Valero Energy, which owns 14 refineries, said it plans to spend another $600 million in the next four years on improvements at a Texas City plant that just completed a two-year expansion. The refinery has a capacity to process 243,000 barrels a day after more than $750 million in investments since Valero acquired it in 1997, the San Antonio-based company said. Valero didn't provide details about its plans for more spending at the plant.

Dominion (NYSE:D) has received Federal Energy Regulatory Commission (FERC) approval for two new natural gas transmission projects that will provide additional supplies to the Mid-Atlantic region - the Mid-Atlantic Expansion Project and the Cove Point East Project.

Gary Sypolt, president, Dominion Transmission, said: "In these instances, the Mid-Atlantic and Cove Point East projects are the first expansions that will include liquefied natural gas (LNG) as a supply source."

The Mid-Atlantic Expansion Project will serve markets in the Virginia and the Washington, D.C. area with 223,000 dekatherms per day of incremental pipeline capacity and 5.6 billion cubic feet of additional storage service capacity. Facilities will include 5,000 horsepower of new compression in Wetzel County, W.Va.; an upgrade to the existing turbines at Dominion's Crayne Station in Waynesburg, Pa.; expansion and upgrades at Chambersburg Station in Chambersburg, Pa.; a 7,800 horsepower addition at Leesburg Station in Leesburg, Va., and 6,000 horsepower of new compression in Fauquier County, Va. The estimated cost for the Mid-Atlantic Expansion Project is $78 million with a projected in-service date of November 2004.

In addition, the Mid-Atlantic Expansion Project includes leasing capacity on Texas Eastern Transmission, LP pipeline in southern Pennsylvania. Texas Eastern has been granted FERC approval to install 35 miles of new pipe and upgrades to its compressor station in Fayette County, Pa.

Cove Point East is an 445,000 dekatherms per day expansion of the 87-mile Dominion Cove Point pipeline in Virginia and Maryland. Two new compressor stations with a total of 19,340 horsepower will be added in Loudoun and Fairfax counties at an estimated cost of $43.5 million. The expansion will allow Dominion to send natural gas both east and west on the pipeline, thus making it a key component in bringing needed supplies to the Mid-Atlantic region, both through its LNG facility at Cove Point and other pipelines that converge in the suburban Virginia area. The facilities are projected to be in- service in 2005.

All the new capacity on both the Mid-Atlantic Expansion and Cove Point East projects is fully subscribed.

Dominion is one of the nation's largest producers of energy, with a diversified and integrated energy portfolio that includes 24,000 megawatts of generation and 6.2 trillion cubic feet equivalent of proved natural gas reserves. Dominion also serves 5 million retail energy customers in nine states.

Enbridge Energy Partners, L.P. (NYSE: EEP) announced that it has agreed to acquire crude oil pipeline and storage systems from Shell Pipeline Company LP and Shell Oil Products US (Shell) for $131 million, excluding customary closing adjustments for working capital and other items. Closing of the purchase is anticipated to occur in the first quarter of 2004, subject to regulatory approvals and a right of first refusal on one pipeline.

The assets being acquired serve refineries in the Mid-Continent from the Cushing, Oklahoma Hub and consist of some 615 miles of active crude oil pipelines and 9.5 million barrels of storage capacity. Included are:

The 433 mile Ozark pipeline that currently transports 170,000 barrels of crude oil per day from Cushing to Wood River, Illinois;

A 58.8% interest in the 135 mile Osage pipeline and associated 1.2 million barrel storage terminal that currently delivers 110,000 barrels per day and is connected to two refineries in Kansas (subject to satisfaction of a right of first refusal in favor of the other owner);

The 47 mile West Tulsa pipeline that currently transports 55,000 barrels per day to two refineries in Oklahoma; and

The Shell storage terminal at Cushing, which is one of the largest terminal facilities in North America with 8.3 million barrels of storage capacity.

"The acquisition of this group of crude oil assets provides the Partnership with strong financial and strategic benefits," said Dan C. Tutcher, President of the Partnership's general partner and management company. "These systems provide stable cash flows from toll or fee-based revenues derived from a combination of regulated assets and contracted unregulated assets. We anticipate that these assets will contribute immediately to distributable cash flow per unit. The assets are consistent with our core operating expertise in crude oil pipelines. Moreover, their throughput originates from sources of supply different from those of the Partnership's other crude oil systems, providing increased diversity in the Partnership's sources of cash flow."

Concurrently, Enbridge Inc. (NYSE: ENB; Toronto) plans to acquire Shell's Patoka West Tank Farm and its 60% interest in the Woodpat Pipeline for $9.5 million. These assets complement Enbridge's initiative to access new markets for Canadian crude oil. The market access initiative will benefit the Partnership by facilitating throughput on its Lakehead system.

David Martin, Chairman of Ivanhoe Energy Inc., announced today that the company has signed a Heads of Agreement with Ensyn Petroleum International Limited to acquire a 10% equity interest in Ensyn and exclusive rights to use Ensyn's proprietary crude-oil upgrading process in several key international markets. Ivanhoe will pay Ensyn US$2 million and grant Ensyn rights to equity interests in Ivanhoe's international oil development projects that use the process.

Ensyn Petroleum International Limited is a Boston-based private company that has developed the Rapid Thermal Processing (RTP(TM)) technology that upgrades the quality of heavy oil by producing lighter, more valuable crude oil.

"Ensyn's technology offers excellent potential for commercializing heavy- oil fields. It provides an environmentally sound and cost-effective method of enhancing the quality of heavy crude oil," said Mr. Martin. "Our alliance with Ensyn is a unique opportunity for Ivanhoe to generate sustainable, high- quality production from a variety of heavy-oil reservoirs around the world. We have several initiatives underway in the U.S. and internationally that provide for the use of the technology."

