Investments of more than $20 billion a year in global refinery industry is required between now and 2030 to meet capacity targets, according to Fatih Birol, chief economist at the Paris-based International Energy Agency (IEA).

In an exclusive interview with Meed magazine, Birol said: “We don’t see enough oil supply coming to the market, while downstream activities to transform this oil into products are also lagging, but demand is increasing.”

Looking to the next couple of years, he said: “We are seeing oil producing countries pushing oil and gas in favor of their foreign policy. If this trend continues, and if it is accompanied with something like a hurricane, this may probably push prices to even higher levels, especially in the absence of spare capacity.”

Worldwide oil demand is expected to increase by about 1.5 per cent this year, according to the IEA; much of this growth is fuelled by demand from China, India, Latin America and the Middle East.

However, adding refinery capacity globally has not increased in line with demand; low or negative margins have prevented most refiners from investing in new plants, while environmental regulations in the US and Europe have effectively barred any new refineries from being built.

Oil companies and investors are looking to China, India and the Middle East, with the last-mentioned taking advantage of the oil boom and high liquidity levels.

According to Meed Projects there are more than $59 billion worth of refinery projects alone in the GCC, Iran and Iraq.

Leading the way is Saudi Arabia, where Saudi Aramco is moving ahead with two 400,000 barrels per day export refinery projects and further integrated refining and petrochemicals projects. Kuwait National Petroleum Corporation (KNPC) is working on the world’s biggest refinery, the 650,000 bpd Ras al-Zour facility.

Birol explained: “According to our projections between now and 2030, around $480 billion will be required for downstream investments.

“The lagging behind of refining is a significant question and both Opec and the IEA member countries have to push it forward.”

1. AMERICAS

U.S.

Shell Deer Park Refinery Shuts Hydrogen Unit-State

A catalytic feed hydrotreater at Shell Oil Co.'s 340,000 joint venture Houston-area refinery was shut on June 8 due to an electrical short, according to a notice filed with Texas environmental regulators.

The cat feed hydrotreater, which prepares gasoil for processing by the Deer Park, Texas, refinery's catalytic cracking unit, shut down because of an electrical short in a pump on June 7, according to the notice filed with the Texas Commission on Environmental Quality.

A refinery spokesman was not immediately available to discuss refinery operations.

The refinery, located in a 1,500-acre complex including a chemical plant in the Houston suburb of Deer Park, is a 50-50 joint venture between Mexican state oil company Pemex and Shell Oil Co., the U.S. subsidiary of the Royal Dutch Shell Plc. The Deer Park refinery is the sixth largest U.S. refinery.

House Passes Bill to Help Spur New Oil Refinery Construction

The House passed a bill on June 7 that its Republican sponsors said would streamline the permit process to build the first domestic oil refineries in a generation.

The vote was largely along party lines, 238 to 179, closely mirroring a vote on the same bill last month, when 237 lawmakers supported it in a procedure that required two-thirds approval for passage.

The bill would create a federal coordinator to manage the permit process for a new refinery by bringing together agencies from all levels of government. Another provision would require the president to identify at least three closed military bases as suitable refinery sites, a provision that President Bush supports.

For now, the Senate has no comparable bill under consideration.

Citing the rising demand for oil products and an industry operating at near peak capacity, the bill's proponents said new refineries would create added supplies.

Representative Joe L. Barton, Republican of Texas, who is chairman of the Energy and Commerce Committee and a chief sponsor of the bill, said it was intended "to show America that we're doing everything possible to alleviate high energy prices."

But detractors argued that the measure would have little bearing on gas prices and was largely unnecessary, saying that the energy bill passed last year had suitable provisions for refinery construction. They also said oil company executives have told Congress that adding capacity through expansion makes more economic sense than building new facilities, with its risks of community opposition. Company executives have also testified that environmental laws have not impeded expansion plans.

"Between September 2004 and September 2005, refiners have made 255 percent profit," said Representative Rick Boucher, Democrat of Virginia, who was leading the opposition to the bill. "When you're doing that well, why would you change anything?"

While the number of domestic refineries has fallen to 148 from 324 since 1981, largely through mergers and consolidation, American oil companies are producing about 17.3 million barrels of the daily demand of 21 million barrels of oil and have plans to add 1.4 million to 2 million barrels a day over the next several years.

The last time a refinery was built in the United States was 1976.

Alan Greenspan, the former chairman of the Federal Reserve, told the Senate Foreign Relations Committee on June 7 that sharply higher oil prices have not seriously hurt economic activity in this country or around the world. However, he added, "Recent data indicate we may finally be experiencing some impact."

CSB Reports Defective Welds Contributed to Houston Refinery Explosion

The Chemical Safety and Hazard Investigation Board (CSB) determined that a number of errors – including defective welds – were the cause of a December 2004 chemical plant explosion that ignited a fire that burned for 7 hours in southwest Houston.

The 50,000-pound steel pressure vessel that exploded at the Marcus Oil and Chemical facility on the evening of Dec. 3, 2004, slightly injured three firefighters, while several residents sustained cuts from flying glass. Steel fragments from the explosion were thrown up to a quarter-mile from the plant, which refines polyethylene waxes for industrial use.

CSB investigators determined that Marcus Oil did not use a qualified welder or proper welding procedure to reseal the vessels and did not pressure-test the vessels after repairs were made on the failed vessel, known as Tank No. 7.

According to CSB officials, the repair weld on Tank No. 7 failed under pressure, ejecting molten wax and flammable hydrocarbons. Marcus Oil used air instead of nitrogen to boost the pressure of the vessel, and the oxygen inside the tank allowed the ignition of the flammable material, most likely by sparks from the metal fragments.

The fire spread back into the damaged tank, causing a violent explosion, which propelled the 25-ton vessel more than 150 feet. The tank came to rest against a warehouse on an adjacent property.

The incident's lead investigator, John Vorderbrueggen, said that although substantial amounts of documentary and physical evidence were lost when the city demolished the fire-damaged building where Marcus Oil records were stored, the agency was able to estimate that the defective welds had decreased the strength of the vessels by more than 75 percent and that the weld on Tank No. 7 finally failed catastrophically during a routine production run.

As a result of the incident, CSB called on the city of Houston to adopt new safety regulations instituted by the American Society of Mechanical Engineers (ASME) Boiler and Pressure Vessel Code that govern the construction and modification of pressure vessels – industrial process and storage containers that hold pressurized gases or liquids.

According to CSB, Texas is one of 11 states that have not adopted national safety standards for pressure vessels and one of 17 states that do not require adherence to the National Board Inspection Code, which requires alterations to pressure vessels to be inspected, tested, certified and stamped.

"If the provisions of internationally recognized pressure vessel safety codes had been required and enforced, this accident would almost certainly not have occurred," CSB Board Member John Bresland said. "The presence of unregulated, non inspected and improperly maintained pressure vessels within an urban area like Houston is a serious concern."

CSB also recommended that Marcus Oil repair all modified pressure vessels to conform to the National Board Inspection Code requirements, install relief devices on all pressure vessels, and avoid the contamination of its nitrogen supply with air to prevent fires.

BP Preps Texas Refinery FCC for Restart

BP Plc. was tuning up a gasoline-producing fluidic catalytic cracking unit at its giant Texas refinery over the weekend for eventual restart, a source familiar with refinery operations said on June 5.

The 62,000 barrel-per-day (bpd) fluidic catalytic cracking unit No. 1 at the 460,000 bpd Texas City, Texas, refinery underwent the preparatory work June 3 and 4, according to a notice filed with the Texas Commission on Environmental Quality.

A BP spokesman declined to discuss operations at the refinery, citing company policy against doing so.

The air blower on the FCC, one of three cat crackers at the refinery, was run at low rates while nitrogen was purged from the unit's reactor and regenerator.

Nitrogen, an inert gas, is used in refineries to prevent explosions by hydrocarbon vapor or liquid. It has to be purged prior to restarting equipment.

The BP Texas City refinery is the third largest U.S. refinery and produces gasoline equal to 3 percent of national supply.

The entire refinery was shut through mid-April for an extensive overhaul and safety inspection following Hurricane Rita in September. The company resumed gasoline production by restarting the 120,000 bpd FCC No. 3 in April.

Fifteen workers at the refinery were killed on March 23, 2005, when overflowing vapor and liquid from an octane-enhancing unit exploded.

Motiva Announces Port Arthur Refinery Expansion to Boost Capacity to 600,000bpd.

