9:05 AM - May 26, 2000 CST "Refinery problems" figure into soaring gasoline prices

From Pro Farmer

We're posting the daily AP commodity roundup below because there's a quiet zinger tossed into Dave Carpenter's comments about gasoline price rises: "problems at refineries" figured into concerns about gasoline prices. Our sources suspect that many of these persistent problems trace back to old process controllers with embedded chips -- which were time sensitive and never replaced during the petroleum industry's massive effort to retool for Y2K -- Year 2000 -- rollover. Although those concerns are largely forgotten, they're not really gone.

A significant fraction of the processors used on assembly lines and process control equipment were stock items which depended on Y2K-sensitive timing logic. Although nobody's focusing on Y2K specifically, these bugs are now cropping up, seemingly at random, causing occasional hassles and chipping into production-line efficiency. That's especially significant in oil refining, which is now crowding its maximum effective capacity. Just a few percentage points of lost efficiency can mean a substantial jump in price. Gasoline prices, like pork prices, are fairly "inelastic:" A 1% shortage raises the price substantially more than 1%. Here's the AP commodities report:

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Associated Press Online // By Dave Carpenter

Unleaded gasoline prices zoomed higher Thursday on the New York Mercantile Exchange, pushing to nearly a nine-year high on the eve of the U.S. summer driving season, which traditionally begins this weekend.

Natural gas futures and crude both joined the bull market for energy products -- natural gas hitting its highest levels in four years, crude its priciest in nine weeks.

In other commodity markets, gold futures tumbled and so did prices for America's top two crops, corn and soybeans.

Gasoline futures topped the $1-a-gallon mark and pushed to within a penny of the nine-year high of $1.025 set in March, just before OPEC countries raised production. Gasoline for June delivery settled 3.19 cents higher at $1.0121 a gallon.

The latest surge comes just as demand is expected to start soaring on Memorial Day weekend, when American motorists hit the roads en masse. Thirty-four million people are expected to travel 100 miles or more over the weekend.

``It's reality setting in,'' said Phil Flynn, energy analyst for Alaron Trading Corp. in Chicago. ``Traders are realizing we're coming into the summer driving season with the tightest supplies in years.

``We're really in a situation where refiners are going to have to refine at a 97 percent clip just to keep up with demand,'' he said.

The latest figures from the American Petroleum Institute, released Tuesday, showed refiners operating at 94.5 percent of capacity last week.

Two other factors buoyed the gasoline market Thursday.

Specifications for reformulated gasoline, a cleaner-burning brand of fuel that represents about a third of the nation's supply, are changing at retail pumps as of June 1, now less than a week away. Refinery problems also exacerbated concerns about low supplies.

Valero confirmed that a sulfur plant at its 80,000 barrel-a-day Houston refinery experienced an unplanned shutdown Thursday. And Venezuela's state oil company was reported to have shut down a 90,000 barrel-a-day facility at its Amuay refinery for 30 days of routine maintenance.

June natural gas rose 16.3 cents to $4.236 per 1,000 cubic feet amid doubts that storage facilities will be replenished by next winter.

July crude settled 58 cents higher at $30.51 a gallon after peaking at $30.55. Also, June heating oil rose .58 cent to 79.09 cents a gallon.

In London, July Brent crude from the North Sea rose 58 cents to $29.19 a barrel on the International Petroleum Exchange.

Gold prices slid in what market watchers described as a technical slide. Dealers said buying interest has dried up in the wake of Tuesday's British gold auction, which produced lackluster results.

June gold settled down $3.10 at $270.70 an ounce on the Comex division of the New York Merc.

Soybean prices dove after the National Oceanic and Atmospheric Administration called for a significant reduction in drought conditions in the western Midwest.

Most of the Midwest is expected to receive 1 to 3 inches of rain in the next five days, with the hardest rains falling on the center of the worst-hit drought area. Three to five inches of rain are forecast for eastern and southern Iowa.

July soybeans fell 15 cents to $5.27 1/4 a bushel.

http://www.agweb.com/news/news.cfm?id=6317&breakingnews=1

-- Martin Thompson (mthom1927@aol.com), May 27, 2000

Answers

The story about the connection between
the refinery outages and embedded chips
will be the Y2K story of the year.

-- spider (spider0@usa.net), May 28, 2000.

Here is a related article from IEE:

The Institution of Electrical Engineers

The Millennium Problem in Embedded Systems

Embedded Systems Fault Casebook (May 1999)

EXAMPLE NO EG-07

Equipment Type DCS
Industry Sector Oil & Gas
PC or Computer based No
System Age 6 years
Application
DCS control system control for petrochemical plant
Description of the Problem
Online rollover to Year 2000
How was it Identified
During testing. Offsite testing on a testbed was performed with satisfactory
results. Upon testing of stations on site, control was no longer possible
after the system had rolled over to Year 2000. It was not until this
problem was evident on three of the four operating stations was testing
aborted.
What was the Solution
No known workaround. Plant had to be operated from one station until
problem could be rectified
Consequences for the SYSTEM System Stops
Consequences of failure to the BUSINESS
Near catastrophic. Limited reliability and operability of plant. Reduced
production

The Institution of Electrical Engineers

-- spider (spider0@usa.net), May 28, 2000.

Martin: Thanks so very much for the post.

Thanks, Spider, for the IEE material.

I am attaching an excerpt from a report of the International Energy Agency that serves as a perfect complement to your posts.

FORWARDED MATERIAL (This material was posted on the web in May of 1999. The actual report may predate that posting.)

Oil Refineries Are at Risk, Says IEA Report

Link: http://www.iea.org/ieay2k/html/refine.htm

Refineries are by design highly complex relying heavily on computers for smooth operation. An extensive survey of a refinery in the UK identified 94 systems requiring investigation for Y2K compliance. Of the systems assessed it was found that three would fail and that two of these three failures would cause a shutdown.

Attempting to trace even a small number of potential Y2K problems at a refinery is undeniably a major undertaking.

Refining is but a part of the general problem facing oil companies trying to address Y2K issues. It is a technologically intensive industry and companies are likely to operate myriad date sensitive integrated systems.

Embedded processors are the main source of this sensitivity and are found in devices such as flow meters, transmitters and smart valves. They are found throughout the oil industry and in all sectors, including drilling platforms, production platforms, pipelines and process plants. In the case of process plants, the devices containing embedded chips are interconnected, making the problem even more complex and increasing the possibility of Y2K failure.

A pilot inventory and assessment of a catalytic cracker and co-generation plant in the US revealed 1,035 systems of which 21% were not Y2K compliant and 6% that would lead to serious plant shutdowns or reduced production capabilities. The catalytic cracker would fail, rendering the refinery incapable of making gasoline. Given the widespread use of catalytic crackers in modern refineries, questions must inevitably be raised about their reliability in other refineries. For the co-generation plant 19% of the hardware, 36% of the software and 24% of the custom code was found to be non-compliant.

In late 1997 one oil companys engineers testing valve control equipment in their refineries discovered thousands of terminals controlling the dispensation of oil to have microchips with Y2K problems. All of the chips required replacement, however it was discovered that the replacement chips would not fit on the existing motherboards. It was therefore necessary to order both new chips and motherboards. Worse still, the replacement motherboards were found not to fit the old valves so the valves themselves had to be replaced. This example demonstrates how a Y2K problem can escalate beyond the original fault to include systems that may actually be compliant. An items Y2K compliancy is therefore no guarantee that its replacement will not be necessitated by problems arising in other equipment. End of forwarded material

-- Paula Gordon (pgordon@erols.com), May 28, 2000.