Sustainable petroleum supply chains created in response to the US Government policies

Ghahremanlou, Davoud (2021) Sustainable petroleum supply chains created in response to the US Government policies. Doctoral (PhD) thesis, Memorial University of Newfoundland.

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Abstract

Socialization and long-distance trading began after the basic needs of early people were met. Millennia later, the ‘modern’ discovery of crude oil (or petroleum) and the development of the internal combustion engine resulted in improvements in transportation, chiefly in terms of increasing speed. Steam engines were quickly replaced by these new engines, used to power ships and trains. The revolution of the combustion engine – and the new utilization of petroleum with which it is fueled – marked the beginning of a new age in global transportation and industry. The invention of the automobile, utilizing this internal combustion engine, and the advent of its mass production at the beginning of the 20th century served as yet another turning point in transportation history. Currently, land transportation using gasoline derived from crude oil is the most popular mode of transportation. However, the destructive impact of gasoline on the environment, as well as the imbalance in the distribution of oil reservoirs among countries, led governments to explore some alternate fuel sources. Legislation converting Conventional Petroleum Supply Chains (CPSCs)¹ to Sustainable Petroleum Supply Chains (SPSCs)², seemed to offer the best solution for addressing environmental concerns and energy security. For this purpose, the United States, the world’s largest oil consumer, has created policies to make SPSCs. These policies aimed to support production and consumption of bioethanol³ as a gasoline additive, resulting in the creation of Bioethanol Supply Chains⁴ and merging them with CPSCs to form SPSCs. Though these new regulations have created new opportunities, they also added new burdens to the obligated parties for compliance. Thus, as the leader of SPSCs, the US government ought to determine how the policies influence SPSCs in different financial risk conditions, before enacting them. This evaluation would assist the US government to make decisions within a sustainable framework, the significance of which is well recognized. This results in enhancement of business confidence through guaranteed investment security and profitability. On the other hand, the investors would focus on making robust strategic decisions against policy changes, and resilient strategic decisions devised to stand up to risk averse situations, like the current one created by Coronavirus Disease (COVID-19) and the 2020 Saudi Arabia-Russia Oil Price War. This thesis aims to support the government and investors in this regard by running computational experiments. To that end, we have carried out studies resulting in the following six papers: 1. Ghahremanlou, D. and W. Kubiak (2020a). Impact of government policies on Sustainable Petroleum Supply Chain (SPSC): A case study - Part I (Models). Decision Making in Manufacturing and Services. In Press. 2. Ghahremanlou, D. and W. Kubiak (2020b). Impact of government policies on Sustainable Petroleum Supply Chain (SPSC): A case study - Part II (The State of Nebraska). Decision Making in Manufacturing and Services. In Press. 3. Ghahremanlou, D. and W. Kubiak (2020c). Sustainable Petroleum Supply Chains created during economic crisis in response to US government policies. International Journal of Sustainable Economy. Submitted. 4. Ghahremanlou, D. and W. Kubiak (2020d). An approach to studying Sustainable Crude Oil Supply Chains (SCOSCs) evolved by changing US government policies - Part I (Models). Journal of Cleaner Production. Submitted. 5. Ghahremanlou, D. and W. Kubiak (2020e). An approach to studying Sustainable Crude Oil Supply Chains (SCOSCs) evolved by changing US government policies - Part II (Case Study). Journal of Cleaner Production. Submitted. 6. Ghahremanlou, D. andW. Kubiak (2020f). US Sustainable Crude Oil Supply Chains (SCOSCs) during economic crises. To be submitted. These papers form Chapters 2 – 7 of this thesis, respectively. The three papers focusing on creating the most environmentally friendly SPSC which can be applied in 23 states that currently do not have any bio-refinery in place with minimum challenges, make up Chapters 2 – 4. The other three papers dealing with the SPSC in the 27 states with already existing facilities create Chapters 5 – 7. This thesis also includes two more chapters, the Introduction, Chapter 1, and Conclusions, Chapter 8. The former provides detailed information about what to expect in this thesis and why; the latter summarizes the findings of the thesis. In Chapter 2, we develop a two-stage stochastic programming model, called General Model (GM), for the evolution of the SPSC. The model accounts for 2nd generation bioethanol, the most environmentally friendly bioethanol developed so far. However, since the GM, like any other GMs in the literature, is NP-hard in the strong sense, we develop a Lean Model (LM). Then we prove relationships between solutions to the GM and solutions to the LM. We employ the LM to run a computational experiment, including 22,050 policy scenarios, in Chapter 3. Chapter 4 converts the risk neutral model in paper one to a risk averse model, often appropriate during economic crises, by applying Conditional Value-at-Risk (CVaR); then we conduct a case study. Chapter 5 extends the model in paper one, by including all existing infrastructures, 1st and 2nd generation bioethanol, currently the only commercial ones, and their imports and exports. We propose the Extended General Model (EGM), derive the Extended Lean Model (ELM), and prove the relationships between them. The ELM is applied to run a computational experiment with 21,420 alternative policy scenarios, in Chapter 6. We employ the CVaR and change the risk neutral model in paper four to a risk averse model and perform a case study, in Chapter 7. Note that the reason for a different number of policy scenarios in Chapters 3 and 4 relative to Chapters 6 and 7 is the cheaper price of the 1st generation bioethanol as compared to 2nd generation, see Sections 3.3 and 6.3. Given the significance of the economic, environmental, and social aspects of the SPSC, all the case study results, more particularly policy impacts and policy recommendations, in Chapters 3, 4, 6, and 7, are provided within the framework of sustainability; robust strategic investment decisions despite inevitable policy changes are also provided. In Chapters 4 and 7 the results of their risk averse models are respectively compared with their corresponding risk neutral models in Chapters 3 and 6, to further highlight their significance and provide resilient strategic investment decisions in times of financial risk change. ¹also called Conventional Crude Oil Supply Chains (CCOSCs) ²also referred to as Sustainable Crude Oil Supply Chains (SCOSCs) ³also called ethanol ⁴also called Ethanol Supply Chains

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