Study on the Impact of Oil Product Measurement Units in Refining Enterprises

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For a long time, influenced by traditional practices, China’s refining companies have measured, balanced, and recorded everything throughout the process from the arrival of crude oil to the shipment of refined products, using weight as the unit of measurement. However, in the trade settlements for the purchase of raw materials and the sale of products, although refineries still use weight as the unit of measurement, imported crude oil suppliers use volume (barrels) instead; gasoline and diesel are also measured by volume (liters) in retail sales at gas stations. In this way, the conversion between volume and weight not only causes difficulties in domestic and international trade settlements, but also leads to ambiguity in the calculation of corporate profitability. Therefore, in order to examine the extent to which this conversion process affects corporate performance, it is necessary to conduct research on this topic. 　　Sinopec has 35 refining plants with a refining capacity of approximately 170 million tons per year. As the proportion of imported crude oil continues to increase, this impact grows larger as well. The LP model is used below; two representative companies of Sinopec are selected, and calculations as well as result analysis are conducted solely for diesel products, measured either by volume or by weight. 　　1 Proposal of the method Since weight and volume are converted into one another using density, the differences in benefits that occur for oil refining companies in trade settlements due to different measurement units are also caused by this property of density. At the same time, the properties of crude oil naturally affect the properties of the products to varying degrees. For the naphtha, straight-run diesel, wax oil, and residue produced through crude oil distillation, only straight-run diesel retains the density of the crude oil; this density is then transferred to the final diesel product through blending. The other products, on the other hand, must undergo further processing involving chemical reactions in downstream units such as reforming, catalysis, and coking in order to become the final products. It is difficult to determine the extent to which chemical reactions affect the density of the product. Therefore, the impact on corporate profitability is examined separately for diesel products, based on both volume and weight measurement. 　　The investigation is considered under 2 scenarios. First, calculate the difference in profitability for a company under normal production conditions when diesel is sold by weight versus by volume; this difference represents the impact of different measurement methods for diesel on the company’s profitability under normal circumstances ； Secondly, since the break-even price of crude oil can most directly reflect its value, it is possible to select the three commonly used types of crude oil – light, medium, and heavy – and calculate the break-even price for purchasing each type under two scenarios: diesel sold by weight and diesel sold by volume. The difference in these break-even prices represents the impact of measuring diesel in different ways on the profitability of various crude oils, thereby allowing an assessment of their effects on crude oils of different properties. 　　Furthermore, to make the calculation results more representative, companies with different plant structures can be selected, such as pure oil refining companies or integrated oil refining and chemical manufacturing companies. Because the structure of different devices determines, to some extent, the properties of the final product. 　　2 Calculation Basis Calculation period: on a monthly basis. 　　Select company: A—Pure refining company ； 　　　　　　　B—Integrated oil refining and chemical enterprise ； 　　　　　　　Their crude oil processing capacity is all over 10 million tons per year ； 　　　　　　　In diesel products, the straight-run fraction accounts for about 62%, which is equivalent to the average level. 　　Standard density of diesel: **0.85 ks/L according to the fiscal conversion standard** is used ； 　　　　　　　　　Among them, Company A is slightly lighter, while Company B is slightly heavier. 　　Crude oil selection: Three representative crude oils, Es Sider, Oman, and Marlin, are selected. See Table 1 for details. 　　Price system: Based on the current actual practice. Diesel is mainly produced as 0* diesel, at a price of 4,838 yuan per ton. 　　3 Calculation Method Using the PIMS optimization model as a tool, the baseline plan is established based on the representative crude oil types processed by the enterprise over the long term and the volume of processing in normal operating conditions. First, calculate the production efficiency under the basic scenario for different diesel measurement methods; then, based on this basic scenario, change the type of crude oil by replacing the three representative oil types selected for 1 ship (130,000 tons) and conduct calculations accordingly. 　　