3.1.1.1  Problem Statement

The U.S. EIA stated that the United States consumed an estimated 18.96 million barrels per day (MMbd) of petroleum products and produced 12.31 MMbd of crude oil and petroleum products during 2013. Therefore, the U.S. net imports of crude oil and petroleum products equaled 6.57 MMbd, making the United States dependent on foreign oil—see Figure 3.1 [U.S. EIA].

Most of the imports came from the western hemisphere. The western hemisphere including North, South, and Central America, the Caribbean, and the U.S. territories; and the Persian Gulf countries such as Iraq, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates exported 55.8% and 31.8%, respectively, of crude oil and petroleum products to the United States in 2013. Oil from Canada and Saudi Arabia accounted for 42% and 21%, respectively, of the U.S. crude oil and petroleum products imports, resulting in those countries representing the top two foreign oil sources for the United States in 2013—see Figure 3.2.

3.5.1.1  Crude Oil Formation

Crude oil, commonly known as petroleum, was formed from the remains of animals and plants (called biomass) that lived many years ago. Over many years, the biomass was covered by layers of mud, silt, and sand that formed into sedimentary rock. Geologic heat and the pressure of the overlying rock turned the biomass into a hydrocarbon-rich liquid that we call crude oil, and eventually forced it into porous rock strata called reservoirs. Oil reserves cannot be reproduced because it needs millions of years to form. That’s why crude oil is called non-renewable energy source. There are also formations or deposits of hydrocarbon-saturated sands and shale where geologic conditions have not been sufficient to turn the hydrocarbons into liquid.

Crude oil is a liquid found within the Earth comprised of hydrocarbons, organic compounds, and small amounts of metal. While hydrocarbons are usually the primary component of crude oil, their composition can vary from 50% to 97% depending on the type of crude oil and how it is extracted. Organic compounds such as nitrogen, oxygen, and sulfur typically make up between 6% and 10% of crude oil, while metals such as copper, nickel, vanadium, and iron account for less than 1% of the total composition.

3.5.1.2  Crude Oil Exploration

Petroleum has been used since ancient time. Geologists observe rock structure and its characteristics to determine the oil reservoir. According to E-tech international, oil exploration and production processes consist of five main processes (Figure 3.3).

3.5.1.3  Exploration

Oil and gas exploration is the discovery for hydrocarbon deposits (oil and gas) underneath the Earth’s surface by petroleum geologists and geophysicists. It contains locating oil and gas reservoirs using primarily seismic surveys and drilling wells.

Exploration is an expensive, high-risk operation because it costs millions of dollars and every one out of three wells, on average, contains hydrocarbons. Therefore, companies have to drill multiple wells in one area before finding an oil or gas, which can take several years.

During exploration drilling, information about the rocks and fluids (water, gas, and oil) and samples are collected from the well which leads to following information:

• Whether there are any hydrocarbons at that location
• How much oil or gas might be present
• What depth the oil or gas occurs at.

Exploration activities can also be risky because of

• The location—remote or difficult terrain, or a sensitive ecosystem.
• Safety—people can have accidents while obtaining seismic surveys or drilling wells, even though safety is always a top priority.

3.5.1.4  Appraisal

If a company is successful with their exploration drilling and makes an oil or gas discovery, then they move into the appraisal phase of the lifecycle. The purpose of this phase is to reduce the uncertainty about the size of the oil or gas field and its properties.

During appraisal, more wells are drilled to collect information and samples from the reservoir. Another seismic survey might also be acquired in order to better image the reservoir. These activities can take several more years and cost tens to hundreds of millions of dollars.

More seismic surveys and wells help petroleum geologists; geophysicists and reservoir engineers understand the reservoir better. For example, they try to find out whether rock or fluid properties change away from the discovery well, how much oil or gas might be in the reservoir, and how fast oil or gas will move through the reservoir.

The appraisal stage is successful if a company decides that the oil or gas field can be developed. One risk that companies face is even after investing time and money in the appraisal stage, they might not find a way to develop the field safely, profitably, and responsibly (in terms of communities and the environment).