The Ensyn process yields a three-fold economic improvement in heavy-oil projects. The heaviest hydrocarbon fraction is consumed as fuel to generate the steam used to enhance recovery of heavy crude. This lowers costs by reducing or eliminating the need to purchase high-priced natural gas for steam generation and improves revenue since the higher quality light-crude fraction can be sold at higher prices. The lighter crude has improved viscosity that permits more efficient pumping through pipeline networks and significantly reduces transportation costs to marketing points.

Completion of the transaction is subject to the signing of a definitive agreement and to the attainment of various milestones. In consideration for the payment of US$2 million to Ensyn, Ivanhoe will acquire 10% of the issued and outstanding capital stock of Ensyn. Payment is to be made in installments which are related to the various milestones being achieved.

Ivanhoe will have exclusive rights to use the Ensyn Process in China, Mongolia, Iraq, Oman and all countries in South America except for Venezuela. In these countries, rights shall be exclusive to Ivanhoe for an initial term of five years and can be extended as commercial applications develop. Ivanhoe will have non-exclusive rights to the process in other areas.

For each RTP(TM) project developed by Ivanhoe, Ensyn may elect to receive a royalty or an equity participation in the project of no more than 10%, except for each RTP(TM) project that Ivanhoe develops in South America, other than in Venezuela and Peru, where Ensyn may elect to receive an equity interest equal to 25% of Ivanhoe's interest.

In June, 2003, Ivanhoe and Ensyn entered into a contract to evaluate the process on heavy crude oil produced from Ivanhoe's South Midway Field at Bakersfield, California, in a 250-barrel-per-day demonstration plant now being built by Ensyn in the San Joaquin Valley.

Ensyn's RTP(TM) technology uses readily available plant and process components. The technology already has been successfully applied to continuous wood/biomass processing, with several commercial plants in operation. An Ensyn pilot plant in Ontario, Canada, has completed more than 90 test runs on heavy oil.

Ivanhoe Energy is an international energy company focused on: (1) production of cleaner burning fuels from natural gas, using proven gas-to- liquids (GTL) technology; (2) conventional exploration and production (E&P), primarily natural gas in the U.S.; and (3) enhanced oil recovery (EOR) and natural gas projects, on a production-sharing basis with national petroleum companies.

Premcor Inc. will close its office in Clayton by June 30, ending the oil refining and marketing company's decades-old presence in the St. Louis area.

Premcor was known as Clark Refining & Marketing Inc. and Clark Oil Co.

Meanwhile, about 100 members of Premcor's administrative staff will be out of work by March 30, said Michael Taylor, a spokesman, after Premcor moves the rest of its headquarters to Old Greenwich, Conn. That's where Thomas O'Malley, the company's chairman and chief executive, lives.

After he took over the company in March 2002, it became clear that the operational headquarters would move to Connecticut. This is the last phase of the process.

Sunoco, Inc. (NYSE: SUN) announced that it had completed the regulatory review process with the Federal Trade Commission and signed a purchase and sale agreement with El Paso Corporation (NYSE: EP) for its acquisition of the Eagle Point refinery. The purchase price is $111 million plus the fair market value for inventories and certain assumed liabilities at time of closing. The companies expect to close the transaction by mid-January 2004.

The refinery, located in Westville, New Jersey across the Delaware River from Sunoco’s Philadelphia Refining Complex has a rated capacity of 150,000 barrels per day. The purchase includes certain logistics assets associated with the refinery which Sunoco intends to make available for sale to Sunoco Logistics Partners, L.P., it’s 75 percent owned master-limited partnership. Sunoco also signed an option to purchase El Paso’s share of the Harbor pipeline, which connects the refinery to regional distribution systems.

We are pleased that we can now move ahead and complete this acquisition, said Sunoco Chairman and Chief Executive Officer John G. Drosdick. The Eagle Point refinery will expand our total refining capacity by 20 percent, integrate well with our other Northeast Refining operations and should be positioned to make a significant contribution to our results in 2004.

Sunoco expects to conduct a conference call to review the acquisition in more detail upon final closing of the transaction.

Sunoco, Inc., headquartered in Philadelphia, PA, is a leading manufacturer and marketer of petroleum and petrochemical products. With 730,000 barrels per day of refining capacity, over 4,600 retail sites selling gasoline and convenience items, interests in almost 11,000 miles of domestic crude oil and refined product pipelines and 34 product terminals, Sunoco is one of the largest independent refiner-marketers in the United States. Sunoco is a growing force in petrochemicals with approximately six billion pounds of annual sales, largely chemical intermediates used in the manufacture of fibers, plastics, film and resins. Utilizing a proprietary technology, Sunoco also manufactures two million tons annually of high-quality blast furnace coke for use in the steel industry.

Valero Energy Corp. (NYSE: VLO) on Thursday announced that it has signed a pipeline transportation agreement with Link Energy LLC (Nasdaq: LNKE) for Link to supply oil to Valero's Ardmore, Okla., refinery.

Link will ship between 6,000 to 10,000 barrels of oil per day from producing fields in West Texas to Valero's pipeline near Hewitt, Okla., which feeds into Ardmore.

The agreement is valued at $2 million per year in revenue and has an initial term of 18 months with possible extensions.

Valero Executive Vice President and Chief Operating Officer Bill Klesse says the new agreement will be beneficial to the 85,000-barrel-per-day refinery.

"Not only does this agreement broaden our supply sources to the Ardmore refinery, it increases our operational flexibility. As a result, we expect the refinery to immediately begin realizing cost savings on each barrel shipped via this pipeline," Klesse says.

Valero officials expect to achieve these cost savings by having the flexibility of processing different grades of crude oil by purchasing shipments at the most competitive prices. Crude oil costs are the single biggest expense in the price of gasoline.

Link Energy is a major independent marketer and transporter of crude oil in North America through a network of 7,200 miles of pipelines and gathering systems. The Houston-based company also operates a fleet of 200 company owned or leased trucks.

Valero is a San Antonio-based oil refining and marketing company. It operates 14 refineries in the United States and Canada with a combined throughput capacity of more than 2 million barrels per day.

