One of Murphy Oil Corp.’s deepwater platforms in the Gulf of Mexico is producing again, but another is still offline, and a refinery east of New Orleans is months away from being operational, the company said September 8.

The Front Runner platform, which the El Dorado oil company has a 37.5 percent working interest in, became operational September 5 after being shut down since Aug. 27 because of Hurricane Katrina.

Front Runner is now back to pre-hurricane production levels, Murphy spokeswoman Mindy West said, and produces about 35,000 barrels of oil per day.

The Medusa platform, which sustained some of the strongest blows of the powerful storm, remains inactive even though the company reported minimal damage to the facility. West said the company must assess sub-sea pipelines extending to facilities owned and operated by Shell Oil Co.

Murphy has a 60 percent working interest in the Medusa platform, which also has been closed since Aug. 27. There is no set timeline for when Medusa will resume production of 45,000 barrels per day.

The Murphy facility furthest from resuming production is its Meraux refinery west of New Orleans. West acknowledged it could be months before the plant restarts.

The head of the U.S. Energy Information Administration gave a House Energy & Commerce Committee a similar assessment in a hearing on September 7, saying “it will be a matter of months” before four Gulf Coast refineries struck by Katrina will be operational again.

Although EIA administrator Guy Caruso did not specify which refineries, it is known that Murphy’s plant is one of four in the area still reeling from storm damage. Total refining capacity of plants in that area is about 900,000 barrels per day.

West said that while she would not categorize damage to the facility as major, “we may be down for a period of time, obviously, while we’re trying to clean out the refinery.”

West reported that motors at the facility would need to be replaced along with some electrical units.

“Those are all minor things,” West said, “but the amount of money should not be extraordinary.”

Also at the Meraux refinery, workers were cleaning up oil spilled from an 85,000-barrel tank. Cleanup crews repaired the retaining wall surrounding the tank, but the company was unsure how much oil spilled.

West said the cleanup effort should not hinder Murphy’s efforts to restart production.

The Meraux plant refines about 125,000 barrels of oil per day. Production has been halted since Aug. 28, the day before Katrina made landfall on the Gulf Coast.

Shares of Murphy (NYSE: MUR) were trading at $52.20 on Sptember 8 after closing at $52.72 on September 7.

Chevron Unclear on Mississippi Refinery's Return

The largest oil refinery shut down by Hurricane Katrina remains out of operation and owner Chevron Corp. said September 7 it's unclear when refining will resume at the site.

Chevron's Pascagoula, Miss., refinery processes 325,000 barrels of crude oil a day and was the largest put out service because of severe hurricane damage.

"It would be highly speculative right now to pick out a day," Chevron spokesman Mickey Driver said. "We have people on the scene surveying the damage and every day we learn more about the situation."

The sketchy timetable for restarting the refinery didn't seem to bother investors. Chevron's shares gained 3 cents September 7 to close at $62.37 on the New York Stock Exchange.

Eight major refineries that produce gasoline, diesel and jet fuel and heating oil were knocked out of commission and the output at two others was curbed by Hurricane Katrina and the flooding that followed. The damage cut overall U.S. refining capacity by more than 10 percent and contributed to a surge in retail gasoline prices and spot shortages around the country.

Chevron said a dike built following Hurricane Georges in 1998 helped prevent more serious damage to the refinery even though a section of it was breached by Katrina. The dike is expected to be fully repaired by the week of September 11.

Limited power has been restored to the refinery, allowing the company to provide gasoline and diesel products to local emergency workers and 25 gas stations that are now open in the Pascagoula area.

White House asks Oil Companies to Postpone Refinery Maintenance

The White House has asked US refiners to postpone all scheduled maintenance in order to keep up production levels after extensive disruption to the Gulf of Mexico energy industry production after Hurricane Katrina, the Financial Times reported.

It quoted an executive with a refinery in Houston as saying: 'The message from the government is, 'Run the refinery as high as you can and avoid all the non-priority maintenance in the next four or six weeks'.'

Washington has also asked refiners to stop producing clean-burning grades of diesel and prioritize gasoline output.

A Louisiana refiner was quoted as saying: 'The White House said, 'Forget about (ultra) low-sulfur diesel. We need gasoline and diesel. We need you working 100 pct'.'

New regulations on producing ultra-clean diesel were due in January 2006 but are now likely to be postponed, the report said, citing refiners.

The US energy department told refiners informally that they should boost production after fuel prices rose to record highs following storm damage to oil installations in the Gulf of Mexico.

Good News at last on Refinery Front and Why Prices Are Key to Recovery

The United States has narrowly dodged an energy crisis. Hurricane Katrina's extensive damage to energy facilities in the critical Gulf Coast - 29 percent of domestic oil and 21 percent of natural-gas production - was not as severe as first feared.

Thanks to anticipation and improvisation by energy companies, refineries are being repaired and coming back online. Six refineries forced to cut back are now near full capacity and four that had to shut down completely are expected to be fully operational soon.

Unfortunately, four more that were heavily damaged will be out for several months. The Energy Information Administration expects domestic oil production to be back at pre-Katrina levels in November.

Opening up the Strategic Petroleum Reserve clearly was a wise move. It strengthened both capacity and confidence.

Still, any serious post-Katrina planning has to address how better to protect vulnerable energy facilities and how to get them up and running quickly after disaster strikes. And even though the energy companies - Exxon Mobil, El Paso, Colonial Pipeline, BP and others - don't need the government dictating to them how to handle reconstruction, clearly there is a government role in an emergency.

It can eliminate red tape and regulatory requirements that may make sense in normal times but not in the aftermath of a hurricane - such things as restrictions on use of foreign tankers, truck weights, docking and construction permits.

Valero Eyes Delaying U.S. Refinery Maintenance

Valero Energy Corp., the largest U.S. refiner, said on September 9 it will delay any maintenance plans that it can to keep its fuel production high in the wake of Hurricane Katrina.

"We're looking at what specifically we are able to delay," said a company spokeswoman.

The Department of Energy has said U.S. refiners have volunteered to delay maintenance to avert a fuel crunch after Katrina. The Valero spokeswoman said the company had not been contacted by the Department of Energy.

All but one of Valero's U.S. refineries has fully recovered from disruptions caused by Katrina.

Valero Responds to Questions about Energy Crisis

As the largest refiner in North America, Valero Energy was at big risk when Hurricane Katrina hit the Gulf Coast. The company came through relatively unscathed and had to shut down only one of its eight refineries.

Meanwhile, if anything, Wall Street appears to think the firm's prospects have gotten better: Valero stock is up 29% since then, solidifying its position as the top-performing Standard & Poor's 500 stock this year. But with refining capacity already tight, OPEC pumping full out and global energy demand rising, Katrina has thrown the energy world into near chaos.

USA Today talked with Valero CEO William Greehey the first week of September to find out how the energy industry is handling the crisis. Following are excerpts, edited for clarity and space.

Ron Insana: How has Valero fared?

Bill Greehey: Well, we were lucky.

Insana: How so?

Greehey: We had minor damage to our Krotz Springs refinery in Louisiana, and then we just had a little bit of flooding at our St. Charles refinery. We're in the process of getting the refinery back into service. We have a number of units that are in service right now, and hopefully by the end of the week, we'll be up to full operation. So I think we were very fortunate. (As of September 9 Valero was back to 90% capacity.)

Insana: Now what about the other operators in the region? How bad are conditions overall?

Greehey: I really don't know how bad it is with the other refineries. There is a Shell refinery right across the street from us, and they don't have a full complement of people there. So they're probably going to be lagging us in putting their refinery in service. We know that Murphy's refinery was flooded and others were greatly affected, but we don't know for sure.

Insana: You own and operate a lot of gas stations. People across the country are saying stations are gouging at the pump. How do you defend against their criticisms?

Greehey: Well, first of all, on the retail end, for the stores that we own and operate, we're selling gasoline about 50 cents below the spot market, or replacement cost. So the retail stores are not doing well at all. And also, the wholesale-branded products have been selling at the same deep discount, so that the pump is considerably lower than the spot price.

Insana: How long will these conditions persist?

Greehey: This is not going to be solved overnight. The three or four refineries that are down could take two to three months to get back into operation, which is what it would take if the refinery were completely flooded. So, supply is going to be very, very tight.

Insana: You and I spoke just before Katrina hit, and you said that the only thing that would really cause a problem for us, either in terms of gasoline or heating oil this winter, would be for some major type of disruption where refining capacity was further constrained. Does this qualify?

Greehey: Absolutely. We're dependent upon gasoline imports, and the imports are going to have to come in. The government has done a good job in waiving the gasoline requirements on reformulated gasoline and going to a winter-grade gasoline early, which means that the imports can come in and meet those new specifications. So, all of this is going to help.

Insana: You mean gasoline imports, not crude?

Greehey: Right. The problem is not crude oil. Right now there's plenty of crude oil.

The problem we had before was that the pipelines weren't in operation because they didn't have electricity, and so that's why releasing oil from the strategic reserve was so critical. But now all the pipelines are up and running, so crude is not a problem at all. The problem that we have now is a shortage of refined products getting to market.

Insana: How is that so?

Greehey: The pipelines go to the East Coast from Louisiana, and they go to the Florida and Atlanta markets. The problem is with all these refineries shut down, there's no product going into the pipelines. So these pipelines are probably operating at 35% to 40% of capacity. That's where the shortfall is.

Insana: How long do you think that will last?

Greehey: If you've got three or four refineries down for three or four months, this could be a long ordeal.

