oct 05 update

Energy futures retreated after power was restored to a large refinery in Texas and the Bush administration said it was, in principle, prepared to tap an emergency supply of heating oil in the Northeast.

But analysts said they did not expect fuel prices to fall sharply any time soon because of the persistent supply constraints caused by the recent back-to-back hurricanes.

In the aftermath of Katrina and Rita, a dozen refineries along the Gulf Coast remain closed, crimping gasoline and heating-oil production, and oil and natural gas output is far below normal levels. Under the circumstances, brokers said the decline in energy futures yesterday should not be seen as the start of a significant downtrend and warned it could be merely a pause in a broader uptrend.

''I think it's more likely that this is probably a consolidation before the next move higher," said broker Tom Bentz of BNP Paribas Commodity Futures.

An Exxon Mobil refinery in Beaumont, Texas, is a step closer to processing 348,500 barrels a day of oil after Entergy Corp. said that over the weekend it restored one of two power lines to the plant.

Chevron Plans to Reopen Gulf Coast Refinery

San Ramon-based Chevron Corp. (CVX), a gas and oil company, expects to resume operations at its refinery in Pascagoula, Miss., by the end of October, slightly sooner than previously predicted. The site, shut down since August, produces up to 325,000 barrels of oil per day.

Valero Shuts Down Houston Refinery Unit

Valero Energy Corp. was forced to shut down its fluid catalytic cracking unit at its Houston refinery the night of October 4 for repairs.

Officials with San Antonio-based Valero (NYSE: VLO) say it would take between 10 to 12 days to bring the unit back online.

As a result, Valero expected to lose out on 40,000 barrels per day of gasoline production and 10,000 barrels per day of lost distillate production.

The company had been monitoring the unit for some time and realized that refinery workers would have to shut it down at some point before its scheduled maintenance next year, spokeswoman Mary Rose Brown says.

Hurricane Rita forced Valero to completely close its 135,000-barrel-per-day refinery during the storm. While the hurricane itself did not cause problems with the unit, the shutdown accelerated the need for repairs, Brown says.

Valero's Port Arthur Refinery is set to Restart

San Antonio-based Valero Energy Corp. expects to have its Port Arthur refinery back online by October 15.

Power, general systems and boilers at the refinery are operating now, and two sulfur trains, usually the first units to restart, are to be operating by October 12.

Valero had owned the Port Arthur refinery for less than a month when Hurricane Rita damaged it Sept. 24. Some parts of the plant were flooded, and key units were damaged by the storm's 125-mph winds.

Repairs appear to be in line with Valero's repair estimates, spokeswoman Mary Rose Brown said. The company had said it would take two to four weeks to bring the 255,000-barrel-a-day refinery back online.

The sooner Valero can restart the plant, the better for the nation's energy supply, as the industry continues to grapple with damage caused by Hurricanes Katrina and Rita. Eighteen percent of the nation's refining capacity remains offline.

Six plants remain closed or are operating at sharply reduced rates in the Port Arthur-Lake Charles, La., area, four are shut or sharply curtailed in Houston and Texas City, and three plants remain closed in the New Orleans-Pascagoula, Miss., area, according to the U.S. Energy Department.

Valero officials earlier said they'll undertake an unusual "black start," or a restart from a rare total shutdown, at the Port Arthur refinery. Restarting any unit of a refinery is dangerous because water and petroleum are subjected to high temperatures and pressure.

Sunoco Fined for Emissions at Marcus Hook Refinery

Delaware regulators have slapped Sunoco’s Marcus Hook refinery with a $33,000 fine for repeatedly releasing too much toxic pollution last year from a cooling tower in Claymont, near the Pennsylvania line.

Most of Sunoco’s refinery stands in Marcus Hook, Pa., but one unit that handles ethylene oxide – a compound used in production of antifreeze and polyester – operates on the Delaware side of the line.

Federal health agencies classify ethylene oxide as a likely cancer-causing compound that also can cause other health problems, including nervous system and reproductive disorders. Safety planners included the same compound in a listing of chemicals at Delaware plants that could jeopardize residents up to 20 miles away in the event of a large release or a terrorist attack.

Department of Natural Resources and Environmental Control officials said October 11 that Sunoco discovered in late June and early July that it was exceeding the state’s 3.2 pounds-per-hour limit on ethylene glycol releases at the refinery. Additional violations followed in late July despite company attempts to correct the problem.

DNREC also ordered the company to pay an additional $2,190 to cover the state’s costs in undertaking the investigation.

The company has 30 days to request a public hearing.

Exxon Mobil to spend $571 Million on Pollution Upgrades

Exxon Mobil Corp. will spend an estimated $571 million for pollution controls at seven oil refineries in a settlement with the government and three states over alleged violations of clean air laws.

The company also will pay fines totaling $8.7 million and spend $9.7 million to retrofit city buses, restore coastal habitat in Louisiana and sponsor other environmental projects around the refineries.

The affected ExxonMobil refineries are located in Baton Rouge, La.; Baytown and Beaumont, Texas; Billings, Mont.; Chalmette, La.; Joliet, Ill.; and Torrance, Calif.

In Baytown, the settlement will — to some extent — fund air quality improvements at Exxon Mobil’s refinery, which is the company’s largest in the nation along with the city’s primary employer and taxpayer.

“There are things that we’ve been working on all along and will continue and there’s some other investments that will come out of this settlement,” said Jeanne Miller, a spokesman for Exxon Mobil in Baytown.

Specifics as to what projects will be completed locally were not yet available, but Miller said great advances in pollution control had already been made over the past decade.

Since 1995, there has been a 50 percent reduction in reported nitrous oxide emissions due to initiatives such as the Lo-NOx burners and steam injection installation into turbines,” Miller said.

Miller also said the Baytown refinery was the first in the world to install wet gas scrubbers on the Baytown refinery’s two fluid catalytic cracker units.

The settlement aims to reduce annual emissions of toxins that can cause respiratory problems and worsen cases of childhood asthma, the Environmental Protection Agency and Justice Department said.

The refineries covered in two consent decrees filed in federal courts in Chicago and Lafayette, La., represent 11 percent of the nation’s refining capacity. The public has 30 days to comment before the agreements can be approved by the courts.

Under the settlement, annual emissions of acid rain-causing sulfur dioxide are to be cut by 42,000 tons and those of smog-forming nitrogen oxides are to be reduced by 11,000 tons. Improvements also are required for detecting leaks, minimizing the flaring of hazardous gases, cutting pollution from sulfur recovery plants and handling benzene wastes.

Exxon Mobil, based in the Dallas suburb of Irving, agreed to the settlement without the government filing suit so it could expand fuel production in compliance with the Clean Air Act. Three states that joined in the settlement - Illinois, Louisiana and Montana - will share the civil penalties.

Prem Nair, a spokeswoman for Exxon Mobil, said the settlement “is in the best interest of the company and supports the continued trend of emission reductions” at its refineries. She said Exxon Mobil denies any claims that it violated any laws or regulations.

