Northern Caribbean University

Northern Caribbean University
College of Business and Hospitality Management
Department of Business Administration and Hospitality Management
Subject: Quantitative Business Analysis
Research Project: Petrojam Limited
Prepared for
Kirkland Anderson

Prepared by
Natoya Smith ID # 11022177
Vincent Leslie ID # 11075189
Kati-Ann Green ID # 31050872
Sharon Williams ID # 31062428
Keisha Francis ID #11061173
December 07, 2009

History of Petrojam
Petrojam Limited, Jamaica’s only petroleum refinery, is a subsidiary of the Petroleum Corporation of Jamaica (PCJ), a statutory body created and wholly owned by the Government of Jamaica. Petrojam was established in 1982 when the Government of Jamaica purchased the Esso Kingston Refinery, which had been built, and operated by Esso since March 1964. Petrojam supplies Jamaica with a full range of domestic, transportation and industrial petroleum products. In addition, approximately 10% of total sales volume is exported. Export sales in 2007 exceeded US$416 Million.
In 2007, with a capital base of US$87Million, Petrojam generated revenues in excess of US$1.4 Billion, whilst fulfilling its mission “to supply petroleum products at internationally competitive prices and quality, while acting at all times in the best interest of its stakeholders”. The company’s market focuses primarily on meeting the needs of the national market, and, involves refining imported crude oil into finished products for the domestic market, bunkering of marine vessels and aircraft refueling. The refinery’s rated capacity is 35,000 barrels per day with average production ranging between 28,000 and 30,000 barrels per day. In addition, finished products are imported, mainly from Trinidad, to supplement refinery production. Crude oil is sourced from Venezuela, Ecuador and Mexico, and refined to produce two grades of gasoline (87 and 90 (R+M)/2 octane), Jet/Turbo Fuel, Heavy Fuel Oil, Asphalt, Liquid Petroleum Gas, and Automotive Diesel Oil.
Petrojam also operates a laboratory which provides quality control and certification services for products manufactured and imported by the refinery; laboratory service is also provided to Jamaican businesses and the scientific community.
Staffing
The Managing Director reports to the Board of Directors, and is assisted by his management team of eight (7) functional managers. The company is staffed by approximately 205 full-time employees who are deployed to the departments of Finance & Accounts, Logistics & Marketing, Human Resource & Development, Safety & Environment, Technical Services, Production and Strategic Planning. Petrojam maintains high standards for quality, health and safety, and environmental protection, and is committed to delivering high quality products on schedule to the complete satisfaction of its customers.
Petrojam’s business strategy from 2006-2009 focuses on:
Ensuring Long Term Competitiveness
* Improving Plant Reliability
* Meeting & Exceeding Customer Needs
* Maintaining & expanding market share
* Increasing Business Process Efficiency and Cost Savings
* Strengthening Organizational Support
Shipping Activities
Petrojam Shipping manages the vessels used in its marine operations. Petrojam owns a tug/barge and charters vessels as required to effect movement of crude and finished products into the country. The vessels are also used to make round island movements with products for Power producers and to Petrojam’s Montego Bay Terminal. Bunkering Operations
A supply agreement with AGEAN Marine Petroleum SA Ltd. of Liberia through its local subsidiary AGEAN Bunkering Jamaica Ltd. for sale of bunker fuels for vessels outside of Kingston has resulted in significant increase in sales volume over the last 3 years.
Subsidiaries
Both subsidiaries, JARS and Petrojam Ethanol were transferred to PCJ under a joint venture agreement between PDVSA and PCJ. Under this agreement, signed in August 2006, 49% of Petrojam’s share was sold to PDVSA.
Petrojam has sought to strengthen its competitive position in the market through the following measures:
Introduction of E-10 (10% ethanol in gasoline)
The Ministry of Industry, Technology, Energy and Commerce has mandated the use of ethanol in gasoline in the Jamaican market by 2008. The results of a pilot study conducted in revealed that cars in the market are suitable for E-10. E-10 will be implemented on a phased basis with full implementation expected by April 2009.
The long term goal is to blend ethanol produced from local sugar cane, as this will provide reliable source of raw material in the medium to long term, and will also benefit Jamaica’s sugar industry.
Upgrading of the Refinery
Petrojam has embarked upon a US$720 Million project to upgrade the refinery. This will increase refining capacity by approximately 40%; reduce importation of finished products; increase operating efficiency;, improve product yields from crude oil, and contribute to meeting worldwide mandates for low sulphur fuels which are needed to protect the environment. Completion date for the first phase of the upgrade is expected in 2013. The update refinery will produce products for local use as well as export. These include:
* LPG Marine Diesel Oil (export)
* Gasoline Vacuum Gas Oil (export)
* Turbo Fuel Low Sulphur Diesel (export)
* Diesel Petcoke (electricity generation)
Significant Milestones of Petrojam
1964 Refinery commissioned by Esso Standard Oil Limited.
1982 Refinery purchased by the Government of Jamaica and renamed Petrojam. 1986 Establishment of Petrojam Ethanol Limited 1996 Constructed and commissioned a second terminal in western Jamaica 1998 Processing Agreement between EDF MAN Alcohols of London 1990-93 Petroleum Industry deregulated 1999 Joint Venture arrangement with AirBP, resulted in the formation of JARS 1999 Embarked on phasing out of the Top Loading System and implementation of Bottom Loading System which was fully implemented in 2002 2000 Phase out of lead in all gasoline products 2002 Implementation of a comprehensive Process Safety Management System (according to OSHA standards) 2004 US$10 Million Joint Venture agreement with COIMEX of Brazil, to refurbish the ethanol plant and resume production of ethanol 2004 US$3 Million upgrade of the refinery’s instrumentation system to a computerized DCS process control system 2005 Agreement with AGEAN Marine Petroleum SA Ltd. of Greece to supply bunker fuels for vessels outside of the Kingston harbor 2006 Agreement signed between the Governments of Jamaica and Venezuela for the Venezuelan oil Company, PDVSA to purchase to 49% share in the refinery
Who We Are?
Mission
To refine and supply petroleum products at internationally competitive prices and quality, acting in the best interest of Jamaica and all other stakeholders.
Vision
To be the Petroleum product supplier of choice, best at what we do.
Values
Commitment to Health, Safety and Environment

