Oil Flow Planning

Background

The recent US - Iran war has been a major oil supply chain disruption causing supply shortages and price increases. The major bottleneck in all this is the Strait of Hormuz: a popular waterway for shipping oil out of the middle east and to the global market. Before the war, 15 million barrels per day (MMb/d) flowed through the Strait which accounts for 20% of global demand. With Iran purposefully blocking the corridor, oil producing countries in the region need to find alternative routes, or effectively be cutoff from the market.

Strait of Hormuz Map (in red box) - Sourced from Wikipedia

Countries like Saudia Arabia and the UAE have built pipeline infrastructure to protect their supply routes. Both countries have pipelines to reduce their dependency on the the Strait of Hormuz. These pipelines have limited capacity, but they still allow some supply of oil to reach the global market. Other countries like Iraq do not have a pipeline or an alternative waterway for exporting oil. While land transport is still possible, the closing of the Strait has effectively cutoff Iraq from exporting oil.

SA and UAE Oil Pipelines Map - Sourced from Wikipedia

Supply Planning, and specifically capacity planning, allows us to understand the impacts of the closure of the Strait of Hormuz on meeting global oil demand. The Chaos Solver models the scenario and is able to show how the closure impacts suppliers like Iraq, Saudi Arabia, and the UAE. Nobody can say what will happen in the future, but effective supply planning lets us run scenarios and check how the supply chain network responds to shocks.

Model Assumptions and Simplifications

• Only modeling 3 impacted countries: Iraq, Saudi Arabia, and the UAE
• Only considering crude oil demand
• Not considering oil exports via land tanker trucks
• Assuming constant 12 million barrels per day demand (MMb/d)
  • Using Activity Splits to spread the global demand across the suppliers
• Assuming total flow through Straight of Hormuz drops to 0 barrels per day

Solver Run

The video below shows the solver planning 2 demands: one before the US - Iraq war and one after. We can see solver constrain at the Strait of Hormuz and look for alternative supply via SA and UAE's oil pipelines.

Solver Results and Analysis

Demand Fulfillment

By running the solver, we can see that the closure of the Strait causes global demand for oil to be shorted by about 4 MMb/d. The solver found alternative routes to the Strait, but due to capacity limitations in the network, not all demand could be fulfilled

Shipments by Route

The shipment graph shows us that the volume flowing through the Strait is now largely being replaced by flow through the East West and Habshan-Fujairah pipelines. Note that Iraq has no pipeline available and any shipments after 2/8 won't make it throught the Strait of Hormuz.

Capacity Utilization

The Capacity Utilization charts show the impacts to the three oil producers:

• Iraq utilization falls to 0 because it has no alternative route
• Saudi Arabia stays at 100% drilling utilization because they have a pipeline with more flow capacity than they can drill
• UAE drilling capacity falls because their pipeline, the Habshan-Fujairah, can only flow 1.8 MMb/d which is lower than their drilling capacity

Overall, Saudi Arabia is impacted the least and Iraq the most by the closure of the Strait of Hormuz.

Final Notes from Bill

This use case was a bear to put together. I had to update the digital twin to support large network visualizations and add "flow" capacity (as opposed to manufacturing capacity) to the solver.
The effort was worth it though as the solver is able to cleany plan a real world scenario and hopefully inspire others into what is possible with effective supply planning. Even this use case is a gross simplification of the global oil supply chain, but with good data and network setup, this model could be expanded to handle a more realistic setup.

Solver Data Inputs and Outputs