Motiva Enterprises LLC said it plans to more than double the capacity of its Port Arthur oil refinery, an expansion that would put it among the largest in a North American refining market clamoring for supplies.

Motiva, a Houston-based joint operation between Saudi Refining Inc. and Shell Oil Co., said work will start next year to boost capacity from 275,000 to 600,000 barrels per day.

That's more than Exxon Mobil's Baytown facility, which at 557,000 barrels per day is currently largest single producer of refined goods in the nation.

Motiva said it expects to complete the expansion by 2010. The company did not disclose financial details.

"We are confident the market fundamentals will support an expansion of our U.S. refining capacity," Motiva President and Chief Executive Officer William B. Welte said.

The move comes as lawmakers have been calling for more investments after Hurricane Katrina temporarily shutdown 28 percent of the nation's refining supplies last fall. Motiva's two other refineries, both in Louisiana, were among those forced to briefly close after Katrina slammed into the Gulf Coast.

The effects are still being felt. Oil and gas companies are completing seasonal maintenance for upgrades and environmental modifications as well as delayed hurricane related repairs.

Texas Republican Sen. Kay Bailey Hutchison said in a statement she met with Shell Oil Co. president John Hofmeister on Friday about the issue.

"Increased refinery expansion is a key element to lowering energy costs," Hutchison said. "The current high prices at the gas pumps send a clear warning sign that our nation needs more expansion."

Nationally, the number of refineries dropped from 324 in 1981 to its current level of 148, according to the Energy Department. Production is about one million barrels a day less since then.

Refineries, however, are producing about 92 percent of their annual capacity, compared to 68 percent 25 years ago.

That's why building new refineries is not practical nor is it feasible, industry executives said. So oil and gas companies prefer to boost supplies through expansion.

For example, over the last decade, Exxon Mobil said it has added the equivalent of three average-sized refineries -- about 250,000 barrels of production per day -- all through expansion.

Several other companies have either recently completed expansions or have significant upgrades planned.

Last year, Citgo added 105,000 barrels per day to its Lake Charles, La., plant bringing capacity to 425,000 barrels a day.

In September, Valero Energy Corp. will complete its own Port Arthur expansion going from 250,000 to 325,000 barrels a day.

Last fall, Marathon Oil Corp. said it was reviewing plans to expand its Garyville, La., refinery by 180,000 to 425,000 barrels per day.

And in March, Chevron Corp. said it was considering a 200-barrel-per-day expansion to its Pascagoula, Miss., refinery.

Expanding these facilities can take up to four years, but constructing a new refinery can take up to 10 years, said Charlie Drevna, vice president for the National Petrochemical and Refiners Association.

"Expansions like these will meet demand more quickly and more effectively than building a new refinery," Drevna said.

Valero Loses Interest in Lyondell Refinery

Valero Energy Corporation (VEC) is no longer interested in buying the Lyondell refinery, owned by Citgo -the refining branch of Venezuelan state oil firm Pdvsa in the United States- and Lyondell, said the new CEO of VEC Bill Klesse in San Antonio, Texas.

VEC Corporate Communications vice-president manager Mary Rose Brown told El Universal last April 6th that VEC was interested in purchasing the refinery "at a fair price."

Lyondell refinery is equipped to refine heavy crude oil from Venezuela. Brown, however, said VEC could buy the same type of crude oil in international markets, "even though the sales agreement with Citgo and Lyondell does not include (purchase of) Venezuelan crude oil."

Valero Energy Corporation is based in San Antonio, Texas, with 15 refineries and a combined refining capacity of 2.5 million barrels per day.

Klesse did not rule the possibility that a future agreement to buy Lyondell refinery may be reached, "but we are not going to overpay."

U.S. House Passes Refinery Bill

In a 238 to 179 vote, the House of Representatives has passed a bill aimed at making it easier for companies to build refineries in the U.S., according to Chemical and Engineering News. It is uncertain whether the bill will pass the Senate, but proponents of the bill are hoping that stimulating investment in refineries will help reduce America’s dependency on foreign oil.

Under the bill a federal coordinator would take on a leadership role and manage the refinery permitting process with all federal, state, and local governments. The idea is that a single coordinator can streamline the bureaucratic process of permitting, but the bill is also being criticized because it may violate the rights of states and local governments. The bill would also give the EPA the power to enforce environmental regulations at new refineries.

Although oil prices have risen dramatically in recent years, environmentalists, local communities, red tape, and huge capital costs have kept any new refineries from being built in the US for the last 30 years. The last refinery built in the U.S. was constructed in 1976 at Garyville, Louisiana. Falling further behind in its dependency on foreign sources of petroleum, the U.S. imports about 10 percent of its refined gasoline and 60 percent of its petroleum products.

Exxon Says all Units Ops Normal at L.A. Refinery

Exxon Mobil Corp. said all units at its 150,000 barrel per day (bpd) Los Angeles-area refinery in Torrance, California, were operating normally on June 19, according to a refinery spokeswoman.

Heat exchanger tubing on the refinery's crude unit failed, one day after the refinery suffered an upset in what Exxon said was a major process unit.

Refinery Initiatives from Honeywell Target Corrosion Management

Two new corrosion research programs from Honeywell will seek to help refineries increase the production of alkylates for high-octane gasoline and maximize production per barrel of crude oil. Companies in the refining industry sponsor the Joint Industry Programs (JIPs), which address common industry issues.

Latest JIPs—“Predicting corrosion in sulfuric acid alkylation” and “Assessing refinery crude oil corrosivity”—were identified and developed based on input from Honeywell refining customers worldwide. Participating companies will partner with Honeywell to develop new approaches to corrosion management and will have access to the latest software tools for corrosion prediction, risk assessment, and process optimization.

“It’s a paradox for refiners: They can improve their profitability by increasing per-unit throughput of alkylates or processing lower-grade crude oils,” said Dr. Russell Kane, director of corrosion services, Honeywell Process Solutions. “However, both processes are highly corrosive and, if not managed carefully, can actually reduce throughput, increase downtime, damage equipment, and endanger workers.”

Kane noted that while corrosion is a significant threat to the productivity of the alkylate process, few corrosion prediction tools and little quantitative data exist to accurately assess acid corrosion rates. The JIP programs expect to compile data for creating better and more accurate guidelines to reduce corrosion, including a software tool for predicting corrosion for alloys. In addition, the programs will include a corrosion test program designed to define key process parameters and develop quicker screening methods, and more accurate modeling techniques to define safe operating envelopes and identify conditions that pose a risk of accelerated corrosion to commonly used alloys.

Alon Partners with Centurion Pipeline

Alon USA reached a 15-year deal with Centurion Pipeline to provide the Dallas-based refiner with a minimum of 21,500 barrels per day (BPD) of crude pipeline capacity from Midland, Texas to Alon’s Big Spring Refinery.

The arrangement is expected to become effective by August 14. Alon has also agreed to ship at least 21,500 BPD on Centurion’s reactivated pipeline including a newly constructed 12-inch pipeline leased from Alon. The agreement can be mutually extended for an additional five-year term.

“We are very pleased to add this additional flexibility to our crude supply system for the Big Spring Refinery,” said Jeff Morris, Alon’s president and CEO. “We now have three alternative supply sources to the refinery. In addition to the Centurion system, the Amdel pipeline system start-up announced earlier this year, which has a current capacity of 27,000 BPD, will be able to supply up to 40,000 BPD by year end 2006 from either Midland or Nederland, Texas."

Furthermore, the operation of the Mesa pipeline system, which can fully supply the Big Spring refinery’s crude capacity, has been extended until the end of 2009. "We now have in place an additional contingency should the Mesa pipeline system not operate beyond 2009," Morris said. "Thus, we believe these alternative options will be sufficient to supply the Big Spring Refinery’s crude oil requirements for the foreseeable future.”

House Bill's Passage has Texas Eyeing New Refinery

A House bill designed to convert closed military bases into oil refineries has one Texas town hopeful it can turn economic misfortune into the first new U.S. facility in 30 years.

Last year a federal base closure commission voted to shut down Texarkana's Lone Star Ammunition Plant, now among 100 conversions under way nationally following decades of closures. There is easily enough room on the 15,000-acre site to safely operate a refinery, said Bowie County Judge James Carlow.

"If we can attract interest in a refinery, we can have some land available for them in 2007," Carlow said. "We are really pushing for this."

Hurricanes Katrina and Rita temporarily shut down the nation's refining capacity by 28 percent last year when they slammed the Gulf Coast. Since then, lawmakers have been scrambling to find a solution to a tight refining market susceptible to such disruptions.