In the PIMS model, the densities of crude oil, straight-run diesel, and finished diesel are interconnected; moreover, the density and price of the final diesel are also linked through automatic conversion using volume as a bridge. Therefore, different calculation methods can be used; by obtaining the density and price of the corresponding diesel from the model, a comparative analysis can be carried out, and the calculation results can be interpreted. 　　4 Calculation Results and Analysis 4.1 Company A 1) Calculation Results The calculations for diesel sold by volume and by weight are shown in Table 2. 　　By comparing the results, it can be seen that the production efficiency of the enterprise (excluding fixed costs) as well as the calculated break-even prices for different crude oils vary under different calculation methods. 　　A comparison of the basic options shows that billing diesel by volume results in an additional benefit of 29.74 million yuan per month compared to billing it by weight. This is because the density of the diesel product produced by this plant (0.8412 kg/L, as shown in Table 3) is lower than that of standard diesel (0.85 kg/L); as a result, 1 ton of this diesel occupies more volume than standard diesel. Since the price of the product is calculated based on volume, selling it by volume helps to increase sales revenue. 　　As can be seen from the calculation methods for the latter three types of crude oil, as the density of the crude oil increases, the break-even price calculated on a volume basis is higher than that calculated on a weight basis. For the same type of crude oil, the break-even price increases by 53 yuan per ton for light crude oil, by only 19 yuan per ton for medium crude oil, while it decreases by 28 yuan per ton for heavy crude oil. This is because for light crude oil (with a high API value and low density), the density of straight-run diesel is relatively low; when such diesel is blended into diesel products, the density of the final diesel product also decreases. As a result, the volume of 1 ton of diesel increases, and the price of the product measured in terms of volume rises, which in turn increases the profit margin for crude oil and raises its break-even price ； The same is true in reverse. 　　2) Cause analysis The price of diesel is 4,838 yuan per ton when sold by weight. When sold by volume, the sales prices of diesel and the variations in its density under different scenarios are shown in Table 3. 　　As can be seen from Table 3: ① As the crude oil becomes heavier, the density of diesel in it increases rapidly; the density of the final diesel product also rises after blending, although this trend becomes more gradual since straight-run diesel accounts for only a partial proportion in the final product ； ②The selling price per ton of diesel continues to decline due to the increase in density. 　　Changes in crude oil density lead to changes in diesel density, which in turn affects diesel prices. This results in changes in a company’s sales revenue and production efficiency; consequently, it leads to changes in the break-even price of crude oil. 　　4.2 Company B 1) Calculation results The results of calculating diesel sales based on volume and based on weight are shown in Table 4. 　　As can be seen from Table 4: ① Since the density of the diesel produced by this factory is higher than that of standard diesel, selling it by volume is not conducive to increasing sales revenue; therefore, settling the sale of diesel by volume results in a loss of 16.65 million yuan per month compared to settlement by weight. ②As crude oil becomes heavier, the break-even price based on volume is 36 yuan per ton higher for light crude oil than that based on weight, whereas for heavy crude oil it is only 5 yuan per ton higher. 　　2) Cause analysis Using the same method as Company A, the calculated changes in diesel price and density are shown in Table 5. 　　As can be seen from Table 5, the price trend of Company B is exactly the same as that of Company A, leading to the same conclusion. 5 Conclusions 　　1) In trade settlements, volume-based and weight-based measurement methods have a significant impact on the profitability of oil refining companies, with the extent of this impact varying among different companies. 　　2) For enterprises whose average diesel density is lower than that of standard diesel, selling by volume helps to increase sales revenue, whereas for enterprises whose average diesel density is higher than that of standard diesel, selling by volume does not help to increase sales revenue. 　　3) The break-even price for crude oil: when calculating diesel based on volume as opposed to weight, the break-even price is higher for light crude oil, while it is lower for heavy crude oil. 　　4) The impact of diesel measured by volume and by weight on profitability mainly depends on the density of crude oil and that of the diesel product, and has little to do with the structure of the enterprise’s facilities.