An integrated framework for inventory management and transportation of refined petroleum products: Pipeline or marine?

Abstract

• We study the production–transportation problem for refined petroleum products. • A bi-objective MILP model is proposed to select transportation mode. • A time-based heuristic solution technique is proposed. • Problem instances based on realistic infrastructure is studied. • Conditions under which pipeline or marine is preferred is discussed. We study the integrated problem of managing inventory of refined petroleum products, and their multi-modal (ships and pipeline) transportation between a refinery and the served distribution centers. It is important that the transportation decisions are driven not just by the inventory levels and customer demand, but also the environmental risks associated with different refined products. A bi-objective mixed integer linear programming optimization model (MILP) is proposed, where constituent components were independently developed and then interfaced to capture the complexity of the resulting integrated model. A time-based decomposition heuristic is also employed to solve the integrated problem. The proposed framework was used to study a number of problem instances generated using a realistic infrastructure in the United States, and the resulting analyses lead to the following inferences: pipeline is the preferred mode of transportation only when cost is the sole consideration; on the other hand, when environmental risks are considered marine is the preferred mode for most of the refined petroleum products, except for heavier oils; and, the proportion of traffic on the two modes is a function of the type and volume of products, and the number of vessels available at the start of the planning horizon.