House has passed a bill that essentially streamlines permitting and directs the president to identify three or more closed military bases as potential refinery sites.

U.S. Rep. Ralph Hall, a Texas Republican, supported the bill. He said the Texarkana site where corners of Texas, Arkansas, Oklahoma and Louisiana practically meet can draw from the resources of four states rather than one.

"The other thing is, that location is not subject to freaks of nature that pour 18 inches of rain on us, yet we're near the water and it's a good employment area," he said.

In a statement, Arkansas Democrat Mike Ross opposed the bill, but not the interest in putting a refinery in a base scheduled for closure.

The bill, he says, "essentially weakens environmental permitting, allows big oil companies to sidestep environmental laws, and would do nothing to actually increase refinery capacity or lower the cost of gasoline and diesel."

Whether the Senate passes refinery legislation remains uncertain. Last year a similar bill received Democratic and moderate Republican opposition.

Even if a plan for a new refinery gets a financial commitment and regulatory backing, it could be another 10 years before the facility comes online. Expansions of current facilities, the focus of most oil and gas companies for now, take less than half that time.

In April, Motiva Enterprises LLC announced plans to more than double capacity at its Port Arthur refinery from 275,000 to 600,000 barrels a day. Motiva is a Houston-based joint operation between Saudi Refining Inc. and Shell Oil Co.

Valero Energy Corp. plans to complete an expansion in Port Arthur by September, going from 250,000 to 325,000 barrels a day.

Last fall, Marathon Oil Corp. said it was reviewing plans to boost output in Garyville, La., by 180,000 barrels, to 425,000 per day.

And in March, Chevron Corp. said it was considering a 200,000-barrel-per-day expansion to its Pascagoula, Miss., refinery, which currently produces 325,000.

Expansions remain the most reasonable option, but don't rule out the building of new refineries, said Charlie Drevna, executive vice president for the National Petrochemical and Refiners Association.

"If the bill does anything, it exemplifies the need for additional domestic refinery capacity," Drevna said. "We're not going to see anyone putting applications for new refineries in the next month or two."

Naval Station Ingleside near Corpus Christi isn't a good refining fit because it would require too much of an overhaul and sits near residential areas, an official said.

"There is so much other land in the state of Texas more suitable for a refinery," said Greg Brubeck, deputy director of engineering for the Port of Corpus Christi Authority.

Valero Will Not Pursue Purchase of Lyondell-Citgo Refinery

Valero Energy Corp. said June 19 that the company is no longer interested in purchasing the Lyondell-Citgo refinery in Houston, The Phoenix Business Journal reports.

The company also confirmed it was no longer interested in pursuing an interest in The Vitol Group's Come-By-Chance refinery in Newfoundland, Canada; a location that has a throughput of 105,000 barrels per day (BPD) and specializes in oil production, refining and marketing.

Valero owns and operates 18 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of 3.3 million barrels a day.

BP Searches for Leak at Texas Refinery

BP Plc was looking for the source of a hydrocarbon vapor leak on Ultraformer No. 4 at its 460,000 barrel per day refinery in Texas City, Texas, according to a notice filed with the state environmental regulator.

The leak was thought to be coming from an exchanger on the Ultraformer, which makes high-octane gasoline blending components, according to a notice filed with the Texas Commission on Environmental Quality.

A BP spokesman was not available to discuss refinery operations.

BP continues to restore the giant Texas refinery, the third-largest in the United States, to full production after shutting down for Hurricane Rita in September.

An explosion on an octane-enhancing unit at the refinery on March 23, 2005, killed 15 workers and injured 170 other people.

Suncor Finishes $445 Million Colorado Refinery Upgrade

Suncor Energy Inc. has finished $445 million of upgrades to its Colorado refinery, allowing the plant to meet new U.S. emission regulations for low-sulfur diesel fuel, it said on June 26.

The two-year project also enabled the 90,000 barrel a day Commerce City, Colorado, refinery to run a broader slate of feedstock, including sour crude from the company's Alberta oil sands operations, it said.

The plant can now process more tar-like bitumen into asphalt as well, Suncor said.

Albemarle Raises Prices of Refinery FCC Unit CO Combustion Promoters

Albemarle Corporation, a leading global supplier of catalysts and additives to the petroleum refining industry, is increasing the prices for its carbon monoxide (CO) combustion promoters by 20 percent worldwide effective immediately, or as contracts allow.

"This price increase is needed in part to help offset the rapidly escalating cost of production, especially noble metals," said Augusto Quinones, Albemarle Global Business Steward for Fluidized Catalytic Cracking (FCC) Additives. "The price increases should also help us move toward a sustainable business structure by delivering an acceptable return on our assets while allowing us to continue to develop the innovative, next- generation products and services our customers need and expect from Albemarle."

Albemarle's FCC environmental control additives are vital to helping petroleum refiners meet stringent environmental regulatory standards by reducing sulfur oxide (SOx) and nitrogen oxide (NOx) emissions from FCC units, the main units used to convert heavy hydrocarbon oils to transportation fuels.

Albemarle's combustion promoters are used to regenerate used FCC catalysts by burning off the carbon deposited during the cracking process, catalyzing the oxidation of CO to carbon dioxide (CO2). In addition to traditional platinum-based CO combustion promoters, Albemarle also markets a non-platinum version (ELIMINOx) that efficiently oxidizes CO while reducing NOx emissions by about 50 percent.

Draft EIS, Draft Water Discharge Permit for North Dakota Clean Fuels Refinery

The draft Environmental Impact Statement and draft water discharge permit for a clean fuels refinery that the Three Affiliated Tribes plan to build west of Makoti, ND will available to the public for comment during the last week of July.

Public hearings will be held July 31 through Aug. 5 in area communities on both the draft EIS and the draft National Pollutant Discharge Elimination System permit, according to Monica Morales, Denver, of the Air and Radiation Program for Region 8 of the U.S. Environmental Protection Agency.

The EPA and Bureau of Indian Affairs issued a notice regarding the draft EIS and draft water discharge permit that soon will become available to the public. The Minot Daily News and several other newspapers in the region ran the legal notices the last week of June.

“A notice about the proposed project will appear in the Federal Register on June 30,” Morales said.

The Three Affiliated Tribes are proposing to build the refinery near N.D. Highway 23, four miles west of Makoti, on the Fort Berthold Reservation.

The draft EIS evaluates, analyzes and discloses to the public the environmental impact of the tribes’ proposal “that the BIA accepts 469 acres into trust for the purposes of constructing and operating a clean fuels refinery and producing buffalo forage” on the reservation.

The tribes have applied for a NPDES permit for discharges of treated wastewater from the proposed refinery.

According to the public notice, “the applicant proposes to discharge effluent from four discharge points (outfalls) into a wetland located in NW/of Section 19, Township 152N, Range 87W. The wetland is a tributary of the East Fork of Shell Creek, which is a tributary to the Missouri River.”

Tex Hall, chairman of the Three Affiliated Tribes, is listed as the responsible official for the proposed permit application.

Valero Says Flaring Needed at Texas City Refinery

Leading U.S. refiner Valero Energy Corp. told the state pollution regulation agency it had to use the safety flare at its 214,000 barrel per day refinery in Texas City, Texas, on June 26 and 27, according to notices filed on June 28.

A Valero spokeswoman said she would check to see what comment the company wished to make about the incidents that pumped an estimated 5,547 pounds of sulfur dioxide into the atmosphere.

CANADA

Alberta too Expensive to Build Super-Refinery

Alberta's economy is running so hard it would be impossible to build the kind of US$10-billion super-refinery the provincial government wants to see rise near Edmonton, says the expert whose firm studied the concept and reported its findings June 5.

David Netzer, a Houston-based petrochemical consultant hired by the Alberta government and 19 partners from Canada's energy sector, said such a massive undertaking would be technically feasible but practically impossible.

"In today's market, it can't be done," Mr. Netzer said outside a petrochemical conference in the resort town of Kananaskis, 80 kilometres west of Calgary, just after his report was released.

"Not with between $100-billion and $200-billion worth of investment already slated for [Alberta]. The people aren't there to build it."

Mr. Netzer's $360,000 report was intended to create a blueprint for building a super-refinery. But in an interview he said that with rising costs for materials, equipment and labor, such a project would be a difficult challenge.

