1. Achieving Energy Efficiency at little (or no) capex Key lessons learned from a real project experience Green Forum 2010 London, October the 4 th , 2010

2. Workshop Agenda

• • • Introduction to Tefen and to Energy Efficiency Excellence (E 3 ) key concepts

Key Lesson learned to achieve E 3in apetrochemical site, based on Tefen experience

3. Tefen: who we are

Tefen is aninternational management consultingfirm

Founded in 1982, the company has amassed a reputation for improving andenhancing performance excellencein some of the world's largest and fastest growing companies

From strategy through implementation, we create value by optimizing the competitiveness, innovation and agility of our customers at every stage of a firms life cycle

Our innovativehands-on approachhas achieved success in delivering quantifiable and value-driven results

Our worldwide offices:

London

New York

Milan

Munich

Bucharest

San Francisco

Tel Aviv

Washington, D.C.

Warsaw

Our mission: to create value by making our customers competitive, innovative and agile 4. Tefen : What we do in the Oil & Energy industry

M&A advisory

Asset evaluation and transaction support

Business model design

Economic modeling of key strategic alternatives

VBM (Value Based Management)

KPI system development

MBO framework and incentive packages design

Risk Management system design

Corporate issues We support our partners in undertaking strategic decisions blending analytical precision withinnovativeinsights and approaches Operations excellence radically improving operational performance to achievesustainable standards of excellence

Analytical insights to support business decisions

Analytical models to support strategic multi-year plans

Evaluation to support complex business decisions (e.g. modeling options of long-term supply contract)

Detailed sensitivity analysis on macro-economic scenarios

Sales & Marketing Strategy

Competitive analysis and positioning

Sales and distribution: organization and strategy

Brand strategy design , branding strategy optimization, brand positioning and restyling for oil stations

networks

Business Strategy fine-tuning the details of business strategies toextract the maximum value Sustainable value creation Assets People

ZBC(Zero Based Costing)

Standardizing oil stationsdevelopment processes

Optimizing & monitoringlabor costs

Maintenance productivity

Coordination and Program Management

HR processes optimization

Scheduling of field workforce (e.g. field technicians)

Purchasing optimization programs

Large scale & Step-Change improvement programs

5. Energy Efficiency Excellence (E 3 ) isnt an option

• • • The energy consumption in Petrochemical sites usually accounts for roughly 40-50% of cash operating costs

• • • The energy related issues in petrochemical sites is growing due to market and regulatory pressure

• • • Energy Efficiency Excellence (E 3 ) must be a primary value creation and environmental sustainability lever for Petrochemical operators

• • • • and must be conceived as a strategic and fundamental challenge by the whole organization

6. A little capex approach is possible to achieve E 3 Baseline consumption levelsInefficiencies Actual consumption level Levers and approaches for Energy Efficiency Excellence (E 3 )

• Need forsignificant capex , especially for major upgrading / replacement initiatives

• Deferral of expected benefitsafter the completion of implementation

• Most of the baseline already targeted

• A cost-effective way to identify and implementquick-win withan immediate impact

• Most of theseopportunitiesare usuallyunexplored and latentin organization

• Achieving tangible improvements on EBIT with minimal investment

• Unlocking oflong-term sustainability

Technical approach

• Focus on major assets upgrading / capex to reduce the baseline

• Technical levers

• No intervention on people

• Purely a technology and hardware issue

Managerial approach

• Root cause analysis of existing inefficiencies

• Search for behavioral and maintenance levers to stick consumption to the baseline minimum

• Focus on long term sustainability through culture change

7. Key concept is to have a balanced perspective

Key levers

• Early fixes of steam losses

• Development of E 3compliant approaches / procedures

• Identification and elimination of maintenance bad actors

• Goals and KPIs definition

Key levers

• Creation of a non-itemized dedicated budget to speed up approval and execution

• Acceleration of less complex investments with good ROI

• Identification of a single focal point for investments execution

Key levers

• Strengthening of operator care energy consumption parameters monitoring in routine walks