* Comply with design and operating standards
* Immediately address Health, Safety and Environment Violations
* Report Incidents and hazards promptly
* Comply with personal protective equipment and good housekeeping practices
* Willingly serve in Health, Safety and the Environment programmes.

Customer Focus
* Be accessible to the customer
* Be sensitive to the customer’s needs
* Effectively communicate and respond in a timely manner
* Routinely seek feedback to improve service

Excellence
* Be thorough, accurate and timely in our work
* Develop and continuously improve our capabilities

Integrity
* Show respect for time, people and property
* Be honest, frank and transparent with others
* Be fair and even handed with others
* Operate to the highest ethical standard

Teamwork
* Communicate openly and effectively with each other
* Follow through with commitments
* Support organizational goals and objectives
* Be committed to the success of the company
* Share knowledge
* Encourage participation of others
* Recognize and encourage performance and achievement

Products & Services

Liquefied Petroleum Gases

Liquefied petroleum gas (LPG) is the generic name for commercial propane and commercial butane. Petrojam supplies both grades to the domestic market. These are hydrocarbon products derived from the processing of crude oil. The process of light end fractionization splits the naphtha cut (from the crude oil) into propane and butane (LPG) for gasoline blending.
Commercial Propane predominantly consists of hydrocarbons containing three carbon atoms; however propane (C3H8) is the main component. Commercial Butane predominantly consists of hydrocarbons containing four carbon atoms mainly n- and iso – butanes (C4H10). Both have the special property of becoming liquid at atmospheric temperature if moderately compressed, and reverting to gases when the pressure is sufficiently reduced. This liquid state is an advantage in transporting and storing these products. In the liquid state they are roughly 250 times as dense as they are when they are gases. Butane is usually supplied to customers in cylinders. Propane can be supplied in cylinders or in bulk for storage in tanks at the customers’ premises.
Individual LPG products have distinct uses. For example, propane is widely used as a fuel in the commercial and industrial sectors, while Butane is mainly used as cooking gas for residential users.
Motor Gasoline

To produce motor gasoline the naphtha cut is de-ethanized, de-butanized and split with light and heavy virgin naphthas to produce motor gasoline. Petrojam has eliminated lead from its gasoline since 2000, and currently supplies two grades of unleaded gasoline: regular (87R) and premium (90R). Motor gasoline is chiefly used to fuel automobiles and light trucks for road use. Smaller quantities are used for off- highway driving, boats, recreational vehicles, and various farm and other equipment.
Kerosene

Kerosene falls within the light distillate range of refinery output that includes some diesel fuel, jet fuel, and other light fuel oils. The kerosene side stream is hydro-fined and run down to tankage as dual purpose kero/turbo fuel.
Kerosene is used for in Jamaica mainly as a cooking fuel and in lamps.
Jet Fuel

The Jet Fuel sold at our airports is a kerosene-based fuel produced in the same way as Kerosene under stricter quality requirements for use in aircrafts.
Automotive Diesel Oil. Auto Diesel Oil is produced by blending a part or the entire kerosene side stream with the gas oil side stream. Diesel fuel is used to power diesel engines in buses, trucks, automobiles, and other machinery. It is also used to fire industrial and electric utility boilers.
Heavy Fuel Oil

