april 07 update

Refining has been transformed into an industry that is once again attracting significant investment. Demand is expected to outstrip capacity additions for the next three years, thus maintaining the current sustained period of strong refining margins. So projects a new study from Wood MacKenzie.

Factors converging to improve the profitability of the industry dramatically, especially in the U.S. include:

· Growth — oil demand has raced ahead.

· Historic under-investment — refinery capacity supply growth has lagged behind.

· Oil Prices — high crude oil prices and widening light crude price differentials have provided a significant boost for highly upgraded facilities.

However, tin the medium term, the market may begin to rebalance by around 2010 as more capacity is added. A critical market to watch as a bellwether for any correction is the U.S. gasoline market, according to this analysis. U.S. gasoline consumption represents over 40 percent of total global gasoline demand, and the U.S. is home to about 205 of total world refining capacity.

The recent market tightness and associated high prices and margins are stimulating a market response on both the demand and supply sides of the equation.

The high number of refinery investments being implemented in the U.S. will have an impact on the country’s utilization rates over the coming years, says this outlook. Shutdowns to tie-in new infrastructure are expected to prevent U.S. utilization rates rising above 905 in 2010.

However, the U.S. gasoline deficit is forecast to drop markedly by 2010, back to the year 2001-2002 level. And beyond 2010, this deficit is expected to reduce even further as incremental refining supply out-paces ever slower demand growth.

“Diesels will make a modest contribution to fleet fuel efficiency and the erosion of gasoline demand, although nothing like the event seen in Europe. Cheap gasoline and consumer resistance have meant that diesel-powered cars have never caught on in the U.S. in the same way as in Europe,” according to the study. Less than 5 percent of light truck sales are diesel, while the proportion of diesel passenger cars is negligible.

Of the more than 600 global refining projects Wood Mackenzie is tracking, about 100 are within the U.S. Of these, more than 40 percent are for quality compliance while the remainder is for investment in upgrading or new crude capacity.

Wood Mackenzie believes that many of the investment projects have a high likelihood of proceeding. “We rank almost 70 percent of these projects as having a ‘strong’ probability rating, a fact that reflects the quality of the sponsors as well as the powerful project rationale” according to the study’s authors. In contrast, only 25 percent of projects for the rest of the world are considered to be “strong.”

Equipment delays and escalating cost also have a bearing here. While the impact of delivery delays on some long-lead time items, such as large pressure vessels needed for hydrocrackers, can be minimized by smart project management strategies, rising costs have already caused some postponements and even project cancellations.

The total additional crude capacity announced in the U.S., which this study believes to be realistic, is approximately 1.1 million bbl/day by 2010. Remember that gasoline only accounts for 425 of total oil product consumption in the U.S., cautions Wood Mackenzie. Supply /demand dynamics for other products for other products such as LPG, naptha, jet kerosene, diesel, gasoil, LSFO and HSFO will together have an important impact on future industry prospects and the longevity of the reefing boom.

“Certainly it is likely that the middle of the barrel will become an increasingly important driver of refinery profitability in to the next decade,” according to this study.

Moreover, supply/demand dynamics in other regions will also have a crucial influence. For example, demand growth in Asia-Pacific could possibly exceed increases in regional product supply. If so, Asia could pick up a large proportion of any future slack in the global market, and Asia could be the key driver that prolongs the boom.

1. AMERICAS

U.S.

Alon Restarts SRUS at 68,000 Bpd Texas Refinery

Alon USA Energy Inc. restarted two sulfur recovery units at its 68,000 barrel per day (bpd) Big Spring, Texas, refinery on M-*3 arch 4 after a process control problem with SRU No. 2, according to a notice filed with the state pollution regulation agency.

The problem lasted for about 3-1/2 hours and both SRUs were back on line by midday, according to the notice filed with the Texas Commission on Environmental Quality.

Court OKs Appeal in Former Clark Oil Refinery Lawsuit

Attorneys for the plaintiffs in a class-action lawsuit against the owners of the former Clark Oil refinery in Blue Island have been given permission to appeal a Cook County judge's decision to vacate a $120 million judgment they won against the company.

"Obviously, we're very pleased with the decision," attorney Robert Wagner, representing the plaintiffs, said. "Certainly it's a first step in getting a reversal of the judge's decision."

For years, residents living around the now-closed refinery, currently owned by Texas-based Valero Energy Corp., complained of noxious odors, dust and ash from the plant.

A class-action suit was brought against the owners in 2000, and in November 2005 a jury awarded the plaintiffs $80 million in compensatory damages and $40 million in punitive damages. But about a year later, Circuit Judge Cheryl A. Starks took the unusual step of decertifying the class-action suit, thereby vacating the jury award.

