Controlling Turnaround Costs
Estimated reading time: 4 minutes
Controlling Turnaround Costs
Turnarounds are major events for refineries and other petrochemical facilities. They typically cost significant sums of operational expense and capital expense money to execute. There is a major loss of revenue when the facility is shut down, causing lost opportunity cost and profits through lost production. If poorly managed, turnarounds offer significant risk of accidents. If poorly executed, they can also be the cause of significant production disruption after start-up, due to leaks and other production trips. Hence, there is a potential to save significant sums of money, by ensuring turnarounds are run correctly.
Turnarounds involve several maintenance tasks that are extremely labour intensive. Hence, a shutdown must be completed in the shortest time possible to prevent and minimise the plant from losing money due to halted production. This results in increased in overtime costs, and more workers are scheduled to work routinely during a turnaround.
Third-party contracting companies are typically brought in as they are able to efficiently operate a shutdown at a cost. Other costs also involve the purchasing or renting of equipment during shutdowns.
Controlling the cost of a turnaround
Tracking the costs is one way to control turnaround costs. As controlling the cost and duration is a challenge for most, there is a risk that the actual turnaround costs is more than the initial budget. It is also hard to factor for unplanned shutdowns.
Effective planning and execution of shutdowns and turnarounds is essential to maintain inventory levels and reduce loss of revenue for the oil and gas industry, particularly if improper maintenance leads to an unplanned shutdown.
An unplanned shutdown at the North Refineries Company’s Baiji oil refinery in August 2018 forced the company to significantly boost production. Reuters reports that the refinery, which usually operates at 70 percent capacity, has been forced to boost production to 80 percent capacity to compensate for the loss in revenue.
A cost estimate needs to be accurate in order to provide management with the information needed to decide how to proceed, to allow cash flow planning and to aid in firm control of expenditure. Hence, tracking the costs helps to ensure that it stays within the budget. The traditional budgeting is inadequate to meet the unique requirements of a complicated shutdown projects which are usually financed through different cost centers. Hence, the tracking system must be able to capture all the aspects of the shutdown – including regular labour, overtime, external labour, allowances, equipment hire, and materials, as well as any other cost should be well accounted for and charged to the appropriate cost centers. The costs can also be shared appropriately based on the percentage each cost center is contributing towards that project scope.
Best practice
The best practice is to capture all the costs after each shift. Comparing this information with original budget, plan and schedule, enables the management to forecast and plan forward properly.
Advanced Shutdown Turnaround and Start-Up is a 3-day training course designed to improve your company’s approach to planning and scheduling through the provision of a framework for effective turnaround execution. The course provides a comprehensive knowledge base for turnarounds, demonstrates the latest planning techniques for turnarounds and highlights the operational check out and start-up requirements. The course is led by an expert with over 30 years of experience in the field of turnaround management.
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