With the settlement, one in a string of such actions, almost 77 percent of the nation’s domestic refining capacity now operates under a consent decree with government to enforce clean air laws.

“That will lead to reductions of more than 315,000 tons of pollutants annually from the 17 refining companies that have agreed to come into compliance,” said Granta Nakayama, EPA’s assistant administrator in charge of the Office of Enforcement and Compliance Assurance.

Koch Partners Modifies Oklahoma Refinery

Koch Partners, LP, has plans to expand the capacity of one of its refineries and enable it to accept different kinds of crude oil.

The company will design and build a diesel hydrotreater and a crude oil distillation unit for the Wynnewood Refining Company, Wynnewood, Okla., says Koch Partners spokesman Bill Heimbaugh.

The project, executed through an engineering, procurement and construction contract, should be finished in spring 2007.

The diesel hydro desulfurization unit will utilize open art technology and is designed to produce naphtha, mineral spirits, jet fuel and ultra-low sulfur diesel.

The new crude oil distillation unit will enable processing of a heavier, more sour crude, Heimbaugh says. The refinery processes West Texas Intermediate crude.

The exact capacity increase will be up to the refinery operators at Wynnewood, a subsidiary of Gary-Williams Energy Corp., Heimbaugh says.

Joliet Refinery Deal to Cut Emissions, Aid Environment

Everything from new pollution controls at a Joliet oil refinery to improved habitat for short-eared owls is included in a $180 million-plus settlement reached by ExxonMobil and the state and federal governments.

It's part of a $589 million deal the company struck with regulators over alleged violations of clean-air laws at the Joliet facility and refineries in California, Louisiana, Montana and Texas. The company admits no wrongdoing.

At Joliet, ExxonMobil will install $180 million in improvements expected to cut yearly emissions of nitrogen oxide in half, by 1,800 tons, and sulfur dioxide by 95 percent, or 24,000 tons.

The company will donate 39 acres to the nearby 20,000-acre Midewin National Tallgrass Prairie and $250,000 for prairie restoration.

A Midewin spokeswoman said October 12 that it will expand habitat for the endangered leafy prairie clover and four other sensitive plant species, as well as the Henslow's sparrow, bobolink, northern harrier and short-eared owl.

ExxonMobil will lower carbon dioxide emissions at Joliet by installing $800,000 worth of technology. It will pay $650,000 in penalties to the State of Illinois.

Also in the agreement is $250,000 for equipment to reduce diesel emissions from bus fleets in communities near the refinery, $250,000 for similar work on Chicago's fleet of garbage trucks and $100,000 for the Will County Emergency Management Agency.

Official Says U.S. Refineries must Play Role in Capacity

Increasing U.S. refining capacity requires expanding existing plants as well as building new ones, ConocoPhillips CEO James Mulva told oil and gas industry executives October 11.

Hurricanes Katrina and Rita heightened concerns about refining capacity when the storms left more than a dozen refineries along the Gulf Coast in Texas and Louisiana idle. Even if Congress cuts lengthy permitting and regulatory approvals required to build new refineries, oil majors and other refinery operators need to beef up capacity to meet growing demand, he said.

"Our country has had a wake-up call on energy," Mulva told an energy conference in Houston.

Eleven refineries responsible for about 3 million barrels per day of gasoline, heating oil and jet fuel production remain closed in the hurricane aftermath. Also, more than 70 percent of daily oil production and more than 60 percent of daily natural-gas production was down in the Gulf of Mexico.

No new refineries have been built in the United States since 1976, but refiners have expanded what they have. Mulva and American Petroleum Institute CEO Red Cavaney said more expansions are needed because adding to current infrastructure is quicker and requires less navigation through copious rules and regulations than new construction.

The U.S. House has approved legislation to encourage construction of new refineries by a two-vote margin and sent the measure to the Senate. The bill would streamline government permits for refineries and open federal lands for future refinery construction.

Cavaney noted that Arizona Clean Fuels Yuma recently received the air permits for a $2.5 billion refinery about 100 miles southwest of Phoenix that has been in the works for nearly 20 years.

Even if some steps to building new refineries are eased, construction will still take time, he said.

"Our industry has very, very few short fixes to any problem we face," Cavaney said.

Mulva said refiners also need to invest in more capacity to refine heavy, sour crude, which is increasingly exported from Canada, Mexico and Venezuela. Heavy sour crude has more sulfur than light sweet crude, which is easier to refine because it doesn't have as many elements that must be filtered out during processing.

ConocoPhillips plans to invest $3 billion from 2006 through 2010 to increase its ability to refine heavy, sour crude.

Marathon Announces Plans to Increase Garyville Refinery Capacity

Marathon Oil Corporation October 27 announced plans to pursue an expansion of its 245,000 barrel per day (bpd) Garyville, La., refinery. The project, currently estimated to cost approximately $2.2 billion, is expected to increase the refinery's crude throughput capacity by 180,000 bpd to 425,000 bpd, with completion possibly as early as the fourth quarter 2009. The initial phase of the expansion will include front-end engineering and design (FEED) work that could lead to the start of construction in 2007. The final investment decision is subject to completion of the FEED and the receipt of applicable permits.

"The expansion of our Garyville refinery would provide an outstanding strategic fit to our existing refining network, including accessibility to numerous product transportation systems that serve key markets throughout the U.S.," said Clarence P. Cazalot, Jr., Marathon president and CEO. "This project also represents a continuation of the substantial capital investments we have been making in both our upstream and downstream operations, which are helping us meet the growing energy needs of consumers in the markets we serve, while providing significant value growth for our shareholders."

Anticipated project investments include the installation of a new crude distillation unit, hydrocracker, reformer, kerosene hydrotreater, delayed coker, additional sulfur recovery capacity and other infrastructure investments. The new facilities will incorporate the latest safety and environmental control technologies. The proposed refinery configuration also will be designed to provide maximum feedstock flexibility, enabling Marathon to process more heavy sour crude oils.

Simultaneous with the FEED process, Marathon will commence acquiring permits and addressing other regulatory requirements which are required prior to the beginning of construction. The project would create a significant number of jobs during the construction phase, as well as additional permanent positions needed for ongoing operations at the refinery.

"Marathon will essentially build an entirely new refinery at this site and leverage off the infrastructure already in place at Garyville," added Gary R. Heminger, executive vice president of Marathon and president of the company's refining, marketing and transportation operations. "This planned investment in the Garyville refinery, which was built in 1976 and is the nation's newest grass-roots refinery, shows our commitment to supplying additional fuels to the market. Once completed, this expansion will enable Marathon to supply the nation with nearly six million additional gallons per day of ultra-clean fuels, including gasoline and distillate."

NCRA Beats Deadline for Clean Fuels Project

The National Cooperative Refinery Association has added equipment that enables the 85,000-barrels-per-day refinery to produce ultralow-sulfur fuels, bringing it into compliance with federal Clean Air Act requirements.