Insana: Is it the same situation with heating oil?

Greehey: Absolutely.

Insana: Is there anything that can be done to shorten the length of the disruption?

Greehey: You're going to have to live with the refineries being down if they are completely flooded. We just had a couple of our units that were flooded, and that's why it took us a couple of weeks to get back into operation. But if the entire refinery is flooded, you could be talking about two or three months.

Norco, Louisiana Refinery to Restart Soon

Shell Oil Co said on September 4 the 227,000 barrels per day Motiva refinery at Norco Louisiana could restart by the middle of the next week.

Norco was one of the eight refineries shut by deadly Hurricane Katrina. "Repair work continues at the Motiva Norco refinery," Shell said in a statement.

Shell said the Motiva convent refinery in Louisiana restarted and would be brought to full capacity over the several days.

Kuwait Offers to Build First Refinery in U.S. in 30 years

Kuwait is in talks with the Bush administration to build an oil refinery in the United States, seeking to construct the nation's first new plant in three decades as gasoline and diesel prices surge to records.

The cartel's president, Sheik Ahmed Fahd Al Ahmed Al Sabah, said he made the offer earlier in September and expects a reply next month. He said he's seeking a joint venture partner in the project and White House assistance in gaining the necessary permits.

Sheik Ahmed didn't say how much the refinery might cost or where it may be located. White House spokesman David Almacy couldn't immediately comment on the matter.

OPEC should increase its output ceiling soon, even amid signs of slowing demand, to show the world that it is concerned about near-record oil prices, Sheik Ahmed said September 18 ahead of a key policy meeting.

Sheik Ahmed, who is also Kuwait's oil minister, said the Organization of Petroleum Exporting Countries may even need to act again before the end of the year as U.S. refineries hit by Hurricane Katrina recover and the Northern Hemisphere's winter sets in.

"We think we need to send a message to everybody there will be extra oil in the market — we've accepted the idea — to stabilize the price," Sheik Ahmed said.

OPEC is poised to increase its output ceiling, currently 28 million barrels a day, by 500,000 barrels a day.

Oil Minister Ali Naimi of Saudi Arabia, the OPEC member with the best capacity to increase production, has said he supports a ceiling hike, but that he also did not see demand for more crude. He did not specify the size of the increase.

Sheik Ahmed said that while the market is oversupplied by 1.5 million barrels a day, and there are indications demand for crude is slowing, a further increase of the output ceiling may be needed as the high-demand winter season approaches and capacity knocked out by Katrina is restored.

"I think in November some refineries will come back in the south of the United States, and if the winter is cold, we have to do our best to increase real production," he said.

He said OPEC had 1 million barrels a day in extra production, but would not say how much the possible quota increase later this year would be.

OPEC was originally expected to make its output decision September 19, but that had been delayed to accommodate a celebration of 40 years since it moved its headquarters to Vienna, Austria, as well as ministerial talks on a new long-term strategy.

Qatar's Oil Minister Abdullah bin Hamad al-Attiyah said $60 a barrel was a high price for crude and that OPEC was not trying to protect it.

"I believe it's a high price. It's not our intention to protect $60; we're not aiming for that," al-Attiyah said.

Al-Attiyah said the problems with U.S. refineries being off-line since Katrina hit were temporary, but the capacity "will take a few months to get back to full production."

"The problem today is the shortage of products, not crude oil," he said.

There appears to be increasing volumes of crude that the U.S. doesn't need, creating a dilemma for OPEC.

"The oil problem is clearly downstream — insufficient refinery capacity," said Johannes Benigni, president and CEO of PVM Oil Associates of Vienna. "Already OPEC members find it difficult to find a market for their crude oil, they're really struggling to place their barrels."

Because of a surplus of crude and lack of refinery capacity, "we may expect a significant increase in U.S. commercial crude oil inventories even if OPEC does nothing," he said. "Refinery tightness is going to keep prices high."

Northern Montana Eyeing Small Refinery Project

Entrepreneurial types in northern Montana are eyeing an oil refinery project. Larry Bonderud, the mayor of Shelby, has confirmed.

The unnamed players are exploring the feasibility of a very small operation that could handle about 1,000 barrels of crude per day. Given the Montana Refining Co., the smallest full-service oil refinery in the United States, has a production capacity of about 8,000 barrels per day, the possible new operation could be akin to a microbrewery in the beer industry.

Bonderud said he signed a confidentiality agreement that prevents him from sharing many details about the refinery idea. What about a location? "north central Montana," said Bonderud, saying he couldn't be more specific.

Oil refineries are certainly not a novel idea in the region. The refinery now known as Montana Refining has been around for more than 80 years. Cut Bank and the Sunburst-Kevin area have seen refineries come and go in past decades.

The impetus for the refinery talk is a desire to find another buyer for crude oil produced in these parts. Right now, the Cenex refinery in Laurel is the only active buyer, Bonderud said.

A feasibility study is under way and there will be plenty of environmental issues to be addressed before even a shovel full of dirt is turned.

"It's a long way from happening," Bonderud noted.

It's not often that big corporate deals have much impact in Montana. But the announcement of the sale of Siebel Systems to Oracle is certainly an exception.

Tom Siebel, the Siebel Systems founder and chairman, owns several Montana ranches, is a part-time resident and a busy philanthropist.

Folks at RightNow Technologies in Bozeman are probably paying plenty of attention to the Siebel-Oracle deal. RightNow and Siebel both produce customer relationship management software.

"It's probably fair to say they are direct competitors," said Fred Dickson, chief market strategist for D.A. Davidson & Co., the Great Falls-based investment firm.

Sac & Fox Nation wants Refinery

If everything goes the way the Sac & Fox Nation plans, Cushing, Oaklahoma will grow by leaps and bounds over the coming years, creating hundreds, maybe thousands, of new jobs.

“We want and need to create jobs not only for our people but for all of Cushing … We want to all be winners in this,” said Sac & Fox Principal Chief Kay Rhoads.

Rhoads said the Sac & Fox Nation is working on three major projects. The tribe is looking into building a refinery and the Black Gold Casino in the Cushing area. The Sac & Fox are also looking into bringing in a company from China.

“We want to diversify. We know not every Sac & Fox member wants to work in gaming. We want to create opportunities for them,” said Rhoads.

Cushing City Manager Andy Katz is backing up the possibility of bringing new businesses to Cushing. He said the city has been in discussions with the Sac & Fox about the projects and expects to see some action within the next 24 months, but he emphasized that nothing is finalized.

The third project according to Rhoads is opening the first new refinery in the United States in 30 years and the only one Native American owned. Rhoads said the Sac & Fox are diligently looking into the feasibility of putting a refinery in Cushing.

“We are talking about a refinery. It would make perfect sense to put one (a refinery) in Cushing, and we have been talking to other entities about that possibility,” said Rhoads.

Rep. Lee Denney said, even though she did not know about the Sac & Fox looking into building a refinery, she would be excited to work with the tribe.

“Any new business coming to Cushing is a good thing,” said Denney.

Katz said the city of Cushing has been looking into getting a refinery to Cushing and with Hurricane Katrina devastating the Gulf coast the issue has moved to the forefront.

“Cushing is well positioned with available assets present,” said Katz.

Norsk Hydro to Buy Spinnaker Exploration for $2.5 billion

Nine years ago when oil was $20 a barrel and some analysts were writing off the Gulf of Mexico as dead, Roger Jarvis founded Spinnaker Exploration with an idea and no acreage.

On September 19, Norsk Hydro, Norway's second-largest energy company, announced it will buy the Houston-based oil and natural gas outfit with operations in the Gulf for just under $2.5 billion.

Hydro is paying $65.50 per share for Spinnaker stock in an all-cash deal. It will also assume $110 million in debt. The deal is expected to close in the fourth quarter.

Spinnaker's stock closed last week at $48.75 per share and went wild in early September 19 trading to catch up to the purchase price. The stock jumped $15.40 a share to close at $64.15.

Tore Torvund, Hydro's executive vice president of oil and energy, said the company has doubled its output over the last five years to 574,000 barrels of oil equivalent per day. And it's trying to expand internationally — acquiring interests as far flung as Iran and Angola — even though 90 percent of its oil and gas still comes from offshore Norway.

Spinnaker's 350 exploration leases in the Gulf will make Hydro one of the top 10 license holders in the region.

"As an operator, we have production of 1 million barrels per day in deep water, so we were looking for that kind of exploration company," Torvund said. "That's what we found in Spinnaker."

The Hydro-Spinnaker deal follows in the wake of Statoil, Norway's biggest energy company, buying the Gulf assets of Canada-based Encana for $2 billion in cash in April. According to Bloomberg News, oil companies have announced $99.8 billion in takeovers so far this year, compared with $90 billion for all of 2004.

What is the driving force behind all the merger and acquisition activity? It's cheaper to buy oil and gas reserves than find them through the drill bit.

Growth by drill bit is exactly how Spinnaker started. In the beginning, the company's prospects existed in the form of seismic images, locked in a massive computer database, but it had no tangible drilling rigs or producing platforms associated with them.

Jarvis, a petroleum engineer who ran the King Ranch for much of the early 1990s, helped cobble Spinnaker together with private equity firm Warburg Pincus and Petroleum Geo-Services, a Norwegian oil-field service company.

Spinnaker started with an impressive array of 3-D seismic images from the Gulf of Mexico and became one of the most successful exploration companies around.