3.5.1.5  Development

The development stage takes place after successful appraisal and before full-scale production. The main activities (and people involved) are

• To form a plan to develop the oil or gas field, including how many wells need to be drilled to produce the oil or gas (geologists, geophysicists, and reservoir engineers)
• To decide the best design for the production wells (drilling engineers)
• To decide what production facilities are required to process the oil/gas before it is sent to a refinery or customer (facilities engineers)
• To decide what the best export route might be for the oil and gas (logistics engineers).

Executing the development plan involves drilling engineers who drill the first phase of production wells and project engineers who build the planned facilities. Many thousands of people can be involved in building production facilities, and safety is a top priority. The risk of accidents is highest in this phase because of the number of people involved at construction sites.

It costs hundreds of millions, sometimes billions of dollars and typically 5–10 years to develop an oil or gas field, depending on the location, size and complexity of the facilities, and the number of wells needed. Onshore developments are typically much cheaper than offshore developments.

No oil or gas field will be developed unless the company believes that they will make enough money to pay back their exploration, appraisal and development costs, as well as profit from selling the hydrocarbons. Even more importantly, developments will only happen if the communities or ecosystems affected can be protected.

3.5.1.6  Production

Production is the phase during which hydrocarbons are extracted from an oil or gas field and the first money (or revenue) comes from selling the oil or gas. After a number of years, the revenue exceeds the company’s investment, and they begin to make a profit.

Production can last several years up to 40 years, depending on the size of the oil or gas field and how expensive it is to keep the wells and production facilities running. Every year, millions of dollars will be spent on operating and maintaining the field. Safe production operations are critical; otherwise, companies risk harming people or the damaging the environment, e.g., through an oil spill or explosion.

Operators work in shifts to keep production going. Engineers will usually be located full time at the production facilities in order to operate and maintain them. Reservoir engineers will check on the health and performance of the field to plan how best to maintain production. Additional wells might need to be drilled or the production facilities improved to maximize recovery of the oil or gas.

3.5.1.7  Decommissioning

Decommissioning is the term used for removing the production facilities and restoring oil and gas sites that are no longer profitable. The term is usually used to refer to offshore facilities. Offshore oil and gas platforms can be vast structures requiring large amounts of materials in their construction. By bringing the facilities onshore for dismantling and disposal, these materials can be reclaimed.

Decommissioning involves removing not only the main platform but also pipelines and cables. The aim is to reduce the risk to the marine environment and to reuse or recycle materials. In the majority of cases, all equipment is removed, and the site returned to its condition before development began. Some installations can be reused as oil and gas facilities at another location or reused in place for another purpose (e.g., as a wind farm or aid to navigation). Occasionally, part of the platform may be left in place because they benefit the marine environment, e.g., steel legs of tension leg platforms that are used to create artificial reefs in the Gulf of Mexico.

Project, logistics, and environmental engineers will be involved in decommissioning a production facility. This vital step takes several years and many millions of dollars. Government requirements and community views will be taken on board during decommissioning.

3.5.1.8  Crude Oil Extraction

Extracting oil and natural gas from oil field isn’t as simple as just drilling and completing a well. Crude oil extraction process consists of three recovery process (see Figure 3.4).

3.5.1.9  Secondary Recovery

After the primary recovery phase, many, but not all, oil fields respond positively to “secondary recovery” techniques in which external fluids are injected into a reservoir to increase reservoir pressure and to displace oil toward the well bore. Secondary recovery techniques often result in increases in production and reserves the abovementioned primary recovery. Waterflooding, a form of secondary recovery, works by repressuring a reservoir through water injection and “sweeping” or pushing oil to producing well bores. Through waterflooding, water injection replaces the loss of reservoir pressure caused by the primary production of oil and gas, which is often referred to as “pressure depletion” or “reservoir voidage”. The degree to which reservoir voidage has been replaced through water injection is known as “reservoir fill up” or simply as “fill up”. A reservoir which has had all of the produced fluids replaced by injection is at 100% fill up. In general, peak oil production from a waterflood typically occurs at 100% fill up. Estimating the percentage of fill up which has occurred, or when a reservoir is 100% filled up, is subject to a wide variety of engineering and geologic uncertainties. As a result of the water used in a waterflood, produced fluids contain both water and oil, with the relative amount of water increasing over time. Surface equipment is used to separate the oil from the water, with the oil going to pipelines or holding tanks for sale and the water being recycled to the injection facilities. In general, in the Mid-Continent Region, a secondary recovery process may produce an additional 10%–20% of the oil originally in place in a reservoir.

