September Refinery Update

New Bush Administration Rule Exempts Thousands of Industrial Plants and Refineries from Part of Clean Air Act

A new regulation supported by the Bush administration exempts thousands of industrial plants and refineries from part of the Clean Air Act.

The Bush administration settled on the rule after more than two years of internal deliberation and intense pressure from the industry.

The new rule constitutes a sweeping and cost-saving victory for industrial plants. It allows older power plants, oil refineries and industrial units to renovate and upgrade their equipment without installing air pollution controls. Plants can engage in routine maintenance without having to install cleaner technologies.

According to The New York Times, the exemption translates into billions of dollars in savings for industrial plants, even if they increase the amounts of pollutants they emit.

Activists from the Clean Air Task Force predict that the enforcement of these changes will yield greater pollution and negative health effects including 20,000 additional premature births, 400,000 additional asthma attacks and 12,000 additional cases of chronic bronchitis.

Imperial Oil's Dartmouth Refinery Now Producing Low-Sulphur Gasoline Following $80 Million Refit

Imperial Oil officially opened its low-sulphur gasoline production unit at its Dartmouth refinery, reducing its sulphur in gasoline content by over 90 per cent.

The construction of the new refinery production unit took 14 months to complete and created work for over 300 local contractors. Imperial Oil invested $80 million in the project, much of it allocated to local suppliers for materials and general services.

"We are very pleased to now be producing and selling virtually sulphur-free gasoline in Atlantic Canada," said Brian Fischer, Senior Vice-President, Products & Chemicals at Imperial Oil. "Our timing coincides with the introduction of 2004 model vehicles which will benefit from low-sulphur fuel. The combination of the new models' advanced emission-control systems and low sulphur gasoline will result in lower vehicle emissions and cleaner air."

The innovative technology used to reduce sulphur at the refinery is called SCANfining - a process that not only removes sulphur, but preserves molecules needed to maintain octane levels for smooth engine performance. Construction of the low-sulphur production equipment has been the most significant project at Dartmouth refinery in more than a decade.

The completion of the Dartmouth refinery refit is part of an overall $575 million investment being made by Imperial Oil to produce low-sulphur gasoline across Canada. All of Imperial's operations will be producing fuel averaging less than 30 part per million sulphur by November of this year, more than a year ahead of the deadline set by Environment Canada. The sulphur content of Imperial Oil gasolines will be among the lowest in the world.

Imperial Oil is Canada's largest integrated oil company and its largest refiner of petroleum products. Imperial Oil has four refineries in Canada: Dartmouth, NS; Nanticoke, ON; Sarnia, ON; and Strathcona, AB.

Clinic's Data Suggests the Region's Refineries among the Dirtiest in Canada

As a group, Sarnia's oil refineries are among the worst in the nation in terms of environmental performance, new data suggests.

The four local refineries -- Imperial Oil, Shell Canada, Nova Chemicals and Sunoco -- released nearly 67,000 tons of pollutants to the air in 2001, including smog-causing sulfur oxides, cancer-causing benzene and lung-damaging fine particulate matter.

In several key areas their emissions far exceeded those of similar U.S. facilities and Canada's 16 other refineries.

"The issue for this community is that, in combination, they're having an enormous impact," said Therese Hutchinson, a research coordinator at the Occupational Health Clinic for Ontario Workers, Sarnia-Lambton.

Scott Munro of the Sarnia-Lambton Environmental Association is not surprised by the data but said it must be put in context.

"The total discharge of benzene locally is less than what comes from one steel mill in Hamilton," he said.

Local benzene emissions have been reduced by 85 per cent in the last decade, he added.

The data was released Wednesday night during an air quality forum in Point Edward hosted by the clinic. Compiled from the industry's own figures, it includes charts that for the first time directly compare the emission performance of Canada's 20 refineries.

Imperial Oil's Sarnia refinery had the worst environmental record of them all, releasing nearly 32,000 tons of pollutants to the air in 2001. The plant was at or near the top in four of nine emission categories, including sulphur and fine particulate.

Imperial Oil spokesperson Janet Maaten said this morning the refineries supported the study. She said the data will be used to help formulate new regulations to reduce emissions.

Shell's local refinery discharged nearly 18,000 tons of pollution and Nova's released nearly 11,000 tons.

The cleanest of the four local refineries was Sunoco's, with emissions of nearly 7,000 tons.

The data was assembled for the National Framework for Petroleum Refinery Emissions Reductions, or NFPRER, a joint effort of petroleum producers and Canada's environment ministers, with input from the local clinic.

"What it shows is that on a level playing field the Sarnia refineries are way over the top. There is no excuse," said Jim Brophy, the clinic's executive director.

The four local facilities represent 20 per cent of Canada's refineries but they produce more than half of the total benzene emissions -- 113 tons a year.

That's enough benzene, distributed at a level strong enough to present an immediate threat to life and health, to fill the interior of 138,500 average homes, said Nora Maher, an occupational hygienist.

