may 05 update

The Organisation of the Petroleum Exporting Countries has called for greater investment in oil refinery capacity to relieve bottlenecks, particularly in the US, which it blames for the current high fuel prices.

Sheikh Ahmad al-Fahd al-Sabah, Kuwait's oil minister and the current president of Opec, said at the weekend that the oil producing governments could link foreign investment in exploration and production with greater spending on downstream projects.

Oil companies are investing heavily in exploration to replace their dwindling reserves, but have been less keen to spend on refining because of poor returns in the past and the length of time required to build new plants. No new refinery has been built in the US for 30 years.

Speaking at the World Economic Forum in Jordan, Sheikh Ahmad said refinery bottlenecks were a strong factor behind the high oil price, currently just under $50 a barrel. "What's needed now is joint investment in both upstream and downstream operations. To make downstream investment attractive to international oil companies it should be tied in to upstream investment," he said, according to wire reports.

His comments echo those made by Ali al-Naimi, the oil minister of Saudi Arabia, which has been increasing the volume of oil it produces to meet growing demand. "By increasing the stocks [of oil], you can demonstrate that supply is not the problem. It's the wrong sort of crude. The refinery bottlenecks are the problem," he said on a visit to Washington.

Mr Naimi blamed excessive US regulation for some of the bottlenecks, saying that a multitude of fuel standards across the country had made the industry too fragmented and complex.

Opec nations have said that unless these infrastructure issues are tackled, increasing the volume of oil they produce would not be enough to bring down prices.

Oil producing nations are keen to develop their own refinery capacity as a way to add value to their crude, improve domestic fuel supplies and to bring greater diversification to their economies.

Saudi Arabia plans to invest in oil refineries within its borders and in India, while Kuwait is looking for backers to help build the country's fourth oil refinery.

Libya is also trying to attract foreign money for its growing oil industry, and held a roadshow in London for potential investors. The country aims to double its oil output to 3m barrels a day by the end of the decade.

Opec is expected to hold its next meeting on June 15. The organization has said that if US oil stocks rise above previously agreed levels it might curtail production.

1. AMERICAS

U.S.

New CHS Refinery Equipment Should Lower Emissions later this Year as SO₂ Pollution Rises

Sulfur dioxide pollution increased 9 percent in the Yellowstone Valley last year, from 13,610 tons to 14,841 tons.

But, sulfur dioxide emissions for this year should be lower as new pollution-control equipment kicks in at the CHS refinery in Laurel.

Jim Hughes, an environmental specialist with the state Department of Environmental Quality, said control equipment on the older sulfur recovery unit at CHS, formerly known as Cenex, went into operation late last year and should cut the plant's overall sulfur dioxide emissions by 1,300 tons to 1,400 tons, bringing the refinery's annual total to less than 1,000 tons.

"There is a very good chance that CHS emissions will be very close to ConocoPhillips next year,'' Hughes said. "I think those guys will be in a horse race for trying to get the lowest rate of emissions,'' he said.

While the valley had a bit of an upswing in emissions for 2004, the overall trend continues downward. "It's still in the right direction,'' Hughes said. "It's not a steep decline, it's a gradual decline.''

Polution Pollution peaked in the Yellowstone Valley 12 years ago, when local industries pumped 35,581 tons of sulfur dioxide into the air. The valley has seven major sources - three oil refineries, two power plants, a sulfur recovery plant and a sugar beet plant.

Besides reporting on emissions, DEQ tracks pollution levels with ambient air monitors to determine whether the amount of sulfur dioxide in the air violates public health standards. Hughes said all of the monitors showed concentrations well below the limits. Citizen complaints about air quality are rare, he said.

Last year, only the ConocoPhillips refinery reduced emissions. Emissions at CHS stayed the same, while emissions from the ExxonMobil refinery, increased.

The valley's three refineries also reached a milestone for the amount of oil refined in a year. DEQ information shows that the refineries processed a record 61.3 million barrels of crude oil, or 5 percent more than in 2003. The amount of crude oil refined has increased steadily since 1987, when the total was about 40.8 million barrels.

ConocoPhillips processed 21.4 million barrels and was the most efficient at removing sulfur dioxide, with a rate of 0.03 pound of pollution per barrel refined. CHS was next with 20.3 million barrels of crude refined at a rate of 0.17 pound of sulfur dioxide per barrel. ExxonMobil refined 19.6 million barrels and had the highest emission rate of 0.51 pound of sulfur dioxide per barrel refined.

Here is a look at the individual industries:

ConocoPhillips

The refinery's emissions dropped 20 percent, or 89 tons, from 429 tons to 340 tons last year. Operations Manager Steve Geiger said the plant conducted trials on different catalysts added to the refinery's main gas-producing unit, called the cat cracker, to reduce sulfur dioxide as part of a consent decree with the federal Environmental Protection Agency and the state in 2001 to resolve air-quality issues.

This year the refinery has to demonstrate consistently low emissions performance for the pollutant as well as for nitrogen oxide and new limits for the unit will go into effect beginning in 2006, Geiger said.

Reliable operations also contributed low pollution numbers. Geiger said the plant "ran very smoothly last year'' even though it had record production and the crude is getting more "sour,'' which means it contains more sulfur. "The demand is definitely there'' for fuels, he said. "It's really a team effort.''

A project to produce low-sulfur diesel also is under construction and is slated to start operations late this year, Geiger said. The project will cut the amount of sulfur in diesel from 500 parts per million to 15 ppm.

CHS

The refinery's emissions of 1,730 tons in 2003 remained the same for last year, but reductions are under way. Greg Brown, the environmental, health and safety manger, said, "Hopefully next year, we will have a pretty significant reduction. That is our goal.''

Brown predicted the 2005 sulfur dioxide emissions should be about 750 tons.

The reductions are from the installation of a tail gas recovery system on the plant's older sulfur plant to control sulfur dioxide. The control system was brought on line in November, he said.

The project is part of the refinery's $87.5 million diesel hydrotreating project to cut sulfur in the fuel as required by federal regulations. The low-sulfur diesel project is expected to go on line in June or July, Brown said.

CHS also had a good year for operations, he said.

ExxonMobil

The refinery's emissions increased 19 percent from 4,252 tons to 5,049 tons in 2004, making it the biggest source of sulfur dioxide in the valley.

Dale Getz, public affairs spokesman, said the increase is a reflection of normal operations. The year before, the refinery's main gas processing unit underwent repairs. Getz said it is company policy not to discuss operations at specific units.

Getz said he was not surprised at the record amount of oil refined in the valley. "We, like our competitors, are trying very hard to produce all we can to meet demand,'' he said. ExxonMobil also completed in the fall of 2003 a $76 million project to reduce sulfur in gasoline and is beginning project to reduce the sulfur in its diesel.

Getz said ExxonMobil's emissions are down almost 57 percent from 1993.

Suncor Energy's Colorado Refinery Proceeds with Major Unit Upgrade

Suncor Energy (U.S.A.) Incorporated has awarded a contract to perform capital upgrades and maintenance turnaround activity at its Colorado refinery.

Deer Park Refining Studies Next Expansion at Texas Petroleum Refinery

Deer Park Refining Company LP is proceeding with studies to expand its petroleum refinery in Texas.

Cleanup of Total Refinery on Track

Another three or four years and most of the Total Refinery site will be all cleaned up - and a new business might be sitting on that location.