Shell Oil Products US and its subsidiary Shell Pipeline Company LP have signed a definitive agreement with Enbridge Energy Partners, L.P. and Enbridge (U.S.) Inc., for the sale of their Cushing/Ozark/Woodpat/Osage System, an integrated network of pipeline and terminal facilities. The transaction is expected to close in the first quarter of 2004, after completion of appropriate regulatory review.

Lynn Elsenhans, CEO Shell Oil Products US said, "This is the second time this week we have announced a sale of one of our U.S. onshore crude pipeline systems and culminates a year in which we have signed definitive sales agreements for all of the crude pipeline assets we proposed for sale at the beginning of 2003."

During 2003, definitive sales agreements were signed for the following assets: Rocky Mountain System, Michigan Crude Oil Gathering System, Capline/Capwood System and the Cushing/Ozark/Woodpat/Osage System. Transactions have already closed for the Rocky Mountain and Michigan Gathering Systems.

"We have therefore made excellent progress this year in our ongoing program of divesting from non-strategic U.S. assets, in support of reaching our external targets," added Elsenhans.

The Cushing/Ozark/Woodpat/Osage System forms an integrated network of approximately 700 miles of pipeline, connecting the industry's hub in Cushing, OK. to Patoka, IL. and El Dorado, KS. The Cushing terminals consist of eighty-three crude oil tanks and are connected to 13 pipeline companies. Woodpat is an undivided interest pipeline system of which Shell Pipeline owns 60 percent. Osage is a stock company in which Shell Pipeline has 58.8 percent ownership and is the operator.

Shell Oil Products US, a subsidiary of Shell Oil Company, is a leader in the refining, transportation and marketing of fuels, lubricants, coolants, services and solutions to consumer and business-to-business customers in automotive, commercial and industrial sectors. Shell Oil Company is an affiliate of the Royal Dutch/Shell Group of Companies

The announcement, which CEO Ron Brenneman called "a major step in the company's long-term oilsands strategy," is a big shift for the former Crown-owned energy company. Petro-Canada will officially scrap earlier plans to spend $5 billion or more to reconfigure and expand its Edmonton refinery.

And it may cancel construction of a second steam-assisted oilsands plant, the $800-million Meadow Creek facility south of Fort McMurray, Alta.

Instead, it will focus on converting its Edmonton refinery to handle oilsands crude as conventional oil supplies dwindle in Western Canada.

The refinery will maintain its output of about 135,000 barrels per day, but change from processing conventional light sweet oil to high-sulphur sour crude and oilsands feedstock.

The Edmonton refinery already processes 50,000 barrels a day of Syncrude oil, filling the rest of its needs on the open market.

Petro-Canada is abandoning a "bigger-is-better strategy" in favor of "a more bite-sized and staged approach," Brenneman said.

One question is how the additional oilsands crude will get to Petro-Canada's Edmonton refinery.

"The pipeline arrangements are not necessarily firm," Suncor president Rick George told analysts.

"The plans will kind of be finalized here over the next period of time."

Brenneman said work on the refinery is to start next year with $50 million worth of engineering and site preparation, but the bulk of Petro-Canada's spending will happen in 2006-2007.

Petro-Canada's plans allow the company more time to work the kinks out of its steam-assisted technology, which melts oilsands reserves deep underground and draws them to the surface.

The MacKay River facility is currently producing 20,000 barrels per day but the company has had ongoing problems with its water-recycling operations.

This announcement filled in the blanks to many questions that Petro-Canada left unanswered when it announced last spring that it would rethink its oilsands plans to avoid the escalating costs of building megaprojects in northern Alberta.

The plan also fits Suncor's strategy of building stable markets for its oilsands product through long-term contracts. Petro-Canada's MacKay production will give Suncor another stable source of bitumen.

"Diversification of the bitumen supply is extremely important as we go forward," said George.

Brazil needs to invest US$13.5bil - US$15bil to increase the refining capacity of petroleum derivatives over the next seven years to meet the increasingly domestic demand. The Brazilian state owned oil & gas company Petrobras, responsible for 98% of the refining capacity in Brazil, with 11 refineries (13 in total) plans investments of US$7.2bil in the period (half the needed). There will be a deficit of 660,000 barrels/day that will have to be imported causing a negative impact of US$4.7bil per year. Market analysts estimate the current demand of 1.8mil barrels/day jumps to 2.5mil/day in 2010.

The Brazilian state owned oil & gas company Petrobras believes it closes 2003 as a net petroleum exporter. Between January and September, Petrobras registered a positive balance of 4mil barrels of petroleum. The exports and imports might be of 460,000 barrels per day each. Petrobras faced a deficit of US$297.4mil between January and October. With investments and discoveries of new reserves, the company might close 2003 with a production of 1.59mil barrels per day, exporting 0.23mil barrels/day. With an annual investment of US$6.9bil, Petrobras plans to increase production by 8% until 2007, reaching 2.2mil barrels/day with exports of 0.64mil barrels/day.

Despite a boom of 178% on the exports of crude between 2001 and 2003 due to the growth of 15% on the Brazilian production in the period, Brazil might face a deficit of US$2bil on the petroleum & derivatives trade balance until 2006. The country can only reverse such deficit through investments in refining capacity. The Brazilian state owned oil & gas company Petrobras plans a new refinery in 2004 through US$2.8bil investments and a processing capacity of 150,000 - 200,000 barrels per day. The company holds 11 refineries in Brazil with a capacity of 1.93mil barrels/day - serving 92% of the domestic market. Brazil might close 2003 with exports of US$4.75bil - US$4.9bil, an increase of 26% compared to 2002. On the first ten months of 2003, Brazil imported US$6.36bil in petroleum & derivatives. Market analysts estimate a total of US$7.4bil - US$7.8bil in 2003, a boom of 25% compared to the previous period.