There was good news October 26, according to Leon Westbrock, chairman of the board for NCRA, and executive vice president energy for CHS Inc., St. Paul, Minn., one of the refineries owners. Other owners are Growmark Inc., Bloomington, Ill., and MFA Oil Co., Columbia, Mo.

The good news, Westbrock said, was the refinery beat a June 2006 federal deadline to comply with the Clean Fuels project.

That was despite a disastrous hurricane season that forced the refinery to change its method for hooking into the new system, which added $5 million more to the already $300 million project. The project is the largest investment in the refinery's 50-year history.

"We were just ready to shut the entire refinery down for a turnaround, which we do every two to three years as part of normal maintenance. But you shut everything down to repair the units when they're cool," Westbrock said. "We had the turnaround scheduled so we could integrate the new equipment into the refinery."

But hurricanes in the Gulf of Mexico were disrupting about 7 percent of the U.S. refinery capacity. It also was harvest time in the Midwest, and farmers needed the supply of fuel from NCRA.

"We made the decision to change our course just two to three weeks before starting the new hydrogen plant," Westbrock said.

Hydrogen is used in the process of reducing the sulfur levels in diesel fuel from 500 parts per million to 15 parts per million or below.

The refinery now will hook into the new hydrogen system, even while the equipment is still hot. The turnaround - or maintenance - now will wait another year.

Terry Sauerwein, petroleum division manager with Mid Kansas Cooperative, McPherson, who counts on the fuel from the pipeline to ship to farmers around the area, didn't think customers were aware how tight diesel supplies really have gotten.

"Being cooperatively owned, their decision was based on trying to meet farmers needs at time when we had natural disasters that interfered with fuel supplies," Sauerwein said. "A good example was recently on a pipeline there were 14 loading racks in the Nebraska, Kansas and Oklahoma pipeline system that were out of No. 2 diesel."

However, Sauerwein said refineries are coming back on line in Texas, Louisiana and Mississippi and the supply crunch will ease rapidly.

"The important thing to remember about the Clean Air project," said Sauerwein, "these government regulatory costs won't increase the refineries abilities to make more money or increase production. All it does is meet the government specification."

Soil Worries at Katrina Refinery Spill Site

Soil samples taken next to or near a major refinery spill in the New Orleans suburb of Chalmette have found high levels of arsenic, cadmium, chromium and various benzene compounds, two activist groups said October 26 in releasing the test results.

The Louisiana Bucket Brigade and the St. Bernard Citizens for Environmental Quality urged government officials to take immediate steps to cleanup any soil contamination.

The areas tested in St. Bernard Parish included a church, a school and the neighborhood adjacent to the Murphy Oil refinery, which spilled 25,000 barrels of petroleum products when Hurricane Katrina hit. Some of the oil was contained by berms around the refinery, but much spilled over into the neighborhood, mixed in with floodwaters.

Heavy metals were found in the soil on the school’s playground, the groups said.

Murphy Oil sent a letter to residents earlier this week saying that testing by a company it had retained showed little threat of long-term health issues.

Murphy also distributed a letter from that company, the Center for Toxicology and Environmental Health, stating that “our specific tests of the homes in the affected area, with limited exceptions, showed that the homes we tested are already below RECAP standards even before there is any cleaning of homes and lots.”

RECAP stands for the Risk Evaluation/Corrective Action Program, which was developed by the Louisiana Department of Environmental Quality.

“Those that are not already below RECAP standards will certainly be in compliance once clean-up efforts are completed,” the consultant added. “Thus, we feel confident that based on the testing thus far, and the planned cleanup program, there should not be any long-term exposures to oil above RECAP standards and therefore the spill should not be expected to present any long term health and safety issues.”

The Environmental Protection Agency, for its part, has taken initial air, water and soil samples around the New Orleans area, but stresses that those tests are meant only as snapshots to alert emergency responders to immediate dangers. Testing for any long-term health problems that could affect residents is still underway.

The activists, who said they have not been told of any sampling by the EPA, chose which spots to sample based on residents’ concerns, paying a certified testing company $20,000 to perform the work.

Earlier sampling by the Louisiana Environmental Action Network found similar concerns in Chalmette as well as New Orleans’ Lower Ninth Ward, a low-income area that saw severe flooding.

2004 Cinizia Refinery Investigation Concluded

A federal investigation involving an oil refinery explosion in 2004 determined failure to maintain equipment led to a New Mexico oil refinery explosion.

In April of 2004, an explosion at the Giant Industries Cinizia Plant seriously injured six employees and caused an evacuation of the plant just east of Gallup.

The U.S. Chemical Safety Board found that workers were supposed to shut off a spare pump scheduled for maintenance the next day.

Even though the valve was in the closed position, investigators found that the valve was actually open.

The study also found that the valve had been modified in the past to replace a hand wheel method of opening and closing it with a bar-type wrench.

Government Incentives May not be Enough to Encourage New Refineries

To ensure its security and prosperity, the United States needs more capacity to refine gasoline. The House has approved and sent to the Senate a bill that would streamline the permitting of new refineries and make available closed military bases as refinery sites. Streamlining the permitting process would help, but the government should not relax safety and clean air standards to keep America's tanks filled.

Unfortunately, there is a disconnect between the efforts of those who wish to encourage new refineries and the prospects of seeing one built. The U.S. Chamber of Commerce and the American Petroleum Institute support legislation to encourage new refineries, but industry executives and analysts say new refineries don't make economic sense. The American Petroleum Institute's own manager of refining matters, Tracy Gordon, recently said she had detected no interest among U.S. firms in building a refinery.

Visiting scholar Fereidun Fesharaki, a senior fellow of the East-West Center, told the Chronicle that U.S. oil companies will not build new refineries because their executives are not stupid. Huge refining capacity is coming online offshore, Fesharaki said. Europe is moving toward diesel, freeing up capacity for refining gasoline that will be exported to the United States.

U.S. Energy Secretary Samuel Bodman seems to agree, suggesting that refineries abroad were more likely than new U.S. plants to expand gasoline supplies available to American drivers. Fesharaki said growing U.S. demand (and not the relatively modest demand for imports in India and China) was the cause of today's tight supplies.

Both Fesharaki and Bodman said reducing U.S. demand through conservation and changed habits was the best short-term solution to tight supplies.

House Republicans Want to Bring Oil Refinery to Iowa

Republicans in the Iowa House say it's time for the state to consider offering a package of incentives that would lure the oil industry to build a new refinery in Iowa. House Speaker Christopher Rants, a Republican from Sioux City, says the idea came up October 25 during a private meeting of Republicans who serve in the House. Rants says there are obviously financial and infrastructure hurdles to overcome, but a group of legislators will take a "serious look" at what it would take to get an oil refinery "constructed in our neck of the woods."

The closest refinery is in the Twin Cities, and it's been a couple of decades since a brand new oil refinery has been built in the U.S. Many U.S oil refineries were shut down by the hurricanes which struck the Gulf Coast, and Rants says Republicans are trying to respond to the complaints of Iowans who saw gas prices spike here. "We know that our coastlines are prone to damaging weather that ends up inflicting a cost onto the rest of us," Rants says. "It would seem to us that a refinery located somewhere along the Mississippi River (in) southeastern Iowa might be an ideal place to have something like that located."