Rick Draper, a spokesman for Valero, the company that now owns the site, provided Alma city commissioners May 10 with an overview of the progress made so far.

About 16 million pounds of steel and other metals were sold to Alma Iron and Metal. Underground concrete - some 62,000 yards and to a depth of about 6 feet - was demolished and gasoline byproducts were removed from the groundwater.

That crushed concrete, however, has to remain on the site, according to state law, he said. But it may be used in the redevelopment of the area.

"It's got trace metals but very low concentrations," he said. "It could be used for parking lots - a lot of it can be used."

Hydrocarbons and other contaminants that weren't absorbed by the ground floated on top of the water, Draper said. In some spots, the contamination measured 1 or 2 feet on top of the water. About 20,000 gallons of water were removed and cleaned enough that now bugs and other biological agents can be brought in to eat up the rest.

EPA Reaches Agreement with BP Whiting Refinery

U.S. Environmental Protection Agency Region 5 has reached an agreement with BP Products North America Inc. on alleged clean-air violations at the company's petroleum refinery at 2915 Indianapolis Blvd., Whiting, Ind. EPA assessed a $58,687 penalty.

The agreement resolves EPA allegations that BP discharged more than twice as much lead and cadmium from its hazardous waste incinerator during a test in March 2004 than is allowed by the Clean Air Act.

The agreement also resolves a violation that BP reported to EPA after the company found that a corroded valve was causing a hazardous air pollutant to vent to the atmosphere rather than to a flare for burning. Self-disclosure is taken into consideration when penalties are assessed.

According to state law, the site has to be cleaned to residential - the highest standard - commercial or industrial standards.

Draper said the company plans to create detention and infiltration ponds to speed the recovery. Wells will be installed also on property belonging to Terry Materials, adjacent to the refinery land. Other remediation equipment will be installed on other private properties.

"In three to four years, this will be all cleaned up," he said. Once that happens, the company will give about 155 acres to the city. Some areas may be developed immediately, others later.

Some remediation in certain spots will however, likely continue for the next 20 years, he said.

Bill would increase U.S. Refinery Capacity

Utah Sen. Orrin Hatch announced a plan May 5 to propose legislation that he says would reduce gasoline prices by increasing production at U.S. refineries.

The Gas Price Reduction Through Increased Refining Capacity Act of 2005 is part of a three-pronged approach Hatch says is a long-term solution to the country’s soaring gas prices.

At the end of April Hatch introduced legislation aimed at making alternative fuels and advanced technologies profitable. The third part of Hatch’s plan would increase efforts to develop oil shale and tar sand deposits in Utah, Colorado and Wyoming.

“The legislation I’m proposing and policies that Congress is considering are long-term solutions,” he said.

A new refinery has not been built in the United States since the 1970s, Hatch said. With the difficult economics of refining, nearly 200 refineries have been shut down since the last one was built leaving 149 overworked refineries, he said.

Refineries must invest in expensive new equipment to comply with regulations, which trump investments for equipment that would increase capacity. Rates of return in refining are lower than others in the petroleum industry, according to a National Petroleum Council report.

Hatch hopes that providing financial incentives to increase refinery capacity would decrease the amount of imported refined petroleum products the country must rely on.

“It’s extremely important that we do everything we can to increase domestic supply and we can do that by increasing refinery capacity,” said Bob Slaughter, president of the National Petrochemical and Refiners Association.

American refineries are capable of producing about 17 million barrels a day, but demand is about 20 million barrels a day, Slaughter said. The value of petroleum and petrochemical products is increased during the refining process, and by decreasing the need to import refined gasoline, diesel and home heating oil prices would go down, he said.

Hatch’s plan would focus mostly on encouraging investment in increasing production at existing refineries, although it doesn’t exclude the building of new plants. Either way, it’s unlikely that the country could produce all of the petroleum products used on a daily basis, Slaughter said.

Tesoro Refinery Ordered to Fix Malfunctioning Equipment

The Bay Area Air Quality Management District has ordered a Martinez refinery to fix a malfunctioning piece of equipment or face penalties, an air district spokeswoman said May 12.

Tesoro Refinery's primary system for handling Coker exhaust malfunctioned four times in an 18-month period, according to Terry Lee. Coker exhaust, a byproduct of hydrocarbons being converted into upgraded oil, is laden with particulate pollution that can cause tissue damage to the lungs.

Coker exhaust spewed unabated into the air for three weeks during the last malfunction in January, said Lee.

The decision, made by the air district's hearing board, requires the refinery to go through an assessment process and to develop and implement an improved back-up system to handle Coker emissions during system upsets, Lee said.

In addition to the backup system, the refinery must also take interim steps to reduce the likelihood of future malfunctions, retrain staff, submit a detailed engineering report and consult with the air district. Tersoro will be subject to penalties of up to $25,000 per day if it fails to comply with any of these requirements. All the requirements must be met by Dec. 15, Lee said.

The air district's pending enforcement actions come on the heels of a recent settlement of other past violations by Tesoro.

Last month, the refinery paid $800,000 in civil penalties to settle over 75 past violations, Lee said.

Refinery Project is on hold at Flint Hills

A large-scale construction project scheduled to begin this summer at the Flint Hills refinery at North Pole, east of Fairbanks, has been delayed. The project was designed to expand the refinery to be capable of producing ultra-low sulfur diesel and gasoline fuels.

Two Alaska-based contractors included in bid meetings conducted earlier this spring for the ultra-low sulfur production project said they were notified in early May that the estimated $250 million project has been deferred.

"They told us they were in the process of reviewing and rescoping the project," said Rick Smith, vice president of Veco Corp., parent company of Veco Alaska.

The project is important because Flint Hills would have been able to supply ultra-low sulfur, or clean, diesel in Alaska after U.S. Environmental Protection Agency requirements for the new type of diesel come into effect in 2006. Unless the ultra-low sulfur diesel can be produced in the state, fuel distributors and transportation companies will have to import it.

No timeline was mentioned for a new decision on the project in a May 3 telephone notification that the ultra-low sulfur production contract would not be awarded at the present time, said David Matthews, vice president and Alaska general manager for H.C. Price.

Jeff Cook, director of external affairs at Flint Hills Resources Alaska, a subsidiary of the Wichita, Kan.-based Koch Industries, said May 10 that the company is "continuing to evaluate the options, but we're not there yet," in regards to the ultra-low sulfur production project.

Cook declined to comment on whether the project was delayed, but did say that Flint Hills "is going to start the project sometime this year. The engineering and review is still going through that process."

He also said the company expects to eventually build the unit to comply with terms of the clean fuels provision contained in its royalty oil purchase contract with the state of Alaska.

During its purchase of the North Pole refinery and other assets of Williams Alaska in 2004, Flint Hills signed a contract with the state of Alaska, promising to add production capability for ultra-low sulfur diesel, which will be required by the EPA in July 2006, and ultra-low sulfur gasoline, which will be required by the EPA in January 2007.

"Buyer will make commercially reasonable efforts to complete necessary installations and modifications on or before the effective dates of the clean fuels requirements of the EPA regulations," the contract said. "Total project costs are expected to exceed $100 million and will likely include the construction of processing units, including hydrotreating, a hydrogen plant and sulfur removal equipment."

The contract provides Flint Hills with one option other than completing the North Pole project.