The conditions of the tender issued by the Paraguayan oil company Petropar for the imports of fuel oil, a US$220mil contract, make clear the prospective bidder must have a storage plant either on the Plata or Parana rivers, a requirement that only IP International, through the controlled Ultrapar, seems to be able to fulfill. Market observers see the tender as a mere formalization of the contract to be awarded to IP International / Ultrapar, despite the questioning of previous fuel oil imports contracted with this company, said to have caused to Petropar losses of Gs$26,000mil on 2002 and Gs$20,000 from Jan - Sept 2003.

2. ASIA

Asian oil consumers are buying lighter, cleaner fuels as more people buy cars and governments try to cut urban smog, requiring large investments and a changing strategy from the region's refiners.

"Demand for transportation fuels and other products is changing as the economies in Asia grow and recover," said Victor Shum, senior partner at the Singapore offices of energy consultants Purvin & Gertz Inc.

Asia's climb up the oil quality ladder, matching evolutions in North America and Western Europe, is changing the types and quality of fuels used, forcing refiners to spend billions of dollars to extract those products from the same crude.

"All the new refiners that come up in Asia will have to have substantial cracking and conversion capability to crack fuel oil and to produce more lighter-end fuels. And the existing refineries will have to upgrade their facilities," said Hassaan Vahidy, Singapore-based analyst for energy consultants FACTS Inc.

Asia Pacific still relies on heavy, high sulfur Middle East crudes for about 80 percent of its oil needs.

Claude Mandil, executive director of the International Energy Agency, said emerging Asia would lead a global trend with about $120 billion in refinery investments needed over three decades.

"The bulk of the refining investment will come from non-OECD Asia, here," Mandil told reporters in Singapore.

Asia Pacific fuel oil consumption accounted for under 15 percent of all oil products in 2002, down from more than 21 percent in 1995, BP's 2003 Statistical Review of World Energy showed.

This shift is due more to rapid growth in transportation fuels -- gasoline, diesel and jet fuel -- than a decline in fuel oil, used in electricity generation and industrial plants.

China has led the shift, with middle distillates, including diesel and jet fuel, holding a 33.3 percent market share in 2002, up from 29.4 percent in 1995 as more cars hit the streets.

China's car output was up 87 percent in the first nine months of 2003 from a year earlier as a booming economy made it the third-biggest car market after the United States and Japan.

Countries such as Australia, the Philippines and Sri Lanka are introducing tougher fuel specifications in 2004.

"There is no doubt that Asia will move into clean fuels, and follow the European standards, particularly for a reduction in sulfur," said Tony Anderson, general manager and chief executive officer of Singapore Refining Co, owned by Singapore Petroleum Co , ChevronTexaco Corp and BP Plc .

These changes are pushing Asian refiners to run primary crude distillation units at below capacity while cranking up secondary upgrading units to produce lighter fuels.

"Most of the secondary capacity is trying to be run at full capacity by most refineries," said David Kinder, general manager, strategy and portfolio - manufacturing for Royal Dutch/Shell's oil products, Asia Pacific and Middle East.

He said secondary refinery utilization would grow by up to one percent a year, while demand for light products would grow by two to two and a half percent.

"There will have to be more upgrading and there will have to be more hydro-treating capacity in the region. But with refiners having had five bad years and then asking for money to upgrade, it has to be a very cautious spend," SRC's Anderson said.

Japan's Kyushu Oil Co Ltd plans to spend about 10 billion yen ($85 million) to upgrade its refinery to cut fuel oil output by 20-30 percent and produce more gasoline.

Shell is nearly done installing a new hydro-desulfurization (HDS) unit at its Geelong refinery in Australia, and has upgraded the HDS unit at its Clyde refinery.

China Petroleum and Chemical Corp. (SNP), or Sinopec, has agreed to buy two oil refinery assets in northwestern China from its parent Sinopec Group for a total of 356 million yuan (US$1=CNY8.28).

The two assets, Xi'an Petrochemical and Tahe Petrochemical, will be Sinopec's only oil refineries in the northwestern region of China. The acquisitions are expected to be completed six months from the end of March next year.

Sinopec said in a legal notice it will pay CNY220.8 million for Xi'an Petrochemical, and CNY135.2 million for Tahe Petrochemical. Both acquisitions will be paid for in cash.

Sinopec said that the acquisitions will raise its oil refining and asphalt production capacity, as well as further developing the Tahe Oilfield. Sinopec said it plans to boost the two companies' crude oil processing capacity "enabling it to lay the foundation in expanding in the northwestern market."

Sinopec Group owns 55.06% of Sinopec.

China will see an increasing dependency on crude oil imports, with the amount of crude oil imported rising from 31 percent in 2002 to 50 percent four years later in 2007, according to official research released in Beijing Thursday.

Research by China's Ministry of Communications on marine oil transportation predicted that the country would import 100 million tons of crude oil in 2005, 150 million tons in 2010 and in 2020 the number would soar to 250 to 300 million.

China would become the world's second biggest oil consumer following the United States and third oil importer after the United States and Japan, said the research report.

The more than 6 percent annual growth of China's national economy and the readjustment of the economic structure are behind the country's higher demand for crude oil, but the oil production failed to keep pace with the economic growth and only registered 1.7 percent growth annually, the research report pointed out.

The shortage of oil supply forced China to become a net oil importer since 1993. Official statistics showed that the volume of imported oil has increased from over 20 million tons to 70 million tons from 1996 to 2002.

China imported approximately 1.4 million barrels of crude oil per day in the international market during the time, the report added.

The experiences of foreign developed countries proved that the oil consumption would increase at a low speed in an economy backed by industrial sectors, and during the industrializing process before the tertiary industry becomes the backbone of the national economy, the domestic oil consumption would undergo a rocketing growth, the report further explained.

China would be in a vital period of industrialization from now until 2020, stressed the report, predicting that China's average annual consumption of crude oil would secure an increase by 4 percent in the coming five to ten years.