Heavy fuel oil otherwise called residual fuel oil is comprised mainly of atmospheric pipe still bottoms blended with heavy virgin naphtha and vacuum gas oil to produce the final heavy fuel oil product. The primary market for this product is the electric utility companies who use residual fuel oil to generate electricity. Much of the capacity for electricity generation is oil-fired, so petroleum use by utilities is expected to increase along with electricity demand. Presently, this sector depends on petroleum for about 98% percent of its total energy requirements.
Residual fuel oil is also used as bunker fuel (fuel for ships) and industrial boiler fuel.
Asphalt

The vacuum pipe still produces two grades of penetration asphalt from the atmospheric pipe still bottoms. Petrojam manufactures two grades of Penetration asphalt – 60/70 and 85/100. We also manufacture RS-1 and CRS-1 Emulsion asphalts which are byproducts of the penetration asphalt. Asphalt is used in the construction of roads; on roofs as a sealant and to water proof surfaces.
Services

Laboratory Operations

To ensure that products are consistent with specifications, the laboratory tests and analyses samples from all process unit streams and blended products. The results of these must meet the refinery target specification and our customer requirements. Each product batch is certified by the laboratory before being made available to Petrojam’s customers. Incoming shipments of imported finished products including Gasoline, Kerosene, Automobile Diesel, Heavy Fuel Oil, LPG and Crude Oil are each sampled and analyzed to ensure that each batch meets the specifications stated by the suppliers.
Test Methods/International Procedures

The methods used are those set by the international regulatory organizations for the petroleum industry, these include The American Society of Testing and Materials (ASTM), the Institute of Petroleum Standard (IP) U.K., and others.
Petrojam has the capability to analyze waste water, ethanol and the following petroleum products butane, propane, kerosene, turbo Jet fuel, asphalt, diesel oils, residual fuel oil, motor gasoline, and lubricating oils. The precision and accuracy of Petrojam testing is verified by comparing our laboratory test results with those of certified petroleum labs in the United States and Canada.
Test Equipment

Listed below are some of the highly specialized tests which Petrojam is equipped to perform:

Octane Testing

These tests are carried out with two ASTM-CFR (American Society for Testing Material and Cooperative Fuels Research) engines which rate motor gasoline to determine Research Octane Number (RON) and Motor Octane Number (MON) respectively. Road Octane at the gas pump is the average of RON and MON.
Precision and repeatability of data are maintained at high levels by good maintenance and regular standardization of engines. Measurement of octane level is critical for ensuring that there is optimum performance of petrol engine driven motor vehicles.
Chromatography

The Lab has a complement of seven gas chromatographs which are used in the analysis of Liquefied Petroleum Gases (LPG), Hydrogen, Methyl Tertiary Butyl Ether (MTBE) and Benzene in Gasoline, and Ethanol. These units are fitted with either thermal conductivity of flame ionization detector.
Chemical Analysis

Instrumentation used for analyses includes an Atomic Absorption
Spectrophotometer and a Rotating Disc Electrode Emission Spectrophotometer, X-ray Fluorescence Analyzer, for metal analyses. Petrojam also has Ultra Violet Scanning Spectrophotometer for the analysis of organic compounds, boiler feed and waste water.
Random Gasoline Tests

The laboratory performs tests for gasoline quality and octane levels for the Bureau of Standards and, upon request, from the industry. These results are used by the Bureau of Standards, Ministry of Industry Commerce and Technology, and the Petroleum Marketing Companies to verify that the quality of petroleum purchased by the consumer is not contaminated in transit to them.
Industrial Hygiene

The laboratory is equipped to monitor health hazards in the work
environment. Petrojam has skilled personnel and equipment to conduct the following analysis:
* noise level meters
* radiation monitor
* microwave radiation detector
* Poisonous gas detection, inclusive of Hydrogen Sulphide
* Hydrocarbon
* Benzene
* Sulphur Dioxide
* Carbon monoxide and other poisonous gases typical
to the petroleum industry.

We also have portable electronic monitors for Oxygen measurement and heat stress. Monitoring light levels through illumination surveys is also done at Petrojam.
The Laboratory Team

The laboratory staff is continuously being trained in new Quality Assurance procedures to ensure future accreditation with the ISO 17025 Quality Management System. This programme of continuous improvement in the Quality Assurance management for the Petrojam Laboratory has provided more reliable service to both internal and external customers of the Laboratory, and results in significant cost savings to the Refinery.
The Key Benefits of Standards Accreditation are:

* Positive International and Local recognition
* Improved Staff Skills
* Improved Quality practices
* Greater productivity and minimization business interruption through quality failure.