Representative Willard Jenkins, a retired John Deere engineer from Waterloo, is heading up a team of Republican legislators who're investigating that idea. House Republicans have also decided to pass a bill that would restrict the ability of the state, county and local governments to take property from landowners. Rants says a U.S. Supreme Court decision on the issue leaves Iowa law unclear, and legislators want to clarify it.

Massive Citgo Refinery Slowly Works its way Back to 100%

After dodging disaster, the vast Citgo Petroleum refinery — the fourth-largest U.S. oil plant — is slowly gearing up to full strength after Hurricane Rita struck this region last month.

Three-quarters of the plant's 2,000 employees and contractors have returned to work here, living in giant, air-conditioned tents and a small trailer city at the plant here.

Enough power surged into the plant two weeks ago to start preliminary operations and produce some gas and fuel. But it's unclear how long it will take to fire up the plant for 100% production.

Citgo's measured pace to recovery shows the complexity of oil refineries, and why shutting down one as a hurricane nears is a costly step. The Lake Charles refinery loses $1 million for each day production is down, says Citgo CEO Felix Rodriguez.

Eight refineries — almost a fifth of the nation's capacity — remain shut down or below full capacitybecause of Hurricanes Rita and Katrina, the American Petroleum Institute says. That's contributing to tight supplies and high prices across the country.

On Sept. 23, the day before Hurricane Rita hit, Citgo evacuated the Lake Charles refinery, its largest, with a capacity of 425,000 barrels of crude a day. It was only the third time a storm led Citgo to throttle down the plant, built during World War II to fuel U.S. bombers.

"We weighed the risks," said Citgo plant manager Al Prebula. "We had to do it."

Now Citgo faces the arduous task of restarting the refinery, which sprawls over 2,000 square acres on the Calcasieu Ship Channel.Oil-processing units, docks, storage tanks and a $150 million water-treatment facility cover the site.

Engineers are checking for water damage to substations, switchgear and computers. They're also looking for leaks in the plant's hundreds of miles of pipes and valves.

Citgo spokesman David McCollumsaid the oil-refining units must get revved up in a gradual sequence. If they're brought up too quickly, the plant could crash.

Shuttering the refinery also was a complex — and potentially dangerous — task.

Employees lowered crane booms and turned off pumps, motors and steam turbines. As fire crews stood by, operators slowly cooled the oil-refining units, which contain explosive hydrocarbons and can reach 1,000 degrees.

While Rita left much of the region flooded, the refinery suffered little damage, said Citgo spokeswoman Patricia Prebula.

Winds had shoved railcars down a track and pushed a bus into a ditch. Small guard stations were knocked over, and rocks and debris slammed into oil-storage tanks. Asbestos-lined insulation was ripped from the plant's older structures.

In the channel, where supertankers ship millions of barrels of crude oil a year from Venezuela to the Gulf of Mexico and the Citgo plant, the storm surge twisted one pier. Cane plants and live water moccasins were lodged under the dock.

"By and large, we weathered it pretty well," said Mark Morgan, a Citgo shift superintendent.

Luckily, the refinery stands on a marshy bluff above sea level. If the storm surge had risen to 20 feet, Al Prebula said, "We would be under water now."

"Citgo is offering cash advances and loans to its employees, and it is still paying employees who cannot work because of the disaster.

Meanwhile, Citgo has been pumping gas around the clock for emergency workers.

"We recognize there is a great need for gasoline now," Al Prebula said. "We're working non-stop until we get this plant running again."

CANADA

Alberta Plans Giant Refinery Complex near Edmonton

The Alberta government is planning to construct a massive new oil refinery and petrochemical complex near Edmonton that could eventually rival the largest refineries on the U.S. Gulf Coast, according to a published report.

The National Post says the Klein government and 16 industry partners are getting down to the fine details of the proposed $7 billion project that would initially process 300,000 barrels of oil a day.

The complex could be in operation by 2012. It would be the first new refinery in North America in 25 years.

Plans call for the refinery to be built east of Edmonton, near the community of Red Water. About 70 per cent of the capacity would be dedicated to processing oil from the Athabasca Tar Sands. The remainder would produce petrochemicals such as ethylene and propylene. Diesel fuel from the refinery would be shipped by pipeline to the west coast for export to the Far East, while gasoline and kerosene would be shipped to North American markets.

DOMINICAN REPUBLIC

New Dominican Refinery President says Petrocaribe Agreement Top Priority

The new president of the Dominican Petroleum Refinery affirmed that his top priority will be the application in the Petrocaribe Agreement an energy cooperation agreement, which the Dominican government signed with Venezuela.

Eduardo Rodriguez said that the difficulties that he will have to face so that the country begins to receive the benefits from the oil agreement do not concern him.

Rodriguez, who before being named in the post was the Executive Branch’s energy adviser, affirmed that his relation with Shell will be friendly and will seek to solve conflicts.

The Refinery’s new president replaces Arístides Fernandez Zucco, who was fired after the city was affected by a gas escape from that facility October 17.

Zucco and Industry and Commerce minister Francisco Javier Garcia had a heated media clash regarding the crisis from the escaped gas, which affected the health of dozens of people.

TRINIDAD / TOBAGO

New Refinery Coming to Trinidad/Tobago

Energy Minister Eric Williams said October 5 that the government was moving to set up a new refinery in Trinidad and Tobago.

Williams was speaking during the 2005/2006 budget debate in the House of Representatives.

He said Government was hoping that the modern refinery would attract "private investment" to come into the country to build it. That new facility is likely to be constructed close to Petrotrin's Pointe-a-Pierre refinery.

During the debate Prime Minister Patrick Manning had asked former energy minister Kelvin Ramnath where else should the facility be set up and Ramnath was seeking to identify other locations.

Williams said that when the new refinery is constructed "some of the services that exist at the current refinery -the machine shop, utilities-can become divested as common services to support both of the refineries.

"The price of oil today is heavily driven by the fact that there is not enough refining capacity globally, and Trinidad and Tobago, given the vision of this Government, will seek not only to optimize its current refining arrangement, but to bring another refinery into play with a private sector partner close to the main marketplace that we can ship these new products to, which is the United States," he said.

Williams told MPs that apart from the upgrade now taking place at Petrotrin, there were plans for the company to relocate its head office from the western side of the refinery to the eastern side.

He said both NP and Petrotrin "are currently investigating the possibility of putting in a new pipeline system to move products to Sea Lots and Piarco Airport, so that we could reduce some of the congestion on the roads."

ASIA

AUSTRALIA

Mobil asked to Reopen Australia’s Port Stanvac Refinery

Mobil will be asked to open its mothballed Port Stanvac oil refinery to ease soaring petrol prices after a Reserve Bank warning that oil prices are a threat to the Australian and world economies.

Industry Minister Ian Macfarlane will ask Mobil at a Canberra meeting of oil companies tomorrow to bring its Adelaide refinery back online.