After Starks' ruling, the company canvassed plaintiffs, offering a settlement if they agreed to forfeit future legal action.

The offers angered Wagner and his co-counsel, who said Valero's actions violated attorney-client privilege. But Valero argued that once the class was disbanded, the plaintiffs were no longer party to any lawsuit and therefore no longer had legal representation.

In January, Starks agreed to stay her decision to decertify the class and barred Valero from further attempts to settle with members of the suit while efforts were made to appeal.

Valero spokeswoman Mary Rose Brown appeared to view the Illinois Appellate Court decision as pro forma.

"The Appeals Courts generally accept these types of appeals because they believe by allowing the appeal at the outset, it is less likely that judicial resources will be wasted in the event of an error (which we do not believe there was in this case)," Brown said. "Also, if we win the appeal, as we expect, we hope it will allow us to lift the stay on our settlement outreach to the village."

Lyondell’s 283,000 Bpd Refinery back after Major Turnaround

Lyondell Chemical Co. said March 6 its 283,000 barrel per day refinery in Houston, Texas, was back at full rates following the largest maintenance turnaround in the plant's history.

A filing made earlier on March 6 with the Texas Commission for Environmental Quality indicated a problem with the gasoline-making fluid catalytic cracking unit due a snag with a depropanizer tower.

David Harpole, a spokesman for the company said the incident, tied to the loss of power from the cogeneration station, had been resolved and the unit was operating normally.

The refinery went into major turnaround in early January. The fluid catalytic cracking units and decoking units were upgraded although capacity was not increased.

Shaw Awarded Refinery Expansion Contract by Marathon Petroleum

The Shaw Group revealed details on March 14 of its role in the $3.2 billion Marathon Oil refinery expansion in Garyville, but did not reveal the value of its work.

Shaw’s Stone & Webster unit will perform engineering and procurement work for a 70,000 barrels-per-day hydrocracker unit and a 47,000-barrels-per-day kerosene hydrotreater unit.

The units are part of Marathon’s plan to expand the Garyville refinery’s capacity 73 percent to 425,000 barrels per day.

Fluor Corp. of Irving, Texas, is the project manager, with Shaw among the other major contractors on the project.

Fluor recently announced its share of the project work is worth $1.8 billion and it’s joining with Shaw and Chicago Iron & Bridge, also of Texas, to complete the engineering and procurement work.

Last year, Shaw completed a $300 million, multiyear project at Marathon to retrofit existing refinery units to meet federal clean air standards. Site work on the Marathon expansion will begin in April, with heavy construction starting by midyear.

Williams Cos to Pay $2.2 Million Refinery Fine

Federal regulators said March 14 that Williams Cos has agreed to pay a $2.2 million fine to resolve allegations that it broke environmental laws the company's former oil refinery in Memphis, Tenn.

Tulsa, Okla.-based Williams resolved allegations about violations of air quality regulations and problems with leak detection, the Environmental Protection Agency and Justice Department said in a joint statement.

Williams owned the refinery from the mid-1980s until March 2003, when it was bought by Premcor Inc.

Valero Energy Corp. acquired Premcor in fall 2005; a deal that made Valero the nation's largest crude oil refiner.

Shares of Williams dropped 73 cents to close at 26.61 in March 14 trading on the New York Stock Exchange, while shares of Valero dropped 7 cents to close at $64.63.

Valero Cutting Output at Louisiana St. Charles Refinery

Valero Energy Corp., the largest U.S. oil refiner, said gasoline and distillate production will be cut as it makes repairs at its St. Charles refinery in Louisiana.

Gasoline production will be reduced by an estimated 85,000 barrels a day over 10 days as the company repairs a flue gas cooler connected to the refinery's fluid catalytic cracker, Mary Rose Brown, spokeswoman for San Antonio-based Valero, said.

Production of distillates, which can include diesel fuel, heating oil and jet fuel, will drop by 15,000 barrels a day during that period, Brown said. The plant has the capacity to process 190,000 barrels of crude oil a day.

$1.5 Billion Yorktown Refinery Sale Stalls

El Paso-based Western Refining announced last August it had bought Giant Industries, the parent company of the Yorktown Refinery, in a $1.5 billion deal that was expected to close by the end of 2006.

But the deal has been delayed twice as the companies wait for federal anti-trust approvals. In the meantime, fires at Yorktown and another Giant refinery in New Mexico have further complicated the deal, and caused Western to reduce its bid for Giant from $83 a share to $77 per share.

The companies still say they hope to close the merger in a month, but the deal must still get through some choppy waters. Yorktown, the only refinery in the state, has about 122 unionized employees and supplies gas to many local stations.