3.5.1.10  Tertiary Recovery

A third stage of oil recovery is called “tertiary recovery”. In addition to maintaining reservoir pressure, this type of recovery seeks to alter the properties of the oil in ways that facilitate additional production. The three major types of tertiary recovery are chemical flooding, thermal recovery (such as a steam flood), and miscible displacement involving carbon dioxide (CO₂), hydrocarbon, or nitrogen injection.

Thermal recovery entails injecting steam into the formation. The heat from the steam makes the oil flow more easily, and the increased pressure forces it to the surface.

Gas injection uses either miscible or immiscible gases. Miscible gasses dissolve CO₂, propane, methane, or other gasses in the oil to lower its viscosity and increase flow. Immiscible gasses do not mix with the oil, but increase pressure in the “gas cap” in a reservoir to drive additional oil to the well bore.

Chemical flooding involves mixing dense, water-soluble polymers with water and injecting the mixture into the field. The water pushes the oil out of the formation and into the well bore.

We are currently field testing new technologies in chemical flooding on some of our properties. If successful, this testing may lead to reserve and production increases in the future. Any future tertiary development programs and subsequent capital expenditures would be contingent upon commercial viability established by successful pilot testing. At this time, there are no estimated reserves or production associated with tertiary recovery projects assigned to our properties. We will continue to review future opportunities for growth through the use of various tertiary recovery techniques.

3.5.2.1  Crude Oil Distillation

Crude oil is unprocessed oil, which comes out of a ground. Refineries process crude oil into many different petroleum products. These products include gasoline, diesel fuel, jet fuel, and asphalt. The most basic refining process separates crude oil into its various components. The various components of crude oil have different sizes, weights, and boiling temperatures. The process is very complex and involves both chemical reactions and physical separations. Crude oil is composed of thousands of different molecules. It would be nearly impossible to isolate every molecule and make finished products from each molecule. Chemists and engineers deal with this problem by isolating mixtures of molecules according to the mixture’s boiling point range. Crude oil is heated and put into a distillation tower (a still) where different hydrocarbon components are boiled off and recovered as they condense at different temperatures (see Figure 3.5).

The major products of crude oil according to its specific temperature are as follows (Table 3.1).

3.5.2.2  Crude Oil Transportation

Oil transportation is a major industry in and of itself, with a range of transportation options available, depending on the situation at hand. The most important methods include pipeline, rail, barge, and truck. Transportation and storage in the oil and gas industry concern to the movement of crude oil from the oil fields (where oil has been discovered) to petroleum refineries (where the oil is further processed) to storage areas, where the petroleum products are stored for distribution and emergency reserves.

Figure 3.5   Crude oil distillation process.

Advances in exploration and production have helped to locate and recover a supply of oil and natural gas from major reserves across the globe. At the same time, demand for petroleum-based products has grown in every corner of the world. But supply and demand are rarely concentrated in the same place. Transportation therefore is vital to ensuring the reliable and affordable flow of petroleum we all count on to fuel our cars, heat our homes, and improve the quality of our lives.

There are four modes of transportation associated with crude oil.

3.5.2.3  Crude Oil Waste

The United States Environmental Protection Agency (EPA) classifies crude oil waste into following two categories: (1) exempt and (2) non-exempt wastes.

The EPA defines exempt wastes as follows:

“Wastes that are generated before the end point of primary field operations are exempt. The term end point of initial product separation means the point at which crude oil leaves the last vessel in the tank battery associated with the wells. This tank battery separates crude oil from the produced water and/or gas”.

With respect to crude oil, primary field operations include activities occurring at or near the wellhead and before the point where the oil is transferred from an individual field facility or a centrally located facility to a carrier for transport to a refinery or a refiner.

Primary field operations include exploration, development, and the primary, secondary, and tertiary production of oil or gas. Crude oil processing, such as water separation, de-emulsifying, degassing, and storage at tank batteries associated with a specific well or wells, are examples of primary field operations. Furthermore, because natural gas often requires processing to remove water and other impurities prior to entering the sales line, gas plants are considered to be part of production operations regardless of their location with respect to the wellhead.