• Structured organizational presidium (processes, roles)

• Review of job descriptions

• Review and strengthening of individual objectives

• Field personnel training

Focus on hardware Focus on operational dynamics

• • • • considering short & medium term issues across organizational & behavioral and Maintenance & Investments management dimensions

Maintenance dimension Organizational and behavioral dimension Focused investments dimension 8. Well share our key lessons from real experience

A refinery operator,aimed at enhancing its energy efficiency to reach the boundary between 1 stand2 ndquartile.

• • • A5% - 10%of saving over the refinery energy cost base.

• • • More than 1 millionofyearly recurringbenefits achieved through quick hit in less than4 months.

• • • Around30% of savingscomingfrom no-capex initiatives , other40%coming fromsmall investments(0,5-1 mln), withpayback within 1 or 2 years.

• • • Overallmobilizationof the organization towards E 3issues.

Identify and execute immediately allno-capex initiativesthat could improve energy efficiency.

Design amedium/long-term Energy Efficiency Excellence Strategy and realistic execution plan.

Significantly improveEll Solomon quartilerefinery positioning.

BackgroundProject goals Results 9. An enlarged participation is key to achieve E 3

• • • Energy Efficiency is a deeply cross functional issue involving a multiplicity of referents within a refinery

• • • Enlarged involvement, both vertical and horizontal, is needed

• • Involvement of all Departments with directly or indirectly impact on energy efficiency

• • Focus on field personnel

• • • Utilization of an effective mix of tools, to facilitate participation and contribution from all stakeholders, is key

• • Energy fairs, brainstorming and communication sessions to build and strengthen the momentum for change

• • Group workshops, to analyze cross functional issues

• • Individual interviews to identify, analyze in depth, quantify and validate improvement opportunities

10. Change is to be ignited and continuously steered An interactive approach is used to map optimization areas, mobilizing the organization an analytical focus is needed to select best options. Quick-hits are launched to achieve immediate results ... managerial and organizational aspects are developed to ensurea continuous improvement process a consistent roadmap is designed to support the project implementation phase in the medium-long term Tefens Managerial Approach

• • • • managing a structured approach that balances a creative and mobilizing approach with sound and solid analytical methods

Illustrativeillustrative illustrative illustrative 11. Consider hardware, but focus on soft causes

• • • Opportunity map for Energy Efficiency Excellence (E 3 ) in a refinery

Quick Hits Small / quick-pay-back investmentsLong-term / large investments IllustrativeE 3

• • • • balancing a creative and mobilizing approach with sound and solid analytical methods

Plant5burnersubstitution Regulation ofcompressors flows Optimization ofillumination systemsconsumption Management ofequipments energyefficiency Steam losses andcondense recovery Thermal integrationEnergy optimization in plant managementPower Plant Consumption optimization Heat losses SteamconsumptionoptimizationFOEconsumptionoptimizationInstallation of steamratios regulators Optimization offurnaces oxygen /draught ( 1 nd step) Plants PA optimizationPressure an dtemperatureoptimizationPlan automatic controloptimizationInstallation in the furnaceof CO / O2 analyzers Elimination of fuel lossesthrough torchOptimization of furnacesoxygen / draught (2 nd step) Installation ofadditional doors toclean furnacesOptimization of furnacesoxygen / draughtthroughautomated regulationOptimization of furnacesoxygen / draught ( 2 nd step) Plant7Stripper and sidestrippers steam consumptionoptimizationPlant6stripper steamconsumptionoptimizationPlants9 - 10steam consumptionoptimizationPlant12side stripper steamconsumption optimizationSteam consumptionoptimization in theamina regeneration processPlant 14 meteringinstrumentationsubstitution Plant13steam consumptionoptimizationThermal balance oftopping residual Plant3FOEconsumption reductionPlant2FOEEconsumptionreductionPlantFOEConsumptionreductionPant thermalintegrationimprovementSubstitution ofcondense drains( 2 nd step) Substitution of1000condense drains Fuel oil system LScircuit revamping Basicinstrumentationrevamping Rationalization of theconsumption on theentire steam systemSubstitution ofcondense drains Installation of expanders onover - dimensioned pumps Installation of inverterson over - dimensionedpumps motors Plant4factorcollection HS rollingprocessoptimizationInlet Air in GT coolingthrough foggingsystem Insulation enhancementwith the use of newmaterials with higherinsulation coefficient Steam auto - productionRanking minicycle Toppingresidue circuit Turboexpander Plant6 Installation ofpreflash columns Reduction of consumptionof the illuminationsystems Furnace airpreheater Application of the Pinch Technology Improvement ofthe efficiency ofthermal insulation Plant11steam consumptionoptimization 12. Focus on all areas that contribute to E 3losses Partial list extracted from Tefen databaseImprovement areas Examples of opportunitiesSteam

