Application of Data Envelopment Analysis to Measure the Technical Efficiency of Oil Refineries: A Case Study

Abstract

This paper is an attempt to implement the Data Envelopment Analysis (DEA) approach to measure the relative efficiency of a sample of oil refineries in Iraq over a period of two years, 2009-2010. We demonstrate that DEA is an effective tool for the Ministry of Petroleum (MOP) for monitoring and controlling the performance of oil refineries, which are growing as an important sector in Iraq. The authors followed a case study methodology where data about the inputs and outputs of refineries are gathered and analyzed to compute the relative efficiency of the refineries. Based on the results obtained, 50% of the refineries were efficient in 2009, while 58% of them were efficient in 2010, and the overall efficiency of the refineries studied was about 82% and 87% respectively. Later, inefficient refineries were investigated closely to identify the areas in which the use of resources manifest decreasing returns to scale. We concluded the paper with some recommendations on the applicability of the DEA for oil refinery efficiency evaluation. Due to the absence of research work, in this discipline, in the oil sector in Iraq, this study shall augment our knowledge on how oil refineries in Iraq may apply DEA to measure their efficiency, and how they might use the results to overcome efficiency problems. Although the results of the present paper are limited to the oil refineries studied; the DEA approach could trigger the attention of policy makers in the MOP to apply DEA to improve the efficiency of other DMUs. In addition, other manufacturing and service sectors in Iraq could, also, benefit from this approach.

Operational efficiency assessment of oil refineries using data envelopment analysis and Tobit model: evidence from India

“…Most of the studies (Sueyoshi, 2000; Managi et al , 2004; Mekaroonreung and Johnson, 2010; Al-Najjar and Al-Jaybajy, 2012; Saglam, 2018; Hosseini and Stefaniec, 2019; Mohammed, 2020) used the production factors in the production-frontier model. These studies considered various products from petroleum refineries such as gasoline, naphtha, kerosene, fuel oil and distillate as output variables in the DEA model, and identified them as the production-frontier unit in the given set.…”

“…The results showed that the unprofitable products were significantly and negatively impacted the overall efficiency. Further, Al-Najjar and Al-Jaybajy (2012) used a DEA over a sample of around 80 firms in Iraq from 2009 to 2010, and their findings revealed that the DEA could be the best tool to examine the efficiency and solve the constraints in achieving the required efficiency. Song and Zhang (2009) offered a novel support vector machine (SVM) model to measure and predict the performance of oil refineries.…”

Analysis of multi-factors affecting the performance of Nigeria's refineries: a systems thinking approach

“…The performance of most refineries is measured in terms of their efficiency. Al-Najjar and Al-Jaybajy (2012) applied the concept of data envelopment analysis (DEA) to measure the efficiency of an oil refinery as the difference between best practice and observed units. In this approach, best practice was related to organisational, national and international standards.…”

Efficiency Analysis of Oil Refineries Using DEA Window Analysis, Cluster Analysis, and Malmquist Productivity Index

“…Data Envelopment Analysis (DEA) is a technique commonly used to analyze efficiency; it helps in evaluating performance and in the promotion of benchmarking in this sector. Several studies have highlighted the importance and applicability of this technique [3][4][5][6]. The main advantage of the DEA model is that it reveals inefficiencies in production unit targets, initially identified by levels of inefficiency.…”