He said no Canadian industry players in the group, which includes the likes of Canadian Natural Resources Ltd., BP Canada Energy Co., Enbridge Inc., Dow Chemical Canada Inc. and Nova Chemicals Corp., have challenged his cost estimates, which he said were based on a scenario of building not in Alberta but on the U.S. Gulf Coast, where there are several refining-petrochemical hubs.

"That's going to be a major controversy with this report," he said. "Ten years ago it was cheaper to build something like this in Canada as opposed to the U.S. Now, depending on who you talk to, it's more expensive [in Alberta]."

Alberta is forging new energy policy to take better advantage of growth from the oilsands. It wants more heavy oil sold as higher-priced, refined products so the province can recoup more in terms of royalties.

Mr. Netzer's conceptual plant, which the government hopes one or more companies will step forward to build, would turn daily 300,000 barrels of low-value heavy oil from the oilsands into higher-priced petroleum products such as gasoline, diesel and kerosene, or jet fuel.

It could also churn out a slate of products such as ethylene and propylene that could feed members of Alberta's petrochemical hub east of Edmonton.

No new refinery has been built in North America in more than two-dozen years and Alberta's proposal would not only be the first since Shell Canada Ltd. built the Scotford refinery east of Edmonton but it would also be Canada's second largest, next to the Irving Oil Ltd. refinery in St. John, N.B.

Refineries have enjoyed robust margins since gasoline prices rose last year and spiked in the wake of Hurricanes Katrina and Rita.

Alberta Energy Minister Greg Melchin was critical of the methodology used in the report and said that it would be up to industry to decide whether to proceed.

"Industry knows better than all how to handle the cost escalation," Mr. Melchin said.

Small Scale $25 Million Oil Refinery Proposed for Western Manitoba

An Alberta company wants to build a small-scale oil refinery in western Manitoba to process used oil.

Its used-oil refinery would cost about $25 million and would employ about 30 people.

"There's about 12 million liters of used oil collected in the province of Manitoba every year, and we convert that back into diesel, for example," said David Crombie, chief financial officer for COC, adding that the refinery could process new Manitoba oil, as well.

"It saves a lot of money, it's good environmentally and that's what we do with our processes."

Vince Heaman, reeve of the Rural Municipality of Wallace, approves of the project.

"Not only is it jobs, it's highly skilled jobs, which brings in high-paying jobs. I also believe that if they come to our community, that there will be a growth industry around them," he said.

"I look down the road and I see [the] opportunity to create an industrial park that nobody in this community could even dream about."

COC still needs to conduct an environmental and a feasibility study on the Manitoba project.

The company is working on plans to build six refineries in the next five years in Canada, Europe and Africa; its first project was launched in Alberta and is expected to begin operations in 2008.

CUBA

Cuban Refinery to Open in 2007 after Estimated $44 Million Investment

The remodeling work that is being carried out by Cuba and Venezuela will allow that the refinery of Cienfuegos, located in the central-south part of the Caribbean country, start operating in the third three-month period of 2007.

The vice president of Petroleos de Venezuela state company (PDVSA), Alejandro Granados, made the announcement during an informal meeting with the international and local press in Caracas.

Granados said that the plan aims to start producing 65,000 barrels daily and then move into a deep conversion project, which will allow the Cuban refinery to double its capacity to 120,000 oil barrels and refine crude oil.

The Venezuelan official highlighted the progress in the remodeling work at the refinery, in which experts from both nations are jointly working, with an investment estimated at 44 million dollars.

The integration proposal of Petrocaribe, boosted by Venezuela, is progressing with building needed infrastructures in Caribbean countries.

ECUADOR

Fire at Ecuadorian Refinery Forced Evacuation

A fire that broke out at the residual gas burning section at the Ecuadorian refinery in Esmeraldas has been controlled.

Although timely action prevented the 328-feet high flames from spreading to other areas of the most important refinery in Ecuador, it forced the evacuation of neighboring schools and residences.

Meanwhile, there has been no official statement from the refinery.

GUATEMALA / PANAMA

Mezo-American Nations to let Investors Decide $6 Billion Refinery Location

The Mezo-American nations agreed June 4 to leave the decision to investors on the site of the region's biggest proposed refinery, which would probably be in either Guatemala or Panama.

According to reports reaching here, the agreement was part of a 35-page statement published after a three-day meeting of the Mezo-American Energy Integration Program (PIEM), which ended on June 4 in La Romana, close to Dominican capital Santo Domingo.

Presidents and foreign ministers of the PIEM nations -- Belize, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama and the Dominican Republic -- agreed to begin a bidding for the planned 6 billion U.S. dollar refinery, which Guatemala, Honduras and Panama had offered to host.

The PIEM, which first met in December last year, aims to complete four tasks: to build a massive oil refinery in a Central American nation, to create a "spine" of electricity links between the PIEM nations, to harmonize energy regulation across the region and to promote the use of sustainable and renewable energy.

The PIEM also agreed at the summit to complete the electricity connection between Mexico and Guatemala by the end of 2007, and to complete studies of the Panama-Colombia power link.

The statement said that the price of petrol and oil derivatives would have a decisive impact on the region's development, and the PIEM would substantially boost the region's life quality and economic integration.

Mexico's Energy Minister Fernando Canales, whose country will supply 230,000 barrels of crude oil daily to the refinery, estimated earlier such a plant would supply gasoline to Central America at a cost eight U.S. dollars cheaper than that on the international market.

Elsewhere, El Salvadorean President Elias Antonio Saca said on June 4 that the results of the meeting were satisfactory and the refinery would help ease the petroleum crisis in the region.

PANAMA

Venezuela will Construct a Refinery in Panama

Venezuela’s president, Hugo Chávez, and Martín Torrijos, Panamanian president, have negotiated the construction of a petroleum refinery in Panama and also to develop a plan for the Panamanian integration in the power sector.

One of the signed agreements indicates that the countries are committed "to negotiate the terms and conditions that allow the development of conducive activities to provide about 150 thousand daily barrels of crude for the establishment of a refinery in Panama", said the Panamanian presidency in an official notice.

In the matter of petroleum "both governments will execute the required requisites and legal actions to develop activities relative to the hydrocarbon handling logistic, including provision, storage, distribution and transfer in the Panama Republic".

"Venezuela possesses the first petroleum reserve in the world, reason why we could turn Panama, in a great center of refinement, storage and distribution", said Chávez to journalists, during his visit to Panama.

One of the agreements in the matter of power cooperation establishes that Panama and Venezuela "will have as objective an ample and sustained process of integration, in order to develop and promote the areas of petroleum, gas and electricity", adds the Panamanian note.

"We are ready to install in Panama a refinery not only for Panamanian consumption", said Chávez.

VENEZUELA

Venezuela's CRP Refinery Complex to Process more Synthetic Crude

The CRP refinery complex of Venezuela's state oil firm PDVSA will modify two existing modules to allow it to process more synthetic crude made from extra heavy Orinoco crude, CRP general manager Jesus Luongo said.

Luongo said CRP, the world's largest refining complex, already has capacity in the Cardon plant to process some 55,000 bpd syncrude of 20 degree API crude from Petrozuata, an Orinoco joint venture between PDVSA and US major ConocoPhillips.

Capacity of the Amuay plant will be upped to 130,000 bpd and the project will allow the complex to handle syncrudes as heavy as 16 degrees API. "Construction is set to start in 2008. Let us all remember that the basis of our resources in this country is heavy and extra heavy crude which are then taken to upgrading units and transformed into synthetic crude," Luongo said.

CRP processed 780,000 barrels on June 7, and about a third of that was gasoline and another third distillates. Total capacity is 940,000 bpd, with usage at 81% at Amuay (the largest of CRP's three plants with over 630,000 bpd) and 94% at Cardon.

The complex comprises three refineries - Cardon, Amuay and Bajo Grande -- the first two of which are interconnected by a network of pipelines that allow them to function as a single unit.

2. ASIA

AUSTRALIA

Mobil Delays Port Stanvac Refinery Decision

Oil giant Mobil rejected a July 1 deadline to decide the future of its mothballed refinery at Port Stanvac in southern Adelaide, but is finalizing a multi-million-dollar site clean-up deal with the South Australian Government.

Despite soaring oil prices and strong refinery margins, Mobil spokesman Alan Bailey said the company had informed the Government it had made no decision on whether it would restart Port Stanvac.

Under a confidential agreement, Mobil must determine by July 1 whether it will close Port Stanvac, but it can reserve the right to do nothing until 2009 if market conditions are deemed uncertain. The company then has another 10 years, until 2019, to demolish the plant and clean up.