New approach to the measurement and maintenance of lines of steam

Improved steam and condensate demi water recovery

Automatically set steam quantities proportional to fluids

Pumps, engines, illumination system

Effective air coolers preventive maintenance

Ensure pumps and compressors absorption proportional to flows

Improvement efficiency illumination technologies

Utilities production and consumption

Solve inefficiency and / or losses in the production/utilization of utilities

Installation of fogging system to reduce power consumption in summer months

Use of steam when temperature cools down (Demi water)

Optimization of the water energy potential used in refinery

Furnaces and burners

Critical review of target oxygen percentage in furnaces

Reduction of excess hydrogen in the burner

Increase frequency of burner cleaning

Substitution of Fuel Oil burners with Fuel Gas ones (optimization of consumption)

Heat

Assessment of thermal insulation

Reconfiguration of the pre-heating circuits to optimize energy consumption

Reconfiguration of the use of fuel, isolate liquids from hydrocarbon to reduce the final consumption

Processes and procedures

Missing targets for consumption

Improvement in the allocation of human resources & in reporting and monitoring systems

13. Leverage on immediate or fast payback initiatives

Quick Hits are usually implementable in 1-2 months

Small & fast payback investments are implementable within preventive maintenance or during small slowdowns

Large investment are usually the ones included in long term strategic revamping initiatives

14. Transform quick wins into long term performance1/2 t 1 t 2 IllustrativeQuick wins can be implemented rapidly -- but need to be translated into long term performance through people and process levers Stripping steam consumption optimization

• • • First implementation of Quick-hitsobtained quick response on predicted targets

• • • After a short period of time it was registered a tendency to go to previous poor performance

• • • The new organizational model (structures, processes, measurements), put quick hits back on track and even further improved performance

15. Transform quick wins into long term performance2/2 Quick wins can be implemented rapidly but need to be translated into long term performance through people and process levers Oxygen % optimization in combustion chambers

• • • First implementation of Quick-hitssignificantly reduced level and variance of % oxygen

• • • After a period of time a new procedure, training and monitoring system was put in place

• • • The new system overachieved performance targets both in level and variance of oxygen in the furnaces

16. Manage E 3barriers across your organization Partial list extracted from Tefen databaseAreas of improvementExamples of common barriers Corporate culture

Energy inefficiencies not seen like costs

No focus on the soft issues related to the energy performance

Lack of trainings and communication campaigns on the matter

KPI system with weak incentives

Organizational and managerial issues

Poor accountability on energy performance

Lack of a reference point for energy conservation issues

Lack of systematic root causes analysis & monitoring of energy consumption

Lack of clear incentives

Maintenance Management

Lack of focus on the day-by-day activities of most operative human resources

Non-effective procedures to tackle maintenance inefficiencies

Lack of common maintenance procedures designed for E 3

Investments management

Lack of clear focus on energy conservation investments

Excessive complexity for smaller and short payback investments

Lack of structured procedures for major E 3investments

17. Improve, but dont jeopardize your organization

• • • Creation of a new Department fully dedicated to Energy Conservation

• For each site or centralized for all sites

• 360 coverage of matters related to energy performance (e.g. procedures, operations, investments, etc.)

