Supply chain optimization of petroleum organization under uncertainty in market demands and prices

Wafa B.E. Al-Othman, Haitham M.S. Lababidi, Imad M. Alatiqi and Khawla Al-Shayji

European Journal of Operational Research, 2008, vol. 189, issue 3, 822-840

Abstract: A multi-period stochastic planning model has been developed and implemented for a supply chain network of a petroleum organization operating in an oil producing country under uncertain market conditions. The proposed supply chain network consists of all activities related to crude oil production, processing and distribution. Uncertainties were introduced in market demands and prices. A deterministic optimization model was first developed and tested. The impact of uncertainty on the supply chain was studied by performing a sensitivity analysis in which ±20% deviations were introduced in market demands and prices of different commodities. A stochastic formulation was then proposed, which is based on the two-stage problem with finite number of realizations. The proposed stochastic programming approach proved to be quite effective in developing resilient production plans in light of high degree of uncertainty in market conditions. The anticipated production plans have a considerably lower expected value of perfect information (EVPI). The main conclusion of this study is that for an oil producing country with oil processing capabilities, the impact of economic uncertainties may be tolerated by an appropriate balance between crude exports and processing capacities.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:189:y:2008:i:3:p:822-840

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