List of exempt and non-exempt for crude oil E&P

Exempt waste

• Produced water
• Drilling fluids
• Drill cuttings
• Rig wash
• Drilling fluids and cuttings from offshore operations disposed of onshore
• Geothermal production fluids
• Hydrogen sulfide abatement wastes from geothermal energy production
• Well completion, treatment, and stimulation fluids
• Basic sediment, water, and other tank bottoms from storage facilities that hold product and exempt waste
• Accumulated materials such as hydrocarbons, solids, sands, and emulsion from production separators, fluid treating vessels, and production impoundments
• Pit sludge’s and contaminated bottoms from storage or disposal of exempt wastes
• Gas plant dehydration wastes, including glycol-based compounds, glycol filters, and filter media
• backwash and molecular sieves
• Workover wastes
• Cooling tower blowdown
• Gas plant sweetening wastes for sulfur removal, including amines, amine filters, amine filter media, backwash, precipitated amine sludge, iron sponge, and hydrogen sulfide scrubber liquid and sludge
• Spent filters, filter media, and backwash (assuming the filter itself is not hazardous and the residue in it is from an exempt waste stream)
• Pipe scale, hydrocarbon solids, hydrates, and other deposits removed from piping and equipment prior to transportation
• Produced sand
• Packing fluids
• Hydrocarbon-bearing soil
• Pigging wastes from gathering lines
• Wastes from subsurface gas storage and retrieval
• Constituents removed from produced water before it is injected or otherwise disposed of
• Liquid hydrocarbons removed from the production stream but not from oil refining
• Gases from the production stream, such as hydrogen sulfide and carbon dioxide, and volatilized hydrocarbons
• Materials ejected from a producing well during blowdown
• Waste crude oil from primary field operations
• Light organics volatilized from exempt wastes in reserve pits, impoundments, or production equipment

Non-exempt waste

• Unused fracturing fluids or acids
• Gas plant cooling tower cleaning wastes
• Painting wastes
• Waste solvents
• Oil and gas service company wastes such as empty drums, drum reinstate, sandblast media, painting wastes, spent solvents, spilled chemicals, and waste acids
• Vacuum truck and drum reinstate from trucks and drums transporting or containing non-exempt waste
• Refinery wastes
• Liquid and solid wastes generated by crude oil and tank bottom reclaimers
• Used equipment lubricating oils
• Waste compressor oil, filters, and blowdown
• Used hydraulic fluids
• Waste in transportation pipeline related pits (except with approval by NDDH)
• Caustic or acid cleaners
• Boiler cleaning wastes
• Boiler scrubber fluids, sludge, and ash
• Incinerator ash
• Laboratory wastes
• Sanitary wastes
• Pesticide wastes
• Radioactive tracer wastes
• Drums insulation and miscellaneous solids.

3.5.2.4  Pipeline Quality Factors

Pipelines are not part of primary field operations; thus, oil wastes that are generated by pipelines are non-exempt. Failure of a pipeline segment caused by accidental excavation damage is an example of non-exempt wastes, which will result in oil companies paying fines to the EPA as well as settlements to clean the surrounding environment. This pipeline segment failure is chosen as the sampling plan of supply chain quality-level performance.

Table 3.2 shows summary of various causes for pipeline failure.

Pipeline quality affects the transportation cost for crude oil. Cause-and-effect diagram for pipeline loss is shown in Figure 3.6.

3.5.2.5  Refinery Sustainability

Globalization has resulted in pressure on multinational firms to improve environmental performance. In order to achieve improvement in environmental performance, a company must integrate its environmental management strategies, while maintaining production quality and cost goals, into the supply chain, which includes all of the operational lifecycle stages such as unique partnerships with suppliers. Environmental sustainability has been defined as “meeting the needs of the present without compromising the ability of the future generations to meet their needs” [UN Document].

Figure 3.6   Cause-and-effect diagram for pipeline loss.

For oil companies, the concept of sustainability is most appropriately used when evaluating their business strategies. Sustainability concerns are to the degree of which they will not only reduce negative impacts on the natural environment through their operations but also invest in business practices that promote policies to make wide-reaching progress toward sustainable development. In the industry, the operations of oil companies are examined for their impact on the surrounding environment annually. To distinguish from the above definition of sustainability, environmentally conscious operations are referred to as green operations. However, green operations are not necessarily sustainable in the long run, but minimizing the negative impact of operational processes is still environmentally conscious. Company operations deal with energy usage necessary for operating refineries, emissions, and waste. Meanwhile, sustainability of the products deals with oil, natural gas, and possible alternatives to fossil fuels.