"After performing an engineering study, buyer will install necessary equipment and complete such modifications to its North Pole refinery or will participate in the modification of other refinery facilities in Alaska as required to produce gasoline and on-road, off-road, marine and rail diesel fuels that meet or exceed all EPA low-sulfur fuel requirements," the contract said.

"It is our impression that they will meet the terms of the agreement," Kevin Banks, senior commercial analyst in the Division of Oil and Gas in the Alaska Department of Natural Resources, said May 10.

He declined to answer questions about the project delay, because of the commercial nature of the issue and a request by Flint Hills to keep such information confidential.

Under its contract with the state, Flint Hills can purchase up to 77,000 barrels of North Slope crude oil a day from the state's share of royalty oil for its North Pole refinery. The company's average purchase has been 65,000 barrels a day, with February prices averaging $39.25 per barrel for Prudhoe Bay oil, Banks said.

The Flint Hills North Pole plant is the largest of the four fuel refineries in Alaska. Petro Star, a subsidiary of the Arctic Slope Regional Corp., operates the smallest in the state - a distilling plant also located in North Pole - as well as another small refinery in Valdez. Tesoro Alaska operates a larger refinery in Nikiski, using crude oil from Cook Inlet and the North Slope crude as feedstock.

Because of their refinery locations next to the Trans-Alaska Pipeline System, both Flint Hills and Petro Star can pull North Slope crude out of the pipeline, heat it to extract different marketable products and return the remaining heavier products back to the pipeline.

Refineries are assessed a quality bank penalty payment that compensates pipeline owners for such selected extraction, an assessment process that is currently being reviewed by the federal Energy Regulatory Commission. Some issues have been decided and others are in mediation among the interested parties, Banks said.

The two competing contractors on the construction short list for the ultra-low sulfur production project were planning to start work this summer during the Interior's prime construction season if they received the bid.

"We expected to be done in June 2007, and that required a certain amount of work in 2005, with the major part of the work in 2006 and commissioning in early 2007," said Matthews of H.C. Price.

The labor force working on the refinery project as originally designed would likely peak at close to 400 workers, he added.

Veco planned to use its union arm, Norcon, based in Fairbanks, to complete the job, drawing from the local labor pool, Smith said. "It would have been a major project for the Fairbanks area."

Whether construction can still start this year remains to be seen. "It's based on their schedule," Smith said.

Matthews said availability of construction materials could be a potential hold-up, one aspect of the job not included in the construction contract bid. "If the materials are there, we could still get quite a bit done," he said.

Wyoming Refinery could feel Effects of Base Closings

If South Dakota's Ellsworth Air Force Base closes, the effect will be felt at Wyoming Refining Co., which supplies jet fuel for the installation.

Officials with the Newcastle refinery, however, downplayed any significant impact.

"The base is only about 8 percent of our business right now," Pat Havener, the company's general manager said.

Although jet fuel sales generate $17 million a year for the plant, the refinery likely wouldn't have difficulty lining up another buyer, he said.

"We've been turning away customers for commercial jet (fuel) for years," Havener said.

The refinery might have to modify its equipment to meet needs of new customers, at some additional cost, but Havener said plans were already being made in the event Ellsworth were to close.

Last week, the Pentagon listed about 180 military installations to be shut down over the next six years.

Ellsworth, South Dakota's second-largest employer, was on the list, even though Rapid City community leaders spent 10 years and $2 million to preserve it and its 3,852 workers.

During the Cold War, Ellsworth played a major role in the all-out effort to defeat the former Soviet Union by maintaining nuclear warheads in the ground and in the air.

Today its only mission is hosting roughly half the nation's B-1B fleet of long-range bombers, and the military said it would rather move the planes to the Texas base where the rest of the fleet is housed.

Fuel sales by Wyoming Refining to Ellsworth once represented 40 percent of the factory's revenue, Havener said.

"As Ellsworth expanded in the Cold War, we shifted more of our product there because they were a good, stable customer," he said.

Regardless of the base's future, "We're here for the long haul," Havener said. "We're not going away."

Wyoming Refining Co. is part of Denver-based Hermes Consolidated Inc. The Newcastle plant employs about 66 people and produces about 12,500 barrels a day.

Valero Reports Leak at Three Rivers Refinery

Valero Energy Corp. on May 21 told officials with the Texas Commission on Environmental Quality (TCEQ) that the company's refinery in Three Rivers experienced flaring.

Valero (NYSE: VLO) estimates that the leak caused the refinery to release 10,000 pounds of carbon monoxide, 3,500 pounds of nitrogen monoxide, 500 pounds of sulfur dioxide and 100 pounds of nitrogen dioxide into the air.

Flaring occurred through the refinery's hydrocracking unit, according to a filing made with the state agency.

Valero's Three Rivers refinery supplies much of the gasoline and diesel to Diamond Shamrock stores in the San Antonio area. The refinery has the capability of processing 98,000 barrels of oil per day.

Company officials could not immediately be reached for comment.

Adria Dawidczik, a spokeswoman for the TCEQ, says the company has two weeks to provide a final report on the incident to state environmental regulators.

Valero is a San Antonio-based oil refining and marketing company. It owns 15 refineries in the United States, Canada and the Caribbean with a combined throughput capacity of 2.5 million barrels per day.

Proposed Rules Target Refinery Flares

Pollution reductions made during the last few years would be maintained under proposed rules to limit emissions from open-air refinery "flares," according to an environmental report released May 27.

The regulations would be the first such rules in the nation if adopted by the Bay Area Air Quality Management District, which is expected to consider approving them in July.

At issue are the most visible sources of refinery air pollution. Flares are meant to allow refinery operators to deal safely with emergencies and lesser problems by routing gases to an open stack where they are burned in the open air. That allows refineries to avoid a potentially dangerous buildup of gases.

For years, regulators have expressed concern that refinery operators were using flares to dispose of gas in nonemergencies. But until now, no agency in the nation has proposed regulations to prevent the misuse of flaring.

Refiners have expressed concern that new rules could discourage operators from using the flares in true emergencies.

"It's the first flare-control rule," said Dennis Bolt, Bay Area coordinator for the Western States Petroleum Association.

Bolt said refiners do not believe flare emissions are significant enough to warrant new regulations, but added that the companies would not necessarily object to regulations if they don't go too far.

"There's a reasonable rule there to be adopted," Bolt said. "I'm cautiously optimistic about what we're going to see."

Since a December 2002 report by the air district estimated huge flaring volumes and focused public attention on flares, Bay Area refineries have dramatically slashed flaring by installing new gas compressors and operating the refineries more carefully to avoid unnecessary flaring.

The environmental report released May 27 said flaring has declined from about five tons per day of volatile organic compounds in 2001 and 2002 to about 1.5 tons per day of the smog-forming chemicals last year.

The report, which is an environmental analysis of the Bay Area air district's proposed flare-control rule, said the proposed rule would prevent flare emissions from going back up.

The report said that despite reductions in flaring, Bay Area refineries continue to use flares as part of planned operations or during equipment malfunctions.

"The BAAQMD data indicates that a large percentage of the flare emissions (in 2004) were not due to an upset event," said the report. "This suggests that flare emissions can potentially be reduced by treating the vent gases prior to being burned in the flare and a gas minimization plan can be incorporated to minimize the amount of vent gases generated and flared during non-emergency operation."

