Driving Excellence

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T he combined effect of the increase in the demand of oil derivatives in Central Americ a (CA) and the Dominican Repub- lic coupled with the sustained increase of international prices of crude oil and its derivatives has negatively impacted Cen- tral American countries. As a result, the Inter-American Development Bank (IADB) contracted KBC to deQ ne the location and conQ guration within Mesoamérica for a possible reQ nery. The study was divided into two phases.

Phase I In Phase I, KBC conducted a review of the Mesoamérican hydrocarbon markets, selected the reQ nery location, deQ ned the basic reQ nery conQ guration, performed the economic evaluation, and deQ ned the business scheme for implementation of the reQ nery. Market Assessment KBC 9s PEL (Petroleum Economics Lim- ited) division reviewed the Mesoamérican hydrocarbon market product demand, and we concluded that this region 9s product demand for 2005 was approximately 378 MBPD, and it would grow to 470 MBPD. With the existing reQ neries 9 local produc- tion of less than 100 MBPD, a strong in- centive exists to build a high conversion reQ nery in the region.

KBC evaluated the critical factors in determining the feasibility for a major reQ ning project ... more. less.

in CA as shown in Figure 1. Site Selection The next major task was to determine the poten- tial site location for the new reQ nery. KBC 9s ap- proach was to develop a multi-variable evaluation process to determine which of 12 possible re- Q nery sites proposed by the seven CA countries and the Dominican Re- public was most feasi- ble. This evaluation was based on two separate, but complimentary analyses. The Q rst was a Site Assessment of the attributes for each potential site, and the second was a Transportation Cost As- sessment of the oil logistics costs. KBC site specialists visited the top eight sites. The Site Assessment included the key attributes of the potential sites such as the land availability, port capabilities, infrastructure, environment, and local business environment. On a parallel path, the Transportation Cost Assessment was conducted using an LP Model, cCentral America Distribution Model d (CADM). This model evaluated the costs of transporting crude and products to the respective de- mand centers. This model included 23 key ports and demand centers, 3 transporta- tion modes (ships 3 VLCC and Panamax, pipeline, truck), 5 existing reQ neries, and 7 product types. The model is illustrated in Figure 2. The combined results of these assess- ments identiQ ed Puerto Quetzal in Gua- temala and Puerto Armuelles in Panama as the two most attractive sites for a new reQ nery. After selection, these two sites were visited by KBC 9s environmental spe- cialists to determine their suitability. Both sites were found feasible as part of a pre- Helping Clients Achieve Operational and Capital Excellence KBC Consults on Possible Mesoamérican Re nery by Sal Cubeta Driving Excellence KBC offers a compre- hensive range of con- p sulting, implementation, g g and training solutions gp gp to provide sustainable g g competitive advantage p to our process industry pg clients worldwide. p p O UR SER V ICES I N CLUDE : C apX - Capita l Exce ll enc e - Market Anal y sis & Forecasting - Process Strateg y Review & I mp l ementatio n - Merger, Ac q uisition & Inte g ration Studie s - Feasi b i l ity Stu d ies - Ca p ital Pro j ect Su pp ort O pX - Operationa l E x ce ll e n ce - Operationa l P l anning - Process O ptimisation - Energ y - H SE - Re l ia b i l ity, Avai l a b i l ity & M aintenance - Human Per f ormance I mprovement " Events . . . . . . . . . . . . . . . . 2 " Re! ning Margins . . . . . . . 3 " Completed Projects . . . . . 3 " Petro-SIM Version 3 . . . . . 4 " Upcoming Training . . . . . 4 In This Issue... Continued on pg 2 Figure 1 - Central American Demand Projection liminary environmental assessment regard- ing legal structure and proximity to populated areas. Re: nery De: nition and Economic Evaluation KBC developed sev- eral models to deQ ne the basic conQ gura- tion of the new reQ nery based on an economic evaluation of each model using KBC 9s tools. These included KBC 9s Petro-SIM process simulation package to provide the re- Q nery process unit sub-models for the LP that assembled these process units, demand centers, and product speciQ ca- tions and prices. The product revenues were based on netback prices (market less transportation costs). These prices were based on the lowest cost suppli- er 9s delivered price to the CA markets. Crude cost was based on the reQ nery gate price for each crude (supply termi- nal plus transportation). The maximum product sales volume