In the oil industry exploration and production processes, sustainability involves the products, and as such, the petroleum industry itself is environmentally unsustainable because like all fossil fuels, oil is a limited resource. Some risks of accidental spills of oil have the potential to pollute water, contaminate soil, harm species, and affect livelihoods.

Oil companies need to plan all major operations in advance and manage their costs during the supply chain to improve the profit margin. Sustainability that associated with oil companies’ processes or products will have positive and negative impacts on the supply chain costs. An example of the negative impact is certainly the tragic British Petroleum (BP) drill explosion and oil spill in 2010, which impacted nature and animals in the Gulf of Mexico. This accident resulted in damaging the environment as well as costing BP a settlement of billions of dollars. On contrary, an example of the positive impact is the ability to be capable of reserving the productivity of oil itself as a natural resource asset, which leads to supply chain costs savings.

Unlike the quality metrics, which focused on pipelines performance, this research considers refining process as a good candidate to determine its sustainability metrics. Refinery is a complex process. Oil refineries essentially serve as the second stage in the production process following the actual extraction by oil rigs. The first step in the refining process is distillation where crude oil is heated at extreme temperatures to separate the different hydrocarbons. The refining sector of the oil industry has significantly affected the crude oil global marketplace due to the demand growth of petroleum products. As the petroleum products demand increases, the demand for conversion capacity increases. Refineries affect supply chain profit margins such that refineries’ variable costs vary on the petroleum products demand.

There are two sustainability factors that are considered for refineries performance. The first factor is the refining operations, which deal with energy usage necessary for operating refineries, emissions, and waste. The second factor is the refining products, which deal with oil to fossil fuels. Refining processes that deal with energy usage are chosen as environmental sustainability according to the performance-sampling plan.

3.5.3.1  Russia

The petroleum industry in Russia is one of the largest industries in the world. Russia was the third-largest producer of liquid fuels in 2012, following the United States and Saudi Arabia. Russia’s proven oil reserves were 80 billion barrels as of January 2013, according to the Oil and Gas Journal. In 2012, Russia produced an estimated 10.4 MMbd of total liquids (of which 9.9 MMbd was crude oil), and it consumed roughly 3.2 MMbd. Russia exported over 7 MMbd in 2012, including roughly 5 MMbd of crude oil and the remainder in products.

Most of Russia’s oil production continues to originate in West Siberia, notably from the Priobskoye and Samotlor fields. Approximately 62% of oil produced from West Siberia region, while nearly 22% oil produced from the Urals-Volga region. The use of more advanced technologies and the application of improved recovery techniques are resulting in increased oil output from existing oil deposits. Fields in the Western Siberian Basin produce the majority of Russia’s oil, with developments at the Samotlor (TNK-BP) and Priobskoye (Rosneft) fields extracting more than 750,000 and 800,000 bd, respectively. Russian firms govern the region, although foreign companies, notably Shell, have secured access to production in Western Siberia as well.

West Siberia is Russia’s main oil-producing region, accounting for around 6.4 MMbd of liquids production, nearly two-thirds of Russia’s total production. While this region is mature, West Siberian production potential is still significant but will depend on improving production economics at fields that are more complex and that contain a significant portion of remaining reserves. The two largest oil fields in West Siberia are North Priobskoye and Samotlor, which account for about 20% of West Siberian production. Urengoy is the largest gas field in the region.

Urals-Volga was the largest producing region of the Soviet Union until the late 1970s, when it was surpassed by Western Siberia. Today, this region is a distant-second producing region, accounting for about 22% of Russia’s total output. The giant Romashkinskoye field (discovered in 1948) is the largest in the region. Tatneft operates it. While the field reached its peak production level sometime in the late 1970s, it likely will continue to produce until at least 2030, according to Wood Mackenzie.

The potential oil reserves of Eastern Siberia, the Russian Arctic, the northern Caspian Sea, and Sakhalin Island are attracting attention.