"Air pollution from refineries has deep-reaching consequences for community health."

The forum's guest speaker was Gordon Dalzell, who as a leader of a grassroots coalition successfully fought for cleaner air in the industrial city of St. John, New Brunswick.

What Sarnia needs, he said, is a strong, citizen-based group willing to work co-operatively with industry and government to bring about tougher air standards.

Shell Launches Aqua Diesel

Petroleum major Shell has launched Aquadiesel, which it describes as 85 per cent diesel, 13 per cent water and 2 per cent "special additive".

Shell said the water in the diesel allowed it to burn more completely and cleanly. This means a reduction in the clouds of black smoke routinely emitted by commercial diesel vehicles.

Shell claims Aquadiesel reduces particulates by up to 60 per cent, cuts nitrogen oxide emissions by up to 15 per cent and carbon monoxide emissions by up to 50 per cent.

The company said it also "steam cleaned" diesel engines from the inside

No Engine modifications or special fuel storage facilities are required.

It will be marketed as a special product suitable for engines that regularly stop and start, such as those in trucks, buses and ferries, and for underground mining operations.

Shell Australia commercial fuels marketing manager Brett Coleman said Aquadiesel would help improve air quality, especially in built-up areas where vehicles continually stopped and started and in underground mines where diesel emissions in confined spaces were closely monitored.

Aquadiesel is available for commercial customers in NSW and will be marketed in Victoria by the end of next month.

BP Australia in Western Australia markets what it claims is the cleanest petrol in the country - a 98 octane fuel with less than 1 per cent benzene, compared to the Australian Standard specification of 5 per cent.

And Caltex last week extended its far north Queensland trial of E10 - a blend of 10 per cent ethanol with unleaded.

Australian oil refineries introduced low sulphur diesel earlier this year but are under pressure to reduce particulate levels in fuel.

New federal fuel standards come into force in 2006. The industry is committed to spending more than $300 million to upgrade refineries.

Indian Oil Corporation (IOC) warned that its refineries in the eastern region, at Haldia and Barauni, were facing a viability problem owing to their uneconomic size and high handling cost of crude oil. Chairman M S Ramachandran issued this warning at a media meeting today.

The two refineries are dependent on Bay of Bengal ports such as Haldia, where the draft is so low that most of the crude had to be brought in using vessels of less than optimum size.

The draft in Haldia being less that 10m at most times, the cost of handling crude was higher by Rs 500 a ton.

In the oil business today, the margin of a refinery was just the difference between crude price and the selling price of its distillates.

In the case of Haldia refinery, this meant that the unit had become unviable, as had the Barauni refinery which depended on oil pumped via pipeline from Haldia port.

To save the refineries, IOC has decided to offload oil at Paradeep and pump it via a pipeline to Haldia. Paradeep could handle ultra large size carriers. IOC will invest around Rs 400 crore (Rs 4 billion) in the pipeline.

The pipeline will, however, come as a rude shock to Kolkata Port Trust, which has been wooing IOC to continue handling oil at Haldia and had offered alternative solutions like floating offshore storage facilities.

This way, ultra large crude carriers could be handled. The IOC chairman said the options offered were costlier than the Paradeep pipeline option.

The capacity of the Haldia refinery would also be expanded by 1.5 million tons to 7.5 million tons.

The IOC chairman said handling crude had become so expensive that competing oil marketing companies could easily undercut IOC by importing refined crude products like petrol and diesel through Haldia port at a cost lower than the refinery gate cost of IOC.

As for Digboi, the refinery was using its location on the HBJ and north-east Indian pipeline system to actually pump back crude brought in from Haldia to the north-eastern refineries in its attempt to retain viability. This was also helping refineries in north-eastern India.

In any case, the refineries in north-east India, at Guwahati, Digboi and Bongaigaon, were no longer in danger of turning sick.

This was because the central government had granted them exemption from excise duty to the extent of half the duty payable. This had ensured their survival.

Give HPCL to ONGC, Says Oil Ministry

Within 24 hours of the Supreme Court halting the privatisation of Hindustan Petroleum Corporation Ltd, the petroleum ministry appears to have hit upon a magic formula to divest the oil marketing company while keeping it in the government's fold.

The petroleum ministry is drawing up a proposal for the Cabinet to offer more than 26 per cent of the government's equity in HPCL to the Oil and Natural Gas Corporation on a nomination basis.

With this, while management control of HPCL will be pass on to ONGC, it will still remain a government company. The other option is to merge the two companies.

This will help the government to get closer to its divestment target of Rs 13,200 crore (Rs 132 billion) for the current fiscal, and also comply with the Supreme Court ruling that a company nationalised by an Act of Parliament cannot be privatised without parliamentary approval.

The benefits for ONGC from the takeover are the two HPCL refineries on either coast, apart from a readymade oil retailing network. If the proposed Bhatinda refinery comes up, ONGC will have a fairly good spread of refineries.

