American oil refiners are on schedule to comply with new federal requirements to produce cleaner diesel in the next four to six years.

The Environmental Protection Agency (EPA) has announced that refiners are on course to reduce the incidence of sulfur in their diesel fuel to 15 parts per million (ppm) from the present rate of 550 ppm.

Current EPA predictions, based on results from 126 refiners, are that 96 per cent of the 2.9 million barrels of highway diesel to be produced each day in 2006 will meet the standard, enough to meet demand across the country.

EPA Air and Radiation assistant administrator Jeff Holmstead said 'EPA's clean diesel standards are an important reason Americans can expect air quality to continue to improve in the years ahead.'

Ducon announced that it has successfully started up a system to remove mercury vapor and sub-micron particulate from a fluidized bed incinerator flue gas stream at a major gasoline refinery. The incinerator burns various hydrocarbons and amine sludges from the refinery.

Ducon’s complete system includes a Ducon high efficiency wet electrostatic precipitator (WESP) followed by a Ducon deep-bed design Carbon bed adsorber (CBAD) to remove mercury, semi-volatiles, and sub-micron particulate from the exhaust gases. The Ducon WESP incurs only one inch w.g. pressure drop and removes lead, cadmium, arsenic, beryllium and chromium as well as particulate to meet the MACT atandards of 0.015 gr/DSCF, 240 microgram/DSCM semi-volaties (Pb & Cd ) a and 97 micrograms/DSCM low-volatiles (As, Be & Cr). The Ducon CBAD achieves outlet mercury level of 130 microgram/DSCM with only three inch w.g. pressure drop.

Michigan's only oil refinery, located in southwest Detroit, will undergo a major $300-million expansion to boost capacity and to help meet stricter clean-fuel requirements.

Marathon Ashland Petroleum, based in Findlay, Ohio, said the work will boost the daily output of its refinery off I-75 from 74,000 to 100,000 barrels of crude oil that is used to produce gasoline, diesel and jet fuel.

The $300-million investment will create 350 construction jobs with peak contractor employment of more than 500 near the project's end. A spokesman for the company said he did not know if the expansion would add to the 250 full-time workers employed there.

But the project also will benefit Michiganders by reducing the impact of gasoline shortages caused by pipeline problems. Aside from the refinery's output, all of the fuel that powers cars and trucks in the state is pumped into various terminals through pipelines.

The project also will incorporate the latest technology to produce low-sulfur gasoline grades and ultralow-sulfur diesel fuel.

About $110 million of the total investment will be spent to increase processing capacity. The rest will be used to enable the refinery to produce cleaner fuels and control emissions.

Work is scheduled to begin early next year and to be completed in 2005.

"With this major capital investment, MAP is demonstrating our strong commitment to Michigan's motoring public, our customers and our employees," MAP president Gary Heminger said Monday.

The State of Michigan and City of Detroit granted a Renaissance Zone designation for the refinery, which will enable the project to enjoy certain tax benefits. Heminger said the designation was a pivotal factor in the decision to proceed with the project.

Marathon Ashland Petroleum LLC, a joint venture of Marathon Oil Co. and Ashland Inc. Marathon, owns 62 percent of the venture, which has seven oil refineries in the Midwest. Ashland owns the rest.

The boost in production by Marathon is contrary to the trend during the last three decades.

In 1981, there were more than 300 oil refineries producing varying amounts of gasoline for a nation that was feeling the effects of the 1973 Arab oil embargo. Today, there are 154 oil refineries in the United States.

The proposed site of a controversial $2.5 billion oil refinery that would be the first such facility in the state is being moved out of Maricopa County.

The company that wants to build the refinery, Arizona Clean Fuels, has decided to move its target location to Yuma County. The company is considering locations along Interstate 8.

Moving it out of Maricopa eases the permitting and environmental approval processes for the refinery, which would get crude oil from Mexico via new, yet-to-be-built pipeline.