China's chemical trading giant, Sinochem, is looking to purchase more overseas oil exploration and refining projects in the years to come with several already entering the negotiation stage, a company official told Interfax.

Including the acquisition of a14% equity in Ecuador's Block 16 earlier this month, Sinochem has only two oil assets and no refining projects in foreign countries as of now.

The company purchased a 40% equity in the Isis Oilfield, operated by the Swedish independent oil company Lundin Petroleum, in offshore Tunisia in February this year, which entitles it to an annual production volume of 120,000 tons of oil, according to Zhang Shen, the deputy manager of the New Project Department at the Sinochem Petroleum Exploration & Development Co. Ltd.

"There are still more [overseas oil exploration] projects that we are doing appraisals on," said Zhang in a telephone interview with Interfax. The potential projects are mainly situated in North Africa, South America, Southeast Asia as well as the Middle East.

As is the case with Chinese oil companies, "North Africa and South America are where it will be easier for us to enter [the local market]," Zhang noted. "The domestic oil sector is already carved up by three companies, CNPC, Sinopec and CNOOC," added Zhang. "So other companies do not have a chance of gaining government approval to enter the sector as well."

Seeking new areas of growth to replace its conventional ones in chemical trading, Sinochem has been granted a permit by the Chinese government to conduct overseas oil exploration and development, enabling its expansion to upstream oil exploration and production. Additionally, the company has long ago acquired the other two licenses for it to trade oil on international markets and import crude oil and oil products into the Chinese market.

In the oil-refining sector, Sinochem is the largest shareholder in China's first Sino-foreign joint-venture refinery, the West Pacific Petrochemical Co. Ltd. (WEPEC) in Dalian, northeastern China. The refinery is to upgrade capacity from the current 7 mln tons per annum to 10 mln tons per annum by April 2004.

"We will also try to develop overseas projects [in oil refining]," said Zhang, "and some of them are being talked about now."

Formosa Petrochemical Corp, Taiwan's only private oil refiner, expects to boost the use of its refining capacity to an average 80 percent next year as demand from China buoys prices of gasoline and diesel.

Formosa Petrochemical expects to operate at more than 90 percent this month, giving it an average refinery operation rate of more than 70 percent in the second half of this year, executive vice president Su Chi-yi told reporters at the company's petrochemical complex in Mailiao, Yunlin county. Last year, the refinery used about 50 percent of capacity.

World oil demand is rising faster than expected this year and next as economic expansion gathers pace and consumption in China, the world's sixth-largest economy, surges, the International Energy Agency, an adviser to 26 nations on oil policy, said this week.

"When we were doing our refining capacity forecast of about 70 percent three months ago, we didn't expect demand would pick up so quickly," Su said. "Demand for diesel and gasoline has held up recently because the growth in China is very big, especially in the fourth quarter."

Last year, Formosa Petrochemical derived 63 percent of its sales from gasoline, diesel and other oil products, while 26 percent came from ethylene, propylene and other petrochemicals, which are supplied to Formosa affiliates such as Formosa Plastics Corp. and Nan Ya Plastics Corp.

Indian Oil Corporation has tossed its hat into the ring once again in its bid to become the principal partner in Haldia Petrochemicals Ltd.

The company, has now cobbled together a Rs 5,700-crore package to turn Haldia into a world-class petrochemical manufacturing hub.

Indian Oil chairman M.S. Ramachandran met Bengal industries minister Nirupam Sen on December 2. Sources said the company sent a formal proposal to the state government yesterday with detailed investment plans.

The package is broken into two parts: an equity infusion of roughly Rs 700 crore and investments of a little over Rs 5,000 crore.

The company is ready to undertake a large capacity expansion in the existing plant and set up new units, including a huge styrene plant that will be the first of its kind in the country. It has said the projects will be implemented on a war footing if it is given management control.

Earlier, the private partner in Haldia, the Chatterjee group, had resisted parting with management control. There was also the problem that Indian Oil wanted management control but on the cheap, with only 26 per cent of the equity, showing reluctance to part with more money.

The massive investment and equity infusion now committed by Indian Oil are likely to melt the opposition of the Chatterjee group while the state government, which is the other large partner, is expected to extend a more than warm welcome.

A senior Indian Oil official said the company "would not hesitate to invest up to Rs 700 crore in Haldia Petrochem’s equity if the banks insisted on it. It is not a problem for us as the company has a synergy with Indian Oil’s Haldia refinery. This needs to be exploited to the advantage of both the companies, which will spur industrial growth in Bengal."

Indian Oil plans to invest Rs 15,000 crore in petrochemicals and the state government has been informed that if Haldia Petrochem does not join hands with it, it would have to compete with plants built with this formidable capital.

With Reliance Industries beginning to emerge as a strong rival, Haldia Petrochem would find it difficult to battle two incomparably superior competitors in terms of financial muscle on its own.

With the Orissa government agreeing to the tax concessions for the Paradip refinery, Indian Oil Corporation (IOC) feels that the refinery would go on stream in 2009-10, while the Paradip-Haldia pipeline will be completed earlier in mid-2005.

IOC director (refineries) Jaspal Singh told The Telegraph, "We expect the environmental clearances for the pipeline to come through in the next two or three months and the design and engineering work will commence immediately for the Rs 600-crore project."

IOC chairman M. S. Ramachandran had met the Bengal leadership recently to allay their fears over the pipeline hitting the revenue of the Haldia port.

The IOC argument is that it will be able to save Rs 400 crore a year on the transport of crude oil to the Haldia refinery and enable the expansion of its capacity from 4.6 million tons at present to 7.4 million tons.

The increased output of the refinery will generate higher revenue for the state and more traffic for the port as well. According to officials, this expansion cannot take place under the current high-cost transport system at the Haldia port which is too shallow for big ships.

Single very large crude carriers, which cost half as much as the smaller ships, will directly offload crude at the single-point-mooring at Paradip which will lead to saving of costs. Besides, IOC investment plans in the petrochemicals sector at Haldia will generate more port traffic.