The petroleum ministry is confident that the proposal will not face much opposition. Since HPCL would remain with a government-owned company, Opposition parties should not have any problem, ministry officials pointed out.

The move follows Petroleum Minister Ram Naik describing as historic the Supreme Court ruling that nationalized oil companies could be privatized only after parliamentary approval.

In February 2002, Naik had insisted that public sector units should be allowed to bid for oil companies that were being put on the block. However, he was overruled at the Cabinet Committee on Divestment in September 2002.

Even the standing committee of Parliament on petroleum and chemicals had recommended that HPCL and BPCL be first merged before merging them with ONGC.

In its 42nd report, the committee, headed by Mulayam Singh Yadav, had also criticized the government for restraining public sector undertakings from bidding for other PSUs, saying "this negated the concept of competition and countered the essence of right to equality".

ONGC officials said the corporation had substantial cash in hand to pay anything up to Rs 8,000 crore (Rs 80 billion) for acquiring management control of HPCL.

Govt Report Says Assam Refineries Unviable

Assam, with its four refineries, was expected to play a key-role in the country's Petroleum and natural gas sector but sub-economic size and locational disadvantages have made all the four units unviable.

The combined capacity of the four refineries is a mere seven million metric tons and their viability is threatened due to several factors including lower availability of North East Crude, lower local demand, sub-economic size and additional investments for quality improvements.

A report by the Union Ministry of Petroleum and Natural Gas points out that as these refineries are of sub-economic size and suffer from locational disadvantages, they need government's intervention for ensuring their viability after the dismantling of the Administered Price Mechanism (APM).

PAKISTAN

PC Receives 9 EOI for Privatization Of National Refinery Ltd

From Islamabad, Pakistan comes the news that The Privatisation Commission has received Nine Expression of Interest (EOI) from firms consortiums including Investment Banks having ample experience in privatization, restructuring and merger in the Oil & Gas sector for providing Financial Advisory Services for the privatization of National Refinery Limited. PC Receives 9 EOI For Privatization Of National Refinery Ltd

The government has decided to privatize National Refinery Limited with a proposal to sell up to 51 % equity of NRL together with the transfer of the management control to a strategic investor.

NRL is a petroleum refining and petrochemical complex consisting of one fuel refinery; two lube refineries and a BTX (petrochemical) plant. It is located in Karachi.

The company's refineries have a combined processing capacity of 2,710,500 tons per annum of crude oil. During the last five years the plants have been operated at 87 % to 102 % of their crude processing capacity.

CHINA

As Chinese crude-oil imports break records, China is scrambling to salvage a multibillion-dollar pipeline project with Russia that promises a steady supply from rich Siberian oil fields just beyond its borders, Tuesday's Wall Street Journal reported.

With both China and Japan courting Russia's crude oil, the pipeline is doing as much to divide Asia's economic giants as to narrow their differences. For months, Chinese and Japanese officials have shuttled to and from Moscow trying to strike separate pipeline deals. A series of high-level meetings, including the arrival of Russian Prime Minister Mikhail Kasyanov in Beijing today, is set to intensify this tug-of-war and risks ruffling feathers in all three capitals. The Russian prime minister is also scheduled to visit Japan later this year.

China's fast economic growth has stoked its appetite for oil, prompting the search for new suppliers. China's oil imports rose 26% for the first eight months of 2003 from a year earlier, to 57.42 million metric tons, a historical high, Chinese customs said Monday. China is expected to import a record 80 million tons of crude oil this year, up from 70 million tons in 2002. As Beijing seeks to reduce supply from the politically tense Middle East, Russia has become China's seventh-largest source of crude oil. In the first eight months, imports from Russia jumped 80% to 3.1 million metric tons, according to Chinese customs.

But hopes have dimmed for the potential centerpiece of this new energy partnership. Under a framework agreement, the 2,400-kilometer oil pipeline would stretch from the eastern Siberian region of Angarsk to China's refineries in Daqing in the northeast. In May, Chinese President Hu Jintao and Russian President Vladimir Putin both endorsed the $2.5 billion project. Yet frequent, and sometimes profanity-laced, talks at lower levels have failed to resolve differences in views on the pipeline's construction and the price for oil, said a person familiar with the deal. On Sunday, a top Chinese official denied that Russia planned to abort the project.

Russia Delays China Pipeline Deal

The Russian prime minister, Mikhail Kasyanov, has postponed a deal with China to build an oil pipeline between the two countries.

Speaking on a visit to China, Mr Kasyanov said Russia was still carrying out technical and environmental studies for construction of the $2.5bn pipeline.

It would run for 2,400 kilometers (1,500 miles) from the Angarsk oil fields in Siberia to refineries in the northeast Chinese city of Daqing.