The original refinery site in rural southwestern Maricopa County is not in the federal ozone non-attainment area that encompass metropolitan Phoenix. However, the U.S. Environmental Protection Agency is expected to expand the Phoenix ozone area next year and include the refinery site in Mobile.

That means the facility could face heightened federal clean-air regulations and standards.

Ian Calkins, a spokesman for Copperstate Consulting, which represents Arizona Clean Fuels, said that prospect would make future expansion or changes to the refinery extremely difficult.

Yuma does not have the air-quality and ozone issues of urban Phoenix and thus environmental requirements for such projects are not quite as steep. Calkins said the refinery firm has short list of sites and will pick a location and acquire land in the next couple of weeks.

Patrick Gibbons, spokesman for the Arizona Department of Environmental Quality, said his agency in the process of deciding whether to grant a permit for the refinery at the Mobile site.

The refinery has been proposed for a number of years but gained momentum this summer after the Valley's gasoline shortage. Arizona has no oil refineries making it dependent upon such operations and pipelines from California and Texas for its fuel supplies. A new oil refinery has not been built in the U.S. in three decades.

The new rules, which aim to lower the amount of sulfur in gasoline by 2006, will require U.S. refiners to spend up to $20 billion in plant upgrades for 123 refineries producing automotive fuels. Another 26 U.S. refineries do not produce motor fuels.

The refineries most likely to close are those with crude oil throughput capacities beneath 100,000 barrels per day, the executives said.

The adoption of ethanol by large U.S. states as the gasoline additive to reduce tailpipe emissions will also remove the amount of gasoline produced in the coming years because ethanol adds less volume to the fuel.

California, New York and Connecticut will switch over to ethanol use on Jan. 1, 2004.

"With these regulations, you're going to see a narrowing of supply," said Greg King, president of Valero Energy Corp. (nyse: VLO - news - people).

That will increase the need for imports, mostly from Europe, King said.

Capital demands to comply with the low sulfur regulations will reduce the amount to be spent on expanding refinery capacity, which is how the refiners have kept pace with the 1 percent to 2 percent annual increase in motor fuels demand.

"We do not see U.S. capacity increasing at the same rate," Boles said.

There is a silver lining for refiners in the coming years, King said.

"After 25 years of oversupply, this is a new era in refining," he said.

Valero Refining Company was recently recognized with an Environmental Quality Award from the New Jersey Business & Industry Association (NJBIA).

With more than $350 million in major capital expenditures being used to improve oil processing technology and reduce sulfur emissions, Valero is proud of such recognition.

The Environmental Quality Award is presented annually to companies doing outstanding work to preserve or enhance the quality of the natural environment.

"It's not an easy thing to do what we do and stay environmentally friendly," said Jerry Williams, major projects director for Valero. "We do what we have to do to satisfy the consumer, but we try to do it in a way that we're not endangering the environment."

Valero was honored for installing state-of-the-art technology that will substantially enhance its protection of the Delaware River.

When it comes to protecting the environment, Valero puts its money where its mouth is," NJBIA President Philip Kirschner said. "The company could have installed less costly equipment that would have met regulatory requirements. But that wasn't good enough. Valero went the extra mile, even though it was much more costly."

Valero has invested $250 million in something called the Continuous Catalyst Reforming/Fluid Catalytic Cracking (CCR/FCC) Desulfurization Unit.

Basically, Valero officials explained, the CCR/FCC is a gas treatment unit that helps produce a higher-octane gasoline and reduce chemical emissions into the air.

The primary focus of these improvements is to meet more stringent federal guidelines that will be in place in the near future.

"Some refineries have chosen not to do this," Williams said. "Some actually shut refineries down rather than make the investment it takes to make clean fuels."

Valero is also installing a Belco Scrubber, which will help reduce air emissions.

Valero Energy Corp. submitted a bid on Nov. 20 for El Paso Corp.'s 200,000 barrel per day refinery in Aruba.

El Paso wants to sell the Aruba refinery as part of a plan to pay down debt by disposing of non-core assets as it restructures the company around natural gas operations.