Then — and even now — it was typical for a smaller company to buy older oil and gas fields from bigger energy companies as they outgrew them. Jarvis had a hunch that plenty of new fields remained undiscovered.

Since forming in December 1996, Spinnaker has drilled 176 wells with a 60 percent success rate — roughly twice the industry average.

Jarvis has signed on for a year to help merge the companies and has signed a noncompete clause, although he won't discuss the details.

"My main goal is to make sure this thing goes together well for Norsk but also for the existing employee group," he said.

"This is a company with almost zero turnover, and what they want from me is to make sure this unbelievably talented group stays together."

Spinnaker has 80 employees — all based in Houston. In nine years only four people have left the company, and according to Jarvis, three of those were retiring.

"It's a really excellent way for Spinnaker to exit," said Irene Haas, an energy analyst at Sanders Morris Harris in Houston.

Over the last five years, Spinnaker has amassed prime deep-water acreage in the Gulf. As the neighborhood gets more popular, Haas said the price to play there escalates.

"What's not reflected in the reserve base are Spinnaker's recent discoveries that will be added to the books in coming years," she said. "One of those is Thunderhawk, located very near BP's Thunderhorse."

Spinnaker pumps 23,000 barrels of oil equivalent per day, including oil from the Frontrunner project it has with Murphy Oil. The Eastern Gulf project, which comes on line in 2007, should help boost production to 50,000 barrels per day by 2008.

Torvund said the company's scope is rapidly expanding beyond Norway. The Gulf of Mexico is important, but he hopes Russia is a growing part of that strategy, too.

Hydro has been short-listed by Gazprom, Russia's natural gas monopoly, as a possible partner on the Shtokman development in the Barents Sea. The deep-water field is thought to hold 100 trillion cubic feet of gas.

The other companies singled out by Gazprom are Houston-based ConocoPhillips as well as Chevron, Statoil and Total of France.

Chevron Refinery Shows Signs of Life

Chevron Corp. reopened one of the fuel berths at its Pascagoula, Miss., refinery and can now receive gasoline imports at the hurricane-damaged facility, the company said September 19.

It was one of the earliest indications from the company that operations are resuming at the giant 325,000 barrel-per-day refining facility - Chevron's biggest - three weeks after it was battered and flooded by Hurricane Katrina.

"The company received a cargo of 11.5 million gallons of regular grade gasoline on Friday, Sept. 16, from a European supplier," Chevron said in a statement

The gasoline was sent from Pascagoula to Chevron's Collins, Miss., terminal to the Plantation Pipeline, which feeds fuel terminals across the Southeast.

"The ability to import product to Pascagoula represents significant progress in our efforts to improve the fuel supply situation and meet the needs of consumers until we are able to restart the refinery," Chevron Chairman and CEO David O'Reilly said in a statement.

Chevron said full electrical power and industrial water service have been restored at the refinery and that it expects to start up one of the plant's crude oil processing lines by mid-October, bringing the refinery back to full operation by mid-November.

While Chevron continues repairs to the plant, the San Ramon, Calif.-based oil company said it has accounted for all 3,700 of its Gulf Coast employees, many of whom sought refuge from Katrina at shelters scattered throughout the region.

A lack of workers and housing has been a major obstacle to Chevron and other companies along the Louisiana-Mississippi-Alabama coastline, hampering efforts to restore their facilities after what is being called the costliest storm in U.S. history.

Now, Chevron has opened temporary housing for up to 1,100 refinery workers, their families, and relief workers within a few miles of the Pascagoula site.

About 10% of the nation's refining capacity was off line in the first days after Katrina came ashore on Aug. 29. Restoration efforts have since whittled that down to about 5%, with Pascagoula the biggest refinery still down.

Other refineries still off line include ConocoPhillips' 247,000 bpd Belle Chasse unit, Exxon Mobil Corp.'s 187,200 bpd Chalmette refinery, and Murphy Oil Corp.'s 120,000 Meraux Refinery, all in Louisiana.

Chevron said most of its offshore oil and gas production facilities were not significantly damaged by Katrina, and that steps to bring them back up now hinged mostly on inspection and repair work on the pipelines to shore.

Chevron's Empire and Fourchon pipeline terminals are still shut.

US House Bill would Speed Permits for Refineries

The U.S. Congress could begin weighing legislation aimed at spurring construction of the first new U.S. oil refinery since 1976, after Hurricane Katrina crippled several Gulf Coast refineries and exposed the lack of spare capacity, congressional sources said on September 19.

The new legislative push comes just weeks after President George W. Bush signed $14.5 billion energy bill to boost domestic supplies of crude oil, natural gas and renewable energy sources like wind and solar.

Texas Republican Rep. Joe Barton, chairman of the House Energy and Commerce Committee, plans to resurrect a version of a refinery expansion measure that was dropped from the huge bill.

House aides said Barton could introduce a revamped version of that plan as early as The week of September 18, but Barton's office declined to confirm the timeframe.

U.S. gasoline demand has steadily grown to over 9 million barrels per day but a maze of permitting requirements and landowner objections has blocked new U.S. refinery building since 1976.

Barton has said his bill would lower some of those hurdles. His legislation would try to encourage construction of new plants in regions of the United States with high unemployment.

Katrina's deadly winds and flooding in Louisiana and Mississippi initially closed about 10 percent of U.S. refining capacity. Several plants have reopened but the U.S. Energy

Department says at least three major refineries could remain out of service for months.

Members of the Organization of the Petroleum Exporting Countries have repeatedly pointed to a lack of refining capacity in the United States and abroad as the prime mover behind high gasoline prices.

A spokeswoman said Barton's plan would be loosely based on the "Refinery Revitalization Act" in the energy bill passed by the U.S. House of Representatives. The provision was dropped from the final version signed by Bush.

"The chairman has said that he wants to increase refining capacity in the U.S. and that the Refinery Revitalization Act would be a starting point, but hardly an ending point," a

Barton spokeswoman said.

"Katrina exposed the fact that our energy infrastructure is foolishly fragile," the spokeswoman said.

In the Senate, Republican Jon Kyl of Arizona wants to allow companies to write off the cost of building a new refinery, rebuilding one destroyed by Katrina, or installing new equipment in an existing facility that increases overall output by 5 percent or more.

Kyl's measure would also give tax relief to companies that invest in refining sour crude, which is increasingly replacing light sweet light crude in world markets.

Gulf Refinery Breakdown - What's What after Rita

Here’s a look at the status of four top refineries in the Gulf area:

Valero Energy, the nation's leading refiner, said its 255,000 barrel-a-day facility at Port Arthur, Texas, suffered "significant damage to two cooling towers and a flare stack."
Shell Oil said its 285,000 barrel-a-day Motiva Refinery at Port Arthur "has sustained wind damage including downed power lines and cooling water-tower damage."
Houston-based Conoco Phillips said it was assessing its 239,000 barrel-a-day Lake Charles, Louisiana, refinery. The Lake Charles area was hit hard by Rita, and suffered major flooding.
Exxon Mobil said initial assessments of its huge Baytown, Texas, refinery show that "damage does not appear to be severe."

Arizona Refinery Planners Still Talking with Mexico

With gas prices flirting with the $70-a-barrel mark and the nation's refining capacity strained, refiners are raking in huge profits. Further highlighting the need for more capacity are hurricanes that have battered and disrupted Gulf Coast refinery production this month.

A local group, Arizona Clean Fuels, is seeking to build the nation's first new refinery in three decades. After securing an air-quality permit this spring for a 150,000-barrel-a-day refinery, the group is courting investors to fund the $2.5 billion project, planned at an old citrus grove 40 miles east of Yuma.

Backers of the ambitious project point to a couple of events in recent weeks that brighten prospects for an Arizona refinery.

Mexico President Vicente Fox has pushed for a change in Mexico's laws that would allow foreign investors to tap Mexico's rich oil reserves. Such a change would allow the state oil company, Pemex, to team with private companies to exploit reserves in the Gulf of Mexico and Baja California.

Glenn McGinnis, chief executive of Arizona Clean Fuels, said his group has had ongoing talks with Mexican government officials about securing crude oil from Mexico. The Arizona group would ship refined fuel back to Mexico, which must import gasoline because of a lack of refining capacity.

Fox's proposals "are in direct support of our project," McGinnis said.

Yet Fox's initiatives have encountered opposition from Mexico's Congress, wary of opening up its natural resources, which account for a significant portion of the government's budget.

Another glimmer of hope for the Arizona group comes from a bill introduced recently by Republican Sen. Jon Kyl of Arizona.

McGinnis said Kyl's bill is another incentive for investors who are reluctant to park money in a project that won't begin producing refined gasoline, diesel and jet fuel before 2009.

Kyl's legislation would allow investors to write off the cost of a new refinery the first year the project starts production. The recently passed Energy Bill has a less aggressive timeline, calling for a 50 percent write-off the first year.

"The companies would realize the return on their investment faster," McGinnis said.

McGinnis said his group still doesn't have any signed agreements with investors or refining companies that are willing to partner with the Arizona group.

Some foreign interests have expressed interest in either building or partnering with a U.S. company to build a refinery.

BP Refinery Delays Reopening after Storm

BP's Texas City refinery will remain shut down indefinitely while the company completes a broad range of inspections and maintenance projects, including some related to its recent settlement with federal regulators over a fatal blast at the plant in March. Like most Houston-area refineries, the 460,000-barrel-per-day plant, the third largest in the country, shut down September 21 in advance of Hurricane Rita.

But it's the only plant here that has not given a timetable for restarting. Most have said they are in the process of restarting or have already resumed making gasoline and other products.