Any remediation currently being negotiated "would not impact on the future ability to recommence operations there (at Port Stanvac)", Mr Bailey said. But he could not "put a date" on when the refinery's future would be decided.

The Adelaide refinery and storage facility was responsible for a 10th of the nation's production until it was mothballed in 2003 at a cost of $30 million.

Caltex Defers Upgrades at Australia’s Kurnell Refinery

Caltex has deferred two projects at its Kurnell refinery near Sydney because of operational difficulties and delays in finding specialist staff.

The expansion of the alkylation unit has been postponed, as has the upgrade of the crude-processing unit, Caltex told the Australian Stock Exchange June.

The projects are part of Caltex Australia's $300 million program to improve the performance of its two refineries, with the aim of increasing earnings before interest and tax by at least $150 million a year by 2008. The projects include expanding diesel production at both units and expanding tank storage.

"Caltex is still confident of achieving $150 million," a spokesman said.

"These deferrals are not expected to impact the earnings benefit because as individual projects prove either not to be attractive, or are deferred, we are also adding projects."

CHINA

Sinopec and Kuwait Petroleum to Build $5 billion South China Refinery

China Petroleum and Chemical Corp. (Sinopec) plan to build a $5 billion refinery near China's southern city of Guangzhou, according to the China Business News. The refinery will have an annual capacity of 15 million tons of refined oil a year, the China Business News reported, citing an unnamed official at Sinopec. The project has been submitted for approval to China top economic planning agency. Under the current proposal, the refinery would be completed by 2010.

BP Completes Sale of 9.4 Percent Stake in Sinopec's Zhenhai Refining Unit

BP PLC (BP) has completed the sale of its minority 9.4% stake in China Petroleum and Chemical Corp. (SNP)'s Sinopec Zhenhai Refining & Chemical Co unit, a spokesman for the U.K. oil major said June 28.

"BP (already) completed the deal," he said, in response to a query about Chinese press reports saying the company intended to divest the stake. He didn't specify the date or the amount raised.

The reports said BP had initially wanted to raise its stake in the refining unit but didn't agree with Sinopec on the terms of the investment. Another BP spokesman declined to comment.

In November, Sinopec announced plans to take the refinery unit private and buy back the 29% it didn't already own in the unit.

INDIA

BPCL May Rope in Partner for Bina Refinery

Bharat Petroleum Corporation Ltd (BPCL), which has commenced work on the construction of 6 million tonnes refinery at Bina in Madhya Pradesh, is looking for a partner to implement the project expected to cost around Rs 5,000 crore.

The company has completed the expansion of the refinery at Mumbai to 12 mt.

Mr S. Radhakrishnan, Director (Marketing), BPCL, said the company recently completed the expansion of the Mumbai refinery’s capacity to 12 mt. This refinery had started off in the 1950s with a capacity of 2 mt. The company has also commissioned the lube oil base stock plant with 1.80 lakh tonnes (lt) capacity. This would give the company the group 2 plus base oil, the highest quality base oil available in the domestic market, for producing lubricants.

He said work on the Bina refinery has just commenced and he expected it to be commissioned by December 2009. The investment envisaged in the project was Rs 5,000 crore. He said the company was implementing the refinery project alone as of now, but he expected that "some people will join us as we go along".

He said some companies have expressed interest in participating in the project but BPCL has not finalized any partner.

IOC to Invest in Haldia Refinery Expansion

Indian Oil Corporation would invest Rs 3,000 crore for the expansion and setting up of new units at its Haldia refinery in West Bengal, Petroleum Minister Murli Deora said June 13.

"The expansion of the refinery also includes setting up of a paraxylene and propylene recovery plant," Deora, who was on a transit halt here on way to Shanghai, told reporters after a meeting with Chief Minister Buddhadeb Bhattacharjee.

Besides, the Rs 3,000 crore, IOC has already lined up investment of another Rs 1,900 crore which was now underway for producing Euro-III complaint fuel, he said.

Apart from the refinery expansion, IOC's participation in the proposed chemical hub at Haldia also figured in his talks with the Chief Minister, Deora said.

He said that IOC required 210 acre for the refinery expansion for which it had approached the Union Fertilizer Ministry for the land.

The fertilizer ministry has given its approval and now clearance was awaited from the Ministry of Shipping which owned the land. The expansion project would be complete within 24 months after getting the land, he said.

Emerging from his meeting with Deora, the Chief Minister said that they discussed the issue of a chemical hub and IOC would be the lead investor in it.

IOC's Rs 359 crore motor spirit quality improvement unit in the Haldia refinery has recently started production.

Foster Wheeler Wins Coker Heater Contract for Reliance Jamnagar Export Refinery Project

Foster Wheeler Ltd. announced June 26 that its subsidiary Foster Wheeler USA Corporation, part of its Global Engineering and Construction Group, has been awarded a contract by Bechtel France, Reliance Petroleum Limited's Design, Engineering, Procurement and Construction Advisory Services contractor, for the thermal design, engineering, procurement, and material supply of four TERRACE-WALL(TM) delayed coker heaters. These heaters are required for a new eight-drum delayed coking unit to be installed as part of the Jamnagar Export Refinery Project at the Reliance Petroleum Limited refinery in Jamnagar, Gujarat State, India. The coker heater award is in addition to a separate contract for the engineering and design of a new eight-drum delayed coking unit at the same refinery.

The terms of the award were not disclosed. The project will be included in the company's second-quarter bookings for 2006.

The Foster Wheeler TERRACE-WALL(TM) delayed coker heaters are an integral component of the Foster Wheeler Selective Yield Delayed Coking (SYDEC(SM)) process technology. Foster Wheeler is a market leader in the supply of delayed coking fired heaters and has supplied more than 80 units worldwide.

Bharat Petro Unit Ties up Financing for 120,000bpd Refinery

A unit of Bharat Petroleum Corp. Ltd. has tied up financing for its proposed refinery in Madhya Pradesh, as banks agreed to invest 63.87 billion rupees in the project, a lender said on June 27.

A consortium of 20 banks approved a 14-year-loan to Bharat Petroleum's subsidiary Bharat Oman Refineries Ltd. which is setting up a 120,000-barrel-per-day refinery, the State Bank of India said in a statement.

The project, at Bina, is expected to cost 103 billion rupees.

The loan would help fund setting up of a crude oil terminal at Vadinar in Gujarat, a 935-km pipeline connecting the terminal to the refinery and a 126-megawatt captive power plant, it said.

The subsidiary had started building the refinery and hoped for a start up date by January 2010, the bank said in the statement.

BPCL chairman Ashok Sinha had earlier said the company was planning a 10-billion-rupee initial public offering for the subsidiary in about two years.

PHILIPPINES

Shell to Weigh Options as Philippine Oil Demand may Drop 10 Percent in 2006,

Pilipinas Shell Petroleum Corp., a unit of Royal Dutch Shell, said on June 7 that Philippine fuel demand might drop another 10 percent this year, after falling by that much in 2005, as consumption falls with sustained oil price increases.

The contraction in demand is one of the factors that Shell will weigh in considering an expansion of its Philippine refinery, said Edgar Chua, country chairman of Pilipinas Shell.

Other factors include the long-term outlook in the industry, government support, the company's profitability, development of biofuels, and rising smuggling of diesel and gasoline, he said.

Shutting the refinery is still an option, Chua said.

According to data from the Department of Energy, fuel sales in 2005 dropped to 109 million barrels from 118 million barrels in 2004. Sales of liquefied petroleum gas, used mainly for cooking, were down 25 percent.

"We are hoping it doesn't contract that much," Chua told reporters after addressing a business forum. "The indications are a five- to 10-percent drop in fuel oil."

He said oil prices were likely to remain at high levels over the long term with continued demand from China, India, the United States and Japan, as well as uncertainties in the world market.

Pilipinas Shell had net income of 5.7 billion pesos ($108 million) last year, nearly double the 2.98 billion pesos it recorded in 2004.

But its return on average capital employed (ROACE), a ratio the company said measures its profitability more accurately, was just nine percent.

Between the beginning of the Philippine oil industry's deregulation in 1998 and 2005, the company's ROACE averaged just 3.7 percent.

"What we believe is a fair and reasonable return is a minimum of 15 percent," Chua said.

He said Shell was likely to finish the review of its refinery expansion plan by the end of this year or early 2007.

Shell's refinery in the Philippines has a capacity of 110,000 barrels per day (bpd).