Valero has expanded through acquisitions and now operates 14 refineries in the United States and Canada with a combined crude oil throughput of 2 million barrels per day.

Petro-Canada will likely redesign its oilsands expansion into manageable pieces rather than take on a megaproject whose costs are much harder to contain, industry watchers say.

As the list of multibillion-dollar projects slated for the northern Alberta oilsands grows, Calgary-based Petro-Canada is expected to make an announcement before year's end.

The company (TSX:PCA) said in April that spiraling construction costs had forced it to revisit a planned expansion of its refinery on the outskirts of Edmonton, throwing its entire $5.8-billion oilsands expansion into question.

This notion of smaller expansions over several years as opposed to one huge push arises from dramatic cost overruns for several large oilsands projects recently amid tight demand for workers and materials.

Shell Canada's Athabasca project, which started production earlier this year, cost $5.7 billion - 50 per cent more than originally budgeted.

Syncrude Canada's latest expansion, at about $5.7 billion, is $1.5 billion costlier than forecast.

Suncor Energy's Project Millennium expansion ran about 70 per cent over budget at $3.4 billion.

Suncor president Rick George said recently that in hindsight, he would likely have undertaken the Millennium expansion differently.

Petro-Canada chief executive Ron Brenneman has not tipped his hand. But the company has insisted it is not prepared to abandon the huge, long-life oilsands assets, despite successes in its new international conventional oil businesses.

Last month, Brenneman told analysts that Petro-Canada was "targeting a solution that will better utilize our existing assets."

The company also continues to have issues with its one existing steam-assisted oilsands plant called MacKay River. The oilsands contributed just $20 million in earnings for the third quarter compared with $51 million last year as MacKay River struggled with reliability issues while Petro-Canada's stake in Syncrude Canada suffered from higher natural gas costs and lower volumes.

The pace of development in the oilsands has recently picked up to unprecedented levels, with numerous steam-assisted plants slated for construction.

Houston-based ConocoPhillips has announced plans to proceed with its $1.4-billion Surmont facility partnered with France-based Total and Oklahoma-based Devon Energy.

Devon previously announced in September it was proceeding with its own $520-million-US Jackfish oilsands project.

Before year's end, a third new project is likely to be set in motion, with Calgary-based Nexen Inc. widely expected to go ahead with its $3-billion Long Lake steam-assisted oilsands facility and upgrader.

Canadian Natural, the country's No. 3 oil explorer and producer, expects to make a go-ahead decision by mid-2004 on the C$8.5 billion ($6.5 billion) Horizon oil sands project.

The mining venture would ultimately pump 232,000 bpd of synthetic crude, with a first 110,000 bpd phase in 2008.

Shell Canada Ltd. will increase its capital spending next year by 36 per cent, with plans to divvy up $1.1 billion to various oil and gas projects across the country.

The spending boost follows a lucrative year for Calgary-based Shell, where cash flow and profits have risen because of significantly higher natural gas prices and initial production from the company's massive new oilsands project in northern Alberta. "Our 2004 investment plan reflects the strength and diversity of our growth portfolio," Shell Canada's chief executive Linda Cook said in a statement.

"The plan directly supports our corporate goals of leadership in profitability and profitable growth within an overarching commitment to sustainable development."

Last year, Shell spent only $810 million on capital projects.

One of the biggest expenses on Shell's list is $280 million for its gasoline refining business. The lion's share of that money will go towards new technology at its refineries in Montreal and Scotford on the outskirts of Edmonton to meet future requirements for ultra-low sulfur in diesel and other fuels.

The company sells its fuel through a national network of Shell-branded stations, and $100 million of the budget will go toward marketing of its products.

Approximately $160 million is earmarked for the continued development of natural gas fields and compression systems at its Sable Offshore Energy Project, off the coast of Nova Scotia.

Shell will also direct $155 million towards its oilsands projects, including funding for potential debottlenecking of the new Athabasca Oil Sands Project, where the company has a 60 per cent operating stake. Money will also be spent studying future expansion of the project, which is Canada's third open-pit oilsands mine behind industry leaders Syncrude Canada and Suncor Energy.