While restarting gasoline production in a safe and timely fashion is a priority at the refinery, the company said it decided to use the storm-related shutdown to move forward with a number of other projects.

"The fact that the refinery was down due to the storm presents us with a unique opportunity to conduct maintenance, inspections and engineering work," spokesman Neil Geary said.

The company won't specify what projects will be done. But it acknowledges they are both part of plans to take the refinery "to the next level," and among those required as part of a $21 million settlement with the Occupational Safety and Health Administration in connection with a March 23 blast at the plant that killed 15.

Nearly 2,000 workers have been brought on-site to begin the work.

The company wouldn't spell out what is being done or give a time frame for when it would be completed.

But the OSHA documents may provide some clues.

While many of the 361 health and safety violations cited by OSHA have been corrected, the agency gave BP three dates to fix the rest: Oct. 4, Oct. 24 and Dec. 23.

Many of the deficiencies were procedural, but some require work on the refinery equipment. For example, BP was given until Dec. 23 to correct equipment failures and deficiencies in its isomerization unit, such as fixing the level indicator in its raffinate splitter, and making repairs to the splitter's pressure relief system.

Other problems mentioned in the OSHA documents that could be among the projects include: construction of a substitute satellite control room for the fluid catalyst cracking unit No. 1 in a safer location than the current one, or replacing handrails in certain units that were not deemed strong enough.

The downtime will also be used for Hurricane Rita-related repairs, including damage to an empty storage tank and insulation blown off pipes and equipment. Since the 1,200-acre site was not free of asbestos before the storm, the company is treating all insulation as if it contained asbestos.

"We are treating it in the most conservative and cautious way," Geary said.

A team of about 20 outside contractors assessed all the insulation and is in the process of removing it, he said. Airborne asbestos has not been detected by monitoring devices at the plant.

The Environmental Protection Agency and OSHA have been notified.

At the height of the storm, about 23 percent of the country's refining capacity was shut in, including about 5 percent that was severely damaged by Hurricane Katrina last month. About 18 percent of the country's capacity remains off line.

Louisiana Refinery to Restart

Exxon Mobil said its joint venture refinery in Chalmette, Louisiana, will restart in November after being shut in late August by Hurricane Katrina.

"Electrical power should be restored in October, which will allow the refinery to start operations in November," the company said in a release issued September 29. The 190,000 bpd Chalmette refinery is co-owned by Venezuela's PDVSA.

Exxon added that its mammoth 557,000 bpd Baytown, Texas, refinery, shut in advance of the more recent Hurricane Rita, would likely reach full operations in "days" after the plant began to restart the last week of September.

"Based on our current assessments, we believe that the overall process will take days to complete," Exxon said. "However, this is the first time in its 88-year history that the entire Complex has been shut down in advance of a hurricane. As such, we cannot speculate exactly when the plants will resume full operations."

Marathon to Close Refinery for 50 Days

Oil and gas exploration and production company, Marathon Oil Corp. said September 29 it expects the $300 million expansion and clean fuels project at its Detroit refinery to be complete by mid-November.

The expansion project, announced in late 2003, will increase the refinery's capacity from 74,000 to 100,000 barrels per day. This expansion will provide more than 23,000 barrels per day -- 1 million gallons per day -- of additional fuels to the Detroit market-area.

Marathon said it will have to shut down normal refining operations for 50 days during this final stage of construction and maintenance, in which 1,600 contractors will be working at the refinery.

To address the decrease in supply during this construction phase, Marathon said additional petroleum products will be brought into the market. The company's other six refineries are expected to remain at or near normal operating capacity.

Completion of the clean fuels project will allow the Detroit refinery to produce the low sulfur gasoline and ultra-low sulfur diesel fuel required by the Environmental Protection Agency in 2006. Decreasing sulfur in gasoline and diesel fuel helps to reduce vehicle emissions.

Murphy Oil Louisiana Refinery out of Operation for Months

Even though damage from Hurricane Katrina wasn't catastrophic to Murphy Oil Corp., its largest refinery, the 125,000-barrel-a-day operation in Meraux, La., probably will be out of service for months.

The refinery still has no electricity, and officials don't know when it will be up and running, said Mindy West, spokeswoman at the corporation's El Dorado, Ark., headquarters. "We don't have a time line."

Electricity isn't expected to be restored for at least two weeks. An assessment of damage will take several weeks beyond that. Repairs will come after the assessment, she said.

"We're talking months, not weeks" to resume operations, West said.

The facility had no major structural damage, but it was flooded with saltwater. Electronics, pumps and motors probably will need to be replaced, West said.

Production capacity won't be shifted elsewhere, she said. Murphy Oil also owns Superior's 35,000-barrel-a-day refinery.

On September 28, Murphy Oil USA Corp. announced it will contribute $5 million to help residents of St. Bernard Parish, La., recover from Hurricane Katrina damage.

A class-action lawsuit has been filed on behalf of parish residents seeking unspecified compensation for a hurricane-related release of crude oil from Murphy's refinery. Murphy has said it could not determine how many of the tank's 85,000 barrels spilled.

Valero's Downed Refinery Getting Intensive Care

Hurricane-damaged plants such as Valero's were operating at full capacity before the arrival of Hurricanes Katrina and Rita, and summertime pump prices near record highs have been the result.

The Valero refinery is likely to be shut for four weeks, and 10 others have been disabled by storms. In addition, Rita alone either destroyed or extensively damaged 51 offshore platforms that pump oil out of the gulf.

Hurricane Katrina knocked out Valero's St. Charles refinery near New Orleans a month ago, and that taught officials at San Antonio-based Valero learned some harsh lessons.

Post-Katrina, Valero mounted a huge effort as Hurricane Rita approached, directing tricky shutdowns of its four plants along the coast.

At the company's headquarters on Loop 1604 in San Antonio, teams packed conference rooms for marathon meetings.

Then, when Hurricane Rita veered toward the Texas-Louisiana border, Valero decided to evacuate its Port Arthur emergency team.

That move may have saved two security guards' lives. A flare tower collapsed in the storm and smashed their shack.

"We made the right decision," Valero CEO Bill Greehey said as he toured the plant where utility poles had been snapped in two.

The Port Arthur plant has water, Greehey was told, but it isn't potable. Most of southeast Texas, including the plant, doesn't have electricity. Most damage occurred from 125-mph winds, not the catastrophic flooding reminiscent of Katrina.

"The refinery looks a lot better than I expected," Greehey said. "I expected to see more visual damage."

The most serious damage occurred in all but one of the plant's 15 cooling towers, which are essential to its operation.

The hold-your-breath time will come when Valero begins to fire up the plant. The huge Port Arthur plant never has attempted a "black start," a start-up from a complete shutdown, plant manager Jim Gillingham said. Start-ups are the most dangerous time for refineries.

Bill could Pave the Way for Cushing Oil Refinery

U.S. Rep. John Sullivan said a bill passed September 29 in a House committee could help pave the way for a new oil refinery in Cushing, OK.

The House Energy and Commerce Committee approved the “Gasoline for America’s Security Act of 2005,” which now moves to the House floor for consideration.

Authored by the committee’s chairman, Rep. Joe Barton, R-Texas, the bill would ease air pollution control rules on refineries and shorten deadlines for issuing permits. A governnment-funded “risk insurance” program would shield companies against lengthy regulatory or court delays in refinery construction.

The primary role for refinery permitting and environmental reviews would shift to the Energy Department from the Environmental Protection Agency. Also, Washington would have a greater say in where refineries and pipelines go.

Sullivan, R-Tulsa, said Cushing is an ideal site for an oil refinery because of the number of major oil pipelines that intersect there and the type of work force located in the area.

Cushing promotes itself as the “pipeline crossroads of the world,” and those pipelines, along with 30 million barrels of petroleum storage capacity and rising refinery margins, have drawn a renewed interest in producing gasoline, diesel and plastics in the northern Oklahoma town.

Sullivan said he’s talked to Gov. Brad Henry about the establishment of a refinery in Cushing. Under the bill, governors would have to request the use new procedures for approving refinery sites, Sullivan said.

Henry spokesman Paul Sund said Henry supports the idea of locating a refinery in Cushing.

“Obviously, the governor wants to review the fine details, but he’s certainly supportive of the intent of what Congressman Sullivan is trying to do,” Sund said.

Katrina May Cost Chevron $350 Million

Chevron Corp.'s shares reached a new 52-week high September 29 as investors shook off the news that $350 million in third-quarter profit evaporated in Hurricane Katrina and bet the aftermath's higher energy prices will offset the oil company's short-term pain.

The San Ramon-based company quantified the financial blow to its Pascagoula, Miss., refinery after the stock market closed Wednesday, September 28. The refinery has been closed since Hurricane Katrina battered the Gulf Coast on Aug. 29, and Chevron doesn't expect to renew limited production there until the middle of next month.

But that setback has been cushioned by the energy shortages that have followed the Katrina's destruction, boosting the prices of both oil and natural gas to the benefit of Chevron and the industry's other major players.

The stock market has essentially concluded that Chevron stands to benefit more from those higher prices than it will be harmed by the losses from the temporary closure of a major refinery, said industry analyst Fadel Gheit of Oppenheimer & Co.

"It's kind of like one step back, but two steps forward for Chevron," Gheit said.

