Heavy fuel oil analysis at Iraq's Bayji refinery

Abstract

This case study develops a dynamic model to analyse Heavy Fuel Oil (HFO) production and distribution at Iraq's largest oil refinery. It studies the impact of instituting a more flexible export pricing model for HFO removal, which constrains production due to physical storage limitations on refined fuel production and revenue generation. The production model utilizes system dynamics concepts and incorporates six independent, uncorrelated inputs (market prices, power outages, HFO produced, HFO removed via the power plant, local and export trucking) to effectively simulate historical trends. An export pricing model was then added to optimize the production model. Various sensitivities regarding the Iraq HFO export market to price fluctuations, time lag for prices changes to take effect, and production increases resultant of HFO storage becoming a less significant constraint were explored. The analysis reveals significant increased revenue potential, ranging from $50 million USD to $1 billion USD annually, by implementing a pricing system that adjusts HFO export prices based on HFO storage levels with minimal downside risk.

Keywords:

• production
• oil
• pricing model
• simulation
• energy

Acknowledgements

The author thanks the following individuals for their assistance during the case study: Professor Huseyin Topaloglu (Cornell University), Brigadier General R. J. Cripwell (British Army), Brigadier General C. Wilks (British Army), Colonel P. Dietrich (US Army), Colonel S. Kimmell (Army), 1stLT N. Zygmont (US Marine Corps), T. Barnich (US State Department), S. Lindsey (US State Department), J. Nicole (US State Department), P. O’Connor (US State Department), M. Hasan (Iraq Ministry of Oil), Dr F. Al-Amri (Iraq Ministry of Oil), Dr Manaa (Iraq Ministry of Oil), S. Michael (Iraq Ministry of Oil) and Dr A. Obaidi (Iraq Ministry of Oil).