"Given the global shortage of refining capacity, perhaps there is a window of opportunity for Australia," Macfarlane said.

"And I will be asking Mobil if they will consider reopening Port Stanvac."

The refinery was providing almost 10 per cent of the nation's fuel when it was shut down in mid-2003.

Reserve Bank deputy governor Glenn Stevens said October 10 inflation in Australia and around the world had been "fairly well behaved", unlike during the last OPEC oil price crisis in 1974. "The issue before us in the next year or two is whether the world and Australian economies can adapt to higher energy and resource prices without a significant bout of inflation," he told a business dinner in Tasmania.

The Treasurer said the fuel prices could raise the "headline" rate of inflation, but the important issue was whether there were "second-round effects", with higher transport costs spilling into production, distribution and retail costs. The Reserve Bank would be forced to lift interest rates if that occurred.

The Australian Automobile Association said oil companies were still "gouging" profits from high petrol prices.

Executive director Lauchlan McIntosh said oil companies were exacting higher domestic margins.

Mobil shut the Adelaide refinery in July 2003 at a time when the Australian industry was in a serious downturn, and oil companies were not making money through their refinery operations.

Boosting refinery capacity in Australia would increase the supply of petrol available to retail outlets, easing prices that are stuck stubbornly in the range of $1.20 to $1.30 a liter.

INDIA

Indian Oil to Shut Barauni Refinery in Feb 2006

India's state-run refiner Indian Oil Corp. Ltd. will shut its 120,000-barrel-per-day Barauni refinery in the eastern state of Bihar for 30 days annual maintenance in February 2006, an official said on October 4.

"We had planned the shutdown for October but have deferred it to February to cope up with the current LPG (Liquefied Petroleum Gas) shortfall," a company spokesman told Reuters.

The planned shut down at Barauni refinery will begin on Feb. 1, he said, adding that all the key units at the plant would undergo the annual revamping exercise.

Elnusa to Build $2.5 Billion-$3 Billion Indian Refinery

A subsidiary of state oil and gas firm PT Pertamina, PT Elnusa Harapan, is studying the possibility of building a refinery with a capacity of 300,000 barrels per day.

The refinery, which would be expected to start producing within four years, would cost between US$2.5 billion and $3 billion, Elnusa president director Rudy Radjab was quoted as saying.

Rudy said two-thirds of the fuel products from the refinery would be exported to China, while the rest would be used to meet domestic demand.

"We have signed contracts with Sinopec and CNPC," Rudy was quoted as saying, referring to the China Petroleum & Chemical Corp. and the China National Petroleum Company.

The refinery would process some 100,000 barrels per day of very heavy crude from Iran.

It is unclear from where the refinery would receive the rest of the crude.

Rudy said the company would conduct a preliminary feasibility study in the next two months and a more comprehensive one next year.

Among the possible locations for the refinery are Banten, Central Java and Riau.

The Ministry of Energy and Mineral Resources' director of oil and gas, Erie Soedarmo, said Elnusa had yet to submit a license application for the refinery.

"They need to provide data on the financing and location to get a permit," said Erie.

Indonesia will open the downstream oil and gas market to private investors in late November, after Pertamina's monopoly in the sector officially ends.

According to data from the energy ministry, PT Intanjaya Agromegah and PT Berkah Refinerindo Utama have secured principal licenses to build refineries capable of processing 300,000 barrels per day (bpd), in Parepare, South Sulawesi, and another in Trenggalek, East Java, respectively.

Applications from seven other companies are currently under evaluation. Also, a refinery with a capacity of 800 bpd in Musibanyuasin, South Sumatra is under construction.

Pertamina also plans to build a refinery with a capacity of up to 200,000 barrels per day in Tuban, East Java.

That refinery, to be constructed in cooperation with Sinopec, will be used to process crude produced by the untapped oil-rich Cepu block, located on the border between East Java and Central Java.

BP Eyes Stake in HPCL’s New Refinery

Oil major BP Plc is set to sign a preliminary agreement with Hindustan Petroleum Corp Ltd (HPCL) to buy a stake in one of the Indian state-run company’s new refineries, a Hindustan Petroleum source said. BP chief executive officer (CEO) John Browne planned to be in India on October 13 and 14, when he was expected to sign a memorandum of understanding (MoU) with Hindustan Petroleum chairman MB Lal for equity participation in one of two new refineries in Bhatinda and Visakhapatanam (Vizag).

“We have offered BP both Bhatinda and Vizag refineries, now its up to them to select any one,” said the source, who declined to be identified. The MoU may become a firm joint venture if BP shows interest in a proposed new 300,000 barrels per day (bpd) refinery in Visakhapatanam, Andhra Pradesh, he said. In August, Lal had said that the company would build the new Visakhapatanam refinery with a foreign partner.

BP officials in India were not available for a comment. “We have already offered BP a 26% stake in Bhatinda,” said the source at HPCL, which has set up a separate firm to run the 180,000-bpd Bhatinda refinery in Punjab. The Indian company had also offered the 26% to firms such as Saudi Aramco, Malaysia’s Petronas and France’s Total, the source said.

“BP is looking for an entry into India’s refining and marketing sector and we have made them the best offer,” he added. An oil ministry official confirmed that BP was eyeing India’s transportation fuels sector and may seek government permission to set up gas stations in the country.

According to government rules, companies wishing to set up petrol stations in India must invest Rs 20 billion in local energy infrastructure and the ministry official said it made sense for BP to invest this in a refinery. “BP officials have told us that they are also interested in exporting petroleum products from India to China or to the west coast of America,” he said.

BP’s rival Royal DutchShell has already received the government nod for 2,000 outlets in India. BP has invested about $900 million in India in the past few years, mostly through Castrol India and Tata BP Solar, a renewable energy JV with the Tata Group. India already has surplus refining capacity and has exported oil products since 1999, after Reliance Industries set up its Jamnagar refinery that processes 660,000 bpd of crude.

Paradip Oil Refinery to be Commissioned on Time

Orissa Chief Minister Naveen Patnaik said October 27 the proposed Paradip Oil Refinery and a Petrochemical Complex at Paradip by the Indian Oil Corporation will be commissioned on time.

Mr Patnaik, who held discussions in this regard with Union Petroleum Minister Mani Shankar Aiyar, told newspersons that the Indian Oil Board would clear the proposal in December.

The IoC had initially proposed a Rs. 10,000 crore Oil Refinery at Paradip but later favoured a petrochemical complex which if cleared would cost nearly Rs. 25,000 crore.

The Chief Minister said the ONGC would also step up the oil exploration work in the coastal districts of Cuttack, Kendrapada and Jagatsinghpur as the petroleum ministry had cleared the proposal for oil exploration in the Mahanadi basin area.

NORTH KOREA

Russian Investors Help North Korea Revamp Oil Refinery

North Korean leader Kim Jong Il said on October 9 Russian investors helped his country begin the upgrading of the Sungri oil refinery and the Kim Chak metallurgical plant.