Oil prices were already high before Hurricane Katrina, so there's little doubt Chevron's third-quarter profit would have been higher if not for the damage to its Mississippi refinery, which can produce up to 325,000 barrels of oil per day. The company estimated Hurricane Katrina and earlier storm trouble will lower its production in the quarter by 75,000 barrels of oil per day. The period ends Friday.

But oil prices seem likely to stay high through the rest of the year, partly because of additional damage caused to oil rigs by Hurricane Rita. That puts Chevron in a better position to fully capitalize when the Mississippi refinery resumes production, Gheit said.

Higher energy prices also make Chevron's recently completed $18 billion acquisition of Unocal Corp. look like a better deal. The takeover gives Chevron a valuable supply of oil and natural gas in Asia and the Gulf Coast.

Higher profit margins, driven by the rising price of oil and gasoline, already have helped soften Katrina's blow. Chevron said its refining profit margins during the third quarter rose by $1.48 per barrel from the second quarter.

Besides the profits wiped out in Katrina, Chevron's third-quarter results also were hurt by environmental cleanup costs that were slightly higher than management anticipated. The company estimated the third-quarter charge for covering those costs will range between $250 million and $300 million, above its earlier guidance of $160 million to $200 million.

Valero Selects Mustang for Refineries Upgrades

Mustang Engineering has been selected by Valero Energy Corp. to provide engineering and procurement services for the upgrade of two refineries located in the Houston area. The Texas City refinery project will include the upgrade of an existing hydrotreater and the design of offsite facilities and tie-ins for the production of ultra low-sulfur diesel unit as part of Valero’s clean fuels program. Mustang will also provide design services for off-site facilities, tie-ins for a new ultra low-sulfur diesel unit, and revamping of the sulfur removal facilities at Valero’s refinery in Houston.

BRAZIL

Petrobras to share Refinery Cost 50-50 with PDVSA

Brazil and Venezuela signed a range of energy agreements on September 29, advancing on a planned $2.5 billion joint refinery in Brazil and outlining possible exploration projects worth at least $2.2 billion.

The refinery, to be built in northeastern Pernambuco state, and other joint venture plans form part of Venezuela's efforts to develop strategic energy alliances in Latin America and the Caribbean as an alternative to U.S. economic dominance.

"We hope this is just the latest step in integration and strategic activity between the two companies and the two countries," said Jose Sergio Gabrielli de Azevedo, president of Brazilian state oil company Petroleo Brasileiro SA (Petrobras) <PETR4.SA><PBR.N>, during the accord signing ceremony.

Brazilian President Luiz Inacio Lula da Silva has been supportive of Venezuela's integration plans and Petrobras may see its activities in Venezuela increase as a result.

Lula and Venezuelan President Hugo Chavez both attended the September 29 ceremony in Brasilia.

Petrobras and Venezuela's state giant PDVSA agreed to equally split the cost of the 200,000 barrel-per-day heavy oil refinery, which will be located in the Suape port area. They will each use half of the capacity.

The two will continue with detailed studies of the plant, scheduled to start operating in 2011.

The two sides also signed a preliminary agreement to set up a joint venture to develop natural gas fields in Venezuela's north Paria area, where estimated reserves reach 11 trillion cubic feet. Talks on the Mariscal Sucre project, which requires $2.2 billion in investment, will go on until January.

Venezuela last month removed Royal Dutch Shell <RD.AS><SHEL.L> from participation in the Mariscal Sucre project that also envisaged a liquefied natural gas terminal. Petrobras and PDVSA did not mention any LNG plans, however.

In another partnership agreement, Petrobras and PDVSA will work together to define the size of Carabobo oil field reserves in the Orinoco belt for potential joint exploration. The Petrobras share of the field, which has potential to pump 150,000 bpd of extra heavy 9 API oil, will be 49 percent.

The two companies will also mull a possible joint venture to develop the Lido, Limon, Nieblas, Adas and La Paz fields in Venezuela with estimated reserves of 437 million barrels of oil and 1.4 tcf of natural gas.

Petrobras' Argentine division Petrobras Energia, which has long been working in Venezuela, and PDVSA signed transitional agreements for Mata, Acema, La Concepcion and Oritupano-Leona areas in Venezuela to bring the contracts into line with a hydrocarbons law passed by President Hugo Chavez in 2001.

Shareholders still have to approve the unspecified changes. Petrobras officials said earlier they expect to seal production-sharing deals with PDVSA that may ultimately give Petrobras additional areas and longer contracts.

Under the current deals, Petrobras and other foreign oil companies working in Venezuela sell all they produce onshore to PDVSA, which also pays them bonuses for accumulated output.

Venezuela earlier this year ordered companies holding 32 contracts to operate oil fields in the OPEC nation, signed in the 1990s, to migrate to 2001 law terms, alleging the old legislation gave foreign oil companies access to Venezuela's resources at terms that do not benefit the country.

As for the refinery, Petrobras officials have said the Brazilian share of the oil for the new refinery will come from the Marlim field in the Campos basin. Venezuela's part will come from the Orinoco belt.

Petrobras said the refinery will focus on diesel, which will make up 56.5 percent of the plant's output, liquefied petroleum gas and naphtha production to substitute imports and supply northeastern Brazil.

Brazil, which refines about 1.8 million barrels of crude per day, built its last refinery in 1980.

COLOMBIA

Colombia Refinery Attracts Multiple Interest in $850 Million Expansion Plan

Colombia has received interest from three companies in an estimated $850 million refinery expansion plan, a top official said on September 8.

India's Reliance, Brazil's Petrobras and Venezuela's PDVSA have all shown interest in the plan, Armando Zamora, director general of Colombia's National Hydrocarbon Agency, told reporters at an oil and gas conference.

The plan calls for expansion to 140,000 barrels per day to capacity at the Cartagena refinery by 2010. Capacity at the plant is 78,000 bpd.

Colombia is looking for a partner to invest up to 51 percent of the capital needed for the expansion and aims to award the project in the first quarter of next year.

The refinery will be independently operated, he said. State oil company Ecopetrol currently runs it.

Zamora said that a project to build a gas pipeline between Colombia and Venezuela was on hold after Venezuela said it wanted to change the route, which had already been agreed.

The two countries signed an agreement to build the 215 km pipeline over a year ago. Venezuela is looking to plug a gap in natural gas supply in the west of the country with gas from Colombia.

Colombia is also looking to build pipelines to Ecuador and Panama, Zamora said.

India's Reliance Industries to Bid for $850 Million Colombian Refinery Stake

Petrochemicals giant Reliance Industries Ltd has made a bid to acquire a 51 pct stake in a Colombian refinery, the Press Trust of India reported citing a company official.

Colombia is looking for a partner for up to 51 pct of the capital needed to expand its Cartegena refinery capacity to 140,000 barrels a day from 78,000 barrels.

It plans to award the project in the first quarter of next year.

Reliance is pitted against Brazil's Petrobras and Venezuela's PDVSA for the 850 mln usd expansion.

The refinery will be independently operated by the winning company.

State oil company Ecopetrol currently runs it.

The official also said Reliance will be investing 5.5-6.0 bln usd to nearly double the capacity at its Jamnagar oil refinery to 60 mln tons from 33 mln tons.

'The expansion will be completed sometime in 2008-09 financial year,' the official said.

Most of the expanded capacity will be for export to markets in North and South America, Gulf countries, Europe and some countries in Africa, the official added.

ASIA

AUSTRALIA

Shell Australia Faces Fresh Prosecution

Shell Australia is facing fresh prosecution over license breaches at its Geelong refinery.

Victoria's environment protection authority has criticized the poor environmental performance of the company's jetty operations. Shell has no documented plan to deal with a tanker hitting the refinery jetty, an accident that could release hundreds of thousands of liters of hydrocarbons into Corio Bay, an EPA Victoria audit has found.

There was an unacceptably high risk that spilt oil could damage the marine fauna and the shore surrounding the jetty, the audit found.

Shell Geelong refinery spokeswoman Joan McGovern confirmed the hazard analysis did not take into account a ship hitting the jetty.

Ms McGovern said the refinery's performance had improved since 2003, when there were 282 recorded license breaches. The number fell to 112 last year.

"No one, especially us, wants any spills to Corio Bay and these are vastly reduced by the replacement of jetty pipes and other projects," she said.

The EPA's executive director of regional services, Bruce Dawson, said Shell remained in breach of its environmental license because of continued oil leaks and spills, visible air emissions and odor from the refinery.

The EPA audit, ordered after leaks at the jetty in 2003, found that the $12 million Shell spent during the audit had improved jetty pipes, but Shell needed to spend a lot more to comply with its EPA license, Mr Dawson said.

Shell is facing court action by the EPA over an oil spill into the bay in April. The EPA revealed it is finalizing an investigation into a separate incident in May, with Shell facing a fine or further legal action.

CHINA

Refineries in China Open to Joint Venture Investment

Foreign companies still have opportunities to invest in China's refinery business, even though the government adopts a policy restricting foreign cash flow into the sector, said a senior official from the Ministry of Commerce (MOFCOM) September 19.

"If these refinery projects (partly invested by foreign companies) meet the government standard, we will approve them," Hu Jingyan, director-general of Foreign Investment Administration under the Ministry of Commerce told the Oil and Gas 2005 forum in Beijing.

According to Hu, many projects (of joint-venture refinery construction) are under discussion between the Chinese and foreign oil companies.

But the MOFCOM official did not elaborate on the companies involved.

Currently, the government policy regulates that foreign investors shall not take a controlling stake in China's refineries.

"Foreign investors have to undergo strict and complicated policy procedures before getting final approval," said Gong Jinshuang, a senior analyst with the nation's largest oil producer, China National Petroleum Corp.