Shell Canada, which is 78 per cent owned by global powerhouse European Royal Dutch/Shell group, has cut down its Canadian businesses in recent years, exiting conventional oil production to focus on natural gas operations in western Canada and Sable Island and oilsands from northern Alberta.

The boost in capital spending for next year suggests a change in strategy for the major integrated energy company, said energy analyst Wilf Gobert.

"It's interesting and encouraging that they're bumping the budget and they appear to be bumping it across a wide number of areas and projects," said Gobert of Calgary-based Peters & Co.

"The fact they're spreading the money around is kind of an encouragement that maybe there's a little bit of a different philosophy going on there because of a change in view."

Shell also plans to spend $170 million on exploration in 2004. Half of that money will go to finding gas in the Foothills area of Western Canada, with the rest being divided up between offshore east coast and up in the northwest territories.

An unspecified amount of the budget will go towards the ongoing project definition work that Shell and several partners are doing to prepare for a future natural gas pipeline taking northern gas southwards to U.S. markets. It is expected that a full regulatory application for the project will be filed sometime next summer.

Last month, Shell unveiled third quarter profits of $235 million, 58 per cent higher than in 2002.

But analysts were disappointed by news that production at the Athabasca oilsands plant was only 115,000 barrels per day, and not at the 155,000 barrels per day capacity that the company had hoped for.

2. ASIA

In the next few years, China's oil refinery expansion may lead to an over-production of oil, which will cause a huge waste of money and resources, domestic experts have warned.

Media reports show that many of China's coastal cities, including Dalian, Qingdao, Nanjing, Shanghai, Guangzhou, Fuzhou, as well as the southernmost island province of Hainan, are all enthusiastic about building or expanding their oil refineries.

In case these plans become reality, the net increase of China's oil refining capacity will reach 80 million tons, or one third of the country's overall oil refining capacity at present.

In Dalian, a port city in northeast China's Liaoning Province, two large petro-chemical companies plan to increase their capacity to 20 million tons and 10 million tons respectively.

One of the companies, the Dalian Branch of PetroChina, mapped out its expansion plan based on a proposed China-Russia petroleum pipeline project, which is still under negotiation. If the project fails to materialize, the expanded refinery will be left useless, experts said.

"The fast development of the national economy, especially the auto industry, has seen a sharp increase in the country's oil demand, thus stimulating oil production. But blindly expanding the oil refineries will inevitably cause a great waste of resources and money," a senior official within the country's petro-chemical industry said.

"Generally speaking, oil refining is a low-profit industry, and most international energy companies earn money mainly from the marketing sector. The cost of China's oil refineries is usually higher than that of their foreign counterparts, which leaves even less space to make profits," he said.

The coastal province of Shandong in east China is seeking central government approval for a project to construct a large oil refinery base with a designed annual output of 10 million tons. "The project has attracted an investment of more than 1 billion US dollars and is expected to become a key motivator for local industrial restructuring." an official with the Shandong provincial government claimed.

However, the province already has more than 20 small oil refining companies in operation that produce 16 million tons of oil products each year.

"These small oil refineries provide many jobs and also play important roles in local revenue. It takes time to have them all closed," a source with the Shandong United Petroleum Co. said.

Therefore, he said, it seems to be unwise for the local government to launch a new large oil refinery project at the very moment.

China and Russia will honor their commitments on the construction of the oil pipeline between the two countries, said Chinese Foreign Ministry spokesman Liu Jianchao Tuesday.

Liu made the remark in response to a report that the Russian government had refused the construction of the oil transmission pipeline from its Angarsk oil fields near Lake Baikal in eastern Siberia to refineries in northeastern China's Daqing City.

The cooperation in the oil sector, consistent with the economic development of the two countries, was the most important part of bilateral economic and energy cooperation, said Liu.

He said that when Chinese Premier Wen Jiabao met with his counterpart Mikhail Kasyanov this September, China and Russia chose to continue to implement their cooperation in the energy field, boost cooperation between companies in oil pipeline construction, oil field exploitation, and oil and natural gas exports to China according to the joint declaration signed on May 27.