The demand for petroleum products has been growing at a much slower rate than had been anticipated. For two of the past three years, the demand for petroleum products grew at 2.8 to 3 per cent, while in the third year it went up to 3.8 per cent. The expected rate of growth for these years had been 6 to 7 per cent.

Barely into the third year of its operations in 2002-03, the Reliance Industries’ refinery at Jamnagar, has surpassed all public sector refining companies in the export of petroleum products.

In the first year after the dismantling of the administered pricing mechanism in the oil sector, the 27 million ton Reliance refinery exported 6.5 million tons of petroleum products. The joint sector Mangalore Refinery and Petrochemicals Limited (MRPL) emerged a distant second with 1.9 million tons of exports.

While Hindustan Petroleum Corporation Limited (HPCL) came third with 5,96,000 tons of exports, Bharat Petroleum Corporation Limited (BPCL) exported 4,83,000 tons. Indian Oil Corporation (IOC) was fifth with 3,96,000 tons.

With the increase in the domestic refining capacity, the country has been witnessing a jump in petroleum product exports. In 2000-01, the exports, at Rs 7,672 crore, were 999 per cent higher than in the previous year.

In the following year, at Rs 8,285 crore, the country became a net exporter of petroleum products for the first time.

This was possible partially because of the refining capacity, which jumped from around 85 million tons in 1998-99 to 116.07 million tons, now and partially because of the less-than-expected growth in the demand for petroleum products.

The latter moved up barely 2.8 per cent from 1 million tons in 2001-02 to 1.03 million tons in 2002-03 against an anticipated growth of 6 per cent per annum during the Tenth Plan period.

Among the products exported in 2002-03, diesel accounted for the biggest chunk at 3.1 million tons, followed by petrol (2.3 million tons), naphtha (2.06 million tons), fuel oil (1.12 million tons) coke (7,00,000 tons), and aviation turbine fuel (697,000 tons).

Indian refining and marketing companies have been undertaking simultaneous import and export of petroleum products because of certain sales tax benefits, logistics issues and specific quality requirements for R&D, trials and specific needs.

Since direct imports do not suffer sales tax, some bulk consumers prefer imports to domestic purchases. Regarding exports, some of the coastal refineries prefer to export certain products than move them inland for domestic sales.

This is especially the case with products carrying nil or negative duty protection like naphtha and fuel oil for fertilizers.

The Southern Ceylon Petroleum Refinery Project, which was planned in early 2002, has been approved by Cabinet recently and will be implemented in early 2004 at Mirijjawila.

The estimated project cost will be US $ 1.6 billion and will be 100% foreign investment under BOI. 50% of the project cost will be financed through consortium's equity and the balance will be covered by investment loans from European and Chinese financial institutions.

The main partner of the consortium will be SINOPEC, which is the largest commercial company in China and among the top 500 companies in the world. SINOPEC has a refining capacity of 139 million MT per year and registered capacity of US $ 12.67 billion.

The project plan consists of Petroleum refinery, power plants and oil terminal. The refinery is expected to have a capacity of 165,000 bpds with a tank farm for storage of imported crude oil and finished oil products for export and will refine 8 million MT of crude oil annually. A dedicated oil terminal will be built with facilities such as a 300,000 DWT SPBM and seabed pipeline; two oil product berths of 50,000 DWT and Approach Bridge, and breakwater and other supporting facilities.

The refinery will also be built with a power plant using combined cycle gas turbine technology with a capacity of 750 MW and a total annual output of 5,250 Gwh of which it is intend to sell 5,000 to the Ceylon Electricity Board.

The refined petroleum products are to be exported to China mainly and South Asian countries. Of the electricity generated by the power plant at the refinery complex it is intended to sell 600 MW to the CEB.

Sri Lanka has approved an oil refinery and power plant, costing about $1.6 billion, to be built by a Sinopec-led consortium, a minister said on December 4, but the Chinese firm denied it was involved in the project.

"The main partner of the consortium will be Sinopec, which is the largest commercial company in China and among the top 500 companies in the world," a government cabinet paper said.

"Sinopec is listed in China, New York, Hong Kong and London stock exchanges. It is an investment organization and a holding company authorized by the Chinese government," the paper said.

But Sinopec Corp firmly denied it.

"This is impossible. Our main business is refining and chemicals, how can we go into power generating business?" Chen Ge, secretary to Sinopec Corp's board of directors, told Reuters by phone from Beijing.

"I have also checked with our parent company. They also said there is no such thing," Chen said. Sinopec Corp's parent company is state-owned oil major Sinopec Group.

A Sri Lankan government official close to the deal said the project, delayed by disagreement over the price state-owned Ceylon Electricity Board was willing to pay for the power generated, was still on hold.

Kularatne said construction of the refinery, a power plant and a terminal to unload oil would start in the southern Hambantota region next year and be completed by 2007.

The refinery would have a capacity of 165,000 barrels per day, Kularatne added.

The government paper added that Sinopec would operate the refinery, power plant and an oil terminal.

Sri Lanka imports all its crude oil requirements, estimated at 15 million barrels a year, and the sole state-owned refiner has a capacity of 50,000 barrels per day.

3. EUROPE / AFRICA / MIDDLE EAST

Royal Dutch/Shell Group said Monday that earnings in the fourth quarter would be reduced by charges of about $1 billion as the company closes plants and sells assets to bolster profit.

The charges include about $100 million recorded by the oil exploration and production unit, $400 million in the oil-refining division, $450 million in the chemicals business and $70 million in other areas, Shell said.

"It sounds to me as though it's further restructuring, which is in itself good news," said Jonathan Wright, an analyst at Citigroup in London. Shell plans to report earnings on Feb. 5.

Shell, based in London and The Hague, is closing some oil refineries, selling aging oil fields and eliminating 15 percent of the jobs in its oil and gas division by 2006 to increase profit. The charges come in a quarter where Shell and other oil companies like BP will benefit from rising oil prices.

