Quantitative Evaluation of the Relationship Between
Supply and Off-Take Contracts in Petroleum Refinery Projects Utilizing Project Finance

Abstract

The petroleum industry is one of the fastest growing sectors in the world in terms of private participation and financing. The risk and uncertainty associated with the crude oil supply and product demand influence the overall economic viability of petroleum refinery projects. Issues associated with the security of a project’s cash flow are of primary concern to investors using project finance in the procurement of petroleum refineries. This article reviews the characteristics of petroleum refinery projects, the concept of project finance, and issues associated with its application, with emphasis on the investigation and appraisal of the arrangement of supply and off-take contracts in relation to risks and economic returns. A mechanism is developed to aid contractual arrangements of supply and off-take strategies in support of project finance transactions in the procurement of petroleum refineries. The mechanism is tested in a case study through computer simulation.