The proposed rule would require refineries to report flaring events to the air district, analyze the cause of flaring events and draw up plans to limit unneeded flaring.

One air board member, Mark DeSaulnier, said the new regulations were needed because refiners had understated how much flaring was occurring.

"There was a loophole in the oversight. We were taking at face value the numbers they were giving us," said DeSaulnier, a Contra Costa County supervisor.

But when the air district estimated in December 2002 that refineries were flaring at about 22 tons per day of smog-forming volatile organic compounds, refiners challenged that report. They said regulators made errors and refineries mistakenly submitted data that led the air district to overestimate.

The environmental report said after air district engineers adjusted some of their assumptions and incorporated revised data from the refineries, the actual flaring was about eight tons per day of organic compounds. Three tons per day of those pollutants were methane, which does not form smog as readily as other organic compounds.

In addition, the report said refineries were spewing about 20 tons per day of sulfur dioxide, a pollutant that leads to haze and soot pollution.

Regulators in Los Angeles already are considering similar rules for Southern California refineries.

Chalmette Refinery to Install New Pollution Monitors

Chalmette Refining has agreed to install new air pollution monitors that will provide more information on the air quality of the area around the plant.

The agreement came this week after negotiations with the state Department of Environmental Quality, which had received pollution complaints from St. Bernard Parish residents.

The refinery also faced legislation by state Representative Kenneth Odinet of Arabi, that proposed requiring some companies to increase air monitoring. Odinet says now that a compromise has been reached the bill will be dropped.

Refinery manager Albert Stroink says the monitors will provide more evidence that the air in St. Bernard Parish meets federal and state standards.

Cushing, Oklahoma Pushed for New Refinery

Twenty-three years after Hudson Refining Co. closed its small facility in Cushing, and almost 30 years after a new refinery opened in the United States, concerns about capacity and national security have suddenly made this northern Oklahoma town attractive again.

Tulsa oil executive Dewey Bartlett Jr. started pushing the idea after the state's energy secretary released a report in May on the health of Oklahoma's five refineries. Bartlett, chairman of the Oklahoma Independent Petroleum Association, said he planned to advocate refinery development when he meets next month with Sen. Jim Inhofe, R-Okla.

``We're right in the middle of the country,'' Bartlett said. ``We're at the crossroads. Why not do whatever we can to put a refinery there in Cushing?''

Forrest Fuqua, who worked at the Hudson refinery for nearly 46 years and was its last manager, said improvements in technology, better profit margins and the insular safety of a small town hundreds of miles from a coast make a 100,000 barrel-a-day or larger plant reasonable in Cushing.

``I think from a logistics standpoint it's logical,'' Fuqua said. ``There's crude oil available here. Domestic or foreign, we could refine it.''

Turning that logic into a reality would cost billions, take years and swim against a quarter-century of declining domestic refinery numbers. However, considering that the refinery stands at the center of the nation's economy -- taking crude from the wellhead and turning it into usable products -- it makes sense to consider the possibilities, said Oklahoma Energy Secretary David Fleischaker.

``We are living in the middle of a hydrocarbon economy,'' he said. ``We need to deal with that.''

While the United States relies on hydrocarbons, from fueling cars to heating homes, it possesses less ability to produce the finished product.

Since 1981, the number of refineries in the United States has dropped from 301 to 149. Expansion and upgrades during that time held the loss in production to only about 10 percent from its peak of 18.6 million barrels a day. Simultaneously, gasoline consumption in the U.S. has jumped 45 percent.

Saudi Arabian leaders have cautioned that more crude could be pumped out of the OPEC nations in an attempt to bring down current oil prices, but the United States doesn't have the refining capacity to handle the influx. In response, President Bush recommended developing new refineries on closed military bases.

For years the industry has chosen to expand existing refineries, rather than face the economic and environmental challenges of building new ones, said Doug MacIntyre of the U.S. Energy Information Administration.

Refineries spent decades where gross profits barely met operational costs, he said. Although that changed several years ago, investors would need years in which profits held and some certainty on how long those profits would survive.

Tighter environmental regulations and liability concerns complicate the process of building a new refinery. Nationally, refiners spent more than $6 billion cleaning the air, water and land in 2003 alone. Currently, they wrestle with the equipment needed to meet ultra low sulfur diesel standards taking effect in 2007. Oklahoma's five refineries planned to spend at least $350 million and up to $760 million just to meet the new regulations, Fleischaker said.

Liability represents another financial hurdle for any developer, Bartlett said. Whenever a refinery closes, refiners face fines for activities that may have happened decades earlier, he said. Those fines also find there way back to companies that may not have owned the operation for decades, either, Bartlett said.

``We need significant changes to the EPA and how the federal government applies liability,'' Bartlett said. ``We need to create some sort of 'sunset' for liability on these plants.''

Those are all issues that would take federal action. Anyone considering a refinery would need federal help to make that a reality, Bartlett said.

Ultimately, a Cushing refinery would benefit the state and nation, proponents said. It would help ensure inexpensive fuel in Oklahoma, generate tax revenues and provide jobs, Bartlett said. There's also a national security advantage to locating in the town of 8,400 about 50 miles west of Tulsa, Okla., Fuqua said.

Tesoro Plans Coker at Washington Refinery

Tesoro Corp., San Antonio, plans to add a 15,000 b/d coking unit at its 108,000 b/d refinery in Anacortes, Wash., said Chuck Flagg, senior vice-president of planning and optimization. The $175 million coker is expected to be operational by April 2007.

Addition of the unit will enable the refinery to produce feedstocks at the plant to supply its gasoline producing fluid catalytic cracking unit, he said. The company currently buys its feedstock.

Tesoro also plans to add a 10,000 b/d diesel desulfurization unit at its 72,000 b/d Kenai, Alas., refinery by April 2007 and a vacuum unit by spring 2006 to reduce by 2,000 b/d the amount of residuals produced, Flagg said.

BRAZIL

Petrobras, PDVSA to build Refinery in Pernambuco (Brazil)

In an exclusive interview with the official news agency AE Brazil, Venezuela's President Hugo Chavez said May 10 that Brazilian state run oil company Petroleo Brasileiro (Petrobras) and its Venezuelan counterpart PDVSA will build a refinery in the Brazilian state of Pernambuco.

He added that this will be the first project by Petrosul, an oil organization that will encompass Brazil, Venezuela and Argentina.

"We've already carried out the studies and we already have the opening capital for the project," he said. "It's important for us that it will be in Pernambuco because we'll bring in heavy oil from Orinoco via the Atlantic direct to Pernambuco for refining, and to supply a good part of the northern Brazilian market."

At least 11 states had competed for the refinery, which will receive around $2 billion in investments.

VENEZUELA

Venezuelan Refinery Said to Be Operational

El Palito refinery in Venezuela is restarting and was expected to become fully operational by May 12, after being down for over a week, a union representative said May 10.

The refinery was previously expected to be fully running before May 12, but workers were not able to start a catalytic cracking unit, and were forced to delay the restart a few days.

A union member said that the state oil company Petroleos de Venezuela was slow in acquiring the necessary parts to repair the unit on time.

El Palito refinery is located some 120 kilometers (75 miles) west of Caracas and mostly services domestic fuel needs. It produces around 60,000 barrels of gasoline a day, 25,000 barrels of jet fuel and 30,000 barrels of diesel oil.