The North Korean president and Russian presidential representative in the Far Eastern Federal District Konstantin Pulikovsky had a two-hour meeting at Kim Jong Il’s residence on October 9.

They discussed Russian-North Korean economic cooperation and the six-party talks on the situation in the Korean peninsula, Pulikovsky’s press secretary Yevgeny Anoshin said.

Kim Jong Il said that over the two months since his previous meeting with Pulikovsky many projects began to materialize in North Korea.

PHILIPPINES

Shell Weighs Philippine Refinery Options

Oil refiner Pilipinas Shell Petroleum Corp. will decide next year whether to expand its Philippine refinery or close it down, a company official said.

The UK-based multinational is seriously studying several different options right now, taking into consideration the competitive environment in the region's downstream oil sector and additional concessions that it is awaiting from the government, Shell general manager for external affairs Roberto Kanapi said.

It is looking at the market landscape and how refineries in Singapore, Taiwan, Thailand and Korea are expanding and upgrading their plants, and will soon have to tread the same path if it is to remain competitive in the region, Kanapi said.

Also being considered is that by 2009 more stringent emission requirements under the Euro 2 standards will take effect, under which Shell will either have to keep up by upgrading its refinery or close it down and become an importer of finished products, he said.

"We have to prepare for the future," Kanapi said. "There's no point in staying if we don't meet the requirements of the future. We will not be competitive with the regional refineries."

"We're looking to the government right now" regarding Shell's final decision on its refinery, he said.

Shell is waiting for the government's decision on providing a tariff differential between crude and finished oil products, and on possible new incentives for oil refiners, Kanapi said.

It is also looking at a 12-percent return-on-rate base (RORB), which oil companies were assured of before deregulation, he added.

At present Shell has an RORB of only three to four percent, he said.

"We really want to know what the government's strategy is with respect to refineries," he said. "Are they happy with just one refinery? Why is it that nobody's investing in the country? The government should make [the environment] right and good for people to invest."

Considering current demand and economic growth projections over the next several years, the country will likely be importing 44 percent of its fuel requirements by 2008, Kanapi said.

As the refining capacities of Petron Corp. at 180,000 barrels a day and Shell at 110,000 barrels no longer meet the current demand of about 376,000 barrels a day, the country has to import 41 percent of its total requirements.

If Shell closes its Philippine refinery, imports could go up to as high as 70 percent of demand, Kanapi said.

parate strikes during the last week of September completely shut the 328,000 barrel per day (bpd) Total refinery in Normandy, over a wage dispute. Workers, who say talks were blocked, voted on October 3 to extend the strike to Friday, October 7.

A second strike, sparked off by a protest over the privatization of a ferry company, continues to block tankers from loading and discharging oil from the Fos-Lavera Mediterranean hub, home to a cluster of refineries amounting to more than 600,000 bpd capacity.

Fos-Lavera is a major source of oil and gas imports as well as refined products exports to the region, West Africa and the United States.

A company spokeswoman said BP subsidiary Innovene cut runs at the 220,000 bpd Lavera plant on October 1, and could completely shut the whole plant down by October 5 if the strike continues past a general strike in France on Tuesday, October 4.

"Effectively, runs have been reduced since October 1. It could shut down completely if the strike continues after October 4," said an Innovene spokeswoman.

A spokesman at the UFIP oil industry body estimated the Lavera plant's runs could be reduced by as much as 25 to 30 percent.

The dockers will extend the strike to Tuesday, October 4 a CGT union official said. This coincides with the October 4 general strike against the government's economic reforms.

The general strike is already threatening French refining capacity of just below 2 million bpd, with a call by the main unions to cut running rates but not shut down Total's refineries of over a million bpd.

A crude oil cargo was unloaded at Royal Dutch Shell's <RDSa.L> 126,000 barrel per day Berre l'Etang refinery in southern France at the weekend, delaying the strike's threat to its operations, a company spokeswoman said.

The tanker managed to discharge its cargo after police intervened to clear the blockade at the Fos-Lavera ports.

Esso's <XOM.N> 115,000 bpd Fos refinery and Total's 155,000 bpd La Mede refineries have so far not been hit by the strikes.

EUROPE / AFRICA / MIDDLE EAST

LITHUANIA

ConocoPhillips Wants to Buy Lithuania Refinery with Lukoil

US oil company ConocoPhillips is interested in buying Lithuanian oil refining company Mazeikiu Nafta in partnership with Russian oil giant Lukoil, according to ConocoPhillips chairman James Mulva.

'We are ready to commence negotiations,' Mulva said in Vilnius after meeting Lithuanian Economy Minister Kestutis Dauksys.

'If ownership in Mazeikiu Nafta is purchased it would be done 50-50 by Conoco-Phillips and Lukoil,' he added.

Mulva also stressed that cooperation between the US and Russian companies was politically important.

'From a political perspective we think by purchasing whatever ownership is available between the US company and the Russian company is the best way to make sure we have security of feed stock, operations and to make sure that we have refined products,' Mulva said.

Embattled Russian oil giant Yukos, which is locked in a financially crippling fight with the Russian government over back taxes, currently holds 53.7 pct of Mazeikiu Nafta and has management rights in the refinery.

The Lithuanian government holds 40.6 pct in the refinery, the only one in the Baltic States, and wants to buy the Yukos stake and sell it to another investor along with 20 pct of its own holding.

ROMANIA

Romania’s Petromidia Refinery Undergoes Renovation Worth $30 Million

Petromidia Refinery is currently undergoing 24 modernization projects, along with general renovation, with the total value of works reaching 30 million dollars, ACT Media news agency reports.

The modernization projects are part of the investment plan of 200 million dollars, which is to be finalized by 2007.

These technological upgrades will contribute to quality improvement and an output increase of 10 percent.

Petromidia has been closed since October 1, the operations being planned according to legal norms and international practices.

Some 42 companies, of which 6 are foreign, are involved in the mechanical, electrical and civil engineering works.

Some 800 equipments under pressure and 5,500 technological pipes and utilities will be controlled and verified.

Romania’s Petrotel Refinery Receives Loan of $82 Million

Romanian refinery Petrotel, part of the Russian oil Group LUKoil, concluded a meeting with the International Finance Corporation for a loan worth $82 mln earmarked to re-finance its own funds used for refinery's upgrading over 2003-2004, ACT Media news agency reports.

LUKoil Co. guarantees the respective loan.

The loan will be paid in two installments.

The first one in the amount of 35 million dollars, on a seven years period, in IFC's account, and the second, of 47 million dollars, on a period of five years in the account of commercial banks' syndicate led by ING. Within Petrotel-LUKoil refinery's upgrading process three new objectives were constructed, drafted upon UOP Ltd (USA), "ExxonMobil" (USA), "Linde" (France) and "Haldor Topsoe" A (Denmark) licenses. Following the refinery's upgrade, the depth of crude oil processing increased from 87.9 percent to 94.8 percent.

White products profitability jumped from 73.3 percent to 81.7 percent.