The only other refinery, Petron Corp., has a capacity of 180,000 bpd.

Shell put its refinery business in the Philippines under review after rival Caltex (Philippines) Inc., owned by Chevron Corp., closed down its 72,000-bpd refinery in late 2003 after years of falling refining margins.

Shell had said it would need a lead time of three years if it decided to expand its refinery to meet the higher fuel standards set by the Philippines' clean air law.

It had said that an expansion of the refinery would require an investment of 30 billion to 60 billion pesos.

Petron to Study Feasibility of Second Refinery

OIL industry leader Petron Corp. will look into the feasibility of building a second refinery, in the southern island of Mindanao, or expanding its refinery in Bataan province, northwest of Manila, company president and chief executive Khalid Al-Faddagh said.

Al-Faddagh said President Gloria Macapagal-Arroyo had asked the partly Saudi-owned Petron, during her visit to Saudi Aramco last month, to study the possibility of building a refinery in Mindanao, which has a largely Muslim population.

Saudi Aramco owns 40 percent of Petron. The government owns 40 percent, and 20 percent is listed on the stock exchange.

"Of course, it has to make economic sense," Al-Faddagh said of an expansion. "That's really what we have agreed on, for Petron to do a feasibility study."

He said Petron had done a similar feasibility study in the past, under "different economic conditions."

"We're now revisiting that study to determine whether that (refinery) will be built in Mindanao or in Bataan," he said.

If the study will show a Mindanao refinery to be unfeasible, Petron will explore an alternative development project for Mindanao, Al-Faddagh said.

A possibility would be an ethanol plant, which would help spur growth of the sugarcane industry and the use of bio-fuels, he said.

"But we need to be assured that we have a very strong (sugarcane) supply base in the Philippines," he said. "That's what we have been saying all along. We want to see a very strong ethanol industry that would make the most economic sense, and we believe in having such an industry in Mindanao."

The feasibility study should take two to three months to complete, he said.

Petron has committed to blending ethanol with its gasoline products through a memorandum of understanding with San Carlos Bio-Energy Inc., a joint venture of the government's National Development Co. and Bronzeoak Philippines that will produce some 100,000 liters of bio-ethanol a day in its distillery plant by 2007.

Oil refiner Pilipinas Shell Petroleum Corp. started selling ethanol-blended gasoline last month. Seaoil Petroleum Corp., an importer of finished oil products, started doing the same in August.

SOUTHEAST ASIA

Graham Corp. Wins $3.2 Million Asian Refinery Contract

Graham Corp. has been awarded a $3.2 million contract for a condenser system that will be installed in one of the largest oil refineries in Southeast Asia, the Batavia, NY firm said June 29.

Shipment is scheduled for the fiscal fourth quarter, which ends March 31. The Singapore refinery will use Graham’s equipment to process a more corrosive crude oil than in the past. Graham previously supplied the refinery with equipment.

Graham’s wholly owned subsidiary in Suzhou, China, provided the design and engineering concept and negotiated the contract. Graham’s local operation will engineer and make the condenser and ejector system.

James Lines, Graham president and chief operating officer, said reliability, quality, on-time delivery and supplier confidence were important criteria for the refinery.

“Although we were competing against low-cost Asian manufacturers, we ultimately won the contract based on the excellent performance of the original Graham equipment and our reputation for delivering quality, highly engineered products,” Lines said.

THAILAND

Thai Oil Refinery Plant to be Temporarily Closed for Repair and Maintenance in 2007

Thai Oil Plc. will temporarily close its oil refinery plant for repair and maintenance in the middle of 2007.

Managing Director Wiroj Mawijak said the plant will be shut down for 8-10 weeks for the installation of some machinery needed for the expansion of daily refining capacity from 220,000 barrels to 270,000 barrels.

Mr. Wiroj said Thai Oil had asked other refineries to help increase their production to prevent oil shortage during that time.

He also estimated that Thai Oil’s profit this year should be close to 19 billion baht.

PTT Scraps ATC-RRC Merger Plan over Ruling on Tax Break

PTT Plc has canceled the plan to merge its two subsidiaries, The Aromatics (Thailand) Plc (ATC) and Rayong Refinery Plc (RRC), due to unfavorable tax incentives.

PTT made the decision after the Revenue Department ruled that the reduction in the corporate tax rate for listed companies from the normal 30% to 25% for five years would be revoked once its two subsidiaries were merged, according to PTT president Prasert Bunsumpun.

The ruling also applied to the earlier merger between another two other PTT subsidiaries_ Thai Olefins Plc (TOC) and National Petrochemical Plc (NPC) _ into PTT Petrochemical Plc.

As a result, Mr Prasert said PTT would design a new model to maximize the synergy between ATC and RRC while maintaining the tax incentive. One option was to have one take over the other although PTT had yet to decide which role each one would take.

A final decision on the plan is expected to be made early next year.

Ideally, he said, ATC and RRC could create a strong synergy through a merger because their production processes, raw materials and supply chains were closely intertwined.

RRC has a production capacity of 145,000 barrels per day. It recently raised funds through an initial public offering to invest in a new production facility worth 21 billion baht to add value to its products.

ATC is now expanding its paraxylene capacity to 830,000 tonnes per year from 495,000 tonnes with an investment cost of 22 billion baht.

Commenting in his capacity as the chairman of the Listed Companies Association, Mr Prasert said the unfavorable tax-incentive interpretation by the Revenue Department would inhibit merger activities, a trend championed by the capital-market development master plan.

VIETNAM

PetroVietnam to Set up a JV for Oil Refinery Project

The Vietnam Oil and Gas Corporation (PetroVietnam) opened selection process for a contractor on the Nghi Son oil refinery and petrochemical plant this year.

Once selected, the corporation will establish a joint venture to carry out the $3bln oil refinery project in 2007.

PetroVietnam General Director Tran Ngoc Canh said that most likely partner for the joint venture would be the Japanese group Idemitsu Kosan. However, he said that other foreign partners still have a chance to become part of the joint venture.

A working group from PetroVietnam recently went to the US to meet with the US Trade Development Agency (TDA) for a seminar introducing Vietnam’s plan to develop its petrochemical industry and call for investment in this area.

PetroVietnam and Idemitsu Kosan are considering the feasibility research report for the Nghi Son project, which will be built at the Nghi Son Industrial Zone, in Thanh Hoa province.

The project comprises an oil refinery with a yearly capacity of 7mil tonnes per year and a petrochemical plant with annual capacity of 300,000 tonnes per year. The sources of crude oil for the plant will be imported from the Middle East and from Vietnam’s Black Lion oil field.

PetroVietnam General Director also revealed that the corporation has just completed a report to submit to the government on the construction of a third oil refinery in the south of Vietnam.

Vietnamese Gov’t Okays Oil Refining Project in Binh Dinh

The Government has just given the go-ahead signal for a petrochemical and oil refining complex in central Binh Dinh Province’s Nhon Hoi Economic Zone, and allowed the Hong Kong investor to proceed.

An official from the Government’s Office said the Government has issued a document to this effect upon the proposal from Binh Dinh authorities.

The Hong Kong General Association of International Investment as the project owner wants to develop the project under the wholly foreign-owned form, and has pledged to invest US$1.5 billion in the oil refinery with a capacity of five million tons.

However, the Government in its document stresses that there will be no guarantees on crude oil supply, neither assistance to develop infrastructure for the project, said the source who asked not to be named.

In January this year, Binh Dinh Province authorities submitted a proposal to the Government seeking approval for this project. The Government then put forth the proposal to relevant ministries and bodies for comments.

While other ministries and agencies gave their thumbs-up for the project, PetroVietnam as the owner of the Dung Quat Oil Refinery Project said they had no knowledge of the professional and financial capacities of the potential investor.

In its new document, the Government therefore also asked the Ministry of Public Security to assess the legal status and the financial capacity of the investor before the Government giving the formal decision

The investor has said it highly valued conditions in Nhon Hoi due to its solid ground for building the refinery as well as the availability of Nhon Hoi Port capable of handling vessels of up to 100,000 tons. The investor has planned to import crude oil from the Middle East for processing if the project gets the formal blessing.

Binh Dinh authorities said that finished products from the planned oil refinery would not compete with products from Dung Quat Refinery, since the investor had pledged to ship all products to other markets.

In an earlier informal meeting, the Prime Minister told provincial authorities that the Government would approve the project if the investor agreed not to sell products in the country and not to seek local crude oil supply.