Liu said he believed the two countries would honor their commitments.

Sinochem Corp., China's major chemicals and oil trading house, is considering expanding into the downstream oil business by acquiring refinery assets and third party processing deals, a company official said Monday.

He said the company is gradually diversifying into an integrated oil company with upstream and downstream assets to better position itself after China opens its oil wholesale market to foreign companies by 2006.

In early November, the company, then known as China National Chemicals Import & Export Corp. changed to its current name to better reflect its business development strategy.

Plans call for the company to arrange more deals in third party crude processing at refineries in Taiwan, Thailand and maybe Singapore.

It is also scouting for opportunities to buy viable refining assets in the region, he said, rejecting the notion that the company will build new refineries in China.

Sinochem now has a 25% stake in the 8-million-tons-a-year Dalian West Pacific Petrochemical Co. in northeastern China.

The company is in talks with Taiwan's Formosa Petrochemical Corp. (6505.OT) for more third party processing deals next year, following similar deals arranged this year.

The two companies signed an agreement early this year under which Formosa will run 2 million barrels of crude for Sinochem in 2003.

In October, Sinochem and the Petroleum Authority Of Thailand, or PTT, signed a memorandum of understanding for business partnership.

The two will form a joint committee to explore and evaluate possible business opportunities in oil and gas exploration, production and transportation, natural gas utilization, trading and marketing networks and well as other oil-related activities in Thailand, China and other countries.

Sinochem is expected to buy a 37% stake in Thai Oil refinery from foreign creditors. Details haven't been finalized, he said.

The official said Sinochem will make use of the surplus refining capacity in Southeast Asia for mutual benefits.

He said Sinochem is also applying for a license to engage in oil products retail in China.

Thai Energy Minister Prommin Lertsuridej said on November 20^th that an Omani oil company has expressed interest in buying a stake in a Rayong refinery.

There are two refineries, Rayong Refinery Co. and Star Petroleum Refining, in Rayong, which is located on the eastern coast of Thailand. However, Prommin didn't specify which refinery Oman wants to invest in.

"They want to invest, but there is a stumbling block on laws relating to oil trading," he said. The ministry is in the process of amending the law to facilitate the investment.

Thailand's oil and gas conglomerate PTT PCL (PTT.TH) owns a 36% stake each in Rayong Refinery and Star Petroleum Refining.

The Thai unit of Royal Dutch/Shell Group (RD) holds the remaining 64% stake in Rayong Refinery while ChevronTexaco Corp.'s (CVX) Thai unit holds a 64% stake in Star Petroleum Refining.

Prommin has said that PTT has planned to sell its stake in the two refineries, but conditions weren't favorable.

In addition, the Omani government has also shown interest in a joint investment in Thailand's trans-peninsular pipeline project, which will link the Andaman Sea and Gulf of Thailand, Prommin said.

"Oman is one of Thailand's key oil suppliers. Having them as an investor will ensure the success of the project," he told reporters.

Currently, Thailand imports 100,000 barrels of oil a day from Oman. Thailand's total oil demand stands at 800,000 b/d.

Many Japanese companies, which are oil buyers, have also expressed interest in investing in the project.

A consortium of Japanese companies comprising Itochu Corp. (8001.TO), JGC Corp. (1963.TO), Mitsui & Co. (8031.TO), Nippon Steel Corp. (5401.TO), Tomen Corp. (8003.TO) and Japan-Asia Exchange Association are also keen on investing in the project.

Japanese and Middle Eastern companies are interested in building oil refineries in Indonesia amid growing demand for oil products in the country, an official said on November 20.

Harry Purnomo, downstream director of state-owned oil and gas company Pertamina (PTM.YY), said Japan's Mitsubishi Corp. (8058.TO) and Mitsui & Co. (MITSY) are among the interested investors.

He didn't specify potential Middle Eastern investors, saying only they are from Iran and Kuwait.