Venezuela's PDVSA to invest 52.8 mln usd to raise Output at El Palito refinery

State-owned oil company Petroleos de Venezuela SA (PDVSA) said it will invest 52.8 mln usd to increase fuel production at its El Palito refinery by 20,000 barrels per day to 73,000 bpd.

Work to expand production is expected to be completed in 2009.

The El Palito refinery processes 130,000 barrels of crude oil per day.

Its production is either exported or consumed in the western states of Venezuela.

State-owned oil company Petroleos de Venezuela SA (PDVSA) said it will invest 52.8 mln usd to increase fuel production at its El Palito refinery by 20,000 barrels per day to 73,000 bpd.

Work to expand production is expected to be completed in 2009.

The El Palito refinery processes 130,000 barrels of crude oil per day.

Its production is either exported or consumed in the western states of Venezuela.

2. ASIA

AUSTRALIA

Mobil Refinery on Backburner as Caltex Slips

EXXON Mobil Australia chairman, Mark Nolan said there would be no acceleration of the timetable for reassessing the future of the mothballed Port Stanvac refinery in Adelaide despite improved oil refining margins.

"Although the margins have been good since we closed it, we continue to question whether it is a long-term business," Mr Nolan told a meeting of the Committee for the Economic Development of Australia.

He said the company had made a commitment to the South Australian Government to re-evaluate Port Stanvac in 2006. Port Stanvac was put on "care and maintenance" in 2003 in the face of import competition from larger scale Asia-based refineries.

Mr Nolan's comments came as brokerage Citigroup reiterated its sell recommendation on the the country's only listed oil refiner, Caltex Australia, warning there was increasing evidence that refiner margins were coming under pressure. It said 2004-05 may prove to be the peak for margins and profits.

"We reiterate our view that Caltex Australia looks over-priced on our lower crude and margin assumptions," Citigroup said in a report that maintained its share price target on the company at $8.50. The report helped send Caltex shares down 26c, or 1.8 per cent, to $14.34.

But other analysts are more upbeat, with Commonwealth Securities rating Caltex a buy based on a share valuation range of $14.50-$16.60.

Caltex shares rallied strongly in the first three months of the year, hitting a high in March of $16.69.

Separately, Mr Nolan said Exxon Mobil was lobbying the federal Government to reduce taxes on offshore gas production.

He said demand for natural gas, which produces 70 per cent less greenhouse gas emissions than brown coal, was the fastest growing major energy source but Australia's liquefied natural gas exports faced rising competition from places such as the Middle East.

CHINA

5 Petroleum Bases Planned in Guangdong

Guangdong would invest 180 billion yuan (US$21.77 billion) over the next five years to increase the province’s oil production to 63 million tons per year, the Southern Metropolitan News reported May 11.

The five petroleum production projects were unveiled in a development plan issued by the provincial government to lift its oil production by 20 percent a year from 2005 to 2010.

The five petroleum production bases will be constructed in the Daya Bay petrol producing park in Huizhou, the Maoming-Zhanjiang coastal industrial area in the southwest of the province and the Guangzhou petrol base. There will also be a storage and distribution hub in the Yamenkou coastal industrial area in Zhuhai and Jiangmen and a coastal chemical base covering Shantou, Chaozhou and Jieyang.

The plan also included another five projects to build and expand oil refineries in the province. An oil refinery with annual productivity of 120 million tons will be built in Huizhou by the China National Offshore Oil Corp. (CNOOC), which also will construct another oil refinery to produce 200 million tons of oil per year.

The Sinopec Maoming Branch oil refinery will be expanded, while its Guangzhou refinery and Dongxing refinery in Zhanjiang will also undergo reconstruction.

China National Petroleum wins 385 mln usd Refinery Contract in Algeria

The China National Petroleum Corp (HKEX 0857), or CNPC said its engineering unit won a 385 mln usd contract to build a condensate refinery in Algeria.

China Petroleum Engineering & Construction (Group) Corp, one of its units, will build the plant that can turn five mln tons of condensate into fuels such as naphtha and jet fuels, the company said in a statement on its website.

CNPC currently operates another four projects, including three exploration projects, in the country.

INDIA

Paradip Oil Refinery to be Commissioned by 2009

The Indian Oil Corporation (IOC) has proposed to sign a supplementary memorandum of understanding (MoU) with the State Government for the establishment of the oil refinery at Paradip.

Chairman of the IOC Sarthak Beuria discussed the issue with Chief Minister Naveen Patnaik at the State Secretariat on May 9. A supplementary MoU has become necessary after the IOC upgraded the proposed project at Paradip from a refinery to petro-chemical complex.

Besides, the capacity of the proposed project has been increased from eight million ton to 15 million ton per annum. The project cost has been revised accordingly from Rs 8000 crore to Rs 15000 crore. Beuria said that the main construction work of the project will be started next year. He said that production will be started from the project in 2009. The Chief Minister assured the IOC Chairman that the State Government will extend all cooperation for the completion of the project in time.

Former prime minister AB Vajpayee laid the foundation stone for the project in May, 2000. However, the project was delayed because of differences between the State Government and the IOC over sales tax concession demanded by the latter. However, the State Government signed an agreement with the IOC in 2003 conceding its demand for sales tax concession.

Principal Secretary to the Chief Minister Bijay Kumar Patnaik, Director of IOC Jaspal Singh and senior officials of the Corporation were present during the discussion.

BPCL to Expand Bombay Refinery in June

State-run Bharat Petroleum Corp Ltd (BPCL) will expand the capacity of its Bombay refinery to 240,000 barrels per day (bpd) by the end of June, the company's director, M. Rohatgi, said on May 13.

"We will complete the project by the end of June. We expect the expanded unit to stabilize by October," Rohatgi told reporters.

The refinery processed 180,000 bpd in the year to March 2005.

The refinery's throughput would be gradually increased to its expanded capacity, he said.

Refinery Order due in Rajasthan next Month

The government will decide next month on the public sector oil company that will be given the task of setting up a refinery in Rajasthan.

According to a proposal submitted to the ministry, the refinery may also process imported crude oil apart from indigenous supplies from Cairn Energy.

Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Oil and Natural Gas Corporation (ONGC) have made proposals to the state government for setting up the refinery. The petroleum ministry will have a final say on the issue.

Petroleum Secretary SC Tripathi said IOC was initially interested in transporting the crude oil discovered by UK-based Cairn Energy through a pipeline.

Under the production-sharing contract signed for the block, Cairn Energy will be required to sell crude oil to a government-designated agency, which in this case is IOC.

Among the proposals being examined by the ministry, Tripathi said one option was to transport the crude oil through a pipeline to Kandla in Gujarat and then to Mangalore for refining. Cairn and ONGC had suggested that this could be done till the time the refinery was not ready.

Tripathi said it was also suggested that the refinery’s capacity could be 5 million tonnes, which could be enhanced by 5 million tonnes for processing imported crude oil.

ONGC has a 30 per cent share in Cairn Energy’s commercial oil and gas find in Rajasthan. Cairn Energy’s Mangala oil field is considered to be the biggest discovery in India after Bombay High.

Cairn Energy is involved in exploration across a 4,970 square km block in Rajasthan’s Barmer region. It owns the total equity of the block, while ONGC has the rights to 30 per cent of any development area resulting from a commercial discovery. The first stage of commercial oil production from RJ ON 90/1 block, held by Cairn Energy, is scheduled in another two years.

