Factors Influencing Oil and Gas Refinery Product Decisions Report

This report examines the factors influencing decisions on petroleum product production within a refinery, considering both qualitative and quantitative aspects such as environmental impact, production costs, market demand, supply, and expected prices and profits. It details major petroleum products, their users, and applications, highlighting the transportation and airline industries' significance. The report analyzes the impact of the Coronavirus outbreak on refinery operations, suggesting adjustments in product focus. It includes a calculation and analysis of refining margins, showing the profitability of petrol sales in the UK. The report also discusses the advantages of distillation units and upgraders, including improved product quality, increased market demand, and potential for higher pricing and enhanced market reputation. Recommendations include utilizing technology for product improvement, effective marketing and distribution strategies, and proper management based on market demand. The report references several sources to support its analysis.

Running head: OIL GAS AND ENERGY MANAGEMENT
Oil Gas and Energy Management
Name of the Student:
Name of the University:
Authors Note:

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Contents
Answer 1:.........................................................................................................................................2
Answer 2a:.......................................................................................................................................2
Answer 2b:.......................................................................................................................................3
References:......................................................................................................................................6

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Answer 1:
The decision as to which petroleum products a refinery will produce will depend on number of
factors including impact of such product on the environment, cost of production, demand in the
market, supply in the market, expected price of the product and expected profit to the refinery.
Thus, both qualitative and quantitative factors are to be considered by a refinery manager while
taking a decision on the petroleum products to be produced in a refinery.
Major Petroleum products, users and main applications of petroleum products:
Major petroleum products include fuel for generation of electricity, transportation fuel, gasoline,
lubricating oil, asphalt, waxes, various types of chemicals, synthetic materials, etc. Major users
of petroleum products include transport industry, airline industry and electricity industry. It is
clear from the major petroleum products and major users of these products that primary
application of these products are in transportation. Apart from that generation of electricity and
use in airline are also key applications of petroleum products (Kondratov, Varepo and Ermakova,
2016).
The decision of a refinery manager shall be influenced due to the Coronavirus outbreak as most
of the countries across the globe has either gone into complete lock down or has closed their air
root for foreign airlines. Thus, the major application of petroleum products which is in
transportation and airline industry is down hugely. As a result it would be appropriate for the
manager to concentrate on producing other petroleum products till the crisis continues. Hence,
gasoline, cooking gas, petrochemical, lubricating oil and asphalt are few products which the
refinery manager should produce till the coronavirus outbreak continues (Jean and Lee, 2017).

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Answer 2a:
Calculation and analysis of refining margin:
Particulars Amount (£) Amount (£)
Sale price of 1 barrel of Petrol 181.70
Price of crude oil (25/ 1.20) 20.83
Processing costs (150%) 31.25
Other costs (50%) 10.42
62.50
Profit 119.20
Profit margin (%) 65.60
The above calculations have been made without considering the 27% wholesaler margin and 5%
of rack price. Thus, assuming that the processing cost of crude oil is 150% of cost of crude oil
and other costs including cost of marketing and distribution is 50% of crude oil cost the profit
margin is huge at 65.60% on sale price of petrol in the UK. However, it is important to note that
in case the processing costs and cost of distribution and marketing changes then the profit margin
shall also change.

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Answer 2b:
Distillation units and upgrader will bring number of advantages to a refinery unit. Such
advantages include the following:
Improved quality of petroleum products to be produced in the refinery:
The quality of petroleum products produced in the refinery will improved significantly
subsequent to the use of upgraders and distilled units. Thus, it would be better to use these in the
future to improve the quality of products to be produced in the refinery (Mahesha and Jayaraj,
2019).
Quality products will attract customers thus, demand of these products will be high in the
market:
The demand of the products produced in the refinery will be huge in the market due to the
quality of the products. The improved quality of petroleum products produced in a refinery due
to use of upgraders and distilled units will attract customers resulting in higher demand of the
products in the market.
Appropriately the products can be priced little higher than the market rate:
As the demand of the refinery products will be higher in the market as compared to products of
other refinery that does not use upgraders and distilled units the management can decide to price
the products of the specific refinery little higher than the prevailing market rates. As a result the
refinery will be able to earn higher profit than other refineries. The greater profitability will
further help the refinery to improve its quality of production by installing advanced machinery
and equipment in the future (Petroleum and Petroleum Products, 2018).

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Market reputation of the refinery will be enhanced significantly:
Market reputation of the refinery will be enhanced greatly with the improved quality of products.
Thus, all necessary measures shall be taken to improve the quality of production and processing
in the refinery to deliver high quality products to the customers in the market.
Recommendation:
Make effective use of technology to improve the quality of products:
Availability of technology has made it possible for organizations to take futuristic decisions.
Making efficient use of advanced technology in the refinery will improve the quality of products
produced in the refinery. Thus, all necessary measures shall be taken to create technology
friendly environment within the refinery to encourage the workers and staffs to come up with
new and innovative ideas to improve the quality of products (Valand, 2019).
Effective marketing and distribution of products will benefit the refinery:
Advanced technology and modern generation communicating devices including internet and
various platforms available in the internet shall be used effectively to market the products
globally. Effective marketing and distribution will help a refinery to increase its margin as well
as overall revenue by catering to the demands in various parts of the globe.
Proper management of refinery by taking correct decisions based on the market demand and
prevailing situation in the market:
Management of refinery with utmost efficiency and effectiveness is the responsibility of the
management of the refinery. Management must be futuristic in its decision making process.
Instead of being a follower the management should be set examples of path breaking decision

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making by introducing new and innovative products in the market. Thus, production of new and
improved quality of products by proper management is key to the success and growth of a
refinery (Hallale and Liu, 2018).

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References:
Hallale, N. and Liu, F., 2018. Refinery hydrogen management for clean fuels
production. Advances in Environmental Research, 9(3), pp.81-98.
Jean, D. and Lee, D., 2017. Expression deliquoring of oily sludge from a petroleum refinery
plant. Waste Management, 21(7), pp.349-354.
Kondratov, A., Varepo, L. and Ermakova, I., 2016. Express Diagnostics of Polymeric Petroleum
Products for its Usage in Latent Watermarks of the Smart Packaging. Procedia Engineering,
152(124), pp.469-473.
Mahesha, M. and Jayaraj, D., 2019. Risk Management in a Petroleum Refinery Project – A
Critical Analysis from Practitioners’ Perspective. Journal of Advanced Research in Dynamical
and Control Systems, 11(10-SPECIAL ISSUE), pp.1272-1278.
Nature, 2018. Petroleum and Petroleum Products. 141(3507), pp.36-37.
Valand, P., 2019. The Challenges and Future Prospects of Petroleum Products Refineries. Indian
Journal of Applied Research, 7(7), pp.69-70.