Interview with Marco Schiavetti, Supply & Trading Director at Saras(2015)
“After 5 years of efforts we think we have managed to develop a best-in-class department in all its components, from trading and risk management, to operations, logistics and planning.”
Marco Schiavetti, Supply & Trading Director, Saras
Marco Schiavetti, Saras’ Supply and Trading Director talks to the World Refining Association about Saras’s supply and trading unit that has been integrated into Sarroch refinery’s operations, how this has been a crucial winning factor in Saras’s H1 results as well as other key aspects which have helped Saras to stay lean and healthy in a challenging economic climate.
Marco Schiavetti – In recent years Saras’ business model has drastically changed: for many years the Sarroch refinery had been operated mainly as a service refinery, processing crude for third parties, but the collapse of refining margins after 2008 made it almost impossible to sell refining capacity to other companies with positive economics.
Saras had to adapt quickly to the new environment which required the creation of a new Supply and Trading unit. It took time to set up a team with all the necessary know-how and skills, but after 5 years of efforts we think we have managed to develop a best-in-class department in all its components, from trading and risk management, to operations, logistics and planning.
As a Company, we analyzed thoroughly different ways to shape the interaction between the new Supply and Trading unit and the Sarroch refinery (Sarlux). We opted for a strong integration between the two, where S&T optimizes the asset and trades around it, and Sarlux operates as a merchant refinery with a highly commercial mindset.
The S&T is in charge of procuring crudes and feedstock for the refinery, selling all the products (substantially in the cargo market, being Sardinia a very small captive market compared to the 300 kbbls/day size of the asset) and hedging the physical position exposure to prices, all of this under continuously updated schemes shared with the refinery. New opportunity crudes, term contracts which support asset backed trading possibilities, as well as different processing arrangements, or different products for new markets are only a few examples of the improvement options which can derive from a real and substantial integration between S&T and the refinery.
This business model requires a clear alignment to common objectives and at the same time a fair and continuous reciprocal challenge to exploit market opportunities. When we started, this was not a common practice in the industry, but recently we have seen statements from major oil companies which seem to emphasise the importance of a renewed integration between trading units and refineries, revitalising the discussion on how to optimize supply chains.
In the last few years we had the chance to test our refining and trading business model amid a variety of market conditions: international crises, supply shocks, abrupt price swings, demand patterns and interregional arbitrages.
It has been a tough period for the European refining industry and also for Saras and its S&T unit, a period of big changes and internal developments, which allowed us to harvest very good results so far in 2015 after the recovery of refining margins.
Operational excellence is key to maximizing value and exploiting the full market potential in the current environment, can you tell us more about your operational excellence initiatives and plans in place at Saras?
Vincenzo Greco (Sarlux CEO) – Operational excellence in the Saras language is not simply continuous improvement but rather that each person in the company is made aware of what is fundamental in pursuing a given objective; in a quick moving scenario, this means to make the best from the market at a given time.
In stating fundamental, the initiatives we have in place are built on practices that are common to other companies but trying to stress what is truly essential for processing what the market offers and producing the highest margins’ possible at that particular time. This goes back to running a sound operation all the way to asset management at its best.
Making the most of your assets is also the case. Defining true plant constraints is everybody’s business but finding ways to overcome them short term with little or no investment is a different matter. This is one of the keys to adding flexibility to the asset which inevitably carries some risk in raw material selection, including grades never processed before.
To mitigate this risk, Saras has fully utilized tank segregation, allowing step-by-step trails, most often confirming plant potential. Shortfalls inevitably occur but set the way to future challenges, never giving anything for granted.
Often thresholds are historical and seem to be chiseled on stone. As a consequence these require very little attention and carry no risk for production. The question is for how long and how many times can you go beyond a stated limit and what does it take to convince your organization that you can safely do this?
The input for process is driven by the hidden economic benefit that needs to be conveyed to the organization. It needs to be originated from those few people in the company living outside the box that are capable of foreseeing market opportunities but are also able to quantify benefits, as opposed to the more traditional approach of weighing the risks alone.
This less traditional approach needs site management to be committed in driving a commercial refinery rather than simply a production site. This includes restating performance indicators that reflect the ability to change throughout the company; setting challenging objectives built in a grey sky state, instead of the more traditional previous year improvement protocols. Streamlining the organization alone was found insufficient in the absence of true responsibility attribution and management empowerment. A reasonable balance between more experienced managers, managers recently recruited and young talents has proven to be a winning recipe.