3. EUROPE / AFRICA / MIDDLE EAST

ENGLAND

BP to Sell 172,000bpd Essex Refinery

BP plans to sell its Coryton refinery in Essex, England, which processes 172,000 barrels of crude oil per day, as it seeks to shrink its refining business in Europe, the oil major said on June 27.

The move adds to a growing list of European refineries on the market as owners look to capitalize on an upswing in margins over the past 18 months -- after the sector struggled for most of the past 20 years -- to offload unwanted assets.

Analysts said it was hard to value Coryton given that most recent comparable transactions have included the sale of ancillary assets such as retail networks and chemical plants.

But based on the multiples per barrel of refining capacity paid for a controlling stake in the Mazeikiu refinery in Lithuania as a guide, Coryton could be worth over $2.5 billion (1.4 billion pounds).

"BP is in the process of holding initial discussions with a number of potential buyers and will commence more detailed negotiations in the next couple of months," BP said in a statement.

Potential bidders could include Russia's LUKOIL, which has said it was interested in buying Western European refineries, and Brazil's Petrobras, which said this month it wanted to expand its refining presence overseas.

BP could invite criticism for scaling back refining and for its exit from UK refining just as it also reduces its presence in the North Sea.

Politicians in Europe and the United States have blamed oil companies for contributing to record high oil prices by not investing enough in boosting refining capacity.

BP believes there is enough capacity but that it is not properly configured to handle the heavier grades of crude which form an increasing portion of world oil supplies.

The world's second largest fully publicly traded oil firm by market capitalization has focused on increasing the complexity of its refineries, improving their flexibility to handle heavy crude.

However, a BP spokesman said Coryton was a sophisticated refinery, measuring 14.8 on the commonly used Nelson complexity scale, compared to an average level of 9-10 across its refining portfolio.

Analysts are divided on whether there has been a strategic and permanent upshift in refining margins after years of levels that barely covered owners' cost of capital, or whether margins will fall sharply again towards the end of this decade when a lot of planned new capacity comes on line.

The decision to sell Coryton, which follows BP's sale of its Lavera, France and Grangemouth, Scotland, refineries last year, suggests London-based BP takes the second view.

However, the sale will face competition. State-owned Kuwait Petroleum said last month it had received 15 bids for its Europort refinery in Rotterdam, while industry sources said Chevron Corp was canvassing bids for its 31 percent stake in Nerefco refinery in Holland, which it co-owns with BP.

Lukoil Eyes BP’s Essex Refinery

LUKoil, Russia's largest independent crude producer, is looking to buy an oil refinery in Britain from BP PLC, RIA Novosti news agency reported, citing the company's CEO, Vagit Alekperov.

BP announced June 27 that its Coryton refinery in Essex, which processes 172,000 barrels of crude oil a day, was up for sale.

'We are considering the possibility of buying a refinery,' Alekperov said, adding that his company is interested in the acquisition of oil-processing capacities.

'I believe that we need to integrate, since our oil production volumes are very high,' he said.

EUROPE

Lukoil Set to Purchase Oil Refineries in Europe

Russia's Lukoil is set to purchase oil refineries in Europe in order to prevent a shortage of petrol in the country.

"In order to prevent a shortage of petrol, the policy of the state in the oil refining sector needs to be changed urgently," said Vagit Alekperov, Lukoil president.

The company has set it sights on acquiring assets in the United Kingdom and the Netherlands as well as setting up a joint venture with Petrol, Slovenia's major oil and gas market player.

Russia is suffering a shortage of large-size and new refineries, as a result causing Lukoil to make reserve stocks of high-octane fuel this year in order to avoid a shortage of petrol, especially in southern Russia.

Alekperov cautioned that reforming its energy policy should "include both a carrot and stick."

"The stick is a deadline after which only ecologically clean fuels can be used so that society is provided with quality goods. The carrot is incentives to those who produce ecologically clean fuel in the required quantities, in other words the so-called excise policy," said Alekperov.

LITHUANIA

Foster Wheeler Awarded Contract for Refinery Revamp in Lithuania

Foster Wheeler Ltd. has announced that Milan-based Foster Wheeler Italiana S.p.A., part of its Global Engineering and Construction Group, received AB Mazeikiu Nafta's Letter of Award and Notice to Proceed on March 3, 2006, and subsequently signed the formal contract on May 8, 2006, for the revamp of the Mazeikiai refinery in the Republic of Lithuania, the only refinery in the Baltic states. This revamp forms part of a comprehensive modernization program which will enable the refinery to meet future European Union fuel quality specifications. The terms of the award were not disclosed and the contract will be included in Foster Wheeler's second-quarter 2006 bookings.

Foster Wheeler will provide basic design, front-end engineering, detailed design and procurement services for the revamp of the existing refinery, including a vacuum unit, vacuum gasoil hydrotreater, diesel/kerosene hydrodesulphurization unit, fluid catalytic cracking unit (FCCU), amine and sulfur recovery unit and all related utilities. The capacity of the FCCU will be increased from 45,000 barrels per stream day (bpsd) to 60,000 bpsd. In addition, Foster Wheeler's scope includes a new vacuum flasher, refinery instrumentation and modernization of all of the refinery's heaters.

"This award underscores AB Mazeikiu Nafta's confidence in Foster Wheeler," said Marco Moresco, director, commercial operations, Foster Wheeler Italiana. "It follows the award of a contract to Foster Wheeler's Madrid operation in 2004 to design and supply a new fluid catalytic cracker gasoline selective hydrotreater unit. This latest contract will be a real team effort, with three Foster Wheeler engineering centers, Milan, Istanbul and the newly established Moscow operation, providing their expertise and experience."

"We have selected Foster Wheeler for this challenging project because of its ability to make available skilled resources from its various operations centers, under the management of Foster Wheeler Milan," said Barton L. Luck, deputy general director for plant engineering, AB Mazeikiu Nafta.

SOUTH AFRICA

Natref Refinery Due for July Maintenance

Sasol's 107 000 barrels per day Natref oil refinery in Sasolburg, South Africa is due to undergo partial maintenance in the second half of July, trimming output of gasoline, the plant's refinery manager said on June 6.

A crude desulphurization unit used to produce feedstock for the refinery's catalytic cracker will be shut for 10 days from around July 21, he said.

Natref, a joint venture between Sasol and French oil major Total and designed to process heavy, high sulfur crude oil, supplies about a tenth of South Africa's total liquid fuel demand.

The planned outage at Natref is expected to cut feedstock production by about 10%, and trim gasoline output by less than five percent, or the equivalent of about two days' worth of gasoline stocks.

The maintenance work, which takes place once every six months, will coincide with a two-month rolling shutdown at South African refiner SAPREF's 180 000-bpd plant in Durban from the second half of June.

Clean Diesel Project will be Engen’s Largest in South Africa

Engen is planning a R2,37bn upgrade to produce cleaner diesel at its refinery in Durban. This will be the biggest project the company has undertaken in this country.

Corporate planning director Mike Wright says the project, one which every other oil refinery in SA will have to undertake to comply with tightening environmental standards on fuel, is aimed at reducing the sulfur content in diesel to 50 parts per million (ppm) from 500 ppm.

The most costly component of Phase 2 is a R1,1bn hydrocracker that takes sulfur out of diesel. A R400m hydrogen plant, a R20m benzene reduction unit and a R350m sulfur recovery unit will also be installed. Supporting expenditure is estimated at a further R500m.

Wright says the Phase 2 project may take “four to five years” to come to fruition, but time frames may change depending on factors outside the company’s control, such as the availability of key imported equipment.

Engen, which has a 27% share of the local retail market and 1,250 service stations in southern Africa, recently completed Phase 1 of its clean fuels project to produce unleaded petrol, at a cost of R286m. A further R340m would be spent to balance the octane levels of its output during the 2007-08 period, Wright says.

South African oil refiners may need to expand capacity in future, he says, but it is “difficult to make a call on expansion” because a great deal of new capacity will come on stream around the world between 2009 and 2011. This will cause a global fall in profit margins in refining.

RUSSIA

Surgutneftegas Eyes Another Refinery in Russia

Surgutneftegas proposes to build another oil refinery in Russia, Surgutneftegas' General Director Vladimir Bogdanov told journalists. When asked about the estimated capacity of the would-be refinery, he said that its capacity might be as much as 12m tonnes. Bogdanov did not specify the region the prospected refinery was to be constructed in. He ruled out any other companies participating in the project, as Surgutneftegas had enough funds for the purpose. If the available funds prove insufficient, the company will seek a loan.