Mangalore Refinery Resumes Production

The Mangalore Refinery and Petrochemicals Ltd. (MRPL), which was forced to shut down some of its units due to shortage of water, has started normal production.

"Due to insufficient availability of raw water at the refinery, MRPL was forced to temporarily shut down some of the units in Phase-I of the refinery from April 14", the Oil and Natural Gas Corporation (ONGC) said in a statement May 3.

It said production had resumed May 5 at the refinery that has an annual refining capacity of 3.69 million tonnes.

IOC Commissions Diesel Hydro Treater at Mathura Refinery

Indian Oil Corporation Ltd (IOC) has commissioned Rs 1,046 crore diesel hydro-treating unit (DHDT) at the Mathura refinery to facilitate supply of Euro-III equivalent quality diesel, reports Business Line.

The unit was commissioned on May 2. The 1.8 million tonnes per annum (mtpa) capacity DHDT unit has been built with technology licensed from Axens, France. Jacobs Humphrey and Glasglow were the project management consultants, while Daelim Industrial Co Ltd of South Korea executed the project under Lum Sum Turn Key contract.

Reliance Plans to Raise Capacity of Jamnagar Oil Refinery

Reliance (Q, N,C,F)* Industries Ltd is planning to raise the capacity of its Jamnagar oil refinery to 60 million tonnes per annum by 2009, a move that may involve an investment of upto Rs 15,000 crore, reports Economic Times.

According to sources, Reliance is planning a third train to hike capacity from current 660,000 barrels per day (33 million tonnes per annum) to 1.2 million barrels per day (60 mtpa).

Reliance is talking to Bechtel, the engineering, procurement and construction contractor who had built the Jamnagar refinery in 1990s.

Reliance plans to have a chain of 5,849 petrol pumps before the expansion. Roughly of the expanded capacity for domestic consumption and the remaining for exports, sources added.

The Jamnagar refinery currently produces 11 million tonnes of diesel, 4 million tonnes of naphtha and petrol each, 3.6 million tonnes of jet/aviation turbine fuel/superior kerosene oil, 2.3 million tonnes of LPG, 2.7 million tonnes of reformate and 2.5 million tonnes of petroleum coke.

Essar to commission Vadinar Refinery in `06

Essar will commission the oil refinery being developed Vadinar in Jamnagar in 2006. The project had been delayed due to environmental issues, cost over runs and shortfall in equity contributions.

This was announced by Prashant Ruia, managing director, Essar Steel Ltd, May 14 after commissioning Essar Steel’s 100 MW power plant at Hazira.

“The construction work at the Vadinar refinery is in progress in full swing. The entire project, including the refinery, power plant and terminal, would involve investment to the tune of Rs 15,000 crore,” Ruia told Business Standard.

Ruia, however, parried questions regarding the investment made by the Essar group in the project.

“We expect the refinery to start commercial production by the third quarter of 2006. The refinery’s initial capacity would be 10.5 million tonne per annum (MTPA). This would be enhanced to 12 MTPA thereafter and eventually to 14 MTPA,” he said.

Replying to a question, a senior official of Essar Group said, “Sixty per cent work has already been completed at the refinery. A portion of the commissioning was also done, when we restarted the work at the refinery in February. We have had to spend money for maintenance of the equipment, to make sure that it is in proper condition, but it is by no means a very big sum.”

Ruia said that the power generation capacity of Essar Power would be enhanced from 515 to 2000 MW in blocks of 750 MW each. We expect the first block to become operational within 24 months after the actual work starts, i.e. somewhere around the end of 2007. The second block would become operational in the following 12 months.”

On completion the Essar refinery would be the second largest refinery in India, behind Reliance refinery.

The refinery is designed to handle a variety of crude mixes from sweet-light crude to heavy high sulfur sour and bituminous crude. The refinery will produce diesel, gasoline, jet fuel, kerosene, fuel oil and bitumen.

INDONESIA

Indonesia Pertamina to Shut Dumai Refinery Early July

Indonesia's state-owned oil and gas company PT Pertamina (PTM.YY) will shut its Dumai refinery in early July for maintenance, a company official said May 10.

The 120,000-barrels-a-day refinery, which is located in the central Sumatran province of Riau, is expected to be shut for 21 days, Pertamina's Director for Processing Suroso Atmomartoyo said.

It will also shut its 110,000-b/d refinery in Cilacap for 20 days in September, Suroso added.

Indonesia has nine refineries with a total capacity of 1 million b/d.

JAPAN

Japan’s Chiba Refinery Leaks Diesel into Sea

Cosmo Oil Co., Japan's fourth-biggest refiner, said diesel and crude oil from its Chiba refinery spilled into Tokyo Bay May 12 during maintenance work.

Diesel and oil from the 110,000 barrels-a-day capacity No. 1 crude distillation unit was flushed out together with water into the Yoro river while the CDU was being cleaned, said spokesman Tatsuya Yano.

A thin film of oil coated an area of sea 800 meters long and about 250 meters wide, Yano said. The Tokyo-based company used chemicals and barriers to disperse and contain the spillage.

The Asahi Newspaper earlier said the slick extended about 1.2 kilometers from the shore.

Shipments from one of two terminals at the refinery were suspended at 11 a.m. Local authorities will decide when the ships, which mainly transport fuel, can resume operations, Yano said.

Cosmo Oil shut the No. 1 CDU for planned maintenance checks until June 13.

The Chiba refinery's No. 2 crude distillation unit, which can process 130,000 barrels per day, is operating normally, said Cosmo Oil spokesman Hideaki Yoshioka. The company has no plan to shut it because of the accident, he said.

PHILIPPINES

Philippine Petron Readies $350M Refinery Expansion Plan

Petron Corp. (PCOR.PH) plans to invest around $350 million over the next five to eight years to further improve its refinery and expand product lines, a senior executive at the Philippines' largest oil refiner said May 6.

Khalid Al-Faddagh, Petron president and chief executive, said the planned refinery improvements are intended to take advantage of business opportunities both in the local and international markets.

"We have a bigger vision for the business so we're planning ahead," Al-Faddagh said on the sidelines of an event to mark the opening of new facilities. "Our master plan, which still has to be evaluated, will need around $350 million."

One of the projects under the masterplan involves taking residues from oil refining and processing these further into something the company can export.

"We need to start with units that will give us the highest returns. We're not just looking at retail," Al-Faddagh said.

Petron on May 6 inaugurated its $100 million gasoil hydrotreater and light virgin naphtha isomerization unit that can produce 22,000 barrels and 10,000 barrels a day, respectively, of cleaner diesel and gasoline that comply with the government's new anti-pollution standards.

The gasoil hydrotreater reduces sulfur content in diesel, while the isomerization unit facilitates the production of gasoline with only 35% aromatics and 2% benzene.

MALAYSIA

Shell to shut Malaysia Refinery at End of June for Govt Inspection

The Malaysian downstream unit of oil major Royal Dutch/Shell Group (RD) will close its Port Dickson refinery in Malaysia for a one-month statutory turnaround at the end of June, a top executive said.

"Toward the end of next month, we will start to undertake the second statutory turnaround for the long residue catalytic cracker unit. The first one was undertaken in 2002," Jon Chadwick, chairman of Shell Refining Co. Bhd. (4324.KU), said at a press conference after the company's annual shareholders meeting in Kuala Lumpur.

