Plants & Equipment

Good and Ready


The United States suffered a record $306 billion in damage from weather and climate disasters during 2017, according to the National Oceanic and Atmospheric Administration. Hurricanes Harvey, Irma and Maria pummeled the U.S. Gulf Coast and the Caribbean; wildfires and mudslides leveled miles of land and property in California; snowstorms paralyzed the Northeast; and tornadoes tore through Central and Southeastern states.

And its expected to get worse. Katrina-magnitude events will double due to climate warming over the 20th century, according to a study published in the Proceedings of the National Academy of Sciences. The United States Environmental Protection Agency found that extreme rainfall has risen substantially since 1990, with such events seeping into a larger portion of the country each decade. Another study from PNAS found that climate change has contributed to drier forests in the West, doubling the area burned by wildfires.

Even if your company isnt likely to be directly affected by severe weather or other disasters, will you be prepared if one of your key suppliers is knocked out of commission? How will you ensure continuity for your own customers?

Planning Ahead

Lance Puckett, senior vice president of Ergons petroleum specialties marketing division, explained that the companys disaster preparedness plans include staff training, periodic tabletop and live drills, inspections and audits, and updates to emergency contacts and outside service agreements. Its Incident Command System codifies specific procedures, roles and responsibilities that can be implemented in conjunction with local officials during an emergency like Hurricane Harvey.

The company also routinely stocks up on designated supplies and makes investments to improve equipment reliability, backup systems, instruments and controls, storage, handling and transportation flexibility.

Once the National Weather Service issues warnings about severe weather conditions and producers in the affected areas start to implement preventive measures, management must determine whether to continue to run facilities or shut down operations ahead of a potential storm.

The decision to shut down becomes an exercise in real-time risk management, where probabilities, resources required, consequences and time must be considered, explained Neil Stanton, vice president, refining, Ergon-West Virginia. It takes a certain amount of time and number of people to shut a plant down safely and securely. All shutdowns and startups have greater risk than normal operation, including a higher prevalence of safety incidents and excess environmental emissions.

The larger and more complex the facility, the longer it takes to shut down. This can vary from a couple of days to many days. When a refinery is hurriedly shut down, there is a greater chance for damage to occur, and startup may take longer.

Keeping Supply Afloat

Following an unplanned shutdown, it may take considerable time to restart operations and reestablish supply. Producers often must declare force majeure and consider alternate options to continue supply for customers.

Chevron Base Oils relies on its global slate of products, three plants and 15 supply hubs worldwide, which allow the company to meet customer needs during events that could affect any particular area, stated Saniyyah Smith, communications advisor.

ExxonMobils base stocks division reported that it is also constantly developing and adjusting product solutions, both globally and locally, to counter any disruptions in service. The companys inventory is spread throughout different regions to ensure business continuity. Before Hurricane Harvey made landfall, the producer employed inventory staging, equipment procurement and proactive shipping to customers.

Ergon also has a supply continuity plan in place that accounts for hurricanes in the U.S. Gulf, and the company therefore carries higher inventories of crude and products at different hubs around the world through the hurricane season, which runs from June to November in the Atlantic.Puckett noted that because of Harvey, we were impacted by port, transportation and storage facility damage, but the damage did not cause any supply issues for our customers because we had product readily available to export.

Adequate safety stocks at multiple terminals, numerous supply sources, redundant utility feeds, fully integrated intercompany transportation options, increased communication with the market and numerous contingency plans are all a part of our planning process, emphasized Kris Patrick, who is president of Ergon Refining and Ergon-West Virginia.

Supply is also a critical issue for additive companies, which must source a greater variety of raw materials. In addition to considering supply security during product development, Afton Chemical assesses the quality and robustness of its material and service providers supply chains and business continuity planning. Through continually developing and maintaining relationships with raw material suppliers, logistics providers and toll manufacturers, we are better able to ensure a smooth flow of products to our customers, said Gina Harm, senior vice president and chief operating officer.

She also pointed to the ripples that natural disasters like Harvey can cause in the national supply network. A lot of raw materials are sourced from the Texas area, Harm observed, so any supplier reliant on raw materials from Texas may have had supply challenges, regardless of geographic location well outside of Texas. It is important to understand the entire supply chain when discussing business continuity plans with suppliers.

Stocking Up?