Correspondents say China needs Siberian oil to fuel its fast growing economy, but Tokyo has also been lobbying Moscow hard to extend the pipeline to the Sea of Japan.

Mr Kasyanov said that before a decision is made on the pipeline route, Russia will increase the amount of oil it ships to China by rail.

Sinopec Starts Work on Pipeline's Last Part

China Petrochemical Corp, or Sinopec Group, will soon start construction of a 53.5-kilometer pipeline under Hangzhou Bay, the last section of China's longest crude oil pipeline now being built.

The pipeline is part of the 666-kilometer oil conduit connecting Ningbo in Zhejiang Province, Shanghai and Jiangsu Province's Nanjing. Construction for all the other parts has already started.

With a total investment of 2.3 billion yuan (US$277.1 million), the project was launched last September. It is expected to be completed by April next year.

The pipeline will transport imported crude oil to Sinopec's five subsidiaries in the Yangtze River Delta. They are Sinopec Shanghai Gaoqiao Petrochemical Corp, Sinopec Shanghai Petrochemical Co, Yangzi Petrochemical Co, Jinling Petrochemical Corp and Sinopec Zhenhai Refining and Chemical Co.

"The pipeline will help cut oil transportation expense and wastage," said Yu Guangxian, a senior official with Sinopec Shanghai Petrochemical Co. "Less than 100 yuan per ton can be saved in production cost."

At present, there is no deepwater port in Shanghai and refineries in the city have to depend on barges to transport crude from tankers to land, Yu noted.

Meanwhile, Shanghai Petrochemical is building an 800,000-ton tank to serve as a oil reservoir for Shanghai Petrochemical, Gaoqiao Petrochemical and Yangzi Petrochemical.

The refining capacity of the Yangtze Delta accounts for 17 percent of the nation's capacity. And most of their production depends on imported crude oil.

The designed transportation capacity of the pipeline is around 40 million tons of crude oil a year, Xinhua news agency said.

China Aviation Oil Expects Strong Pft In 3Q

China Aviation Oil (Singapore) Corp. (D.CAO), which supplies almost all of China's jet fuel imports, expects to report strong profit growth for the third quarter ending Sept. 30.

"Our investments have very good returns, with Pudong showing good profit. Our international oil trading business also has very good results," Chen Jiulin, the company's managing director and chief executive, told Dow Jones Newswires in an interview late Wednesday.

The company holds a 33% stake in Shanghai Pudong International Airport Aviation Fuel Supply Co., the sole supplier of jet fuel to Shanghai's Pudong airport and the owner of its refueling facilities. The unit now accounts for around half of China Aviation's earnings.

Listed on the Singapore Exchange in December 2001, China Aviation is the only publicly listed unit of China Aviation Oil Holding Co., a large state-owned Chinese company that provides aviation transportation logistics.

With the end of SARS and a recovery in air traffic, demand in China for jet fuel is "great," Chen said. Imports account for about a third of China's consumption of jet fuel.

Demand from airports in Beijing, Shanghai and Guangdong has been rebounding strongly, said Chen, while supply from Chinese refineries has been lagging.

"Every year, the third-quarter results are good. The second quarter was the hardest part of the year. The hardest part is gone," he said.

Hard it may have been, but China Aviation still managed to post a 42% on-year surge in net profit in the second quarter to S$11.3 million (US$1=S$1.7333), thanks to strong contributions from investments and international oil trading. For all of last year, the company reported a 19% increase in net profit to S$48.2 million.

The company only started reporting earnings on a quarterly basis beginning this year.

Chen said he also expects China Aviation to be paid a good dividend this year by Companica Logistica de Hidrocarburos, or CLH, in which it has a 5% stake.

"CLH, they usually pay the dividend every year. It should be good as they have been doing well," he said.

CLH is Spain's leading oil carrier and owns the largest network of oil pipelines and storage facilities in that country.

In July, China Aviation secured a US$160 million credit facility that it said would be spent on oil-related assets in the U.S., China and the Asian region. Asian, or the Association of Southeast Asian nations, groups Brunei, Singapore, Malaysia, Thailand, Laos, Cambodia, Indonesia, Vietnam, the Philippines and Myanmar.

However, Chen said his company has decided not to participate in an Asian project.

"We just terminated the contract with the investment bank appointed for the Asian project," he said. "The counterparty was tough. It’s a listed company and the actual value (of the project) was below the market value (but) they asked for higher than the market price." He didn't elaborate.

Chen said China Aviation Oil now would concentrate its efforts on two projects in China and one in the U.S., all of which are related to the oil business, such as terminals and pipelines. He didn't provide anymore details on these projects.

PHILIPPINES

Caltex Shuts Down Batangas Refinery

After 50 years of processing crude oil in the country, Caltex Philippines announced the shutdown of its refinery in Batangas because of a huge surplus of finished products which depresses refining margins, and the downside effects of a deregulated industry.

