I N DEGYPT U S T RYUPDATES INSIGHTS
OPERATIONAL
EXCELLENCE
BUILDS REFINERIES’ PROFIT MARGIN
BY FATMA AHMED
T
he refinery industry is one of the essential pillars of the petroleum sector. The Egyptian government has given great attention to this important industry, where Egypt is ranked as the second-highest oil refining country in Africa by refining about 23% of the total domestic refined oil in the continent .
REFINING SECTOR IN GDP According to data issued by the Ministry of Planning and Economic Development (MPED), the refining sector contributed a total of EGP 236.7 million to the Gross Domestic Product (GDP) during the fiscal year (FY) 2019/2020, jumping by 24.6% compared to the FY 2018/2019 when it recorded 189.9 million. Additionally, the data showed that the refining share in the GDP hit its highest level since FY 2014/15, reaching 4.3% compared to 3.7% during the previous year and 4.1% during FY 2014/15. Furthermore, the refining sector’s share in the petroleum extraction GDP increased to 25.1% during FY 2019/20 compared to 22.4% in the FY 2018/19. These high results pushed the total refining sector share in the total GDP over the past six years, up to EGP 944.2 billion, rising by 131% since FY 2014/15 when it was estimated at EGP 102.3 million. However, the refining investments has dropped to EGP1.1 billion or by 70.8% during FY 2019/20 after reaching EGP 3.7 billion in FY 2018/19. When it comes to the petroleum exports, the data issued by Central Bank of Egypt (CBE) showed that exports have increased by 86.4% during FY 2019/20 to EGP 848 million versus EGP 115.5 million during FY 2018/19. On the same note, the petroleum products exports recorded $2.42 billion during the first quarter of FY 2019/20 compared to $2.78 billion during the same period of FY 2018/19 due to the decline in global prices. On the other hand, the petroleum imports decreased by 13% to $2.7 billion due to the same reason.
PROFIT MARGINS OPTIMIZATION Refiners are considered one of the best investments that can enhance the state’s economy, increase the overall contribution to the GDP, and impact the economy positively. Additionally, as long as investments in refineries increase, the demand for petroleum products can be sufficiently met which helps in reducing exports and saving more money for the country. 24
EGYPT OIL & GAS NEWSPAPER
This pushes governments in cooperation with the operators and investors to find ways to optimize the refineries’ profit margins. Hossam Mahmoud, Process Safety Engineer, highlighted to Egypt Oil and Gas (EOG), that the main challenge that faces the investors is “how to gain high profit with low cost.”
INTEGRATED SUSTAINABLE APPROACH An article published by a Consultancy.UK entitled “Improving Margins at Oil Refineries through Operational Excellence”, stated that oil companies and governments can sustain and improve refineries profit margins through applying integrated strategies and roadmaps for operational excellence which would help save costs and lead to higher profits margin. The article showed that the refiners can fall into one of four categories when seeking operational excellence. The first category is the survival mode; in this case, the company tries to operate normally but frequently uses inappropriate and inefficient solutions due to a lack of personnel competency. The second category refers to the path of stability, where the company’s interest directs to occupational safety and key technical aspects of the operation system. Consequently, the third category aims at having first quartile OPEX levels. Finally, the fourth category is that of leadership pace setters where all aspects of the operation are implemented according to a unified operational system, personnel involvement and compliance with a system’s principles under the continuous training and leadership from the administration’s side. Furthermore, the article stated that all four elements should be implemented together in order to achieve the highest level of efficiency. In addition, there are other components that should be added to such categories to achieve an integrated approach. This includes developing and introducing the most advanced technical system via pilot projects and developing the competencies and skills among all employees from fresh graduates to managerial roles. Also, optimizing raw materials is essential; this includes increasing conversion per ton of crude oil processed as refineries with a higher level of conversion will have a better
