A Descriptive Analysis of Value Creation at Statoil Mongstad and Its Supply Chain

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A Descriptive Analysis of Value Creation at Statoil Mongstad and Its Supply Chain NORGES HANDELSHØYSKOLE Bergen, Spring 2006 A Descriptive Analysis of Value Creation at Statoil Mongstad and its Supply Chain Leoncie Nyiramucyo and Debasish Sahabanik Supervisor: Jens Bengtsson NORGES HANDELSHØYSKOLE This thesis was written as a part of the Master of Science in Economics and Business Administration program - Major in International Business. Neither the institution, nor the advisor is responsible for the theories and methods used, or the results and conclusions drawn, through the approval of this thesis. 2 Abstract Value chain is a sequence of activities that flow from raw materials to delivery of product or service. Value chain in oil industry extends from exploration and production of crude oil and natural gas up to sales of refined products. Refineries play a key important in the supply chain of an oil company, as it is where crude oil is processed into refined products. The emphasis of this work is on Statoil Mongstad. Statoil Mongstad is a refinery located at Mongstad. In order to get overview of Statoil Mongstad’s value chain, this thesis describes and discusses Statoil Mongstad’s organisation structure, production processes, costing and pricing principles and policies, and finally its supply chain. 3 Acknowledgements We carried out this project but it would have been very difficult without the help and support of many people in our surroundings. We sincerely express our gratitude to our supervisor, Jens Bengtsson, for his advice, guidance and support throughout this thesis writing. Our sincere thanks go to Endre Bjørndal and to all other participants in the Mongstad Pilot project for their support during this whole thesis. We would like to thank our contacts at Statoil: Signy Midtbø Riisnes and Eivind Blindheim and all others who participated by giving us different information and help through either interviews, meetings, telephone or e-mails: Reidar Knutsen, Øyvind Arnesen, Claus Hvid, Frode Bakke, Øystein Austrheim, Stein Erland Brun, and Jan Helge Svedhaug. Leoncie would like to thank her family Kuri, Mucyo and Marcellin Marirosi for their patience, encouragement and moral support. Debasish would like to thank his family Biswanath, Mily and Abhijit Banik for standing by his side during the work of the thesis. He would also thank his ever-lasting best friend, Inga Larsdottir Søreide, for giving strength and encouragement in facing difficult challenges and finding new opportunities. His thanks go also to his close friend, Sigurd Bekkevold, who has contributed with fruitful academical discussions and intriguing new ideas. Finally, special thanks go to his close friend, Dag Ellingsen, for helping to separate business and pleasure in a period of much stress. We express our thanks to all who contributed in one-way or another to the realization of this work. Above all, we would like to thank each other for a good teamwork. Leoncie Nyiramucyo Debasish Sahabanik 4 Contents ABSTRACT.......................................................................................................................................... 2 ACKNOWLEDGEMENTS................................................................................................................. 3 CONTENTS ......................................................................................................................................... 4 1. INTRODUCTION ................................................................................................................... 10 2. TECHNICAL PRESENTATION........................................................................................... 14 2.1 INTRODUCTION .................................................................................................................... 14 2.2 FROM LIVING THINGS TO ENERGY SOURCE....................................................................... 14 2.3 THE EXPLORATION OF PETROLEUM ................................................................................... 19 2.4 CHEMICAL COMPOSITION................................................................................................... 22 2.4.1. Crude Oil.................................................................................................................... 23 2.4.2. Natural Gas................................................................................................................ 30 2.4.3. The Difference between Crude Oil and Natural Gas................................................. 32 2.4.4. Refined Products ........................................................................................................ 32 2.5 MEASUREMENT.................................................................................................................... 35 3. ORGANIZATION STRUCTURE ......................................................................................... 37 3.1 INTRODUCTION .................................................................................................................... 37 3.2 ORGANISATION STRUCTURE THEORY ................................................................................ 38 3.3 ORGANISATION CHART FOR STATOIL ................................................................................. 40 3.4 ORGANISATION AT MONGSTAD........................................................................................... 46 3.4.1 Statoil Mongstad (MRDA).......................................................................................... 46 3.4.2 Mongstad – Crude oil terminal (MTDA).................................................................... 50 3.4.3 Vestprosess (VPDA):.................................................................................................. 50 5 3.4.4 Product Technology and Customer Service Centre (PKS) .........................................51 3.4.5 Collaboration between entities at Mongstad ..............................................................52 3.5 ADMINISTRATION AND PERFORMANCE MEASUREMENT .....................................................52 3.5.1 Better and Faster Administration (BRA).....................................................................53 3.5.2 Balanced Score Card (BSC) .......................................................................................55 3.5.3 The Budget ..................................................................................................................62 4. PRODUCTION.........................................................................................................................63 4.1 INPUT ....................................................................................................................................63 4.2 REFINING PROCESS...............................................................................................................64 4.2.1 Crude oil distillation...................................................................................................66 4.2.2 Cracking......................................................................................................................67 4.2.3 Unification ..................................................................................................................68 4.2.4 Alteration ....................................................................................................................69 4.2.5 Common Refinery Chemicals......................................................................................69 4.2.6 Components treating...................................................................................................70 4.2.7 Refining Process Summary .........................................................................................71 4.3 BLENDING AND STORAGE .....................................................................................................72 4.4 REFINED PRODUCTS .............................................................................................................73 4.5 PLANNING .............................................................................................................................75 4.5.1 Planning in oil refineries ............................................................................................75 4.5.2 Planning at Mongstad.................................................................................................81 4.5.3 Planning process at Mongstad....................................................................................85 4.6 PRODUCTION SCHEDULING ..................................................................................................86 4.6.1 Scheduling in oil refineries (Favennec 2001).............................................................86 6 4.6.2 Scheduling at Mongstad: ........................................................................................... 88 4.6.3 Scheduling process at Mongstad................................................................................ 91 4.7 PRODUCTION CONTROL ...................................................................................................... 94 4.7.1 Production Control in refineries................................................................................ 94 4.7.2 Production Control at Mongstad ............................................................................... 95 5. PRICE STRUCTURE ............................................................................................................. 97 5.1 INTRODUCTION ...................................................................................................................
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