Although only a small number of refineries in China are partly controlled by foreign firms, due to government policy, there are still opportunities for foreign investors to cash in on the country's refinery business, because "China still lacks large-scale refineries with high quality, good management," said Hu.

Liu Xiaoli, a senior researcher at the energy research institute under the National Development and Reform Commission, on the sidelines of the forum told China Daily, that the country may need more foreign investment to process heavy oil, a kind of crude oil that requires more advanced facilities to turn it into refined oil.

Xiao Songqing, a technical engineer with Shell (China) Ltd told China Daily, most of China's existing refineries lag behind in technology and management, which reduces efficiency and increases production costs.

"In most cases, when we provide some new ideas to improve their production, managers of the State-owned refineries are deaf to advice, - because in their minds, the refineries are owned by the country, and so will only do what the government tells them to," said Xiao.

A. K. Roy, general manager of Corporate Planning & Economic Studies of Indian Oil Corp Ltd, said his company is also interested in China's refinery business, but is kept out by the country's policies.

Since China's entry to the World Trade Organization in 2001, many foreign companies such as Total, ExxonMobil and BP have started talks with the Chinese Government to build refineries across the nation, especially along the coastal regions for easier access to crude imports, said Hu.

But only a few of these foreign oil companies got government approval to build refineries by setting up joint-ventures with the domestic oil majors such as Sinopec and PetroChina, Hu said, partly because the country already has a wide layout of locally-managed refineries to feed domestic demand.

In the first half of this year, China processed 145 million tons of crude oil and imported 15.7 million tons of refined oil.

To date, foreign companies have been approved to own stakes in only two of China's refineries, which are mainly wholly-owned by the State-controlled PetroChina and Sinopec.

More than 10 years ago, France-based Total linked up with Chinese oil companies including Sinochem and PetroChina to build a refinery in the coastal city of Dalian in Northeastern China's Liaoning Province, of which the Chinese side owns the controlling stake.

Sinopec, Asia's largest oil refiner in July announced it had set up a joint refinery in East China's Fujian Province with ExxonMobil and Saudi Aramco, two foreign oil giants each controlling 25 per cent of the refinery.

INDIA

IOC to Seek Nod for Paradip Refinery Project

The jinxed Paradip refinery-cum-petrochemicals project proposal, which had faced scrutiny time and again, may be placed for approval before the Indian Oil board in October or November.

IOC has already prepared a detailed feasibility report (DFR) on the project.

Sources in Indian Oil said on September 17 that the company has already finalized the DFR and the proposal would be placed before the project evaluation committee in October, following which Indian Oil would seek the approval of its board of directors for investment in the project.

Though declining to comment whether the project could get the board's approval, a senior level IOC official said the company had not shelved any proposal so far.

"In all fairness, given the financial constraint we are in owing to soaring crude prices and mounting under-recoveries, we are reviewing every project before we go ahead with it," the sources said.

"Once the proposal is approved by the board, we can go ahead with the technology contracts."

According to the DFR, the company would propose commissioning of the 15-million tonne refinery using fluid catalytic cracking route, in the first phase, to produce polypropylene and polystyrene and back it up with a naphtha cracker plant, in the second phase, to produce a wider range of products including mono ethylene glycol in the future.

Half of the refining capacity is scheduled to be used for exports. The refinery may also hold the distinction of using only heavy high sulfur crude oil.

The total investment in the project (combining both the phases) is scheduled to be close to Rs 21,000 crore.

Reliance to shut Jamnagar Refinery in October

Reliance Industries said it will shut down some of the major units in its Jamnagar Petroleum and Petrochemicals Complex for maintenance in early October.

''This would be the first week of October,'' Senior Vice President Vivek Karandikar said at an oil conference in London.

''It is not a major shutdown. It will only last for two weeks,'' he added.

Karandikar said Reliance would shut down one of the two crude distillation units as well as a fluid catalytic cracker unit at the refinery.

Apart from the maintenance work, the company will also utilize the shutdown period to carry out its Value Maximization Program, so that on restarting the complex, it can reap the benefits of this program, such as higher yields and productivity and increase in the production of high value products, Reliance said in a statement.

Karandikar said the firm was building up inventories to minimize the impact on output.

Atul Chandra, President, International Operations, also said Reliance was looking to invest overseas and hoped to expand its refining capabilities.

''We're obviously looking for more reserves for sourcing,'' he said in London.

New Design for Bina Refinery

Bharat Petroleum Corporation Ltd's Rs 9000 crore refinery at Bina in Madhya Pradesh will go in for design change in order to reduce production cost, official sources said September 29.

Installation of the refinery will start in March next year, the sources said.

BPCL Chairman-cum-Managing Director Ashok Sinha told the shareholders' meeting in Mumbai the week before that the new design had been prepared by the Engineers India Ltd.

The Bina refinery in Sagar district, about 100 km from the state capital, is a joint venture with BPCL and Oman Refineries Ltd.

With improvement in road connectivity and the power situation, Madhya Pradesh has attracted a heavy investment of nearly Rs 50,000 crore, with Bina refinery being the biggest venture, the sources said.

MONGOLIA

China to Invest in Mongolia's Oil Refinery

Two Chinese companies will invest $200 million to build Mongolia`s first oil refinery in Ulan Bator.

CSEIC Fuel Trade Co. Ltd. and Beijing Jingdeshun Materials Co. Ltd. will construct the refinery through their joint venture, Heilongjiang Huafu Industrial Co. Ltd., China`s state-run media agency Xinhua said September 8.

According to an agreement signed in Beijing, Zuunbayan Oil Refinery, which will be 100 per cent owned by the two Chinese companies, will have an annual production capacity of one million tonnes and is expected to be go into operation in 2007.

Half the products will be used to meet demand in Mongolia while the rest will be exported to markets in northern China, Chairman of China State-owned Enterprise Investment Co Ltd (CSEIC), Wang Gang said.

Director of the supply bureau under Mongolia's petrochemical administration, Sanduijav said that the Mongolian Government fully supports foreign investment in refinery projects since the country relies heavily on imports to meet its domestic demand.

The oil refinery will offer a large number of jobs to Mongolian people and help train a group of much-needed petrochemical professionals, the report said.

This is the first energy co-operation venture between the two countries and one of China's biggest investments in Mongolia. Mongolia's oil reserves, which are estimated to reach four billion tonnes, have attracted a number of foreign companies, the report noted. The Zuunbayan refinery has also applied for a license to explore oil in Mongolia.

3. EUROPE / AFRICA / MIDDLE EAST

FRANCE

French Oil Workers Shut Refinery

Strikers have shut France’s biggest refinery, blockaded its Southern refining hub and are threatening to close Total’s French plants, all at a time when consumer nations are crying out for fuel.

The action comes when a dozen US refineries remain shut after Hurricane Rita and plants across the northern hemisphere should be cranking up heating oil output ahead of winter.

Total, Europe’s largest oil refiner, produces half of France’s gasoline and heating oil and is a leading supplier of fuel to the United States.

“It is not a good time for France to close down refineries for strikes,” said Purvin & Gertz consultant Damian Kennaby. “It will only drive product prices higher.”

Oil prices are close to record highs. Crude, the raw material for gasoline, heating oil and jet, is being dragged higher by the surging cost of motor fuels and heating oil.

The current betting market is trying to guess which is worse — the hurricane damage or the strikes,” said Deborah White, senior energy economist at Societe Generale.

French unions extended a strike blocking the petrochemical and oil ports of Lavera and Fos on the Mediterranean coast for a second day on September 28. If the blockade drags on, it could affect the 570,000 barrels per day of nearby refining capacity and the flow of fuel inland towards Switzerland Germany.

Total said it had no tankers due and had not so far been hit by the action, called over the privatization of a ferry firm. Royal Dutch Shell said its operations would suffer, should the port stay blocked till the end of the week.

The powerful CGT union was also rallying support for an escalation of a week-long strike at Total’s largest French refinery, the 328,000 bpd Gonfreville plant, to the French giant’s other refineries on October 4 as part of a general strike against the government’s economic reforms.

Total operates six of France’s 13 refineries, with the lion’s share of capacity of over one million bpd out of the country’s total of about 1.9 million bpd.

“This will only reinforce the bullish situation,” said Frederic Lassere, head of commodities research at Societe Generale.

But French industry sources were confident that the government, which has in the past put pressure on oil firms to reduce the impact of high oil prices on consumers, would come to the rescue.

“Strikers want all these things to interconnect. It’s a good way to publicize the next week’s action; anything for tension and attention. But I think the government should intervene, said an industry source.

Many refiners operate in the Fos-Lavera area. BP subsidiary Innovene has the largest plant, the 220,000 bpd Lavera refinery and petrochemical plant. Esso runs the 115,000 Bpd Fos-sur-Mer refinery, Total the 155,000 bpd La Mede refinery and Shell the 80,000 bpd Berre L’Etang refinery and 450, 000 tonnes a year petrochemical cracker.

Gaz de France, France’s biggest gas supplier operates the 4.25 billion cubic meter a year Fos LNG regasification terminal. Pipelines go up to the northeast to Total’s 119,000 bpd Feyzin refinery near Lyon and Shell’s 77,000 bpd Reichstett refinery near Strasbourg.

LITHUANIA

Lithuanian Government to Buy and Resell Yukos Stake in Refinery

The Lithuanian government intends to buy and resell part of the stake in the Mazeikiu nafta oil company currently owned by beleaguered Russian giant Yukos, the Lithuanian prime minister said.

