The Nelson Index is a frame of reference used to assign values to oil refineries on the basis of their level of complexity. The higher a refinery's score on the Nelson Index, the more complex it is. More complex refineries are capable of handling and producing a wider array of products and thus have more economic value. This index is used to break down information about refineries in simple terms easy for people to understand. No special knowledge of the oil and gas industry is needed to contextualize a score.
Also known as the Nelson Complexity Index, this metric was developed in 1960 by Wilbur Nelson. Nelson introduced his ideas in a trade journal, and the Nelson Index continues to be most widely used in the oil and gas industry. Disclosures of scores for various refineries can be found in trade publications, as well as in writeups on specific oil companies in financial magazines, as this information can be relevant to the interests of investors weighing decisions about where they want to put their money.
To determine the Nelson Index for an individual refinery, each piece of equipment in the refinery is assigned a score and the scores are added together. The more equipment a refinery has, the more versatile and flexible it is. Refineries with low scores may only be able to handle oil within a limited range of grades, for example, while a refinery with a high Nelson Index can handle low quality crude in addition to more highly prized crude products. This allows it to take advantage of the cheapest crude on the market, rather than forcing refinery managers to purchase expensive high quality crude for all production needs.
In addition to handling a range of crude grades, a refinery with a high Nelson Index can also produce more oil and gas products. This expands the manufacturing potential. Refineries can adjust production to meet the needs of the market, take advantage of high prices for particular products, and ramp down production of products that are not currently selling well on the open market. This increases the potential for profits and allows refineries to stay in continuous production..
Advanced refineries tend to have a Nelson Index of around nine. As of 2010, the highest scoring refinery was the Jamnagar refinery in India, with a score of 14. This massive refinery complex is capable of producing an extensive array of oil and gas products. It can process 661,000 barrels of oil a day.