In 2005, the refinery's output is entirely composed of products in conformity with Euro-3 and Euro-4 standards.

At the same time, the upgrading allowed a 50% decrease of the polluting substances' emissions.

ALGERIA

Skikda Refinery Fire in Algeria

The Algerian minister of energy and mines Shakib Khalil announced that a large fire erupted on October 4 in a tank for crude oil storage in Skikda refinery

Despite the huge fire, oil dealers said that the export of oil products from the refinery estimated at 335,000 barrels daily were not stopped. He said "it can be said that loading operations are continuous." One official in the sector of oil refining said that the exports of oil to Europe was not affected, and there is no problem for exports.

Skikda exports several products including solar and Nafta and heating fuels to the USA, Europe and the Mediterranean. Most of the Algerian refining energy estimated at 457,000 barrels daily are situated in the refinery.

EGYPT

Egypt Plans New Refinery

Egypt plans to build a new oil refinery, its largest, and three new liquefied natural gas (LNG) production lines, Petroleum Minister Sameh Fahmy announced recently.

Work is underway on a feasibility study into the US $5 billion refinery and details will be announced soon to prospective investors, he said.

The refinery, Egypt’s tenth, will be on the northern Mediterranean coast, Fahmy did not state its capacity but said it will be bigger than the current largest refinery, the 146,300 barrels per day Al Nast plant at Suez.

MOROCCO

Foster Wheeler Gets $650 Million Morocco Refinery Upgrade and Expansion

Morocco has hired Foster Wheeler Italiana SPA for project management of a $650 million refinery upgrade and expansion near Casablanca.

The program, which includes a new hydrocracking unit and updated environmental facilities, will increase capacity at the refinery to 121,000 barrels per day, the Oil & Gas Journal reported October 4.

The project is expected to maximize distillate production and improve product quality specifications to meet the distillate requirements of the Moroccan market by 2010. The project includes new conversion and auxiliary units, a vacuum distillation unit, a distillate hydrotreater, a sulfur recovery unit and a hydrogen plant. Completion is set for June 2008.

Snamprogetti SPA of Milan and Turkey`s Tekfen Construction & Installation Inc. were selected in May to design, construct and commission the facilities.

NIGERIA

Nigerian Govt Has Shelved Privatization of Warri Refinery

The Managing Director of the Warri Refinery and Petrochemicals (WRPC), Basil Idahosa, has said that the federal government will not sell the 125,000 barrels per day plant to any investor in its privatization program.

He said in an interview with the News Agency of Nigeria (NAN) in Abuja that government would retain the refinery to enable it to compete favorably with the Port Harcourt and Kaduna refineries slated for privatization between now and early next year.

But when contacted by Business Trust on telephone, the Deputy Director and Head, Public Communic-ations of the Bureau of Public Enterprises (BPE), Chigbo Anichebe, dismissed the MD's claim as "untrue".

The BPE spokesman said at no time did the federal government shelve privatization of the WRPC.

Mr. Anichebe said: "That was the proposal they (in the Nigerian National Petroleum Corporation - NNPC) made to the government, but it was never accepted."

Meanwhile, the WaRPC MD said government, in its wisdom, chose to keep the plant based on its performance.

According to him, the refinery is currently producing at seventy per cent installed capacity with the Crude Distillation Unit (CDU) and the Fluid Catalytic Cracking Unit (FCCU) functioning at full capacity.

He said the refinery would soon operate at 100 per cent capacity, since the limitations of the CDU had been identified.

"A heat exchanger will be installed in the CDU and that will enable the facility to expand the distillation of crude which in turn will add to the capacity of the plant," he said.

According to him, the refinery is currently producing 4.7 million liters of petrol per day, 3.1 million litres of kerosene per day, 3.5 million liters of diesel per day, 2.5 million liters of fuel oil per day and 400 metric tons of cooking gas.

He said Turn Around Maintenance (TAM) on the plant was carried out in 2003 and another one has been scheduled for 2008.

"Regular TAM is imperative for any refinery to function optimally," Idahosa said.

In a similar development, the 150,000 barrels per day Port Harcourt Refinery slated for privatization before the end of the year is producing at between sixty and seventy per cent installed capacity.

Its acting Managing Director, Mrs Olufemi Onasuya, told NAN that measures had been taken to move the plant's capacity to eighty per cent before the end of the year.

She said the refinery had a fourteen-day crude oil reserve capacity as a result of the full rehabilitation of facilities in the refinery early this year.

According to her, the plant is currently producing 3.2 million liters of petrol per day; 2.9 million liters of kerosene per day; 3.6 million liters of diesel per day, as well as 2.1 million liters of fuel oil per day.

Onasuya however said the old 60,000 barrels per day PH Refinery had been down since 2003 as a result of non-supply of gas to its heat exchanger.

SOUTH AFRICA

Engen Refinery pays R10 000 Pollution Fine

The Engen fuel refinery in Durban has paid a R10 000 admission of guilt fine for exceeding World Health Organization air pollution guidelines in neighboring residential areas.

The fine is believed to be one of the highest in South Africa for an air pollution violation, but the penalty has also highlighted concerns about the legal vacuum in controlling such offences despite the recent introduction of the new Air Quality Act.

Desmond D'Sa, Chairman of the South Durban Community Environmental Alliance which brought the latest Engen pollution violations to public attention, has welcomed the decision by the eThekwini Health Department to prosecute the refinery under the city's Scheduled Trades and Occupation by-laws.

However, D'Sa said the R10 000 fine was nevertheless "small change" for a large international company and was unlikely to deter similar offences by major polluters.

Significantly, Engen was prosecuted under city by-laws - not the new Air Quality Act which provides for much higher fines and terms of up to 10 years in jail for certain offences.

The Engen case came to light earlier this year after the alliance urged the city Health Department to prosecute the company for exceeding the World Health Organization's 10-minute average guidelines for sulfur dioxide pollution at least 35 times during the first half of this year.

Engen said in a press statement that the company wished to apologize "to all who have been inconvenienced and experienced discomfort" and was committed to working with the department to address pollution problems.

Confirming the fine, eThekwini Health deputy head Selva Mudaly said he did not believe the size of the fine was as important as the fact that the company would be required to report the violation in its annual report.

SYRIA

Preparations Underway to Establish Syrian-Russian Oil Refinery Company

Director of the Investment Bureau at the Council of Ministers Dr. Mustafa Abdulla Kafri has said that Story Trans Gas Oil intends to build one of its oil projects in Syria, either an oil refinery or a petrochemical plant.

Al-Kafri pointed out that the project will be done in cooperation with the Syrian Ministry of Oil. An initial agreement to hold a joint venture between Russian company Story Trans Gas Oil and one of the companies affiliated with the ministry of Oil was approved.

The total investment cost of the project is estimated at $2 Billion. In this connection, a delegation from the said Russian company paid a visit to the investment bureau in Damascus where talks were held.

RUSSIA

YUKOS Wants $1 Billion for its Stake in Refinery

Russian oil group YUKOS wants $1 billion for its controlling stake in the Baltic region's only refinery, front-running bidder TNK-BP said in a newspaper interview published on October 12.