Algirdas Brazauskas said in an interview on Lithuanian television that the government could buy 20% of shares in the company, out of the 53.7% stake owned by Yukos Finance, a Yukos subsidiary, and then sell it on to a new owner.

The premier said a draft bill had already been prepared, through which the government will be given the authority to borrow sufficient funds for the purchase, and would be presented to the Cabinet The week of September 25.

The Lithuanian government currently holds a 40.66% stake in Mazeikiu nafta.

The market value of the Yukos-owned stake in the company is between $1.5-2 billion.

Exxon and its partners in the consortium,

Exxon and its partners in the consortium, which include Japan’s Sodeco, Russia’s state oil firm Rosneft and India’s ONGC, were not immediately available for comment.

The discovery of reserves, which represent around a quarter of already confirmed reserves of the project of 2.3 billion barrels, would be a boost for the project ahead of its planned start up next month. Exxon wants to launch production at Sakhalin-1 in Oct. with plans to start first crude oil exports next year and reach peak output of 250,000 barrels per day in late 2006.

US oil major Exxon Mobil, which is developing oil and gas fields off Russia’s eastern island of Sakhalin, has found extra 560 million barrels to add to reserves, a news agency reported.

Prime-Tass news agency quoted Russia’s resources minister Yuri Trutnev as saying Exxon had asked the government to boost its Sakhalin-1 license territory and grant new reserves without calling a new tender. “Our specialists have now to analyze whether the new reserves are part of the (Exxon’s) Chaivo field or not. If they are not part of it, we’ll have to call a tender,” said Trutnev.

EGYPT

Egypt Plans New $5 Billion Refinery as Fuel Prices Climb

Egypt is planning to build a new crude-oil refinery that will be the nation’s largest, and three new liquefied natural-gas production lines, as energy prices rise to record highs, said petroleum minister Sameh Fahmy on September 14.

We’re talking about a $5bn refinery, the biggest in Egypt,” Fahmy said in Cairo. “We are working on the feasibility study at this stage. We’re going to announce to the investors very soon the outcome of this study and ask them to participate.”

The refinery will be located in Port Said, at the northern end of the Suez Canal on the northern Mediterranean coast and orientated towards exports, he said.

The price of refined oil products are soaring, with demand rising and refineries running at full capacity.

Fuel prices have surged 61% this year, climbing past $3 a gallon in the US after Hurricane Katrina shut eight refineries around the Gulf of Mexico.

“Egypt will benefit from the mark-up on refined products,” Monica Malik, the senior economist for North Africa at Dun and Bradstreet, said.

The new refinery will have a capacity of about 300,000 barrels a day, bringing a 40% rise in the nation’s refining capacity, which is now 726,000 barrels, said analysts Malik and Naji Abi Aad, managing partners of Beirut-based Econergy.

Both analysts said their estimates used sources in the industry, and not in government.

Egypt’s largest refinery, the El-Nasr plant at Suez, east of Cairo, can process 146,300 barrels a day, said the US energy department.

The newest is the 100,000 barrel-a-day Middle East Oil Refinery, which began production in 2001 near Alexandria.

Egypt is also in talks with Eni SpA and BG Group to build three new production lines, called trains, at two natural-gas liquefaction plants they operate at Damietta and Idku, on the northern coast, Fahmy said.

Egyptian gas reserves have almost doubled since 2000, reaching 67-trillion cubic feet.

The country aims to become the world’s sixth-largest exporter of liquefied natural gas (LNG) by 2007. LNG is a gas cooled to a liquid to allow its transportation by tanker. Egypt is the second-largest gas producer in Africa after Algeria.

“I see for sure a second train in Damietta, and a third and a fourth in Idku,” Fahmy said.

“We’d like to have them as soon as possible. We’re negotiating.” An Eni venture, Spain-based Union Fenosa Gas, operates the plant, which started Egypt’s exports of LNG in January.

Egypt’s crude-oil production fell to less than 600,000 barrels a day last year from a peak of 922000 barrels in 1996, according to official figures.

Fahmy said that the new refinery would process crude imported from other countries, such as Saudi Arabia.

Because of the high margins on oil products in export markets like the US, Egypt can profit from importing crude from neighboring countries and refining it, said Abi Aad.

Egypt is a transit route for about 3.8-million barrels a day of crude oil exported by Persian Gulf countries, mainly Saudi Arabia.

The crude is transported through a pipeline that runs from the Red Sea to the Mediterranean, called Sumed, and by tankers passing through the Suez Canal.

TURKEY

Consortium Bids for Turkish Oil Refinery

A consortium comprised of Anglo Dutch oil giant Royal Dutch Shell of Turkey’s Koc Holding Group, offered the highest bid, US$4.14 billion (euro3.35 billion), in an open auction for a 51 percent stake in Turkey’s state-owned oil refiner Tupras.

The consortium beat eight other competitors in 11 stages of bidding that was televised live on Turkish news channels.

Turkish labor unions have opposed the sale, and Tupras employees refused to work September 12, when the bidding went ahead.

The Tupras sale is one of the largest on Turkey’s International Monetary Fund-backed privatization agenda. The Koc-Shell bid surpassed most expectations and values the oil refiner, Turkey’s largest, at around US$8.1 billion (euro6.5 billion).

Koc Holding, a diversified Turkish industrial group run by the Koc family, has about 90 percent of the shares in the consortium, meaning the company will stay under Turkish control.

Koc Energy Group President Erol Memigolu told CNN-Turk that he was happy with the purchase, but didn’t yet know how the full payment would be made.

NIGERIA

Intercontinental to Raise N15 Billion for Orient Refinery

Intercontinental Bank Plc has concluded plans to raise about N15 billion to finance the construction of Orient refinery in Anambra State. The target is to put on stream by the end of next year, Nigeria’s first private refinery in the bid to cut fuel importation.

However, as Federal Government and Labour engage in battle over the recent increase in fuel prices, former Commonwealth Secretary General, Chief Emeka Anyaoku has said that the government would be abdicating its responsibility to the people of Nigeria by selling petroleum products at international market-determined prices, stressing that the government must implement its deregulation program in phases.

Intercontinental Bank is raising the N15 billion, through private placement, for construction of a 55,000 barrels per day (bpd) refinery belonging to Orient Petroleum Resources Limited.

The money would represent 30 percent of the total cost of the project, while the remaining 70 percent would be sourced from offshore creditors.

Speaking to newsmen in Lagos September 6, the Group Head, Corporate Finance and Multilateral Funding of Intercontinental Bank Plc, Mr. Ademola Adeyinka said the private placement would be at N100 per share and that the bank is targeting Small and Medium-scale Enterprises (SMEs), Trustee Companies and other groups.

According to Adeyinka, with the yawning gap between demand and supply of petroleum products in the country, returns on the refinery project should come within two or three years. “People are already making enquiries as to how they can be part of the business,” he said.

The Orient Petroleum was one of the 18 firms the Federal Government granted licenses in 2002 to build private refineries. Already, US-based engineering outfit, Shaw-Stone and Webster has been selected as the Engineering, Procurement, Construction and Installation (EPCI) contractor. The American firm will also be the lead partner in the source for the offshore financing for the plant.

According to the take off plan for the refinery which will be located in the Umudora/Umuikwu in Anambra West Local Government, crude oil will in the short term, be barged from the NNPC/Agip Joint venture terminal in Brass, Rivers State, with supplementary import from Venezuela.

The Chairman of Orient Petroleum Resources, Chief Emeka Anyaoku, said that the current policy of consolidation of the banks at N25 billion capital base, was going to be helpful to industries such as refineries. According to him, the very limited capital base of the bank had inhibited the banks in the scope of their operations.

“There limited capital base has tended to limit their capacity for funding projects of sizeable financial needs. Now that they will have capital base of N25 billion, I think banks will now be more able to invest or support industrial projects such as refineries, he added.

SOUTH AFRICA

$4 Billion Oil Refinery to be Built in South Africa’s Richards Bay

Plans are under way for a $4-billion oil refinery to be built in Richards Bay.

The refinery will be the first of three which Drako Oil and Energy is planning to build, with the second site at Coega and the last still to be decided.

“The project is all about export, export, export,” says Drako Oil and Energy president and CEO Anthony van der Merwe.

“We want to bring wealth into the country and help grow South Africa’s economy.

“Through building these oil refineries and exporting we hope to bring foreign investment into the country as well as creating jobs, which will contribute considerably to the economy,” he explains.

With 2010 being set as the year of completion for the first refinery, the company says that it has already secured a 100% offshore loan as well as purchased a 606 ha site bordering the new Richards Bay harbor extensions.

The project is expected to create 2,000 permanent jobs and between 8,000 and 10,000 jobs during the construction phase. Although skilled professionals will be brought in from abroad, an extensive training program will be implemented to create skilled workers from the local community. Van der Merwe says that the skilled foreign nationals will be conducting and overseeing the training program. He adds that the planned refinery will not be competing with existing local oil refineries, as over 80% of the oil will be exported to the US, Canada and the Caribbean, and the remaining 20% provided to a local oil company or distributed through other local distribution networks.

“When all three of the refineries are in full production, the combined refinery throughput will be well over 900,000 barrels a day. “We will be operating on a different level to the other refineries in South Africa and do not intend to be seen as competition, as we will be supplying a completely different market,” he explains.