• • • Clear objectives for the dedicated department as well as for all other existing Functions

• • • Breakthrough solution to create immediate awareness

• Strong commitment from top management

• High ROI expected

• • • Responsibility for energy efficiency is given to already existing Functions

• For example, Area Technology for the more operative side of the project

• • • Creation of a new role with E 3managerial responsibility

• Coordination activity for all production sites

• Reporting directly to top management

• • • It is the best solution in cases were the starting point is already acceptable

• • • • only a continuous improvement process is needed

Radical boostCentralized model Ongoing improvement- Shared responsibility model 18. Measure hard and soft dimensions of E 3 ...

• • • KPIs are divided into three main categories,all three are important

• • • • Organizational and procedural dimension

• • • • Technical and operational performance

• • • • Individual and Function-level targets

• • • Clear targets should be set coherently with the area they need to measure

• • • • Managerial roles : targets linked to the overall energy performance (e.g. reduction of the energy consumption, reduction of energy expenses, etc.)

• • • • Operative roles : targets tailored on their job description (e.g. cut of the steam consumption for each shift, cut of combustion gases) to increase positive competition

Organizational andprocedural KPIs They monitor the effectiveness ofthe process and mechanisms ofcoordination put in place tooptimize the energy performanceTechnical and operationalKPIs They monitor the energyperformancein theproductionprocesses vs. technical andoperational targets Individual /Functional - level KPIs They monitor the individual andfunction - level targets for theoptimization of the energyperformanceExecutivesynthesis Solomon Ellindicators Synthesis of allkey indicators

• • • • to monitor progress, steer the implementation and reinforce the change of focus

19. Commit to and share the future path to E 3

• • • Develop a shared solid economic target and medium term vision

• • • Strenghten theorganizational sensibilityon economic relevance of energy conservation

• • • Implement acontinuous improvement processthrough the energy consumption optimization framework

• • • Presidium and coordination of initiatives

Selected opportunities are drawn on a high-level road map which is then then detailed into an implementation plan for each stream of actionDrivers of the implementation phase IllustrativeIllustrative

• • • • throughout the organization. It is Key to make your people understand the change in focus is there to stay.

A solid and realistic business case is developed to celebrate early wins, and measure future achievements 1 2 3 20. And now... Where is your organization standing?

• • • Are you addressing E 3as a strategic challenge or is somewhat an option for you?

• • • Are you addressing little or no-capex initiatives to achieve E 3 ? Do you even think is it possible in your organization?

• • • Do you have a balance perspective? Are you considering short and medium term issues across organizational, behavioral, maintenance and investments management practices to achieve E 3 ?

• • • Are you fostering an enlarged participation across all key actors in your site?

• • • Are you comprehensively and periodically mapping all possible root-causes for Energy Efficiency losses, both hard & soft, short & medium term?

• • • Are you leveraging on quick hits and fast payback initiatives?

• • • Is your organization capable to transform quick wins in sustainable performance?

• • • Are you managing all potential barriers to E 3in your organization?

• • • Are you capable to improve your organization E 3readiness without jeopardize it? (i.e raising costs, defocus from process)?

• • • Do you have an organizational-wide shared commitment and vision towards E 3in your organization?

21. w w w . t e f e n . c o m S t r a t e g yO p e r a t i o n sE x c e l l e n c e P r o j e c tM a n a g e m e n t O r g a n i z a t i o n a l D e v e l o p m e n tContact: Fabio Nicol Partner Mail:[email_address] Mobile: +39 340 3331807 Via Privata Maria Teresa, 8 20123 Milano Tel:+39 02 36572150 Fax: +39 02 36572176