Shell looks to IT for 50 cents a barrel savings

The latest e-commerce innovation from oil giant Shell could create billions of pounds of savings each year for the whole...

The latest e-commerce innovation from oil giant Shell could create billions of pounds of savings each year for the whole industry, experts said this week.

The company's crude-to-customer project aims to make visible the entire oil supply chain and has projected savings on refining of 50 cents per barrel - a saving of $35m (£23.3m) per day if it were successful across the industry.

Rob Grubb, senior consultant with Shell Global Solutions, which is developing the project in tandem with software supplier i2, said, "The aim is to make the supply chain transparent so that crude oil trading decisions can be made in the knowledge that there is a final customer."

He said the project will start at the customer end, with between $30m and $40m spent so far and completion set for the end of 2004. The aim is then to sell the system to other oil companies.

To run efficiently the oil industry has to plan to meet the forecast requirements of customers by refining its product at the optimum location according to factors like cost and deliverability of inputs (such as crude and other chemicals) and distances to final destination.

Currently planning occurs offline, with calculations done, for example, monthly. These are not responsive to real-time changes in supply and demand.

For a company like Shell with interests in more than 50 refineries in 30 countries the task is a huge one.

Paul Hodges, chairman of consultants International eChem, said "If the oil industry supply chain can be linked in real-time huge savings could be made. A saving of 50 cents a barrel would be spectacular given that current margins are about 39 cents a barrel, though it must be noted that such leaps in efficiency have been the story of the oil industry for the past 100 years.

"The obstacles are formidable, however," said Hodges. "It will require sharing of information between project teams - something which runs counter to the silo culture which has characterised the industry for the past 20 years."

Besides business culture challenges the software obstacles are also huge.

Alan Dormer, director of Dash Optmization, a supplier of specialist optimisation software components to process industry, said. "A large process company trying to optimise faces an incredibly difficult task. It would be impossible for a large oil company to optimise its whole business. But aiming for an 80/20 approach - getting 80% of benefits for 20% of costs - would be attainable, if ambitious."

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