Base oil expert and market consultant Terrence Hoffman puts a different spin on the topic. While most refiners do a good job of planning for expected events like turnarounds, he said, managers dont like to tie up a lot of working capital in additional inventory, and major hurricanes and other disasters causing large-scale damage dont happen every year. If a customer is concerned about supply continuity, the producer will usually talk with that customer about how it can bolster its own inventories.

But with Harvey still relatively close in the rearview mirror, many companies will take some preemptive action, Hoffman noted. If no disaster strikes, next year they may scale back to half of this years actions, and the following year revert back to the original inventory plan.

He also pointed out that, in contrast to the aftermath of Hurricane Rita in 2005, which caused significant supply problems for the lubricants industry, Harvey didnt seem to make very large waves in the supply chain.

This may be because two large Gulf Coast plants-Chevrons Pascagoula, Mississippi, refinery and the Excel Paralubes facility in Westlake, Louisiana-escaped Harveys path.

Another factor may be the increased demand for API Group III base oils, Hoffman speculated, which are mostly imported. Globalization of supply has made it easier for companies to manage their way through problems, he conceded.

Lubricant blender Valvoline, which has a plant in Deer Park, Texas, noted in its quarterly earnings release that Harvey did raise production costs. However, the facility itself was never under water, said Craig Moughler, senior vice president, international and supply chain. The plant was down for only a short amount of time, but the larger issue was the transportation impacts in the Houston area, he explained to LubesnGreases.

Our historical use of a multi-plant production system provides some level of natural redundancy, Moughler continued. We were pleased with the performance of [that system].

Hoffman recommends that lube blenders have a contract with multiple base oil producers. By splitting purchasing activity among refiners that are not so close to each other that theyd both be impacted [by a natural disaster], he mused, its like a cheap insurance policy.

Keeping the Lights On

Aside from damaging facilities and disrupting supply, natural disasters result in road closures, preventing employees from reaching their workplace and products from being shipped out. They also cause crude oil and feedstock supply disruptions, power outages and many other logistical issues.

It has taken many months post-Hurricane Harvey for the industry in total to resume normal operations, said Aftons Harm. There were a variety of challenges to manage through, ranging from raw material supply to transportation availability and accessibility.

Ergon pointed out that all refineries are fed by key utilities-electricity, water and natural gas-which are paramount to reliable operations. The company believes that redundant supplies of these utilities may be the optimum protection.

Electric motors drive 90 percent of operations in a refinery or terminal, and flooding this equipment can create significant problems. Warehousing adequate spare motors and equipment in various locations is critical, Puckett noted, adding that even basics like food, water and shelter for onsite employees can be a critical need. Fatigue must be managed with the long hours and unusual conditions to protect personnel safety.

Eldon Fink, director, corporate health, safety & environment at Calumet Specialty Products Partners, voiced the thoughts of all the other company officials when he explained that the safety of employees and the community was the primary consideration when determining the course of action after a disaster strikes. Protection of company assets and ability to provide products to our customers are also of concern, but secondary to personnel and family safety. It is our intent to have a minimum number of emergency crew members in the plant during the storm to protect equipment and minimize personnel exposure.

Producers have to find and define the right balance between the risk of loss and the cost of preparedness measures. Puckett acknowledged that this is an ongoing process and that his company uses various outside consultants to help with risk assessment and loss prevention, pointing out that equipment vendors often have recommendations for spares or protective measures. Additionally, design and construction standards should to be regularly updated to increase reliability.

Be Prepared

Natural disasters arent the only potential supply disruptors, consultant Geeta Agashe reminded participants at the ICIS World Base Oils & Lubricants Conference in London earlier this year. Political turmoil, unexpected turnarounds and other scenarios can throw normal production off course.

Agashe recommended that lubricant industry players thoroughly examine their supply chain and identify where it begins and ends, key suppliers of goods and services, and what is needed to maintain supply chain continuity. They should also identify ways to build resilience into logistical processes.

Experience is always an excellent teacher-our own and what we learn from others. The right balance may be difficult to pinpoint, but by regular examination and effort, we are confident we are moving in the right direction, Ergons Puckett noted.

Planning and preparation remain the cornerstone for a clear path to recovery, summarized Kim Jakub, Americas base stocks and specialties product manager at ExxonMobil. We cannot stress enough the importance of these activities, and we are constantly learning from these events to make sure all insights are captured, acknowledged and reflected in our future planning and preparation processes. We prepare for the worst and hope for the best. z

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