THAILAND

Thailand Needs New Oil Refinery by 2009

Thailand will continue to suffer huge trade deficits unless a new oil refinery plant is built by 2009, warned a leading oil expert.

Thailand needs a new oil refinery by 2009 to meet the rising local demand for oil of between 6-7%, the chairman of the Federation of Thai Industries’ (FTI) Oil Refinery Group and manager of Thai Oil company, Bavorn Wongsin-udom said during a seminar in Pattaya on May 28.

In 2004, Thailand imported oil worth nearly 500 billion baht, or 8% of gross domestic product. In the first quarter of 2005 the value of oil imports rose to 26 billion baht and contributed significantly to the country’s huge trade deficit.

The construction of a new oil refinery plant will take around four years, but so far there has been no investor interest, he said.

Investment of US$3 billion is needed to build the plant, Mr. Bavorn. It would break even with a refinery margin of at least US$6 a barrel over a 14 to 20 year period.

But the public and protest groups have complained in the past when the existing refinery plants’ had a margin of US$6-10 a barrel for more than a year and this has dampened investor confidence, he said.

3. EUROPE / AFRICA / MIDDLE EAST

FRANCE

Total Agrees to end Refinery Strike

Total, the French oil group, has bowed to political pressure and ended a week-long strike at its domestic refineries, which had threatened to lead to petrol shortages.

The company said staff in its six French refineries would returned to work May 23.

ALGERIA

China National Petroleum wins 385 mln usd Refinery Contract in Algeria

The China National Petroleum Corp (HKEX 0857), or CNPC said its engineering unit won a 385 mln usd contract to build a condensate refinery in Algeria.

CNPC currently operates another four projects, including three exploration projects, in the country.

SOUTH AFRICA

South Africa's Sasol Invests to cut Sulfur Emissions

Petrochemical group Sasol will spend 600 million rand at its Natref oil refinery in South Africa to remove more sulfur from diesel to meet proposed government requirements.

Sasol, the world's biggest producer of synthetic fuel from coal, owns 64 percent of the Natref refinery, a joint venture with French oil giant Total. The refinery accounts for about 15 percent of the country's refining capacity.

"The move is in compliance with the government's new requirements of low sulfur taking effect in January," Johann van Rheede, Sasol's spokesman said.

The plant will be able to cut its current sulfur dioxide emissions by about 40 percent after the investment and significantly reduce sulfur dioxide emissions from vehicles at ground level, the firm said.

Natref's new 236-tonne diesel desulfurization reactor will remove six times more sulfur from diesel, making the Natref plant -- located south of Johannesburg -- the top sulfur remover from crude oil in Africa, the firm said.

The refinery has a capacity output of about 107,000 barrels of crude per day (bpd).

Shares in Sasol, which is also Africa's leading producer of chemicals, traded 1.47 percent higher at 154.70 rand, beating the top-40 blue chip index, which rose 0.3 percent by 1059 GMT as oil prices edged higher.

IRAN

Rls 200bn Allocated to Boosting Capacity of Refinery Kermanshah

About rls 200 billion has been allocated to boosting the capacity of Kermanshah refinery to about 40,000 bpd from 20,000 bpd, said an official in charge of refining at Oil Ministry on May 9.

Director of the Refining Department at Oil Ministry Mohammad Zali said that a comprehensive plan for the refinery has been adopted under which its capacity will double to about 40,000 bpd.

Zali named Qodratollah Houshangi is the new manager of the refinery, and replaces Mahmoud Siami.

IRAQ

Plenty of Oil but No Petrol in Iraq

Although Iraq is thought to have the world’s second-largest oil reserves, it is still having to import petrol because insurgent attacks and creaking technology are hampering production at fuel refineries.

Two big refineries, al-Dora in Baghdad and al-Beiji near the northern city of Kirkuk, should between them be producing at least 475,000 barrels per day of refined products such as petrol and kerosene, but in reality they are pumping out one-third that amount.

The shortfall is typical at facilities across the country, such the Basra plant which as one of the three biggest refineries, with al-Dora and al-Beiji.

Because not enough fuel is coming out of the domestic refineries, Iraq is forced to spend 200 million US dollars a month on imports from its neighbors.

Insurgents have consistently targeted the vulnerable pipeline network, disrupting supplies. Last year, attacks on pipelines averaged one a day, and acts of sabotage continue. Oil ministry spokesman Assim Jihad said four pipelines taking crude oil for refining at al-Beiji and al-Dora were among those destroyed recently.

Production drops when the supply of crude is cut by an explosion, and many see the attacks as the major obstacle facing the industry.

“The main problem is the destruction of the oil pipelines that deliver crude oil to the refinery; this sometimes halts work here,” said an engineer at the al-Dora refinery, who asked not to be named.

But the refining industry is also held back by the worn-out technology currently in use, and an inability to replace it with modern equipment.

A maintenance engineer at the Iraqi oil ministry told IWPR he believed deteriorating equipment at the refineries was more of a problem than attacks on pipelines.

Agreeing with this point, Hassam Shams, an engineering assistant at the low-capacity Thi-Qar refinery in southern, said one reason why things were falling apart was that the funds meant to keep the refining plants running were being stolen.

“Corruption and the theft of money allocated to maintain the production process are other reasons why one production line [at Thi-Qar] has ground to a halt,” he said.

Whatever the cause – violence, obsolete machines or theft – the result is the same: daily shortages of petrol and other fuels for the average Iraqi.

The shortages affect people’s lives in other ways, too. For example, deputy minister of electricity Rad al-Haris said the single biggest obstacle facing the electricity generation industry is the shortage of fuel used to drive the power stations.

The oil ministry is trying to free the bottleneck with plans to build a brand-new refinery with a capacity 300,000 barrels refined petrochemicals a day. The ministry is currently in talks with 17 international oil companies to build the two billion dollar facility.

As well as being costly, the supply of imported fuels cannot be relied on. Deliveries from Syria and Jordan, which border on the volatile Anbar governorate, have come to a halt because of the instability.

SAUDI ARABIA

High-Stakes Race for Aramco’s Yanbu Refinery

Hindustan Petroleum Corporation and Indian Oil will have to compete with global majors Shell, Exxon-Mobil and Sinopec of China for a stake in Saudi Aramco’s Yanbu refinery project on the Red Sea coast.

Oil industry sources said the 20-million-tonne-per-annum oil refinery will require an investment of $3-3.5 billion.

“While Saudi Aramco is considering India’s proposal for a criss-cross of investments, it has also sounded Shell, Exxon-Mobil and Sinopec on the refinery project,” a senior oil industry official told The Telegraph.

The global oil giants command a formidable clout with the Saudi authorities and if they are keen on the project, it would make the task of Indian companies picking up a stake that much more difficult.

Saudi Aramco has evinced an interest in picking up a share in Indian Oil’s Paradip refinery project apart from Hindustan Petroleum Corporation’s Vizag refinery as a part of the criss-cross investments that petroleum minister Mani Shankar Aiyar is trying to promote between India and Saudi Arabia.

The Saudi Aramco investment could even result in increasing the capacity of the Paradip refinery for exporting petroleum products to the eastern market.

Similarly, the Hind Petro investment in the Yanbu refinery would be used as an export base for feeding the western market. It would also strengthen economic ties between India and Saudi Arabia.