In a press briefing, Caltex country chairman Timothy Leveille said the 125-hectare property along Batangas Bay in San Pascual, Batangas will be converted into a P750-million finished product import terminal by the fourth quarter of this year. This means that Caltex will no longer processed crude oil into finished petroleum products but will instead be importing its products in Singapore, Australia, New Zealand, South Africa, Thailand, South Korea and from other third party refiners in Taiwan, India, Saudi Arabia, Kuwait, Bahrain and United Arab Emirates.

Leveille said it was wise to replace the refinery into a product terminal than upgrade it simply because the facility is too small and its technology is outdated. The Batangas refinery became operational in 1954 with a capacity of 13,000 barrels per day. The refinery’s current capacity is only 72,000 barrels a day.

The official pointed out that there is an excess of 1.2 million barrels of refining capacity a day in Asia-Pacific and the Middle East, with an additional two million barrels of capacity being added over the next five years. The surplus, he said, will continue to depress the margins in the next years to come.

“Many of these refineries were built or significantly expanded during the ’90s when Asia’s economic growth was accelerating at a staggering rate and the projected need to fuel it had to keep pace. But primarily as a result of the Asian economic crisis that growth did not materialize and there is now a widespread of oversupply of refining capacity in the region,” he explained.

“Our Batangas refinery was exposed to import competition from these larger and more efficient offshore refineries which significantly eroded our refinery’s economic viability. Today, it costs us more to manufacture our products at Batangas than it costs our competitors to import theirs,” he said.

The new players control 14 percent of the market and according to Leveille “they are a threat to Caltex.”

For Caltex to remain viable and competitive, Leveille said the way to get there is to “adopt a product import strategy and thereby turn a competitive disadvantage into a strength.”

“All of our findings pointed to the Batangas refinery and the need to ensure a competitive source of product supply as the key to our strategy. This is because roughly 90 percent of our total operating costs are the costs of our finished products,” he added.

The converted terminal will have a storage capacity for finished products of 2.7 million barrels, making Batangas a major hub for product supply and distribution in the country. Including other Caltex terminals and depots nationwide, Caltex will have a total of product storage capacity of over four million barrels representing 65 days of Caltex current sales volumes.

He assured the public that there will be no disruption in its ability to supply full range of high-quality Caltex products nationwide.

However, the refinery conversion will lead to separation of 180 employees out of the 220 total work force at the refinery.

“It may be a possible trend in the Philippine refining industry. However, Petron and Shell have committed to continue their refinery operations here. Now there are only two refiners in the country -- Petron and Shell and two major oil players -- Caltex and Total. We now have four big players,” he said.

For the financial year ended June 30, 2003, NRL's net sales were more than Rs. 36 billion and profit after tax was Rs. 1,352 million.

The company's financial performance has improved consistently over the last seven years. The parties who have submitted EOIs have been asked to submit their Request for Proposal (RSOQ) latest by October 15.

INDONESIA

Iranian Oil Co Wants To Build Refinery in Indonesia

The National Iranian Oil Co. (C.NIO) wants to build a refinery in Indonesia, which could help the South East Asian country reduce its reliance on imported oil products, a government official said Wednesday.

"If the plan is feasible, it will seek local partners to build the refinery," said Iin Arifin Takhyan, oil and gas director general of the mines and energy ministry.

However, Iin said it is still too early to tell where the refinery will be located and the capacity of the proposed refinery.

Iin added that the National Iranian Oil Co. has promised to supply crude to the refinery if feedstock from domestic supplies isn't enough.

Indonesia currently imports around 20% of petroleum products to meet the growing demand in the country.

The government has said that oil product consumption will rise 4.4% to 383 million barrels this year from 367 million barrels last year.

State-owned oil and gas company Pertamina currently operates seven refineries with a total output of about 800,000 barrels a day.

Iran and Indonesia are members of the Organization of Petroleum Exporting Countries, or OPEC.

InterOil Corporation, a Canadian company with operations in Papua New Guinea announced today that it has awarded its Facilities Management Contract to Petrofac. The contract will include assistance with pre-commissioning and commissioning of InterOil's refinery currently under construction, followed by the total management of day to day refinery operations, maintenance and production. The refinery is expected to be mechanically complete in the first quarter 2004.

Petrofac has provided services to the international petroleum industry for over 20 years and currently operates refineries and offshore platforms around the world. It has major operating centers in the UK and the Middle East and support offices spanning Africa, the Commonwealth Independent States, Indian Sub-Continent, Far East and South America.

"Petrofac's significant experience in facilities management provides InterOil with an opportunity to optimize operational efficiencies at our refinery while it is still under construction," stated Phil Mulacek, CEO of InterOil. "Both companies view this contract as strategic in light of future business opportunities in PNG's evolving upstream and midstream sectors."

