Three Horizons Framework
for Manufacture of refined petroleum products (ISIC 1920)
The Three Horizons Framework is exceptionally well-suited for the refined petroleum products industry due to its inherent need for phased transformation. The industry must sustain current operations (H1) which are critical for funding, while simultaneously developing transitional products (H2) and...
Why This Strategy Applies
A framework for managing growth and innovation across short-term (H1: Defend/Extend), mid-term (H2: Build), and long-term (H3: Future) timeframes.
GTIAS pillars this strategy draws on — and this industry's average score per pillar
These pillar scores reflect Manufacture of refined petroleum products's structural characteristics. Higher scores indicate greater complexity or risk — see the full scorecard for all 81 attributes.
Short, medium, and long-term strategic priorities
Protect and optimize the core refining business by maximizing operational efficiency, safety, and environmental performance, thereby sustaining profitability amidst 'Declining Demand & Revenue Erosion' (MD01) and preparing for future transitions.
- Implement advanced process control (APC) and artificial intelligence (AI) to optimize crude distillation units and catalytic crackers, reducing energy consumption per barrel of refined product.
- Invest in pilot projects and readiness studies for carbon capture and storage (CCS) at existing hydrogen production units (steam methane reformers) and flue gas stacks to reduce Scope 1 emissions.
- Upgrade hydrotreatment and desulfurization units to produce ultra-low sulfur diesel (ULSD) and gasoline compliant with Euro 6/Tier 3 standards, improving product quality and market access.
- Deploy predictive maintenance technologies (e.g., IoT sensors, vibration analysis) across critical rotating equipment to enhance operational reliability, reduce unplanned downtime, and improve safety performance.
Develop and scale adjacent low-carbon fuel production capabilities, leveraging existing infrastructure and feedstock supply chains, to establish new material revenue streams and mitigate 'Market Obsolescence & Substitution Risk' (MD01) for conventional products.
- Retrofit existing hydrotreating units or construct new facilities for the commercial production of Sustainable Aviation Fuel (SAF) and renewable diesel from approved biogenic feedstocks (e.g., HEFA).
- Establish commercial-scale blue hydrogen production facilities (utilizing natural gas with integrated CCS) or deploy pilot green hydrogen electrolysis plants powered by renewable electricity for refinery use and external sale.
- Develop and commercialize bio-naphtha and bio-LPG as co-products from renewable diesel/SAF production, exploring new markets for these bio-based chemical feedstocks.
- Form strategic partnerships with agricultural suppliers, waste management companies, and technology providers to secure reliable, sustainable, and certified feedstocks for low-carbon fuel production.
Explore and invest in truly disruptive, long-term energy transition technologies and business models beyond liquid fuels, aiming to fundamentally reshape the industry's role in the energy ecosystem and address 'Systemic Path Fragility & Exposure' (FR05).
- Invest in R&D and pilot projects for advanced biofuel pathways (e.g., algal fuels, cellulosic ethanol) and Power-to-X technologies (e.g., e-fuels from direct air capture CO2 and green hydrogen).
- Establish a corporate venture capital (CVC) arm to invest in early-stage energy storage solutions (e.g., advanced batteries, flow batteries) and smart grid technologies relevant to industrial decarbonization.
- Diversify into the production of petrochemicals derived from bio-based or recycled feedstocks (e.g., bio-ethylene, circular plastics initiatives), moving beyond traditional fuel markets.
- Develop energy-as-a-service (EaaS) business models, leveraging existing industrial asset management expertise to provide integrated energy solutions (e.g., green hydrogen supply, industrial carbon capture services) to third-party clients.
Strategic Overview
The 'Manufacture of refined petroleum products' industry faces a profound and complex transition, grappling with 'Declining Demand & Revenue Erosion' (MD01) for conventional products while simultaneously needing to invest in future energy solutions. The Three Horizons Framework provides a structured and disciplined approach to manage this transformation, balancing the need to optimize current operations (Horizon 1), build new growth engines (Horizon 2), and explore disruptive opportunities for the long term (Horizon 3).
This framework is critical for navigating the industry's 'Systemic Path Fragility & Exposure' (FR05) and managing significant 'Asset Stranding Risk' (MD01). By explicitly allocating resources and strategic focus across these three timeframes, companies can ensure immediate profitability and operational resilience while strategically pivoting towards a decarbonized future, preventing short-term pressures from stifling essential long-term innovation and diversification.
4 strategic insights for this industry
Horizon 1: Optimizing Core Refining for Sustainability & Efficiency
Horizon 1 for refined petroleum products focuses on maximizing the efficiency, safety, and environmental performance of existing fossil fuel refining operations. This includes reducing energy consumption, improving yields, and cutting Scope 1 and 2 emissions through operational excellence and digital transformation. This effort preserves profitability in a 'Volatile & Thin Profit Margins' (MD07) environment, generating capital to fund H2 and H3 initiatives, and mitigates immediate 'Regulatory & Social Pressure' (MD01) by demonstrating continuous improvement.
Horizon 2: Building Transitional Low-Carbon Fuel Capabilities
Horizon 2 involves significant investment in the scalable production of lower-carbon fuels such as Sustainable Aviation Fuels (SAF) from biogenic feedstocks, renewable diesel, and potentially blue/green hydrogen. This directly addresses 'Declining Demand & Revenue Erosion' (MD01) and 'Asset Stranding Risk' (MD01) by creating new growth engines that leverage existing refining expertise and infrastructure. Success here depends on navigating 'Geopolitical & Supply Chain Disruptions' (MD02) for feedstock and managing 'High Capital & Operational Expenditure' (IN05) for conversions.