Shares in Shell Transport Trading, which owns 40 percent of Royal Dutch/Shell Group, rose 3 pence to close at 410 pence, or $7.24, in London. Shares of Royal Dutch Petroleum closed in Amsterdam at E41, or $50.97, down 15 cents.

"The amount is quite hefty; it's a bit surprising," said Ignace De Coene at Fortis Investment Management in Paris. The chemicals unit "hasn't performed very well over the last couple of quarters so I'd guess they're getting a bit more cautious on the earnings prospects."

Shell also said Monday that proceeds from asset sales would exceed $4 billion in 2003, more than double the amount expected at the start of the year. The sales included Shell's stake in Ruhrgas, a German gas distributor. After-tax profit on the disposals will be more than $2 billion, "slightly below" the total charges taken during the full year, Shell said.

YUKOS is planning to increase its oil production to 88m tons in 2004, YUKOS Vice President Yury Beilin declared at a news conference. According to him, this year the company's oil output is expected to reach 81m tons. He also mentioned that YUKOS was planning to raise its oil exports from 50m to 57m tons in 2004. Beilin noted that the forecasted volume of oil refining would not change in 2004 and remain 38m tons.

Tatneft, LG, Nizhnekamskneftekhim will construct a refinery of deep oil processing, Tatneft GD Shafagat Takhautdinov said.

The construction will be completed by late 2006. Then Tatarstan will have 2 refineries with the total capacity of 14 million tons a year, exactly such an amount is required to meet Tatarstan's petrochemical industry's requirements, Sh. Takhautdinov pointed out.

Nizhnekamskneftekhim has processed over 6.1 million tons of oil this year.

A Kuwaiti oil experts’ delegation is due in Cairo during the second half of January 2004 for talks with their counterparts in Egypt on refining Kuwaiti oil in Egyptian refineries.

An agreement was signed during Minister of Petroleum Sameh Fahmy's visit to Kuwait last week.

The visiting delegation will explore vistas for cooperation between the two countries in petrochemical industries.

Kuwaiti oil will be refined in Egyptian refineries according to the signed agreements.

The Federal Government is pumping fresh $150 million into the revamping of key production unit in the four refineries, just as the one week-old fuel shortages ease across the country.

Government had earlier spent over $600 million in the last four years to refurbish the refineries and revamp other fuel distribution facilities.

The latest expenditure according to officials of the Nigerian National Petroleum Corporation (NNPC), is for the revamping of the Fluid Catalytic Cracking (FCC) unit in the refineries to boost production of premium motor spirit (PMS), popularly known as petrol.

Poor state of the FCC units in all the refineries, has made the plants to account for only16.6 percent of the country's daily demand of petrol put at about 29 million liters.

NNPC Group managing Director, Engineer Funso Kupolokun, said in Lagos at the weekend, that the revamping of the FCC units in the refineries, would be concluded by April 2004.

The NNPC boss said by February 2004, the revamping of the FCC unit in the 125,000 barrels per day (bpd) Warri refinery would have been completed. The unit in Port Harcourt refineries and that of Kaduna will be completed by end of April next year.

"By this time, we should be able to do 18 million litres a day of PMS (petrol) out of the average requirement of between 25 to 29 million litres.

"In essence, locally, we will probably be able to produce as much as 75 per cent of total requirement and that will be by April 2004," he added.

Despite having a total domestic refining capacity of 455,000 bpd, Nigeria, Africa's biggest crude oil producer, relied heavily on fuel importation to meet national demand.

Deregulation of the downstream oil sector three months ago, appeared not have solved the perennial fuel scarcity in the country as major parts of the country experienced shortages that affected social and economic activities for one week.

Kupolokun heaped the blame of the supply crisis on marketers. According to him, while the imported cargoes by the marketers meant to feed Lagos, failed to arrive on schedule, some marketers were also guilty of hoarding the two million litres of petrol that was discharged last week.

The NNPC fingered Mobil Oil Nigeria Plc and African Petroleum (AP) Plc, as the most culprits in the fuel scarcity problem. The two companies, he said, did not load fuel nor dispense fuel on Christmas day, contrary to agreement reached between marketers and the NNPC.

Marketers had blamed the inability of four vessels, carrying a total of 160.9 million litres of petrol, to discharge at the Apapa jetty operated by major marketers.

However, Federal Government's planned offer of 51 per cent equity stake in the refineries early next year to core investors under the on-going privatization program has been described as illegal.

Chairman of the House of Representatives Committee on Commercialization and privatization, Hon. Celestine Ughanze, said the plan is against the letters and spirit of the extant privatization law.

He added that apart from the refineries, any other government enterprise already privatized but in which the core investor holds more than 40 per cent is equally illegal and can be successfully challenged in court.

The Federal Government plans to offer 51 per cent in the refineries to strategic investors early in 2004 as the Bureau of Public Enterprises (BPE) could not meet the presidential deadline to sell at least one refinery before the turn of 2003.

He explained that the amended privatization bill already passed by the House and awaiting concurrence by the Senate was meant to correct some of the perceived weaknesses of the existing Act. The bill, he said, was also to introduce innovations from the effective implementation of the privatization program.

The Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and the Nigerian Union of Petroleum and Natural Gas Workers (NUPENG) are billed to lead their members on strike beginning on January 1, 2004 if government failed to put the refineries back in good shape, suspend plans to privatize the plants as well as the on-going re-organization in the Nigerian National Petroleum Corporation (NNPC).

As the nation's fuel crisis deepens, the CNPP, yesterday in Abuja, called for an urgent repair of the four oil refineries and an immediate stoppage of fuel importation.

The CNPP, a coalition of opposition political parties, also advised the federal government to halt the proposed sale of the refineries due to national, economic and security reasons.

"The unfortunate return of fuel scarcity in Nigeria has brought to the front burner, the calamity of dependency on fuel importation as opposed to diligent repair of our refineries," the conference said in a statement.