Laboratory Services

As the sole petroleum laboratory in Jamaica, Petrojam offers laboratory facilities for product testing and analyses to Jamaican businesses and the scientific community. Laboratory services are offered for a fee. Results are conditional and are based on the quality of samples submitted to the laboratory and the limits of the tests.

Linear Programming

Total Gas Station Limited located on Spur Tree Hill, Manchester is part of a franchise of operators owned and operated by Phillane Ink. The company currently sells two grades of petroleum: E (10) and E (90). Each grade consists of three components referred to as C1, C2, and C3. The maximum quantities available for each component and cost per barrel are as follows:

Component
Maximum Barrels/per day C1 3600 C2 6000 C3 3600

There is a maximum barrel 3600 of C1 available, 6000 of C2 and 3600 of C3. Each

barrel of E10 requires 2 litres of C1, 3litres of C1 for E90. Each barrel of E (10) requires

5 litres of C2 and E (90) requires 4 litres of C2. Finally, each barrel of E (10) requires 4

litres C3 and (E90) requires 2 litres of C3.

Selling price for each barrel of E(10) is $23 and $20 for E(90). The company wants to

produce at least 2500 barrels of each grade of petroleum. Determine the best product mix

that maximizes revenue.

Network Model

A salesman for Petrojam Limited travels each week from Kingston to Manchester. The

Travel time in hours between parish along the highway is shown along each branch in the

following network.
A. Determine the shortest route from Kingston to each of these Gas Stations in the

network.

B. Develop a minimal spanning tree for this problem.
Node Branch Shortest Time 1 1-2 2 hours * 1-3 2 hours 1-4 4 hours 1, 2 1-3 2 hours * 1-4 4 hours 2-5 4.5 hours 1, 2, 3 1-4 4 hours 2-5 4.5 hours 3-4 21/2 hours * 1, 2, 3, 4 4-5 5 hours 4-6 4.5 hours * 1, 2, 3, 4, 6 4-5 5 hour * 6-5 7.5 hours 1,2,3,4,5,6

The minimal spanning tree is as follows:

A. The closest unconnected node to 1 is node 2.
B. The closest unconnected node to 1 and 2 is node 3.
C. The closest unconnected node to 1, 2 and 3 is node 4
D. The closest unconnected node to 1, 2, 3, and 4 is node 6
E. The closest unconnected node to 1, 2, 3, 4, and 5 is node 5
The minimal spanning tree follows: the shortest total distance is 6 hours.
Appendices
Corporate structure

Management Structure
*
Winston L. Watson
Managing Director
Safety, Environment & Quality
Leon L. Jarrett
(Manager)

The safety team concentrates on hazard recognition and mitigation for natural events, such as hurricanes and storm surges as well as, oil and chemical spills, fires fumes and contamination of water and air. The team is also responsible for the operations of the laboratory and our security systems.

Human Resource, Development and Administration

Andrea Bent
(Manager)
The strength of the Petrojam team is the accumulated years of experience of its highly trained engineers, technicians, production and petroleum processing personnel. The HRD and Administration team members are involved in recruiting, training, public relations, compliance and records management and library services to staff.

Strategic Planning

Andrea M. Reid
(Manager)

The department is responsible for the company’s corporate business plan, monitoring company performance and defining development of the company consistent with the corporate plan.

Logistics and Marketing

Michael A. Hewett
(Manager)

The department is responsible for the purchase of crude and finished products from our overseas suppliers and the sale of our finished products to the local and overseas market. A part of the marketing arm focuses on bunker sales to vessels at sea.

Production

Telroy A. Morgan
(Manager)
The department is staffed by a team of technicians and engineers who are responsible for the managing the operations of the hydro skimming refinery.

Technical Services

Paul Lue Lim
(Manager)

The department is responsible for the operations of maintenance operations on the plant and general upkeep of the grounds.

Finance and Accounting

Carlene A. Evans
(Chief Financial Officer (Acting))

The accounting team manages the company’s finances and monitors the inventory for the various products.
Price Index

Current Price Index ($/L)

11/26/2009 E10 (87) E10 (90) Asphalt Diesel Kerosene Butane Propane Ex-Ref Price 53.5308 54.5976 50.8862 54.1952 54.4923 41.9128 32.5129 Tax 16.1061 16.4792 0.3703 15.4145 6.0186 0.0392 0.0392 Total 69.6369 71.0768 51.2565 69.6097 60.5109 41.952 32.5521

Reference

Taylor, W.B. (2007). Introduction to Management Science. Upper Saddle River, New Jersey: Prentice Hall.
Http://www.google.com

Running Head: Saving Jamaica’s Energy Needs 1