Horizon 3: Exploring Disruptive Energy Technologies & Diversification
Horizon 3 focuses on identifying and investing in truly disruptive, long-term energy transition technologies and business models that may fundamentally reshape the industry beyond liquid fuels. This includes advanced biofuels (e.g., algae, synthetic biology), large-scale carbon capture and storage/utilization (CCUS) hubs for industrial clusters, or novel energy storage solutions. This horizon addresses 'Innovation Option Value' (IN03) and mitigates 'Limited Organic Growth Opportunities' (MD08) by positioning the company for a fundamentally different energy future, despite 'Technical & Economic Feasibility Barriers' (IN03).
Strategic Resource Allocation & Governance Across Horizons
A key insight is the necessity of distinct governance models and dedicated resource allocation for each horizon to prevent Horizon 1's immediate financial pressures from cannibalizing H2 and H3 investments. This means establishing separate budgets, KPIs, and often, independent teams or venture units. Effective management of 'R&D Burden & Innovation Tax' (IN05) and ensuring 'Financial Planning Uncertainty' (FR02) for long-term projects requires a robust framework to balance short-term profitability with long-term strategic imperative.
Prioritized actions for this industry
Implement a continuous 'Horizon 1 Optimization Program' focused on energy efficiency, operational reliability, and targeted decarbonization within existing refining assets.
This sustains the core business, generates necessary free cash flow for H2/H3 investments, and addresses immediate 'Volatile & Thin Profit Margins' (MD07) and 'Regulatory & Social Pressure' (MD01). Initiatives like advanced process control and digital twins improve performance without radical capital expenditure.
Develop a dedicated 'Horizon 2 Growth Fund' and strategic plan for converting or building facilities for low-carbon fuels (SAF, renewable diesel, green/blue hydrogen).
This formalizes the pivot towards new revenue streams, directly tackling 'Declining Demand & Revenue Erosion' (MD01) and 'Asset Stranding Risk' (MD01). Dedicated funding and a clear roadmap ensure these transitional projects receive the necessary capital and management attention.
Establish an 'Horizon 3 Innovation Lab' or corporate venture capital arm with a mandate to explore and invest in early-stage, disruptive energy technologies and business models.
This addresses 'Innovation Option Value' (IN03) and ensures long-term relevance by exploring opportunities beyond the current business scope, mitigating 'Limited Organic Growth Opportunities' (MD08). It allows for high-risk, high-reward investments without impacting the core business's financial stability.
Implement a 'Dynamic Portfolio Management System' that allocates capital, talent, and executive focus across the three horizons based on evolving market conditions, technological maturity, and regulatory shifts.
This prevents 'High Working Capital Lock-up' (FR03) and ensures that investments are continually re-evaluated against the backdrop of 'Regulatory Volatility & Uncertainty' (IN04) and 'High Volatility & Market Manipulation' (FR01). It allows for agility in scaling up or divesting projects as circumstances change.
From quick wins to long-term transformation
- Horizon 1: Conduct energy audits and implement immediate process optimizations to reduce refinery energy intensity (e.g., waste heat recovery, advanced control systems).
- Horizon 1: Accelerate digital twin deployment for real-time operational insights and predictive maintenance, improving uptime and efficiency.
- Horizon 2: Conduct detailed engineering studies for the conversion of one existing hydrotreater unit to produce renewable diesel or SAF from readily available feedstocks.
- Horizon 2: Secure long-term off-take agreements and feedstock supply chains for initial commercial-scale SAF/renewable diesel production.
- Horizon 2: Pilot green hydrogen production for internal use (e.g., refinery hydrogen needs) to gain operational experience.
- Horizon 3: Fund a portfolio of external clean energy startups through a corporate venture capital arm, or establish an internal 'skunkworks' team for radical innovation.
- Horizon 3: Develop new business units focused entirely on non-petroleum energy solutions, potentially involving major asset divestments from traditional refining.
- Horizon 2: Achieve significant market share in sustainable fuels, becoming a major producer and supplier.
- Horizon 1: Transition remaining conventional refining assets to produce specialized chemicals or lubricants, rather than commodity fuels, extending their lifecycle.
- Underfunding Horizon 2 and Horizon 3 initiatives due to short-term pressures from Horizon 1 performance, leading to missed opportunities.
- Lack of clear differentiation and separate KPIs for each horizon, causing internal competition for resources and confusion.
- Failure to effectively divest or rationalize legacy assets that become economically or environmentally unviable, exacerbating 'Asset Stranding Risk' (MD01).
- Organizational resistance to change, where existing structures and mindsets hinder the adoption of new business models for H2/H3.
- Over-reliance on government subsidies or incentives that are subject to 'Regulatory Volatility & Uncertainty' (IN04), leading to project cancellations.
Measuring strategic progress
| Metric | Description | Target Benchmark |
|---|---|---|
| Horizon 1: Operational Carbon Intensity | Emissions (Scope 1 & 2) per barrel of refined product, reflecting efficiency improvements. | Reduce carbon intensity by 15% by 2025 relative to 2020 baseline. |
| Horizon 2: Revenue from Low-Carbon Fuels | Percentage of total company revenue derived from SAF, renewable diesel, and green hydrogen sales. | Achieve 15% of total revenue from H2 products by 2030. |
| Horizon 3: Innovation Portfolio Value/TRL Progression | Value of strategic investments in H3 technologies (e.g., VC fund ROI) or average Technology Readiness Level (TRL) progression of H3 projects. | Advance 2-3 H3 projects from TRL 3 to TRL 6 by 2035. |
| Cross-Horizon Capital Allocation Ratio | Percentage of CAPEX allocated to H1, H2, and H3 initiatives, reflecting strategic balance. | Maintain a 40:40:20 split (H1:H2:H3) for CAPEX by 2028. |
Other strategy analyses for Manufacture of refined petroleum products
Also see: Three Horizons Framework Framework