"They are currently conducting feasibility studies," Harry said.

If the foreign investors proceed, the government expects the refineries to be built in East Java, the second largest fuel consuming area in Indonesia after Jakarta, Harry said.

No additional information on the investors' plans, including the potential size of the refineries, was available, he added.

Indonesia currently has seven oil refineries operated by Pertamina.

This year, LG-Caltex Oil of Korea, has advanced into the exploration and production business for the first time by acquiring a 15-percent participating interest in the exploration and development project of Cambodia Block A Area on Cambodia's west coast. With other partners - ChevronTexaco has a 55-percent stake and Mitsui has a 30-percent stake - LG-Caltex Oil will conduct a 3-D seismic survey and drill to determine whether the crude or gas reserves are commercially recoverable.

The company is also noted for its research and development activities. Its Value Creation Center has led the nation's development of environmentally friendly gasoline brands, as well as the development of fuel cells as an alternative energy source.

3. EUROPE / AFRICA / MIDDLE EAST

The Bureau of Public Enterprises (BPE) has set November 14, 2003 deadline for companies to submit expression of interest as core investors in the nation's four oil refineries.

BPE is selling 51 percent of Federal Government's equity stake in the refineries to core investors, which is a key component of the government's deregulation program.

The Trade Union Congress (TUC) however, called yesterday for the abrogation of the Petroleum Equalization Fund (PEF), saying that the continued implementation of the Fund was in direct conflict with deregulation policy.

The BPE is acting on a presidential directive to privatize at least one refinery before the end of this year.

To meet the target, the BPE has had to jettison competitive process in appointing Credit Suisse First Boston (CSFB) as its advisers for the privatization of the refineries.

The CSFB team was expected to have commenced the packaging of the refineries for eventual privatization.

"Invitation for Expression of Interest from strategic prospective investors in the state-owned crude oil refineries (Kaduna, Port Harcourt and Warri) must be submitted not later than 16.00 hrs Friday November 14, 2003," the BPE said.

Under the privatization plan, the BPE was to begin the sale of the refineries, as well as the pipelines and depots, by the third quarter of this year and end the process by fourth quarter of 2004."

It will sell 51 percent shares each in the plant to a core investor or a consortium of foreign and/or domestic investors while the remaining shares are to be subsequently sold to the Nigerian public.

But industry sources have hinted that the oil majors including Shell, ExxonMobil, ChevronTexaco and Elf Petroleum widely tipped to bid for the equity were yet to come forward, well pass the third quarter of this year.

The oil majors were said to be shunning the process given the enormous money it will require to turn the refineries around as well as the instability shown by the government in its deregulation policy.

However, officials said yesterday that there might have been a change in the attitude of the firms towards acquiring the refineries as the deregulation plan seemed to have come to stay.

RUSSIA

Transneft, the state-run monopoly that ships most of Russia's oil, boosted the capacity of a pipeline and a Baltic Sea oil port by two-thirds last week and plans to expand the link by another 40 percent in early 2004.

The expansion of the Baltic Pipeline System to a capacity of 602,000 barrels per day was completed two months before the planned date, Transneft said in a statement on its web site. The pipeline and the Primorsk port will be hauling 845,000 bpd by spring, it said.

"We added 18 million tons to the pipeline's annual capacity in just seven months," Transneft chief executive Semyon Vainshtok said in the statement. "That's an unprecedented speed."

Transneft said it spent about $700 million to build the pipeline and the oil terminal at Primorsk, north of St. Petersburg, and plans to spend another $500 million on expansion.

Transneft will export 240 mln tons of oil via its system in 2004 vs. 208 mln tons export in 2003, Transneft President Semen Vainshtok said.

2003 target of 208 mln tons still depends on the situation in Novorossiisk port, S. Vainshtok said.

In Q1 of 2004, the company will complete the project to widen the capacity of the Baltic Pipe System to 42 mln tons on year. The deliveries to Russia's refineries will grow to 10-12 mln tons during the year, Gdansk export capacity will increase to 5 mln tons.