Aiyar expects such investments to lead to assured supplies of crude from Saudi Arabia, which has huge oil reserves and is the single largest source of Indian crude imports.

Saudi Arabia accounts for as much as 26 per cent of India’s total crude imports. Currently, around 25 million tonnes of crude is imported from the West Asian country and India has recently obtained an assurance that this could be increased to 50 million tonnes in the next 10 years, if the need arose.

In the upstream sector, ONGC-Videsh has been allowed to bid for natural gas exploration by the Saudi government, which would be put on offer towards the end of this year.

However, here again the Indian company would have to compete with global oil majors.

Saudi Aramco is also expected to hold further discussions with Indian Oil on setting up commercial storage facilities via joint-ventures in India.

The proposal was mooted earlier, but Saudi Arabia did not evince sufficient interest at that time. The Saudi company has similar oil storage facilities in Rotterdam, South Korea and the Caribbean.

Saudi Arabia and India are looking for co-operation through the entire value chain of natural gas, which includes gas processing into petrochemicals and liquefaction for exports. A team from Gail had also accompanied the minister on his visit to Riyadh in March this year.

The setting up of a fertilizer plant in Saudi Arabia in partnership with National Fertilizer Ltd is also under consideration. The plant would be powered by Saudi gas.

A similar factory — the Hindustan Fertilizer plant — is in Oman. Saudi Arabia is looking for Indian co-operation in building an aluminum plant as well.

It remains to be seen whether this entire gamut of investment possibilities can help tilt Saudi Aramco India’s way on the Red-Sea refinery project.

Jadoon seeks Saudi Attock Group investment in Coastal Refinery, Explorations

Prominent Saudi investor and Chairman, Attock Group of Companies Dr. Ghaith R. Faraon called on Federal Minister for Petroleum & Natural Resources Amanullah Khan Jadoon on May 31 to discuss matters pertaining to promoting bilateral cooperation in the oil and gas sector.

Welcoming Dr. Ghaith Faroan the Minister said that the Government was according high priority to the speedy promotion of oil and gas sector and providing attractive incentives to the prospective investors in the onshore and offshore explorations.

Jadoon briefed the Saudi Group Chairman about the ongoing development activities in the onshore and offshore exploration, proposed gas pipeline projects, and updating of oil refineries to meet the millennium development goals.

The Minister lauded the Saudi Attock Group contribution for the growth of oil and gas industry in Pakistan since decades and invited them to further invest in the setting up of coastal refinery and exploration activities.

During the meeting, Chairman Attock Petroleum Shaoib Anwar Malik briefed the Minister about the Group’s involvement in the oil and gas exploration and privatization activities. He told that Attock Petroleum has already acquired three more exploratory blocks in different parts of the country and looking forward to have more blocks.

Dr. Ghaith also discussed with the Minister about the proposed pipeline projects from Rawalpindi to Peshawar and setting up of power plant both involving over US $ 170 million.

He expressed his gratitude to Federal Minister for Petroleum for providing full cooperation to the Saudi Group in Pakistan. He said that Pak-Attock Group cooperation would continue to grow in the days ahead for the mutual advantage.

Dr. Ghaith commended the progress of the petroleum sector in Pakistan during the last five years as a result of investor friendly policies and attractive package of incentives to the prospective investors.

Secretary Petroleum Ahmed Waqar, Director General (Oil) Sabir Hussain and Chairman Attock Petroleum Limited Shoaib Anwar Malik were also present during the meeting.

TURKEY

IOC Seeks Stake in Turkish Refinery

Indian Oil Corporation, country's largest oil firm, is eyeing acquisition of Turkey's biggest refinery - Turkish Petroleum Refineries Corp (Tupras).

Tupras owns four refineries - Izmit, Izmir, Kirikkale and Batman - with a combined capacity of 27.6 million tonnes per annum. With the total processing capacity of all refineries in Turkey amounting to 32 million tonnes a year, Tupras, on its own possesses some 86 per cent of the country's total refinery capacity. It also owns petrochemical production capacity of 153,000 tonnes per annum.

The profit-making Tupras is a listed firm with 49 per cent of its share public traded on Turkish stock exchanges. It has a market capitalization of about $3 billion.

"The company is also ideally positioned from the standpoints of infrastructure, location, and logistical support for import of crude oil, LPG and other petroleum products," a top IOC official said adding IOC is submitting an Expression of Interest (EoI) for acquisition of 51 per cent stake in TUPRAS to Privatisation Administration of Turkey.

This would be first acquisition of a refining company by IOC outside India. The company has already submitted EoI for equity participation in three state-owned refineries of Nigeria and setting up a new refinery in Edo state in Nigeria.

IOC has also submitted EoIs for setting up a grass-root refinery in Algeria and modernization of Aden refinery in Yemen.

YEMEN

Yemen to go ahead with Marib Refinery Project but Revises Aden Plan

Yemen is pushing ahead with plans to expand its central Marib refinery, with financing close to completion, a local oil source told International Oil Daily.

However, previous plans to upgrade the larger Aden refinery have been scrapped, another source said, with an alternative scheme now under review.

The 10,000 barrel per day Marib refinery will see the addition of two new units, adding a further 15,000 b/d of processing capability.

The units will include a 7,500 b/d hydrotreater and a bi-metallic reformer of the same size. "A number of financial institutions have approached us regarding the expansion program. We are currently speaking to one very seriously," said the source close to the project, adding that the bank is international rather than local.

Once financing is arranged, approval from the Yemeni government is expected to be granted.

US Veco Engineering and Japan's Cosmo Oil have already completed an initial feasibility study, and the front-end engineering and design (FEED) package is expected to be released soon.

"It is likely that Veco Engineering will accept the FEED package, as it is already familiar with the project," the source said.

The design work is expected to take around six to nine months to complete, with an engineering, procurement and construction contract following soon after.

Once upgraded, the refinery will produce 45% high-octane gasoline, more than 30% low-sulfur diesel with between 300-350 parts per million content and 20% fuel oil of 2,000-2,300 ppm sulfur content. All products will be predominantly for the local market.

The company has a completion target year of 2007. "Time is money and we are pushing ahead with this project as soon as possible for completion on time," the source said.

The plans to upgrade the larger 90,000 b/d Aden refinery have been shelved, a source familiar with that project told International Oil Daily. Previous plans envisaged the installation of a new 40,000 b/d vacuum distillation unit and a hydrocracking unit with a capacity of 23,000 b/d (IOD Feb 23). South Korea's Hyundai Engineering had completed an initial feasibility study.

"The proposed joint venture expansion is no longer applicable," a source said. "The Aden refinery is now planning to carry out a comprehensive feasibility study to upgrade the existing refinery units and to install new units, including a hydrocracker," the local source said.

Plans to privatize the refinery in 2001 were scrapped amidst growing opposition from government.

Elsewhere, Yemen's only private sector refining company, Hoodoil, is promoting its proposed 50,000 b/d Ras Issa refinery. Consultants are finalizing a financial and technical study, and a decision should be made later this year. Hoodoil hopes soon to start inviting contractors to begin bidding for the construction work, sources told International Oil Daily.

The refinery, to be located on the Red Sea coast, should be completed by the end of the decade.

US firm Chicago Bridge & Iron carried out the front-end engineering and design work.

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