Petrofac, a privately held company founded in Texas in 1981, designs, builds, commissions and operates surface facilities for oil and gas production, gas processing and oil refining. InterOil is focused on Papua New Guinea and the surrounding region, and is developing an integrated energy business consisting of an oil refinery, petroleum exploration and retail assets. The majority of product from the refinery is secured by contracts with Shell Overseas Holdings Ltd. BP Singapore is the exclusive agent for all crude oil supplied to the refinery. In addition to the refinery and retail assets, InterOil has commenced an extensive exploration program in Papua New Guinea.

3. EUROPE /AFRICA / MIDDLE EAST

SERBIA

Bloomberg LUKoil will spend 207 million euros ($226 million) to buy a majority stake in Serbia's Beopetrol, the company's first successful bid for a European oil company since 1999.

LUKoil will pay the Serbian government 117 million euros in cash for 79.5 percent of Beopetrol, Serbia's No. 2 fuel retailer, and will invest the rest later, the tender commission said. Beopetrol has 179 filling stations.

LUKoil beat out Hungary's Mol, which offered about 190 million euros in cash and investments.

LUKoil, which has 900 filling stations in Eastern Europe and the former Soviet Union, is looking to boost profit margins by selling more refined products directly to car owners. After taking over Romanian and Bulgarian refiners in 1999, LUKoil failed in attempts to buy oil companies in Croatia, the Czech Republic, Greece, Lithuania, Montenegro and Poland.

LUKoil and Budapest-based Mol are competing with Austria's OMV and Poland's PKN Orlen to expand in former communist countries in Eastern Europe, where economic growth is expected to accelerate when eight of the region's countries join the European Union next year.

The Russian company will have to import crude oil for refining in Serbia as the government will not let it sell oil products refined elsewhere in Serbia, said Aleksandar Vlahovic, Serbia's minister for state asset sales.

"The privatization of Beopetrol produced results that are above expectations considering the estimated value of capital that the agency had as a benchmark," Vlahovic said at a press conference Monday in Belgrade..

Mol had sought to add Beopetrol's filling stations to extend its expansion in east Europe. The Hungarian company spent more than $1.1 billion in the past three years to buy refiners in Slovakia and Croatia and gas stations in Romania.

The company will now probably start building a network in Serbia, analysts said.

LUKoil has refineries in Russia, Ukraine, Romania and Bulgaria. It failed this year in bids for a majority stake in Rafineria Gdanska, Poland's No. 2 refiner, and for a minority stake in Hellenic Petroleum, Greece's largest refiner.

Serbia's tender commission will have one month to conclude exclusive talks with LUKoil.

PETROLEUM and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) has suspended its planned industrial action against most of the oil companies operating in the country, even as it called on the federal government to immediately revoke the licences issued to private investors for the construction of private refineries if they are not ready to commence the construction of refineries.

In a communique issued at the end of the body's emergency Central Working Committee (CWC) in Benin, Edo state, PENGASSAN said the suspension was due to the positive responses by most of the oil companies to the earlier ultimatum given to them on July 19, as well as the intervention of the Speaker of the House of Representatives, the Minister of Employment, Labour and Productivity, the Special Adviser to President Obasanjo on Petroleum and Energy Matters amongst others.

The communique noted, however, that "the CWC-in-session frowns at the nonchalant attitude of some companies in relation to anti-labour issues raised in the communique of July 19, 2003. Therefore, the following companies namely: Mobil Oil Nigeria Ltd., Mobil Producing Nigeria Unlimited; CONOIL/BELBOP; Schlumberger; Trans Ocean; Sedco Forex, Lone Star, Shell Petroleum Development Company and African Petroleum are advised in their own interest to comply forthwith, as the association will not be held responsible for any unpleasant consequences arising from their non-compliance.

"The CWC-in-session frowned at the practice of some companies in the industry that deny employees the right of association. This is in contravention of Section 40 of the Constitution of the Federal Republic of Nigeria which guarantees freedom of association. It views this as unethical and totally unacceptable and therefore, calls on the management of Schlumberger, CONOIL/BELBOP, ADAMAC Group and others involved, to refrain forthwith as the association is poised to take drastic actions against them.

"The association reiterates its earlier December 31, 2003 deadline to the Federal Government on the revamping of the existing refineries. It also calls on the federal government to revoke without further delay, licenses issued to private investors for the construction of new refineries if they are unwilling to utilize them. The current security and economic situation in Warri and its environs which is the resultant effect of federal government's indifference to PENGASSAN's earlier call for a lasting solution to the problems of the Niger Delta is highly condemnable. While we appeal to all the ethnic nationalities in this region to sheathe their swords and open up to meaningful dialogue, the federal government is hereby called upon to show sufficient political will to resolve the crisis in the Niger Delta without further delay."

October Targeted for Implementation of Deregulation in Nigeria

The Federal Government has asked petroleum products marketing companies to prepare for the full deregulation of the downstream oil sector, by putting their facilities in top shape to cope with the upsurge in activities that will come with the new policy.