Over this year, Transneft has increased its oil acceptance capacity by 40 mln tons, export capacity rose by 21 mln tons.

Currently, Transneft has the surplus in its capacity. Earlier, the oil amount in the system has never slid below 2 mln tons. However, the system has nor more than 900,000 tons of oil today, S. Vainshtok said.

According to S. Vainshtok, 412-413 mln tons of oil will be produced in Russia in 2003 and around 420 mln tons in 2004.

Transneft consolidated earnings are expected at 110 bln rbl.

UKRAINE

Russian-British oil major TNK-BP plans to invest $83 million next year to develop its business in Ukraine, executive vice president Tony Considine told reporters Monday.

About $30 million will be spent to upgrade the company's Lisichansk oil refinery, with the remainder allocated for the development of the company's retail network.

By the end of next year, the company expects to add 370 filling stations to its current network of 925, 100 of which will be built from scratch.

LG-Caltex Oil Corp., a major player in Korea's energy industry, was recently chosen by the Omani government to operate the state-run Sohar Refinery Co. on consignment through 2010 in a contract worth $50 million, officials said.

Under the contract, LG-Caltex Oil will offer the Omani company its know-how on oil refining gained from 35 years of experience - including refinery operation and repair, employee education, and information-technology innovations. The Korean company expects to earn extra revenue from facility rental and software transfer.

Officials said that LG-Caltex Oil Chairman & CEO Hur Dong-soo met last month with Omani oil minister Mohammad bin Hamad bin Saif Al Rumhy in the Omani capital city of Muscat to ink the contract regarding the Sohar Refinery.

Sohar Refinery, on which construction is set start next year, will become Oman's biggest refinery upon completion in 2006 with a capacity of 120,000 barrels per day.

LG-Caltex Oil, which went into the bidding as part of a consortium that also included LG International Corp. and LG Engineering & Construction Corp., beat more than ten competitive rivals, such as Foster Wheeler and JGC, to win the profitable deal, the biggest ever for a Korean oil refining company.

Given the importance of the project, LG-Caltex Oil plans to dispatch some 30 high-ranking managers to Oman by 2005 to prepare for the successful opening of the facility. The company will also invite Omani workers to its Yeosu factory for training starting next year, officials said.

"The export to Oman shows that LG-Caltex Oil's oil refinery operating skill is among the world's best," said an official. "The company plans to continue to promote similar exports and use them as the base for creating fresh profit," the official said.

LG-Caltex Oil, Korea's first private petroleum refining company, was established in 1967 as a joint venture between LG Group and Caltex Corp.

The company's principal business activities consist of petroleum refining and marketing; production of petrochemicals including benzene, toluene, mixed xylene, paraxylene and polypropylene; and the blending of lubricant oils.

With 2,800 service stations and 9 million bonus card members, LG-Caltex Oil reported a 29-percent share of Korea's refined petroleum products market in terms of volume last year, while it also supplied about 23 percent of the nation's liquefied petroleum gas demand.

Iran’s oldest oil refinery is being rebuilt by the accomplished Iranian engineers, director of the renewal plan Mohammad Reza Musavi said.

The first unit of Abadan refinery is thus to be made operational until November 2004, he added.

It had the highest production rate of all Iranian refineries before the Islamic Revolution in 1979 (600,000 bpd). The imposed war, started in 1980, severely affected the function of Abadan oil refinery.

But, as the UN resolution declared the end of the destructive war in 1988, Iran embarked on rebuilding the refinery so that it has recently reached an average production capacity of 400,000 bpd.

Musavi also said that almost half of the crude volume in the refinery is turned into furnace oil due to some immunity problems in older units. "The major part of the efforts should be concentrated on renovating these units," he stated.

The reconstruction process would involve three phases, he said, adding that the primary phase consists of atmospheric distillation unit, crude desalination, and vacuum distillation unit.

The relevant contract, which is supposed to cost $37 million, will be valid from December 13, Musavi stated. "It should take a maximum 34-month period to be completed," he said.

