What is the 'Nelson Complexity Index (NCI)'

The Nelson Complexity Index (NCI) is a measure of the sophistication of an oil refinery, where more complex refineries are able to produce lighter, more heavily refined and valuable products from a barrel of oil. Refineries that are higher on the Nelson Complexity Index are valued higher relative to their peers because of their ability to handle lower quality crude oil or produce more value added products. Due to their greater complexity, high NCI refineries are more costly to build and operate.

BREAKING DOWN 'Nelson Complexity Index (NCI)'

The Nelson Complexity Index was developed in 1960 by Wilbur Nelson. Since the details of how a refinery operates are difficult to comprehend without specialized industry knowledge, the Nelson Complexity Index provides an easy metric for quantifying and ranking the complexity and sophistication of different refineries.

According to the Oil and Gas Journal, Nelson actually developed the complexity index to quantify the relative cost of components that make up a refinery. It is a pure cost index that provides a relative measure of the construction costs of a particular refinery based on its crude and upgrading capacity. The NCI compares the costs of various upgrading units to the cost of a pure crude distillation unit. Computation of the index is an attempt to quantify the relative cost of a refinery based on the added cost of various upgrading units and the relative upgrading capacity.

The NCI is a scale from 1 to 20, where low numbers represent refineries that are simple in nature and produce low quality fuel, such as jet fuel and heating oil, and high numbers represent more complex and expensive refineries that produce high quality light fuels, such as gasoline and kerosene.

Which Refineries Will Thrive?

Bain & Company, a management consulting firm, has developed a proprietary model that shows which oil refineries around the world are likely to prosper and which are likely to fail based on their refining capacity and Nelson Complexity Index rating. The interactive graphic shows by geographic region where these refineries are located. Based on the Nelson Index, on average, U.S. refineries are the most complex in the world. However, there is an increasing number of highly complex refineries located in other countries.

Refining plays a vital role in maintaining the country’s fuel supplies. In Europe, for example, many refineries have closed because they are too expensive to upgrade and are unable to produce the quality fuel modern consumers demand. In the OPEC countries, on the other hand, a significant number of new investments are set to occur between 2016 and 2021, with almost eight million barrels per day of potential new refining projects.

OPEC Refining Investement Projects to 2021

Source: OPEC

  1. Crack

    A crack is a trading strategy used in energy futures to establish ...
  2. EIA Petroleum Status Report

    The EIA Petroleum Status Report is a weekly published report ...
  3. Upstream

    Upstream is a term for the exploration and production stages ...
  4. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
  5. Upgrade

    An upgrade is a positive change in the fundamentals underlying ...
  6. Indexing

    In the financial markets, indexing can be used as a statistical ...
Related Articles
  1. Investing

    Oil Stocks That Benefit From OPEC Overproduction (TSO, HFC)

    Despite falling oil prices, many oil refinery stocks have had a stellar performance. Here's a list of top performers with strong future potential.
  2. Investing

    Why Has Buffett's Berkshire Upped its Stake in Phillips 66?

    Warren Buffet's Berkshire adds to its stake in the energy company. Why has it suddenly become one of his biggest holdings?
  3. Insights

    Delta Prepares to Sell Gasoline and Diesel (DAL)

    Delta plans to expand its product offerings to offset losses at its refinery.
  4. Taxes

    Why Gasoline Costs What It Does

    The next time you have to dig deep into your wallet to fill your gas tank at least you'll know exactly what you're paying for.
  5. Investing

    The End of US Foreign Oil Dependency

    Learn about how U.S. production of oil is increasing on an annual basis and how oil imports are dropping, and why Congress may lift a ban on the export of oil.
  6. Investing

    Europe's Oil Refineries Get A Second Chance (CS, TOT)

    The European refining sector is benefiting from the drop in oil prices, but it may not last the year. Can high margins beat structural overcapacity?
  7. Investing

    Ending The Limits On U.S. Crude Oil Exports

    As US storage capacity reaches its limit, industry participants and their lobby groups in Washington are calling for an end to the crude oil exports ban.
  8. Investing

    Margin of Error (SUN)

    Lower margins and higher expansion costs should keep Sunoco shares in check.
  9. Investing

    India: A Bright Spot in Today's Global Investment Landscape

    India, the best performing economy of 2015, has all it takes to maintain high growth momentum and ensure high returns for investors in the future.
  1. What economic indicators do oil and gas investors need to watch?

    Leading indicators for oil and gas investments are centered on the levels of production, consumer demand and inventory levels ... Read Answer >>
  2. What Economic Indicators are Especially Important to Oil Traders?

    Learn how economic indicators, such as crude inventories and production levels, are used by oil traders and investors to ... Read Answer >>
  3. How long do oil and gas producers need to go from drilling to production?

    Discover the process of oil well production and learn how long it typically takes an oil producer to move from drilling to ... Read Answer >>
  4. Why are stocks and oil so correlated right now?

    Learn whether the stock market and oil prices will continue their highly correlated price relationship or decouple again ... Read Answer >>
Trading Center