The company feels that South Africa is missing out on a great opportunity to bring wealth into the country through more exports within the oil-and-gas industry. The new refineries will incorporate state-of-the-art technology and will have virtually no foul odors.

One of the main goals for the company in building these refineries is to bring new technology into the country which could potentially help all of South Africa’s oil refineries.

“We need to build the economy together; if one company brings in advanced technology we must not hide it from each other but share it with the country; this is the only way that the country can move forward.

The company says that it is dedicated to safety measures and low emission levels. “In order to promote safety and environment-friendliness of the refineries, as well as that of acceptable emission levels, we are going to build our offices next to the Richards Bay refinery,” says Van der Merwe.

The 606 ha site is going to be divided into 400 ha for the refinery and 160 ha for the office park, while a 46 ha man-made lake will be retained to maintain and further promote a more environment-friendly environment.

In terms of environmental impact, the company welcomes strict regulations.

“We are hoping that strict environmental regulations will be laid down for us, because not only are we 100% confident of complying, but those same regulations will have to be adhered to by other local refineries when the new refinery license system is in place within the next few months. “Thus, these regulations will have to become the norm in South Africa and this will benefit the industry and public as a whole. “We received documentation from the DME in December 2004, whereby we were told that we are able to proceed with our plans, as long as the refinery will adhere to local and provincial regulations and approvals, which we have in place currently,” Van der Merwe says.

“We have to clear a substantial area to build the refinery but we are determined not to desecrate surrounding areas under any circumstances. “This was also agreed with the company from which we had bought the land.

“We have planned for a buffer to surround the site which will have extensive trees planted in it to ensure that the natural environment is preserved, as well as, to a degree, hide some of the refinery plant from sight,” Van der Merwe explains.

The company says that it is also dedicated to black economic-empowerment (BEE) with BEE partners making up 60% of the company’s shareholders.

“There is currently a significant drive towards woman empowerment in South Africa and we will be making significant moves in selecting further BEE partners in line with this,” says Van der Merwe.

The company emphasizes that its main reason for building the new refineries is to bring new technology into the country and to create wealth and jobs, to help grow South Africa’s economy. “I truly believe that we can be as large as ExxonMobil if we put our minds to it,” says Van der Merwe.

The company explained that it was awaiting the World Petroleum Congress, which was held in Johannesburg from September 25 to 29, to officially announce the project and says that it would name the details of the refinery design and construction company, as well as financial supporters of the project, during the conference.

The company says that it has been working closely with the Kwazulu-Natal Department of Economic Development and that a special team is being put in place to assist the company in its endeavor. “The South African government is supporting the project and, in line with this and our current ties to the US and future partnerships, in October, Governor Jeb Bush will be handing the keys to Florida to the South African government and Drako Oil and Energy, which is a very exciting development,” says Van der Merwe.

ZAMBIA

Zambia Imports 50 Million Litres Fuel, Refinery Shuts

Zambia has imported 50 million liters of diesel and petrol to avert a crisis at its vast copper and cobalt mines after abruptly shutting down its oil refinery, Energy Minister George Mpombo said September 30.

Mpombo said the closure of Indeni Oil Refinery was due to equipment failure at the ageing refinery and also lack of raw materials for oil refining.

The closure of Indeni two weeks before was expected to last only a few days but Mpombo said operations would only resume October 7, thereby causing a critical shortage of diesel and petrol in most parts of the southern African country.

Mpombo said Zambia had imported 37.7 million liters of diesel and 12.3 million liters of petrol from South Africa, Mozambique and Tanzania to supply the mines, industry and also other sectors of the economy.

That equates to 32,000 tonnes of diesel and 9,300 tonnes of petrol.

"Trucks will start roaring in tomorrow (October 1) from South Africa, Tanzania and Mozambique carrying diesel and petrol for mainly the copper mines, agriculture and industry," Mpombo said.

Mpombo said Indeni Oil Refinery and five oil marketing companies had been allowed to import the diesel and petrol, after the refinery was shut for the third time in three months.

Mpombo said Indeni was shut after a compressor broke down at the plant.

"The compressor failure caused Indeni to have difficulties in removing sulfur from the system. We have ordered one million liters of naphtha, a chemical which is used to remove sulfur, from Kenya but it will not arrive till Oct 7," Mpombo said.

Oil industry analysts say Indeni is a strategic industry and that its constant closures would affect economic growth due to low production in factories.

Mpombo said Indeni Oil Refinery -- which supplies diesel and petrol to copper mines in the Democratic Republic of Congo and also to Zimbabwe, required massive rehabilitation as most of its equipment was obsolete.

BAHRAIN

Foster Wheeler gets Bahrain Refinery Deal

Construction and engineering company Foster Wheeler Ltd, on September 28 said it received a $112 million contract from Bahrain Petroleum Co. to upgrade a refinery in the Kingdom of Bahrain, off the Saudi Arabian coast.

Bermuda-based Foster Wheeler said the refinery gas desulferization project is part of Bahrain's $1 billion refinery upgrading program. Bahrain Petroleum is wholly owned by the Bahrain government.

Under the engineering, construction and procurement contract, Foster Wheeler's Milan-based subsidiary will remove sulfur from the refinery's gas streams and treat sour water to meet environmental regulations.

IRAN

Refinery Construction in Iran a Long-Term Project

It will take Iran some 10-15 years to construct new refineries in Iran, said a lawmaker, adding that a refinery construction project would require extensive studies on location, resources, environment, technologies and financial issues.

Hassan Moradi, a member of the Majlis Energy Commission, said that “it is quite unrealistic to think that it is possible to decide to construct a refinery today and make it operational within three years.”

He further noted that governments of the past 26 years have tried only to keep the people satisfied by meeting their demand for fuel through short-term projects.

“These governments failed to plan for long-term refinery construction projects,” he said, calling for the optimum utilization of existing refineries. ”We must improve productivity in existing refineries by employing modern technologies,” he said.

As lawmakers and economic officials remain divided over whether to construct new refineries or renovate existing ones, energy experts believe that any decision on the issue will require further research studies and that a hasty decision will not help efforts to meet the growing demand for oil derivatives, most notably gasoline.

Pedram Soltani, who heads the Association of Oil Derivatives Producers, contended that huge investments will be needed to construct new refineries, while the initiative is not economically justified.

He believed that constructing new refineries will be a giant project which would require greater economic and political security.

This is while some members of the Parliament’s Energy Commission have blamed the government’s failure to construct new refineries for the huge financial losses since it has led to the importation of several billion dollars worth of fuel.

Shokrollah Attarzadeh, a member of the commission, criticized former oil minister Bijan Namdar Zanganeh for opposing the construction of new refineries, saying the former minister believed that it is in the best interest of the country to export crude oil.

Hossein Afarideh, another member of the commission, contended that private companies have received the necessary permission for constructing 15 refineries, adding, however, that they have not yet taken practical steps to this effect.

He said the private sector is more interested in investing in areas other than refinery construction due to low profits in the business.

Vahid Ale-Aqa, an energy expert, on the other hand, believes that the country needs to pursue both options.

We need to renovate the existing refineries and construct new ones,” he said, adding that further expert studies have to be conducted on the issue.

MOROCCO

Repsol in Talks on Morocco Refinery

Spanish major oil and gas company Repsol YPF <REP.MC> is in serious talks with Moroccan authorities on building an oil refinery in that country, a company official said on September 28.

"These plans need to have serious talks with the Moroccan authorities that are being taken now ... we are in serious talks," Enrique Locutura, the company's director for Bolivia, Brazil and Argentina, told reporters on the sidelines of the World Petroleum Congress in Johannesburg.

He said the talks concerned an oil refinery and a regasification plant.

QATAR

Qatar Planning US$1.8 Billion Refinery

Qatar, the sixth-largest Middle Eastern oil producer, is planning a $1.8-billion (U.S.) refinery to process heavy crude oil into gasoline and diesel as demand rises and regulations stall construction of new plants in Europe and the United States.

The state oil company, Qatar Petroleum, is considering the plant to handle crude from the Al-Shaheen field in the Persian Gulf, which is being expanded in a project with A.P. Moeller-Maersk A/S of Copenhagen. The plant would process 200,000 barrels of oil a day by 2010, said the Qatari Oil Minister Abdullah Bin Hamad al-Attiyah.

"Heavy oil is in less demand overseas so it pays for us to refine it here for the domestic and export markets," Mohammad Fawzi Shreidi, Qatar Petroleum's manager of downstream business development and evaluation, said September 19 in an interview in Dubai, United Arab Emirates.

Middle Eastern countries including Saudi Arabia and Oman are planning new oil refineries as existing plants struggle to meet rising demand. Oil last month reached a record $70.85 a barrel after hurricane Katrina flooded refineries along the Gulf of Mexico coast. Even before the storm, oil executives and OPEC officials said a lack of refining capacity is keeping prices high.

SAUDI ARABIA

Aramco $8 Billion Refinery Expansion

Saudi Aramco will increase refining capacity and produce its first petrochemicals with an $8bn expansion of its Red Sea plant at Rabigh. It also plans similar development of refineries at Yan Bu and Ras Tanura. Saudi Arabia accounts for more than three quarters of GCC petrochemicals production, which supplies 7% of global needs.

UNITED ARAB EMIRATES

UAE Lifts Crude, Refining Capacity

The UAE is lifting its crude oil capacity to 2.7m bpd by adding 100,000 bpd by Q4 2005 and a further 100,000 bpd in Q1 2006, the energy minister told reporters at the 11th annual energy conference. He said that more refining capacity is also being planned.

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