Russian companies are also expanding into the Arctic and Eastern Siberian regions, prompted on by tax holidays and lower oil export tariffs. While several new fields have come online since 2009, bringing additional fields into production will take time and may require an improved oil tax system from the government.

Russia has 40 oil refineries with a total crude oil distillation capacity of 5.5 MMbd, according to Oil and Gas Journal. Rosneft, the largest refinery operator, has a crude distillation capacity of 1.3 MMbd and operates Russia’s largest refinery, the Angarsk facility. LUKoil is the second-largest operator of refineries in Russia with a crude distillation capacity of 1 MMbd.

In 2012, Russia exported approximately 7.4 MMbd of total liquid fuels, with 5 MMbd of crude oil and 2.4 MMbd of petroleum products. The majority (79%) of Russia’s crude oil exports went to European countries (including Eastern Europe), particularly Germany, the Netherlands, and Poland. Around 18% of Russia’s crude oil exports were destined for Asia, while the remainder went mostly to the Americas. Russia’s crude oil exports to North America and South America have been largely displaced by increases in crude oil production in the United States, Canada, and, to a lesser extent, Brazil, Colombia, and other countries on the continent. More than 80% of Russia’s oil is exported via the Transneft pipeline system, and the remainder is shipped via rail and on vessels that load at independently owned terminals.

Russia has an extensive domestic distribution and export pipeline network. Russia’s pipeline network is nearly completely owned and run by the state-run Transneft, which transports about 88% of all crude oil and about 27% of oil products produced in Russia. These pipelines include a number of domestic pipeline networks, pipelines that transport oil to export terminals such as Novorossiysk on the Black Sea and Primorsk on the Baltic Sea, as well as a number of export pipelines that deliver oil to western European markets. Russian export pipelines include Druzhba, Baltic Pipeline System, North-West Pipeline System, Tengiz-Novorossiysk, and Baku-Novorossiysk. All of these pipelines, with the exception of the Tengiz-Novorossiysk, are Transneft-controlled.

3.5.3.2  Colombia

Colombia produced 969,000 barrels per day (bd) of oil in 2012, up 61% from the 604,000 bd produced in 2008. EIA estimates that oil production in 2013 to be just over 1 MMbd and expects this rising trend to continue. The Ministry of Mines and Energy reported that Colombian production is expected to reach 1.3 MMbd by 2020. Colombia consumed 287,000 bd in 2012, allowing the country to export most of its oil production.

Colombia’s oil production has increased since 2008 because of increased exploration and development. New exploration and development were spurred by regulatory reform.

Much of Colombia’s crude oil production occurs in the Andes foothills and the eastern Amazonian jungles. Meta department, in central Colombia, is also an important production area, predominately of heavy crude oil. Its Llanos basin contains the Rubiales oilfield, the largest producing oil field in the country.

The largest producing oil field in the country is the Rubiales heavy oil field, located in Meta department, and operated by partners Pacific Rubiales and Ecopetrol. Low levels of production began at Rubiales in the late 1980s, but increasing investment and the completion of a new pipeline have allowed production rates to rise in recent years. Gross production at Rubiales exceeded 177,000 bd in 2012, up from 37,000 bd in 2008. Other large oil fields include Cano Limon, Castilla, and Cupiagua.

Colombia has six major oil pipelines, four of which connect production fields to the Caribbean export terminal at Covenas. These include the 500-mile Ocensa pipeline, which has the capacity to transport 650,000 bd from the Cusiana/Cupiagua area; the 460-mile, 220,000 bd-capacity Cano Limon pipeline; and the smaller Alto Magdalena and Colombia Oil pipelines. The Llanos Orientales pipeline came online in late 2009, linking the Rubiales field to the Ocensa pipeline, with a capacity of 340,000 bd. The sixth pipeline, the TransAndino, has a capacity of 190,000 bd and transports crude from Colombia’s Orito field in the Putumayo basin to Colombia’s Pacific port at Tumaco linking to Ecuador.

3.6.2.1  Phase 1

In this phase, we introduce steps to achieve Specific Objective 1. “Evaluate the supply chain factors that determine pipeline quality of crude oil production”.