Government's charge to the oil marketers, through the Department of Petroleum Resources (DPR), came amid indications that full deregulation of fuel supply and distribution in Nigeria may take off next month.

Addressing operators of fuel depots in Lagos, the Director, DPR, Mr. Mac Ofurhie, said that marketers must start now to upgrade the safety standards in their depots.

He said that marketers now have up till March 31, 2004, to renew the operating licenses for their fuel depots, failure which the DPR would seal the depots. He added that only those who scaled the test on facility upgrade will have their licenses renewed.

According to him, the commencement of the full deregulation of the downstream oil sector, would see marketers get more involved in products importation. "We cannot afford to fail. We cannot afford to sell products that are not acceptable to members of the public."

Ofurhie said that marketers going into fuel importation would be required to submit the certificate of quality of such products to the DPR, seven days before arrival of the vessel.

"Because NNPC does most of the importation now, the few vessels that marketers imported, they submit the certificates to us two days before the vessels arrive.

"When deregulation takes full effect, they must comply with the seven-day period or the vessel will not be allowed to discharge," he added.

Industry officials said that they had received notice from the Petroleum Products Pricing Regulatory Committee (PPPRA) that full deregulation of fuel supply and distribution would commence from the first week next month.

With full deregulation, prices of petroleum products will be determined according to market forces, as against the current practice of the government to peg prices.

Presidential Adviser on Petroleum and Energy, Dr. Rilwanu Lukman, who said last week that full deregulation would allow eventual take off of private refineries, also announced government's plans to begin the exportation of fuel and other refined products.

He explained government's decision to grant licenses for the establishment of private refineries in the country, arguing that the development would expand the product base. "More importantly, however, is the fact that Nigeria's future local consumption could be met through refined products from refineries located within our shores."

"These local refineries will also increase our earnings from oil as more revenue is bound to accrue, as opposed to mere crude oil marketing in the international market.

"Government is working on a time-table for the implementation of these plans at the end of which sustained product availability will be achievable.

"Indeed, it is envisaged that Nigeria will not only be self-sufficient in the supply of petroleum products but will also become a net importer."

He said that government had since 1999 pursued measures aimed at increasing the operational efficiency of the nation's four refineries, with a combined production capacity of 445,000 barrels per day.

Why NNPC is Being Restructured, By Obasanjo

President Olusegun Obasanjo said the Nigerian National Petroleum Corporation (NNPC) was being restructured for a better and efficient management of the nation's oil and gas assets and to earn more revenue.

The president has also directed the National Council on Privatization (NCP), headed by Vice President Atiku Abubakar, to submit to him and the Federal Executive Council within eight weeks, the final draft of the new Nigerian oil and gas policy. The policy is to spell out how the nation would maximize the net economic benefit from oil resources

Obasanjo who spoke in Abuja at the national stakeholders' workshop on oil and gas policy for Nigeria, said the re-organization in the NNPC was by itself, a major element of oil and gas sector reform. He added that the reforms was a "necessary adjunct of the restructuring of public enterprises involved in gas transport and trading, products marketing, oil services, etc."

Under the restructuring, the government reduced NNPC directorates from six to four while 24 senior officials including three group executive directors were retired.

The president said though the country earned over $300 billion revenue from the petroleum sector over the past 30 years, it was however, still faced with "legacy of power failures, elusive and epileptic electricity available to less than 50 per cent of our population and a notoriously inefficient market for refined petroleum products."

"It was the desire to break free from this vicious circle of poverty amidst stupendous riches that has compelled this administration to undertake a comprehensive oil and gas sector reform program," said Obasanjo who was represented at the workshop by his Special Adviser on Energy, Dr Rilwanu Lukman.

Under the reform plans according to the President, the Pipelines and Products Marketing Company (PPMC), an NNPC subsidiary, as well as the refineries will be privatized while new companies will be created out of the Nigerian Gas Company (NGC) and privatized to enable the country take full advantage of its huge gas resources.

"We recognized that all these developments will produce sub-optimal results if they are carried on outside the context of a comprehensive policy framework that sets out a clear path to the ultimate goal that I have earlier enunciated," said the President.

He noted that the draft policy, prepared by the NCP, identified four key aspects of oil and gas policy. These are the sensitivity to the nation's natural environment, need to derive maximum economic benefit, competitive supply of products, and long term exploitation of hydrocarbon resources.

The workshop was organized by the Bureau of Public Enterprises (BPE) to sensitize all stakeholders in the petroleum industry to the draft policy produced by UK-based consultancy firm, Nexam Limited.

The Director-General of the BPE, Dr Julius Bala, said the policy was prepared by the 25-man Oil and Gas Sector Reform Implementation Committee (OGIC) headed by Lukman.

Bala said in preparing the document, Nexam was appointed to, among other things, review and comment on existing and proposed sector policies, review the existing laws governing the petroleum sector and highlight appropriate future roles for the government regulatory agencies and the NNPC after privatization.