He added that before November 2003, the project confirmed 52 percent progress. As the first phase of the refinery comes on stream next year, the atmospheric unit may attain a daily output of 180,000 barrels, he stated. "The turnout rate of middle-distillation products such as petroleum and gasoline would then be increased."

The most critical part of the project includes the transformation of massive items into light products, Musavi uttered, saying, "It would happen to be an economical phase for less weighty substances bring about more value added while facilitating the refining process."

Majlis Energy Committee calls for construction of new refineries to make up for gasoline shortages in the country, ISNA reported.

"The Oil Minister (Bijan Namdar Zanganeh) believes that construction of new refineries is not economically justified because each unit devours more than one billion dollars," the MP, member of the parliamentary committee, said.

Iran raised the price of gasoline last March by between 30 and 35 percent, risking a rise in inflation. Standard gasoline increased by 150 rials (1.9 US cents) per liter to 650 rials (8.12 US cent) and premium went up by 235 rials (2.9 US cents) to 900 rials (11.25 US cent) per liter.

Iran was forced to import one billion dollars worth of gasoline last year to meet domestic demand and the government paid out more than three billion dollars in gasoline subsidies.

Moqaddamizadeh cited Argentine as an example and said: "This country has no oil and earns revenues through refining crude produced in other countries. So we can say that refineries have economic justification." "Of course, the Ministry of Oil says renovation of prevailing refineries and boosting their output can help us minimize gasoline imports," he said.

A new Pentagon office in Baghdad will coordinate and set priorities for Iraq reconstruction projects, including how to spend international donations and proceeds from the sale of Iraqi oil exports, as well as the $18.7 billion Congress recently approved, a Pentagon spokesman said yesterday.

Maj. Joseph M. Yoswa, a spokesman on U.S.-led Coalition Provisional Authority matters, said the office will provide a central place for managing contracts and reconstruction work and should help address concerns about the oversight of the contracting process. John A. Shaw, a deputy undersecretary of defense, announced plans for the creation of the new office last month at a contractors' conference in London.

In disclosing new details yesterday, Yoswa said the office is expected to have about 100 people on staff, including government and private-sector contract specialists. Retired Rear Adm. David J. Nash will run it.

The new Iraq Infrastructure Reconstruction office, which will report to L. Paul Bremer, the civilian administrator for the U.S.-led occupation government, will not actually award any contracts to private companies, Yoswa said. Instead, the office will direct existing government agencies such as the U.S. Agency for International Development (USAID) and Army Corps of Engineers to award about 20 prime reconstruction contracts from the second round of U.S. funds for Iraq, he said.

USAID and the Corps of Engineers, which has a prime role overseeing repairs to Iraq's oil fields and refineries, have both been criticized for their handling of the initial reconstruction contracts, which were awarded through limited competition or sole-source procedures.

Yoswa said officials have not yet decided whether to allow limited bidding in the second round of funding to speed reconstruction. He said officials are also considering whether U.S. laws would allow foreign companies to bid on the contracts.

USAID was the lead agency in the first round of Iraq reconstruction funding, awarding 11 contracts and five grants worth more than $2 billion. It already has a key role in doling out a portion of the $18.7 billion in additional reconstruction funds.

The agency is competitively bidding out $1.5 billion to continue repairing Iraq's infrastructure as a follow-on to a limited-bid contract, worth more than $1 billion, awarded to San Francisco-based Bechtel National Inc. in April. Bids for the new contract were due last Thursday.

Ellen Yount, a spokeswoman for USAID, said the agency does not have a timetable for when the follow-on contract will be awarded.

The Corps of Engineers awarded $1.5 billion worth of work to KBR, a subsidiary of Houston-based Halliburton Co., to get Iraq's oil operations up and running. The Corps is now reviewing bids for two new competitively bid contracts worth $1.2 billion.

As part of the creation of the reconstruction office, the Pentagon has established a Web site, www.rebuilding-iraq.net, and plans to host a contracting conference the week of November 16th in Arlington.