Saras’ Sarroch refinery on the island of Sardinia is one of only six ‘super-sites’ in western Europe and is also the second largest refinery in the Mediterranean. It boasts an atmospheric distillation capacity of 300,000 barrels per day – about 15 percent of Italy’s total refining capacity, and more than 80 percent of the company’s production is of medium and light distillates – mainly diesel and gasoline, with very low sulphur content, in order to minimise environmental impact.

Saras is also engaged in the generation and sale of electric power through two affiliates: Sarlux – owner of the IGCC (Integrated Gasification Combined Cycle) plant which Saras operates – and Parchi Eolici Ulassai – owner of the wind farm through Sardeolica, which is a Saras subsidiary. 

Moreover, the Saras Group, both directly and via its subsidiary companies Arcola Petrolifera S.p.A. and Saras Energia S.A., sells and distributes oil products such as diesel, gasoline, heating oil, liquid petroleum gas (LPG), virgin naphtha and aviation fuel to markets in Italy, Europe (mainly the Spanish market) and outside Europe.

Headquartered in Milan, Saras was first listed on the Italian Stock Exchange in 2006. The other activities of the company include industrial engineering, scientific research and information technology services.

Over 45 years of refining excellence

“Saras was founded in 1962 by Italian entrepreneur Mr Angelo Moratti” informs Mr Vacca. “At the time, there was insufficient oil refining capacity in the region and, to capitalise upon this gap in the market, Mr Moratti decided to build a refinery near Sarroch, on the south-west coast of Sardinia.” Construction of the plant began in 1963 and refining activities commenced in 1965. At the start, the refinery was rather simple, featuring one atmospheric distillation unit, three de-sulphurisation units, and a marine terminal for the berthing of oil carriers to deliver crude oil and lift the refined products. Saras’ processing capabilities have since grown to 28 highly efficient and technologically advanced units.

“When the refinery started out, almost 90 percent of its capacity was dedicated to third party processing agreements,” he continues. “In other words, Saras was selling its refining services to other oil companies, who brought to Saras their crude oil in order to have it transformed into finished products, according to agreed quantities and timelines. For such services, these oil companies paid a processing fee. 

“Due to the large availability of cheap crude in the 1990s, Saras progressively reduced its share of processing contracts. Instead, we started purchasing and refining our own crude, and selling on oil products at a higher profit,” Mr Vacca tells us. “Right now, we still maintain a share of processing agreements, accounting for approximately 35 percent of our refining capacity. These processing contracts decrease our working capital requirements, and secure availability of certain families of crude oil, which are difficult to purchase regularly on the spot market. Moreover, they ensure efficient protection against market downturn, by reducing our exposures to the refining margins.”

Around the middle of the 90s, anticipating an important reduction in future global consumption of high sulphur fuel oil, Saras constructed a liquid fuel gasification plant. “Heavily interlinked and connected with the refinery, the plant was designed to use as feedstock the heavy fuel oil from the refinery, and transform it into clean gas, which would then expand in three parallel trains of combined cycle steam and gas turbines, thus producing electricity,” he explains. This plant was completed in 2001 and is the largest of its kind in the world, with 575MW of installed capacity. The Sarlux IGCC plant also secured a 20 year contract for the sale to the National Grid Operator (the GSE) of all the electricity generated, with priority of dispatching, and with prices indexed to crude and oil product prices, as well as inflation.

In addition to these two major divisions – Refining and Power Generation – Saras also started to diversify into the renewable sector. This culminated in the construction of a wind farm in Ulassai, in central Sardinia, which started production in August 2005.

Strategic location

Located in the middle of the Mediterranean Sea, Sardinia is central to all major commercial shipping routes, which is one of the main factors of the company’s success. “The strategic location of Saras refinery, on the south western coast of Sardinia, is a core competitive advantage. We are very close to a number of major oil-producing areas such as north Africa, the Black Sea and the Middle East” Mr Vacca tells us. “This means that it is easier for us to source the raw material – the crude oil – and then also to sell the refined products, thanks to our proximity to many important oil-consumer markets such as southern Europe and northern Africa.

“We buy crude and sell oil products on a global basis,” he continues. “It is clearly a lot cheaper for us to sell products in the Mediterranean basin, thanks to lower transport costs. Nevertheless, whenever the arbitrage is open, we sell our products also to other markets, including the US and Asia.

“In current turbulent times, with the global financial and economic crisis taking a serious toll on oil product consumption, we are fortunate to have the Mediterranean basin as our core market,” he advises. “Indeed, oil demand in this area should hold better than elsewhere, thanks to the support provided by developing countries like north Africa and the Middle East. 

“Finally, another distinct advantage for Saras is our strong relationships with oil producing countries,” he adds. “These relationships enable us to benefit from stable and uninterrupted supplies.”

Complexity and flexibility

Among the six largest super-sites in western Europe, the Sarroch refinery ranks third in terms of ‘complexity’ – a key industry measure, as Mr Vacca explains. “Complexity in the oil refining jargon means the capability of upgrading low value products, like fuel oil, into high value light and middle distillate products – like the gasoline and diesel fuels used in our cars – which attract much higher prices on the market,” he advises. “So, today, Saras is very large and very complex. And with scale obviously also come various forms of savings and operational efficiencies.”

Today, the company has great flexibility in terms of its refining capabilities – a strength that has grown from the company’s origins, explains Mr Vacca. “Our origins as a service refinery made us become very flexible in our capabilities to process a wide range of non-standard crude oils. In particular, our plants are capable of refining high-paraffin crude from North Africa and acidic crude from the North Sea and western Africa, as well as heavy, high-sulphur crude. We are one of the few refineries in Europe capable of processing these various types of crude simultaneously, a technical challenge that requires multiple processing lines, special know-how and specific plant designs.”