• Step 1—Questionnaire development
  • Conduct a survey to observe different level of pipeline quality and loss associated with it (Figure 3.7).
• Step 2—Evaluate the performance level for quality
  • From the survey, evaluate the level of quality required to satisfy Specific Objective 1. Table 3.3 shows the performance level for pipeline quality.

3.6.2.2  Phase 2

In this phase, we introduce steps to achieve Specific Objective 2. “Evaluate the supply chain factors that determine Sustainability of crude oil production”.

• Step 3—Questionnaire development
  • Conduct a detailed study for all the refinery of Russia and Colombia to check its sustainability with respect to process and product. Following questions need to be answered to get detailed report.
    1. What’s the energy consumption for proceed?
    2. Is the product environmental safe and nonhazardous?
    3. Do the company have any recycling process?
    4. Do they have any safety rules for employees?
    5. Usage of environment-friendly material.
• Step 4—Evaluate the performance level for sustainability
  • With the help of detail study regarding refinery sustainability, we evaluate the following level of performance for refinery sustainability to satisfy Specific Objective 2.
  • Table 3.4 shows the performance level for refinery sustainability.

3.6.2.3  Phase 3

In this phase, we introduce steps to achieve Specific Objective 3. Evaluate the economic impacts of quality and sustainability on operational strategies in supplier network.

Figure 3.7   Pipeline survey form.

• Step 5—Selection of oil field and refinery
  • With the help of quality and sustainability level, we choose following oil field and refinery for Russia and Colombia. For Russia and Colombia, we select only two oil fields for each location. To extend the size, we introduce small and large oil field at all the location (Table 3.5). For refinery selection, we select only some of the most important refinery. Russia and Colombia have so many refineries with wide range of choice (Table 3.6).
• Step 6—Generate Scenario to collect data
  • According to oil fields location and performance level criteria, we have a total of 24 scenarios for Russia and Colombia. Each scenario represents the data set for oil fields according to the performance level of given selection criteria like pipeline quality or refinery sustainability (Table 3.7).
• Step 7—Generate the model.
  • In this step, the DC model example printed in Modeling the Supply Chain textbook by Shapiro is used to show ideal locations for DCs which depends on transportation distances, associated transportation cost, and the capacity of the DCs. The model was optimized in Microsoft Excel and used GRG nonlinear engine in Solver to maximize the objective function. The objective function was solved based on the oil transportation cost, the fixed costs for pipeline quality and refinery efficiency, and the variable costs for pipeline quality and refinery efficiency. Several scenarios were run that varied the transportation and variable costs in order to compare how pipeline quality and refinery sustainability impact the supply chain costs.

Objective Function

where

• A_ij = Transportation costs from field i to refinery j
• B_ij = Fixed costs from field i to refinery j
• C_ij = Sustainability costs from field i to refinery j
• i = The oil field from where the oil originates
• j = The refinery to where the oil is shipped and processed
• X_ij = The number of barrels of oil shipped from field i to refinery j
• Y_ij = The binary selection of moving oil from field i to refinery j

Constraints

• 1. Capacity Constraint
  • In the capacity constraint, number of barrels shipped from oil field to refinery must be less than refinery capacity.
    $${\displaystyle \sum _{i\to 4}{X}_{ij}\le D_j}$$
    where D_j is the capacity of refinery j.
• 2. Selection Constraint
  • The selection of the refineries used at each location was constrained using a binary constraint. The fact that only one refinery would be used at each location, the sum of the two constraints needed to be less than or equal to 1 in order to work in Solver. These equations are
    $$Y_{1j}+Y_{2j}\le 1$$
    $$Y_{3j}+Y_{4j}\le 1$$
• Step 8—Data Collection
  • Crude oil supply chain quality data are collected from the Organization of the Petroleum Exporting Countries (OPEC) public databases, the U.S. EIA website, Russian oil company (Rosneft Corp), Russian oil transportation company (Transneft piping), and Colombian oil company (Ecopetrol). The U.S. EIA and the U.S. EPA websites are used to collect data for sustainability.
  • Data set includes the oil transportation cost, distance, the fixed costs, and the variable costs.
• Step 9—Optimize the Model
  • The model was optimized in Microsoft Excel and used GRG nonlinear engine in Solver to maximize the objective function. Find total cost for all the 24 scenarios depend on pipeline quality and sustainability.