in each CA mar- ket equaled the full demand possible. The LP model permitted evaluation of alternative reQ nery conQ gurations, unit severities, and export to alternative markets. This LP solution optimised the delivery of reQ nery products to the most proQ table markets. The reQ nery conQ guration includes a hydrocracker, coker, VGO hydrotreater, FCC, alkylation, naphtha reforming, hy- drogen plant, and associated product hydrotreating. All reQ ned products will be capable of complying with interna- tional product standards to permit ex- port considerations. The study results are based on a 2015 project start-up as follows: " A large investment will be required to build the CA reQ nery (USD$7-8B) " Project economics do not support an attractive rate of return for investors if all products are sold in CA at alterna- tive product import prices " Exporting to product-short USWC and Mexico and including a power plant option provides an attractive project for investors seeking a presence in the USWC and unable to build in that market (13.7-14.5% IRR) - Almost half (46%) of the reQ nery products will economically go to CA/Mexico (31/15%) - The reQ nery will supply 39% of the CA demand in 2015 " Debit Q nancing improves the IRR to 17-24% depending on leveraging op- tion (30-70%). " This IRR range provides a respective cushion for economic downside risks associated with investment and mar- gin KBC presented its conclusions in May and June to the Technical Committee representing the Mesoamerica nations and the Hydrocarbons Group respon- sible for the study. Additionally, the re- sults were presented to the Secretaries of Energy of the nations and in June to the Summit of the Presidents of the Me- soamerica countries in the Dominican Republic. The conclusion of Phase I suggests that there were enough positive elements to continue exploring the potential interest of private investors for a reQ nery with the described conQ guration. Phase II The second phase of the work (cur- rently ongoing) involves promoting the project, obtaining investor feedback, and preparing bid bases and regulatory framework for the development of the project. Feedback was collected at a Houston brieQ ng in July, and presented to the CA nations in August. This infor- mation helped shape the framework for developing the bid mechanism, with the issuance of an Expression of Inter- est (EOI) document published in mid- September through the PMI (Comercio International S.A. de C.V.) website for interested parties to respond. If your company would like to express interest in the project, please visit PMI 9s website at www.pmi.com.mx, and see the links on the right side of the page under cRe- quest for Expression of Interest. d NPRA Q&A and Technology Forum 8-11 Oct 3 Phoenix, AZ, USA This conference addresses real problems and challenges facing reQ ners today with Q&A, plant automation, safety, and prin- ciples and practices sessions. Al English from the Parsippany, New Jersey ofQ ce will represent KBC on the FCC Panel. KBC will also co-sponsor the opening reception. ERTC Petrochemicals 9-11 Oct 3 Dusseldorf, Germany KBC 9s Peter Hallas will present cOptimise the Total Site Energy Performance 3 Simul- taneous Process and Utility System Integra- tion. d The paper presents the methodology used and the results of a Total Site energy study for Samsung Total Petrochemical Co. Ltd (STC) at its Daesan complex. CEE 9 th Annual Roundtable 17-19 Oct 3 Budapest, Hungary Mr. Silvian Potlogea for Rompetrol and Mr. Jim Sheldon of KBC will present, cCapital Project Optimisation for Maximum Die- sel Production. d This paper describes an analysis of the Petromidia reQ nery invest- ment project and how KBC 9s Petro-SIM" reQ nery-wide optimisation software was used for evaluating the integration consid- erations and opportunities. Rotating Equipment 2006 7-8 Nov 3 Kuala Lumpur, Malaysia Mr Greg Gustafson of KBC will present, cFocusing on Rotating Machinery Case Study: Compressor Dry Gas Seal Improve- ments. d This presentation details the in- sights on practical Defect Elimination and RCFA techniques for a recent KBC project for a fertilizer plant in Malaysia. IOCC Conference 30 Nov-1 Dec 3 London, UK Mr. Simon Rogers of KBC will present, cUs- ing Simulation to Improve ReQ nery ProQ ts. d This paper examines proQ t improvement opportunities through a series of case stud- ies using a rigorous and complex Petro-SIM model of major reQ neries and petrochemi- cal complexes. FPSO Summit 2006 5-6 Dec 3 Singapore Mr. David Turner of KBC will present, cAchieving Operational Excellence (OpX) for FPSO Based Oil & Gas Production. d This paper will present a global best prac- tice OpX model that has been applied worldwide by a global