Saras’ flexible approach to refining is also demonstrated when it comes to maintenance services. “The refinery is never scheduled to close down completely, and we typically maintain production at no less than 60 percent of full capacity, even when major units are shut down for scheduled maintenance,” reports Mr Vacca. “Some refineries have a very simple set up – they have one distillation unit (the very first unit that the crude enters in order to be split into fractions) and then they have subsequent units to further refine the products in order to bring them to the specifications required by the market,” he tells us. “Saras, on the other hand, has three parallel trains of distillation units – which enable us to do maintenance work without ever stopping the refining. Scheduled maintenance sequences are optimised to keep efficient plant assets, and minimise production losses.”

Fully-integrated approach

The Sarroch refinery is fully integrated with the Sarlux IGCC plant and adjacent Polimeri Europa and Sasol Italy petrochemical facilities, “another major advantage, which enables our company to maximise the value of its materials,” as Mr Vacca explains. “Indeed, this integration allows Sarlux and Polimeri Europa to provide Sarroch with approximately half of the hydrogen required for its refining processes, thereby helping to increase the refinery’s output of high quality diesel and gasoline. On the other hand, we supply specific oil products to the Polimeri Europa and Sasol Italy facilities, where their petrochemical content is extracted, leaving Saras with higher-quality raw materials for refining purposes. And finally,” Mr Vacca continues, “the integration of the refinery with Sarlux allows us to extract maximum value from heavy refinery residues, using them to generate power in the IGCC plant. Other refineries that do not have such a complex plant, are basically forced to sell the heavy residues on the market, at very low prices.” 

Health, safety and the environment

Respect for the environment and its community have always been high on the agenda for Saras, explains Mr Vacca. “Being located on such a wonderful island, with beautiful and crystal clear sea waters, Saras has always taken very seriously its responsibility of protecting the surrounding environment. We have implemented environmental policies, which have often proved to be more stringent than the standards imposed under current regulations. “We are also proud to have achieved various important accreditations. In particular, Saras was amongst the first to implement EU directive 61/96/CE IPPC (Integrated Pollution Prevention and Control). Subsequently, in 2001 we achieved EMAS (Environmental Management System) certification for our refinery, in accordance with International Standards ISO 14001. And a few months ago, we reached an even more challenging objective, with the EMAS registration (European Eco-management and Audit Scheme). This latter is a voluntary scheme requiring participants to be even more compliant in terms of respect for the environment.”

Further additions to Saras environmental credibility come from the company’s dedication to develop clean and renewable sources, such as the 72MW wind farm in Ulassai, and the new 200,000 tonnes per year bio-diesel production plant in Cartagena, Spain (completed in Novembre 2008). 

Likewise, safety and health in the workplace has always been a key value of the company: “We have always worked to protect our workforce in their everyday operations,” Mr Vacca stresses. “In 1996, we put in place a safety policy which has since led to us achieving positive results in continuously protecting both our workers and the environment.” Moreover, in December 2007, Saras obtained certification for its ‘Health and Safety System in Working Places’ based on the OHSAS 18001:2007 standard, further reflecting this company focus.

Fairing the storm

The severe financial and economic crisis has negatively affected oil product demand on a global scale. “However, we must highlight that the crisis is having a different impact on different geographical areas – OECD countries have been hit the hardest, while non-OECD are still growing – and there has also been a different impact depending on the specific oil product,” reports Mr Vacca. “Gasoline, in particular, which is mainly linked to the North American market – over 50 percent of global demand is localised in USA and Canada – has been severely impacted by the crisis,” he tells us. “Middle distillates – such as automotive diesel, heating oil and kerosene – have so far managed to resist the downturn better. This has been thanks to their wider number of applications. For example, diesel is used as fuel for private and commercial transportation; gasoil is used as heating oil and also for power generation; kerosene is used as jet fuel for aeroplanes. Moreover, middle distillates have a more differentiated geographical spread,” he tells us. Fortunately, Saras – with over 53 percent of its production oriented towards middle distillates – has faired the storm better than many of its competitors.

Organic growth

Saras’ high levels of flexibility have been a defining factor of the company’s long-term success so far and will undoubtedly continue to be a key asset going forward, as Mr Vacca points out. “Depending on which families of crude are cheaper in the market, and provide the highest refining margins at any one time, we shift our crude diet towards those families.” As an example, following the decision from OPEC countries to cut production over the past 6 months, there has been a reduction in the availability of heavy crudes on the market and their prices have raised, progressively closing their differential versus light crude prices. This temporary market distortion obviously has an effect on production strategies for refiners like Saras. “These atypical market conditions that have recently arisen mean that heavy crudes are no longer the cheapest and most convenient choice – on the contrary, it can prove more profitable to use a balanced diet of various crude families, as Saras is currently doing, in order to optimise its refining margins,” he explains. “This is something that we can do, thanks to our processing flexibility – but not every refinery can.

“In conclusion, our flexibility in processing many different types of crude presents a distinct advantage for us in this current climate. Gearing towards the production of middle distillates is another key element of our strategy, based upon the belief that this class of products will be capable of retaining robust levels of demand, even throughout the current economic downturn. And finally, additional protection will continue to be provided from the third party processing contracts, which Saras retains as a core service, ensuring some cushioning from the downturns in marginality. 

Moving forward,” sums up Mr Vacca, “our focus will remain on organic growth, further enhancing our refining complexity and flexibility, while ensuring sustainable, competitive levels in the long-term.”