not the only form of crude oil conversion. Other refinery processes
rearrange molecules to add value rather than splitting molecules.
• Alkylation, for example, makes gasoline components by combining
some of the gaseous byproducts of cracking. The process, which
essentially is cracking in reverse, takes place in a series of large,
horizontal vessels and tall, skinny towers.
• Reforming uses heat, moderate pressure, and catalysts to turn
naphtha, a light, relatively low-value fraction, into high-octane
gasoline components.
Treatment & Storage
• Treatment
The finishing touches occur during the final treatment. To make
gasoline, refinery technicians carefully combine a variety of streams
from the processing units. Octane level, vapor pressure ratings, and
other special considerations determine the gasoline blend.
• Storage
Both incoming crude oil and the outgoing final products are stored
temporarily in large tanks on a tank farm near the refinery. Pipelines,
trains, and trucks carry the final products from the storage tanks to
other locations across the country.
Not All Crude Is The Same
• The physical characteristics of crude oil determine how refineries
process it. In simple terms, crude oils are classified by density and
sulfur content. Less dense (lighter) crude oils generally have a higher
share of light hydrocarbons. Refineries can produce high-value
products such as gasoline, diesel fuel, and jet fuel from light crude oil
with simple distillation. When refineries use simple distillation on
denser (heavier) crude oils, it produces low-value products. Heavy
crude oils require additional, more expensive processing to produce
high-value products. Some crude oils also have a high sulfur content,
which is an undesirable characteristic in both processing and product
quality.
International Oil Companies (IOCs)

• International oil companies (IOCs), which include ExxonMobil, BP, and

Royal Dutch Shell, are entirely investor owned and are primarily
interested in increasing value for their shareholders. As a result, IOCs
tend to make investment decisions based on economic factors. IOCs
typically move quickly to develop and produce the oil resources
available to them and sell their output in the global market. Although
these producers must follow the laws of the countries in which they
produce oil, all of their decisions are ultimately made in the interest
of the company and its shareholders, not in the interest of a
government.
National Oil Companies (NOCs)

• National oil companies (NOCs) operate as extensions of a government or a government

agency, and they include companies such as Saudi Aramco (Saudi Arabia), Pemex
(Mexico), the China National Petroleum Corporation (CNPC), and Petroleos de Venezuela
S.A. (PdVSA). NOCs financially support government programs and sometimes provide
strategic support. NOCs often provide fuels to their domestic consumers at a lower price
than the fuels they provide to the international market.
• They do not always have the incentive, means, or intention to develop their reserves at
the same pace as investor-owned international oil companies. Because of the diverse
objectives of their supporting governments, NOCs pursue goals that are not necessarily
market oriented. The goals of NOCs often include employing citizens, furthering a
government's domestic or foreign policies, generating long-term revenue to pay for
government programs, and supplying inexpensive domestic energy.
• All NOCs that belong to members of the Organization of the Petroleum Exporting
Countries (OPEC) fall into this category.
NOCs with strategic and operational autonomy

• The NOCs in this category function as corporate entities and do not

operate as extensions of their countries' governments. This category
includes Petrobras (Brazil) and Statoil (Norway). These companies
often balance profit-oriented concerns and the objectives of their
countries with the development of their corporate strategies.
Although these companies are driven by commercial concerns, they
may also take into account their nations' goals when making
investment or other strategic decisions.
CRUDE OIL CLASSIFICATION
• Light
• Heavy
• Sweet
• Sour