The draft policy recommended the creation of a National Petroleum Council, under which the Special Adviser on Energy and the Minister of Petroleum Resources would operate.

In the model structure contained in the draft, it was recommended that a National Petroleum Directorate (NPD) that will supervise the NNPC, oil companies should be created.

Also, the National Petroleum Investment Management Ser-vices (NAPIMS), the NNPC subsidiary managing government's interest in joint venture oil business, would be under the Ministry of Finance.

However, these recommendations were strongly opposed by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN). The union in its presentation at the workshop described the NPD as a duplication of the functions of the Department of Petroleum Resources (DPR).

PENGASSAN also said that rather than move NAPIMS to the Ministry of Finance, the agency, which manages payments of cash calls for the funding of government's equity in oil operations, should be merged with the DPR to form the Petroleum Inspectorate Commission/Petroleum Resources Commission.

"While the former NAPIMS handles investment roles, the latter will be concerned with government technical functions in the industry," the union said.

Russia says it hopes to build a giant oil pipeline to the Arctic port of Murmansk, which will help it cope with booming output and boost exports to the United States, by 2007-2008.

The country's economic minister German Gref said the pipeline project was a priority for Russia, which is looking to diversify booming energy exports away from traditional European markets. But he also said it was premature to say who will own and operate the giant link.

A $4-billion plus project to build a pipeline from Western Siberia to a deep-water terminal in Murmansk, which could ship as much as 2.4 million barrels per day (bpd), was unveiled last year by Russia's five top private oil majors, including LUKOIL<LKOH.RTS> <LKOH.RTS> and YUKOS <YUKO.RTS>.

The government, which controls all pipelines through its monopoly Transneft, at first opposed the private link idea.

Russian oil majors have suggested they could lend money to Transneft, which would operate the link but give them privileged access.

"I hope that we will start implementing the project from 2005 and if everything goes smoothly, Transneft promises to complete and ship the first oil within the next three years," Gref told a Russia-U.S. energy summit.

Officials from the United States, the world's largest energy consumer, have said that by producing more oil Russia was already making oil markets more stable and reducing the risk of supply disruptions from the volatile Middle East.

But officials from Russia, the world's second largest oil exporter after Saudi Arabia, have said the country would specifically target U.S. markets to avoid further saturating Europe.

A deep-water port in Murmansk would allow Russia to load very large tankers to make shipments more profitable as well as to bypass the crowded Turkish Black Sea Bosphorus straights and Danish straights in the Baltic Sea.

Gref said he expected the pipeline's feasibility study to be ready in February 2004. The government would then decide who will be operate the link and how it will be financed.

He also called on U.S. firms to start upgrading refineries on the eastern coasts, which at the moment are generally not equipped to process Russian medium-sulphur Urals crude.

"It will be very important for us to understand whether the U.S. east coast can accept Russian Urals crude," he said.

The head of YUKOS Mikhail Khodorkovsky told the same conference his preliminary estimates showed that it would take only nine days for a cargo to sail from Murmansk to the U.S. east cost compared with 32 from the Gulf and 16 from Nigeria.

The United States has asked Israel to explore reviving a pipeline route pumping oil from Iraq direct to the oil refineries in the Israeli port of Haifa.

The office of the Israeli Prime Minister, Ariel Sharon, sees the pipeline project as a "bonus" in return for Israel's backing of the US-led campaign in Iraq, the Israeli newspaper Haaretz reported yesterday.

The pipeline from Mosul to Haifa was a vital supply line for British forces in the Second World War. In 1941, Britain sent forces to protect the oil pipeline and overthrow the pro-German Iraqi politician who had taken power in Baghdad in a coup. But the pipeline fell into disuse after 1948, when Iraqis stopped the flow of oil to Israel.

With pumping stations on the old pipeline unused for more than 50 years, a new pipe would need to be laid. It would take oil from the Kirkuk area, where some 40 per cent of Iraqi oil is produced, Haaretz reported, and transport it via Mosul, and then across Jordan to Israel.

Israel's oil imports are 12 million tones a year, but it continues to suffer under a trade embargo by the oil-rich Arab states of the Middle East. Some 80 per cent of Israel's oil is bought from the former Soviet Union, the rest on the market in Rotterdam and from Egypt.

"There is no precise plan at this stage. There is a project sketched out," said the Israeli infrastructure minister's spokesman, Joseph Paritzky. The minister is to visit Washington in two weeks to discuss energy issues.

The Jerusalem Post said Israel's foreign ministry criticised the initiative over concern that it would fuel rumors of an Israeli-US design to control Iraq's oil reserves, the second largest in the world after Saudi Arabia.

Haaretz quoted Paritzky as saying the pipeline could pass through Jordan, which would receive a transit fee. Jordan signed peace with Israel in 1994.

Haaretz said the United States has asked Israel to check the possibility of pumping oil from Iraq to Haifa.