A copy of the statement, signed by CNPP's publicity secretary, Osita Okechukwu, was made available to the News Agency of Nigeria (NAN), in Abuja.

"All patriotic Nigerians have advocated and canvassed the repair of the four refineries in the past four years in order to generate full capacity utilization, ensure maximum fuel supply and provide incentive for a stable economy," it stated.

On December 10, the Competition Tribunal gave the go-ahead for the merger of Sasol Oil and Exel Petroleum to form the largest empowerment deal in the oil industry since the charter was signed in 2000.

Exel will become one of the leading black economic empowerment players in the field, selling petrol either under its own name or under the Sasol brand.

This will effectively establish the largest integrated liquid fuels business in southern Africa. The approval follows an in-depth analysis of the merger and its potential impact on the local liquid fuels market by the Competition Commission, which recommended unconditional approval to the tribunal.

Exel was initiated by Sasol in 1997 as an empowerment venture in liquid fuels retailing and has developed into the most successful empowerment business in the fuel retailing sector.

"In terms of the charter, 25 percent of all facets of the industry are to be owned by historically disadvantaged South Africans by 2010.

"From Exel's perspective, the merger will give the company access to technology and capital for expansion and growth, which will ensure its competitiveness and long-term sustainability."

Sasol said the merged entity "will incorporate all the liquid fuels interests of both companies and will encompass the entire value chain, including crude oil procurement and processing at the Natref refinery, the blending of products from Sasol's synthetic fuels refinery at Secunda and the marketing and distribution of fuels in retail and commercial markets".

Sasol holds a 64 percent interest in the Natref refinery.

Sasol shares closed R2.95 up at R91 in Johannesburg.

ONGC Videsh will sign a deal with the Sudanese government on expanding its oil refinery and a pipeline project.

ONGC's overseas unit ONGC Videsh will sign a deal with the Sudanese government on expanding its oil refinery and a pipeline project, report agencies.

The Sudanese government has agreed to give these two projects to ONGC Videsh on a nomination basis. The deal is likely to be signed in January and the projects are to be completed in three years.

"The pipeline will be nearly 740 km long. Roughly, the investment will be about $750 million," said Petroleum Minister Ram Naik

ONGC Videsh will hold the majority share in the $750 million refinery revamp and petroleum product pipeline projects in Sudan, which Khartoum has given to the Indian firms on a nomination basis.

OVL will hold 50% stake, Engineers India Ltd 25%, Indian Oil Corp 15% and Oil India Ltd the remaining 10% in the twin projects.

"Sudan has agreed to give the 740-km pipeline and the Khartoum refinery revamp and expansion projects on nomination basis," said Naik. The pipeline from Khartoum refinery to Port Sudan, which would transport petroleum products like petrol and diesel from the expanded Khartoum refinery (from 50,000 barrels per day to 100,000 barrels per day) to the port, is likely to cost $400 million. Of this, Exim Bank has agreed in-principle to fund suppliers credit of $100 million.

The pipeline will initially transport 1.25 million tons per annum of motor gas and gas oil. By 2011, its capacity would be expanded to 2.54 million tons.

OVL is looking at acquiring oil assets in exchange for funding, building, and running the pipeline for 13 years. It will be paid back all costs, including financing charges, with a post-tax internal rate of return, IRR, of 12% before the transfer of pipeline to the Sudanese government.

State-owned Bahrain Petroleum Company (BAPCO), which runs a 250,000 barrels per day (bpd) oil refinery, is expected to select in December one of two groups who had submitted bids to provide around $650 million in bank loans to finance the upgrading of the only refinery in the kingdom, bankers said.

BAPCO was expected to select a group in November, but because of the fasting month of Ramadan, the decision was shifted to December, a banker said.

Two groups of banks ­ each comprising four banks ­ earlier this year submitted bids to provide the financing, which consists of a $450 million commercial loan and a $200 million Islamic loan.

The first group consists of Bank of Bahrain and Kuwait, Arab Banking Corp, HSBC and BNP Paribas, which opened an Islamic division in the Arab country earlier this year. The second group comprises Citibank, National Bank of Bahrain, Dubai Islamic Bank and the Saudi-based Arab Petroleum Investments Corp.

Bankers said another bank, Kuwait Finance House, which has a subsidiary in Bahrain, also offered to provide $100 million in Islamic financing for the project.

Company officials said the project, part of $900 million previously announced expansion program at the refinery, was aimed at reducing the amount of sulfur in diesel oil to 0.05 percent from the current level of about 0.5 percent.

Three international companies are competing to win the project, which was scheduled to be awarded last year, but was delayed because of technical reasons.

JGC of Japan submitted the lowest bid of $430 million, Bechtel $448 million and Technip $460 million, according to BAPCO officials. This does not include associates.

"BAPCO is currently reviewing the three bids for the main parts of the project. Its associates will be given to other contractors," one official said.

"They (BAPCO) will have to do it because the sulfur content in the diesel is so high. Bahrain consumes only 10 percent of the production and the remaining 90 percent is exported," a Bahrain-based industry source said. "If they don’t reduce the sulfur, no one will buy the diesel because of the pollution."

Under the modernization plan, the project involves building a new 40,000-bpd hydrocracker, a hydrogen plant for the new cracker as well as upgrading the existing 45,000-bpd hydrocracker to produce low-sulfur diesel. The new cracker will be built next to the old one at the ageing Sitra refinery, which was built in 1936.

BAPCO’s current main fuel products are gasoline and middle distillates, including diesel and jet. After the project is completed, its production of middle distillate will rise to around 58 percent from 55 percent now.

Bahrain, a minor independent oil producer, produces around 40,000 bpd from its own oil fields and receives the entire output of an offshore field it shares with Saudi Arabia. It also imports around 200,000 bpd from Saudi for refining. The kingdom is also planning to replace existing oil pipelines, built 60 years back.