YUKOS is selling its 53.7 percent stake in Mazeikiu, which has a market capitalization of around $3 billion, and the prospect of owning the complex has attracted serious interest from at least six oil majors including LUKOIL.

TNK-BP director German Khan said in an interview with Lithuanian daily Lietuvos Rytas that his company had been in direct contact with YUKOS and the Russian government.

"We have consulted the government on the possible acquisition of Mazeikiu Nafta. But we did so only because we are speaking about nearly a billion dollars, which is what YUKOS is asking for," Khan said in the interview.

On October 11 TNK-BP was identified by Lithuanian Prime Minister Algirdas Brazauskas as being the favorite candidate to buy the YUKOS stake. Under the ownership rules the Baltic state's government, which holds 40.6 percent, has the final approval on any buyer.

"We will give the priority to British Petroleum to start the negotiations ... because it corresponds to our criteria," Brazauskas said.

A final decision on which company has the government's blessing to start the final negotiations on the sale will be made later on October 12.

TNK-BP's Khan said his company had held talks with YUKOS in London.

He said that if TNK-BP were successful it would think about building an oil products pipeline and also pump around $300 million into modernizing the refinery.

The value of the YUKOS stake has been estimated at between $1 billion and $2 billion.

A spokeswoman for YUKOS could not confirm whether the $1 billion asking price for the Mazeikiu stake was accurate.

But she said that YUKOS executives were in Lithuania on October 12 attending a meeting with government officials at which the final decision on the bidder would be made.

UKRAINE

Possible New Refinery for Ukraine

A story is circulating that a consortium of local and U.S. interests are planning on building a state-of-the-art $3 billion oil refinery complex in Lviv oblast .

The refinery would be located in Brody, at the end of the storied Odessa-Brody pipeline, which will deliver Caspian crude to the new facility. This will allow Ukraine to diversify its energy supplies – this country currently gets 80 percent of its oil through Russia. It will also justify the existence of the pipeline, which was conceived to carry Caspian oil but is now running in the wrong direction, ferrying Russian crude south. This refinery is a good thing, as Ukraine’s reliance on Russian oil is a national security liability.

The refinery, with a projected annual capacity of eight million tons, will be one of the few in Eastern Europe capable of processing Caspian crude. If reports are to be believed, it will be specializing in the production of high-octane gas and spinning off products like lubricants and plastics. Using special technology, it will provide heat for factories operating alongside.

But certain details are sketchy. The project was touted during President Viktor Yushchenko’s trip to western Ukraine recently, and he signed a memorandum in support of it. Yet the American companies involved in the deal are obscure, as are the Ukrainian companies, and the government has been tight-lipped about the deal. A spokesperson for governor, Petro Oliynyk said no information was available about the American partners. All this has at least one expert suspicious that the project doesn’t really exist. Is it a hoax designed to make the Russians nervous about losing their control over the Ukrainian oil market?

If that’s true, it’s hoax, that President Yushchenko is throwing his own prestige behind. Ukraine needs to diversify its energy supplies, and this is a good step in that direction.

IRAQ

Iraq Rebuilds Oil Refinery Unit Crippled by War

Iraqi crews have rebuilt a 70,000 barrels per day oil refinery unit, despite regular attacks, helping to plug shortages that cost over $5 billion a year in fuel imports, oil officials said on Tuesday.

The crude distillation unit, one of three at the northern Baiji refinery, has re-opened after a total rebuild and is now operational, they told Reuters.

"It is back up and domestic output has risen as a result," said the official, adding that a second unit at Baiji is due for maintenance within six months.

The official, who declined to be named on security grounds, did not reveal how much Baiji was producing overall. Baiji's output shrank sharply over the last 25 years due to wars and a crippling embargo.

"It has been a long road, but the crews showed resilience that has been the hallmark of the Iraqi oil industry since the war with Iran in 1980," he said.

The refinery and a power station nearby have been under attack regularly since the U.S.-led invasion that removed Saddam Hussein and his Baath party from power in 2003.

Pipelines feeding the refinery from the Kirkuk oilfield to the east and those that carry its output of gasoline and other fuels to Baghdad have been also sabotaged. Mortar rounds and Katyusha rockets have also hit the complex.

Iraqi oil Minister Ibrahim Bahr al-Uloum was on his way from Baghdad to Baiji to inaugurate the rebuilt unit on October 3 when a bomb hit his motorcade. Uloum survived without injury but several of his guards were killed, security officials said.

The attack underlined the dangers the ministry faces in rebuilding its oil sector and attracting investment, especially in central and northern Iraq where rebels fighting the U.S.-backed government have been most active.

Iraqi officials say security has improved at Baiji, allowing crude oil to reach the refinery more often and crude exports to flow to Turkey.

But Iraq's 2.8 million bpd of crude output remains below the level before the 1991 Gulf War. The government has also instituted fuel rations since the U.S.-led invasion.

Iraq, which used to be a net exporter of fuels, even during the 1990-2003 embargo, last year imported 63,000 bpd of gasoline and 75,000 bpd of gas oil as its capacity to process 550,000 bpd of crude oil diminished.

Baiji alone, together with its auxiliary refining units, has 350,000 bpd crude processing capacity.

An international oil executive told Reuters the government could face even more difficulty in repairing the oil sector because foreign suppliers were growing more reluctant to do business with Iraq.

"Rebuilding the Baiji unit was an achievement. But the whole sector needs similar treatment. The political and commercial risk is immense and Iraq still has rules that delays payment to contractors and discourage business," he said.

"Iraq is becoming even less of a priority for international companies. Saudi Arabia alone is planning billions of dollars of supply contracts over the next few years."

Another Refinery Put to Work in Southern Iraq

The refinery in the southern province of Dhiqar is back on stream and churning 10,000 barrels a day.

The refinery is one of several other small refining units built to meet domestic needs of major cities.

The State Contract Company rehabilitated the refinery which currently produces gasoline, kerosene and fuel oil, the company said in a statement.

It said the repairs were carried out in close cooperation with the Ministry of Oil.

“The company has signed a new contract with the Oil Ministry to construct five new small refining units in the country,” the statement added.

Iraq, the world’s second largest in oil reserves, has enormous refining problems.

It currently spends hundreds of millions of dollars on fuel imports from neighboring countries with its major refineries working below capacity mainly due to acts of sabotage.

The Oil Ministry intends to build a small refinery in each of the country’s provinces to alleviate demand pressure on major refining complexes in Baiji in the north and Basra in the south.

The Housing and Reconstruction Ministry now shoulders most of Iraqi post-war reconstruction tasks in the absence of foreign contractors who left the country following a spate of kidnapping and beheading of foreign nationals.

The ministry runs six construction firms which under former leader Saddam Hussein used to carry out major schemes such the building of bridges, dams as well as palaces.

The companies are currently mainly involved the reconstruction of cities, villages and installations that are damaged due to U.S. military operations or attacks by anti-U.S. groups.

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