integrated oil compa- ny on all of its major oil & gas producing as- sets, including some of the most complex FPSOs in the world. Texas Technology Showcase: The Engi- neer 9s Energy Toolbox - Practices, Tech- nologies and Management 6-7 Dec 3 Galveston, TX, USA KBC 9s Joe Davis, will present, cA Better Approach to Energy Performance Bench- marking, d and cA Case Study in Develop- ing Process Unit Energy Metrics. d KBC will also exhibit at the conference. FEATURE STORY Continued from pg 1 EVENTS 2| Q3 2006 | Driving Excellence Figure 2 b y Ric h ar d Warne r D espite record high crude oil prices, high conversion reQ ner y mar g ins in the US Gulf remained well above the marginal break-even level in the third quarter o f 2 006 whilst margins in NW Europe and Singapore declined. With the onset of the drivin g season in the US, reQ ner y utilisation levels a pp roached their theoretical limits. G asoline and diesel reQ nery margins held in the Gulf notwithstanding the si g niQ cant chan g es in speciQ cations for both. The replacement o f MTBE in gasoline with ethanol and the lowering of the sulphur limit on diesel from 500 ppm to 1 5 ppm created considerable uncertaint y in the market e nsuring that the two driving f uels crack spreads remained robust until the end of driving season. O n a hydroskimming and cracking basis, European reQ nery margins fell below marginal cost break even i n A u g ust as cru d e pr i ces ra lli e d an d g aso li ne an d g as oil p rices f ollowed U S p rices lower. The sustained weakness in residual fuel oil prices placed a ceiling o n r etu rn s . Singapore margins (hydroskimming only basis) also d ec li ne d over t h e quarter to t h e i r l owest l eve l i n t h e last Q ve years. The strong gasoline crack spreads, which had held up margins under strong pressure f rom heavil y ne g ative fuel oil crack spreads, declined due to lar g e Indian and Taiwanese gasoline exports and reduced Japanese demand led to lower prices. Furthermore, the relative decline of U SWC prices limited opportunities for arbitra g e from Sin g apore, and le f t the region with more than ample supply. Moreover, f uel oil crack spreads weakened further after massive inR ows of material f rom Europe created a g lut in the Asian market, which was alread y weighed-down by a lack o f demand f rom traditional consumers s uch as China 9s power producers and tea kettle reQ neries. REFINING MARGINS Strategic Investment Option Study Romania The client had committed to an upgrade project including a new mild hydrocrack- er and a new hydrogen plant to allow the reQ nery to operate at full capacity and meet new clean fuels speciQ cations for diesel and gasoline. The site required as- sistance in integrating new units, by de- Q ning, as appropriate, required revamps/ upgrades of existing units and utility sys- tems. In addition, the impact and eco- nomics of optional new units (alkylation and TAME) were evaluated. Finally, the client requested help in identifying proQ t improvement opportunities both with the existing and the future reQ nery. The key element in meeting the client 9s objectives was the development of a Petro-SIM model of the existing and fu- ture reQ nery. This enabled KBC to iden- tify opportunities worth over 65 c/bbl in two lead cases and evaluate the impact of optional new units. The study con- Q rmed that no additional new units were essential for meeting the new gasoline speciQ cations. Investment could be de- layed or cancelled, thus assisting cash R ow. Additional off-line studies deQ ned cost-effective upgrade requirements for the amine system and the hydrogen net- work. An additional study determined that replacing reactors when converting the existing VGO hydrotreater (replaced by the new mild hydrocracker) to diesel service was not necessary and could not be justiQ ed, which saved signiQ cant in- vestment cost. Strategic Energy Review South Korea SamsungTotal Petrochemicals Co., Ltd. (STC) had already executed a number of energy saving projects on various process units. The steam system was quite constrained by boiler production limits and the presence of critical steam turbines used as process drivers. Con- sequently, STC were concerned that the success of future plant expansions and further energy improvement measures would be limited by the utility system constraints. KBC 9s Total Site and utility system mod- elling techniques were proposed to anal- yse the process units and the utility sys- tems simultaneously so that the realistic scope for energy improvement could be quantiQ ed. The methodologies used were: 1. BT benchmarking and Gap Analysis 2. Pinch Analysis of the process units 3. Total Site Analysis of the process/ utility system interface 