OVERVIEW

Petroleum refining is a capital-intensive business. A grassroots refinery of average complexity processing 100 mb crude per day may cost a billion dollars to build. For a refinery to be economically viable, its operating cost must be minimized. Joint-ownership refineries are built and operated with these objectives in view. Large throughput refineries can be built with initial investment spread over the resources of two companies instead of one. As many operating cost elements, such as depreciation, insurance, and personnel, cost remain constant with refinery throughput, operating cost per barrel crude processed is reduced, thereby increasing refinery profit for the participants. This chapter discusses the equitable sharing of operating costs of the refinery (allocation of operating costs) between the participants.

A refinery operating cost can be classified under the following heads:

• Personnel cost. This includes salaries and wages of regular employees, employee benefits, contract maintenance labor, and other contracted services.

• Maintenance cost. This includes maintenance materials, contract maintenance labor, and equipment rental.

• Insurance. Insurance is needed for the fixed assets of the refinery and its hydrocarbon inventory.

• Depreciation. Depreciation must be assessed on refinery assets: plant machinery, storage tanks, marine terminal, and the like.

• General and administrative costs. This includes all office and other administrative expenses.

• Chemicals and additives. These are the compounds used in processing petroleum and final blending, such as antioxidants, antistatic additives and anti-icing agents, pour point depressants, anticorrosion agents, dyes, water treatment chemicals, and so forth.

• Catalysts. Proprietary catalysts...