Financial Risk Management with Product Pricing in the Planning of Refinery Operations

Abstract

In this paper, the issue of uncertainty and financial risk in refinery operations planning is addressed. The problem is determining how much of each available crude one must purchase and decide on the anticipated production level of different products, given the forecasts of overall demands. We also include, as decision variables, the price of the products. The profit is maximized by taking into account revenues, crude oil costs, inventory costs, and the cost of unsatisfied demand. Data from the refinery that is owned by Bangchak Petroleum Public Company Limited, in Bangkok, Thailand, was used for the example. The results indicate the superiority of the stochastic model, as well as the incorporation of pricing in the decision making over the use of deterministic models. Moreover, we show that, without using pricing, which introduces a price-demand relationship―a feature that normally is not present in existing models―the results that one obtains are overly optimistic, proving that pricing is an essential ...