Refineries: Distilling digital transformation

The petroleum refining sector is grappling with headwinds that could result in up to 20% of global capacity being shut down by 2030, according to industry estimates. Driving this setback is a variety of challenges including geopolitical uncertainty and demand shifts, environmental regulations, and the relative competitiveness of simpler operating configurations. 

Additionally, the shifting tariff environment is exacerbating pressures by driving up feedstock and equipment costs, distorting trade flows, and threatening the viability of refiners' dependence on import or export markets. These uncertainties highlight the ongoing challenges refiners have historically faced, such as navigating product regulations (like low sulfur requirements), adapting to technological shifts, and responding to evolving customer preferences (whether for combustion engines or electric vehicles).

To address these challenges and enhance cost competitiveness, refiners are investing to optimize unit efficiency and plant utilization. Digital solutions are also increasingly being adopted to drive improvements across supply and trading, procurement, operations, maintenance, and health and safety.

Digitalization can be a crucial lever to maintain competitiveness in this turbulent environment, but it’s not a silver bullet. By leveraging technologies like AI, machine learning, and robotics, refineries can achieve significant advancements including enhanced predictive maintenance, optimized processes, and improved safety. However, the digital transformation journey is often fraught with challenges. Success lies in a pragmatic approach, guided by a clear vision and a focus on execution.

AlixPartners’ experience has found successful execution of these solutions can boost margins by 60 cents to $2 a barrel. That improvement translates to an annual EBITDA boost of $133-431 million for a typical mid-size portfolio of refineries with a daily capacity of approximately 600,000 barrels.

Build to scale

To stay ahead of the curve - and their competitors - refiners must prioritize continuous innovation and adaptability. Operators have to be at the forefront of emerging technologies and prioritize flexibility in their adoption. Building collaborative ecosystems with technology providers and industry stakeholders is essential for sustained success.

The digitalization journey brings challenges, not least of which is the initial investment. Operators must also address skills gaps, data management, integration complexities and change management.

To effectively navigate this journey, operators need a clear vision of what “digital” looks like for their organization, enabling them to size and prioritize their investment accordingly. This requires a highly pragmatic approach that tailors digital investments to their own scale as well as the broader portfolio, and the operational needs and maturity of their existing digital systems.

Don't be distracted 

All refiners, regardless of maturity, face common digital challenges including fragmented data management and internal resistance to change. Establishing a clear vision for digital transformation calls for a focus on data quality to ensure that solutions are scalable across the organization. 

AlixPartners has seen operators build entire digital teams to develop complex solutions while neglecting the basic, foundational investments. Such endeavors often fail to generate efficiency gains, come at a significant cost, and ultimately serve as a major distraction for the organization.

Establishing a clear digital transformation path aligned with strategic goals provides direction and focus. This approach not only promotes consistency and cohesion across departments, but also enhances stakeholder buy-in and supports the development of scalable solutions. 

A systematic approach that prioritizes foundational elements helps prevent inefficiencies and wasted capital. This enables operators to navigate the complexities of digitalization more effectively, ultimately achieving meaningful, long-term improvements.

The digital vision transformation

The core work begins with enhancing data capture and quality across operations. It’s crucial to set up a master data management system and select a core software suite, such as ERP and CMMS, early in the process to create a strong foundation.

Operators should prioritize solutions that enhance efficiency while remaining cost effective. This can be achieved by adopting web-based tools, mobile devices, and advanced point-location monitoring and control devices. Additionally, implementing integrated systems will further streamline workflows and improve operational discipline.

With a solid foundation in place, operators can advance to implementing more sophisticated digital solutions such as AI and machine learning. These technologies help optimize processes, predict failures and enhance decision-making, paving the way for greater digital maturity and operational excellence.

We make a difference together

The refining sector is at a critical juncture. Digital transformation and sustainability measures aren’t just strategic options, they are necessities for growth and survival.

AlixPartners has the expertise to support investors, sponsors, and leaders of complex digital technology programs. We are here to help validate and simplify programs. Your trusted partner when it really matters.