4. Utility system modelling using Pro- Steam KBC identiQ ed a total of 71 energy sav- ing project ideas, and we recommended 50 of these for more detailed evaluation. STC accepted that 13 projects were likely to be feasible within current practi- cal and economic constraints and would save $5.6M per year. The improvements would be located in Aromatics, BTX, ethylene plant, ethylene oxide/glycol, HDPE, and in the utility system. Optimising Re3 nery/Aromatics Operations Malaysia The client had envisioned that process optimisation and energy usage review should yield savings of more than $6M per year, and set a target of capturing 50% of these possible opportunities. KBC utilised its Petro-SIM and Pro- Steam models to develop comprehen- sive process and energy models of this petrochemical plant. After this initial eval- uation, KBC applied Best Practice meth- odologies to identify all possible opportu- nities related to Process and Energy. Based on the results, KBC consultants identiQ ed several cno cost d and clow cost d opportunities in the Operations, Energy, and Maintenance areas of the petro- chemical plant. The value of these oppor- tunities exceeded $25M per year. With a six month implementation program, KBC consultants were able to implement more than $13M per year of these opportuni- ties. As part of the program implementa- tion, KBC provided on-the-job training so that the client 9s staff could carry out the remaining opportunities. COMPLETED PROJECTS Driving Excellence | Q3 2006 | 3 KBC is pleased to announce that the new version of Petro-SIM and the KBC SIM models is now available! Petro-SIM Version 3 contains innovative ways to integrate process simulation with key systems in the plant, including plant data information systems, LPs, relational databases, and Microsoft Excel ® - all meth- ods are included in the basic simulation package. Version 3 also contains two new reactor models to improve petrochemical- reQ nery integration proQ tability. Improved Collaboration New features in Version 3 help improve col- laboration within the facility. Case-linking mechanisms simplify deployment across teams and throughout the reQ nery. The new Meter operation allows simulations to become more operations-centric with di- rect access to process and lab measure- ments. In addition, a new LP utility provides built- in intelligence for selecting and generat- ing stream properties for tracking in LPs. Swing cuts are easily built and vectors generated by regression, perturbing prop- erties, or both. Unique Results Management Version 3 extends the features of the inter- nal spreadsheet and adds a host of new capabilities to form a unique results man- agement solution. Results analysis and data preparation are simpliQ ed through a new direct, two-way interaction with Excel. This two-way data R ow is seamless and fast - no coding required! With this release, KBC introduces a unique Knowledge Base with built-in intelligence to automatically select key results based on cBest Practices. d For instance, the Knowledge Base can be used to manage reQ nery stream properties. The data you need is right at your Q ngertips. Change tracking features, a Q rst on this simulation platform, enhance case man- agement and usability. These features include: an Undo feature, a Journal to au- tomatically record changes, and case com- parison tools. Enhanced Reactor Models KBC continues to enhance and update the existing SIM models along with Petro- SIM for a consistent interface. New reac- tor models include AROM-SIM for toluene disproportionation reactors and xylene isomerisation units and ISOM-SIM for C5/C6 isomerisation. These reactors are available as fully-integrated components of Petro-SIM. Petro-SIM Version 3 Released LEAD STORY: KBC Consults on Possible Mesoamérican Re nery KBC Advanced Technologies Inc. 14701 St. Mary 9s Lane Suite 300 Houston, TX 77079, USA Phone: +1 281 293 8200 Fax: +1 281 293 8290 KBC Process Technology Ltd KBC House 42-50 Hersham Road Walton-on-Thames Surrey KT12 1RZ, UK Phone: +44 1932 242424 Fax: +44 1932 224214 KBC Advanced Technology Pte Ltd 435 Orchard Road #16-02/03 Wisma Atria Singapore 238877 Phone: +65 6735 5488 Fax: +65 6736 4759 Petro-SIM and PROFIMATICS are registered trademarks of KBC Advanced Technologies plc © KBC Advanced Technologies plc Improving and Sustaining Process Plant Operator pggp Per f ormance " 18-20 O ct 3 Houston , TX , U SA S upervi p sing for Operational gp Effective ness " 1-3 Nov 3 Houston , TX , U SA UPCOMING HUMAN PERFORMANCE TRAINING SEMINARS To register, visit us online at: http://www.ttsperformancesystems.com/Seminars_toc.php . Driving Excellence | Q3 2006 | 4 SOLD OUT

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