Asked to weigh the possibility of acquiring a plant instead of building one, Bogdanov said that should anyone come up with an attractive plant for the company, it would consider buying it rather than constructing its own.

Additionally, Bogdanov said Surgutneftegas aimed at boosting oil processing by 23 percent to 23m tonnes, and oil production by 5 percent next year. In 2007, investment is to surge by 40 percent to RUR88bn (approx. USD3.26bn).

Russia Grants Tatneft $610 Million for Refinery

Russia has approved an application by oil firm Tatneft for a $610 million grant from the state investment fund to help it build a new refinery, a government official said on June 14.

Tatneft told the ministry it planned to spend a total of $4.8 billion on the new refinery in Nizhnekamsk in the Volga region of Tatarstan, up from its previous estimates of $3 billion.

The 140,000 barrel-per-day refinery should allow the producer of high-sulfur crude to refine most of its output at home and therefore improve the quality of Russia's main export blend Urals.

The state funds will go toward financing construction of oil and refined products pipelines to the plant and a rail link.

Androsov said Tatneft also offered an equity stake in the refinery in exchange for more funds to buy a sophisticated desulphurization unit, but the state ruled out this offer.

IRAQ

“Black Oil” Dumping Threatens the Tigris

Iraqi officials say that in a desperate move to dispose of millions of barrels of an oil refinery byproduct called "black oil," the government pumped it into mountain valleys and leaky reservoirs near the Tigris River and set it on fire.

The resulting huge black bogs -- in the heartland of Iraq's northern Sunni-led insurgency -- are threatening the river and groundwater in the region, which is dotted with villages and crisscrossed by itinerant sheepherders. The region also contains Iraq's great northern refinery complex at Beiji.

The suffocating plumes of smoke are carried as far as 40 miles downwind to Tikrit, the provincial capital that formed Saddam Hussein's base of power.

An Iraqi environmental engineer who has visited the dumping area described it as a kind of black swampland of oil-saturated terrain and large standing pools of oil stretching across several mountain valleys. The engineer, Ayad Younis, said the clouds of smoke "were so heavy that they obstructed breathing and visibility in the area and represent a serious environmental danger."

The area contains perhaps 30 villages on both sides of the Tigris River as well as a few shepherds with no permanent residences, said Ahmed Mahmoud, an engineer who heads the assessment and monitoring department of the environmental office in Tikrit.

Mahmoud said at least some of the black oil was already seeping into the Tigris.

Exactly how far those pollutants will travel is unknown, but the Tigris passes through dozens of population centers from Baghdad to Basra in southern Iraq.

As much as 40 percent of the petroleum processed at Iraq's damaged and outdated refineries is discarded as black oil. A heavy, viscous substance, the black oil byproduct used to be extensively exported for further refining at more modern foreign facilities. But the insurgency has stalled exports by taking control of roadways and repeatedly sabotaging pipelines in the area, Iraqi and U.S. officials have said.

So the accumulating Iraqi black oil -- known to the rest of the world as the lower grades of fuel oil -- has been sent along a short pipeline from Beiji and dumped in a mountainous area called Makhul.

A series of complaints up the Iraqi government chain were conveyed to oil industry officials, and the fires had at least been allowed to burn out. But black oil was still being poured openly into the valleys, according to Younis, who works in the province's Department of Environment and Health Safety.

But with few options for disposing of Beiji's current production of black oil and so much at stake for the Iraqi economy, it is unclear whether the government will even be able to hold the line on the burning at Makhul.

A U.S. official in Baghdad, speaking anonymously according to official procedure, said earlier this month that Beiji was still producing about 90,000 barrels a day of refined products, yielding about 36,000 barrels a day of black oil.

Iraq's refineries will grind to a halt if the black oil does not go somewhere.

"Unless we find a way of dealing with the fuel oil, our factories will not work," said Shamkhi Faraj, director of economics and marketing at the Iraqi Oil Ministry.

The dumping and burning has embarrassed Iraqi officials in the ministry and exposed major gaps in the U.S.-designed reconstruction program, even as President Bush appeals to the international community for much more rebuilding money in the wake of his visit to Baghdad.

The complaints that halted the burning, however temporarily, represent something virtually unheard of in a country that has long had few, if any, checks on pollution by government industries: a backlash by local political and environmental officials.

Last month, motivated by citizen complaints and employees at Beiji, al-Qaisi formed a committee that investigated and wrote a report warning of severe environmental consequences if the practice was not stopped. The town of Beiji, just south of the refinery named after it, is where many of the employees live.

"The wastes there are untreatable because the terrain is rocky and contains many caves that allow these wastes to slip through and eventually reach the groundwater, where nearby towns depend on wells," al-Qaisi said.

The concerns quickly reached Narmin Othman Hasan, the minister of the environment, who said that she wrote to oil officials complaining of the practice. After that, the fires went out.

Adel al-Qazzaz, the manager of the state-owned North Oil Co., which has immediate responsibility for operations in the north, repeatedly declined to respond to questions on the black oil after he was reached by phone in Kirkuk, where his offices are located.

The U.S. official who discussed Beiji's level of oil production said that the black oil could be taken out by truck, and that one of the state-owned marketing companies had undertaken to do so.

But Ibrahim Bahr al-Uloum, who served two stints as oil minister between September 2003 and January, said that plan probably had not been fully worked through. The roads in the Sunni strongholds of the north are dangerous and sometimes impassable.

And about 150 large tankers would have to leave Beiji fully loaded every day to remove the current accumulation of black oil. Simply finding that number of working vehicles and loading them quickly enough would be challenging under the best of circumstances, al-Uloum said.

ISRAEL

Israeli Refinery Bid Veto Irks Russians

Israel has blocked Russian oil company OAO RussNeft, seen as uncomfortably close to Arab Muslims, from bidding on a refinery.

RussNeft, in turn, plans to sue the state of Israel for the federal attorney general`s decision to knock the Russian company out of the bidding for the Oil Refineries Ashdod facility, Globes Online reported June 16.

RussNeft`s president said in May the company would register a joint venture in Algeria in June to bid for the development of Algerian oil deposits and that RussNeft was in partnership talks with Algerian companies.

KUWAIT

Kuwait to Build $1.2 Billion Pakistani Refinery

Kuwait has agreed to build an oil refinery in Pakistan at an expected cost of $1.2bn, according to Reuters. The proposed refinery at Port Qasim, Pakistan's second largest sea port, will have a capacity of 100,000 bpd of oil. Currently, Pakistan has an installed refining capacity of just over 250,000 bpd.

SAUDI ARABIA

Total is French Partner for $6 Billion KSA Refinery

Saudi Aramco and French oil firm, Total, have signed an agreement to build a 400,000 barrel per day (bpd), export-oriented refinery in the kingdom at a cost of around US $6 billion.

The full-conversion refinery in Jubail on the Gulf coast is designed to process Arabian heavy crude oil and is scheduled to start up in 2011, state oil firm Aramco said in a statement.

According to the memorandum of understanding, Aramco and Total would form a joint venture firm, with each holding a 35% stake. Up to 30% ownership in the project is planned to be offered to the Saudi public in the future.

Saudi Aramco chief executive, Abdallah Jumah said the global energy industry was now less flexible partly due to chronic under investment in facilities and infrastructure, especially in refining. “Perhaps nowhere along the value chain do we see capacities as tight as they are in the refining sector. Crude oil is of little good to the average end-user until it is refined into useful products, and at the moment, our industry’s ability to do that is being stretched,” Jumah said.

“This facility in particular...not only eases tight refining capacities, but also addresses the mismatch between available crude supplies and refinery configurations that is complicating today’s market situation,” he said at the signing in Dhahran.

Organization of petroleum exporting countries (Opec) has constantly voiced its concern over a bottleneck in the refining capacity, which is pushing crude prices upwards. Saudi Aramco is also hoping to sign a memorandum of understanding with ConocoPhillips for a 400,000 bpd refinery in Yanbu by the end of May.

Apart from a partnership in refining, Saudi Arabia is also looking to finalize several other deals with France, including one to buy fighter jets and border security systems. French giant, Total, gained a foothold in the kingdom when it joined Royal Dutch Shell in 2003, in the first exploration project awarded to foreigners.

“This agreement reinforces our presence in Saudi Arabia and through this long-term project strengthens our close co-operation with Saudi Aramco,” Total chief executive, Thierry Desmarest said.

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