Giant revealed in a recent securities filing that the repairs from the September fire cost $12 million, and the damaged unit began running again in February.

OSHA Faulted in Study of BP Amoco Refinery Explosion

A federal report issued March 20 said lax oversight from the Occupational Safety and Health Administration played a contributing role in the fatal explosion at the BP Amoco PLC refinery in Texas City, Texas, on March 23, 2005. The report also reiterated criticism of BP's corporate policies that led to the blast that killed 15 people and injured 170 others.

The U.S. agency responsible for worker safety failed to inspect plants with enough care and frequency to prevent an accident like the 2005 explosion at BP's Texas City refinery that killed 15 people and injured 170, the worst U.S. industrial accident since 1990, the government report said. Companies have plenty of safeguards for individual workers' safety, but have a potentially deadly lack of sound procedures to measure process safety, according to the U.S. Chemical Safety and Hazard Investigation Board, which released the report.

"Process safety programs to protect the lives of workers and the public deserve the same level of attention, investment and scrutiny as companies now dedicate to managing their financial controls," CSB Chairwoman Carolyn W. Merritt said at a news conference on the agency's final report into the March 23, 2005, explosion in Texas City.

The 335-page report also blamed BP, the London-based oil giant, for cost cutting that left the plant vulnerable to catastrophe.

CSB said that although the Texas City plant had several fatal accidents over the last 30 years, the federal Occupational Safety and Health Administration had done only one process safety management inspection at the refinery - in 1998.

The report said OSHA made other, unplanned inspections after accidents, complaints or referrals - it didn't say how many - but that those visits were typically narrower and shorter than planned inspections. The CSB recommends OSHA increase both the number of comprehensive safety inspections and the number of people to do them.

"OSHA's national focus on inspecting facilities with high injury rates, while important, has resulted in reduced attention to preventing less frequent, but catastrophic, process safety incidents such as the one at Texas City," the report said.

Nationally, the CSB found OSHA had done few inspections between 1995 and 2005 that are supposed to ensure compliance with OSHA's process safety management standard - the type of inspections designed to prevent disasters such as explosions.

Don Holmstrom, the CSB's lead investigator of the Texas City blast, said the investigation showed OSHA did only nine such inspections in targeted industries over the 10-year period - and none in the refining sector.

Holmstrom said the two agencies worked well together in the immediate days after the accident. But after the CSB learned of other major accidents and fatalities at the Texas City site and began to request material on specific incidents, OSHA didn't always comply, he said.

Still, Holmstrom said, "available evidence indicates that OSHA has an insufficient number of qualified inspectors to enforce the (process safety management) standard at oil and chemical facilities."

In a brief statement, also released March 20, Edwin G. Foulke, Assistant U.S Labor Secretary for OSHA, said the CSB report confirms OSHA's own investigative findings that BP failed to make safety and health a priority at Texas City.

Foulke didn't specifically cite the CSB's criticism of OSHA, but noted: "OSHA levied the largest fine in the agency's history against BP and this year will conduct more than 100 refinery inspections. OSHA is also implementing a national emphasis program to ensure that every refinery under its jurisdiction is inspected and all employees are protected."

Rep. John Dingell, D-Mich., said his Energy and Commerce Committee plans hearings into BP's safety programs in light of the findings about the Texas City blast and the Prudhoe Bay oil spills last year.

"The millions of dollars in fines that were levied against BP after the explosion have done little more than close the door after the horse had left the stable. It's clear that both additional oversight measures and sweeping cultural changes are critical," said Dingell in a statement.

Holmstrom was to present the report's findings and recommendations at a public hearing March 20 in Texas City.

The CSB does not issue citations or fines but makes safety recommendations to plants, industry organizations and regulatory agencies such as OSHA and the U.S. Environmental Protection Agency.

Flint Hills Resources sees New 50,000 Bpd Minnesota Refinery Unit Completed by Fall

Flint Hills Resources LP expects to have the 50,000 barrel per day crude distillation unit expansion project at its Pine Bend refinery in Rosemount, Minnesota, completed by fall 2007, James Mahoney, vice president for operations excellence and compliance at parent company Koch Industries Inc. said on March 19.

The 52-year-old Pine Bend refinery has a capacity of about 280,000 bpd. It produces gasoline, diesel, propane and butane, and manufactures asphalt, heating fuels and sulfur for fertilizers. It also supplies much of the jet fuel used at the Minneapolis/St. Paul International Airport.

Mahoney would not discuss refinery maintenance plans, but did allow that upcoming refinery maintenance for all of the industry's Gulf Coast facilities "is going to be a challenge."

"Labor is incredibly tight," Mahoney said.

"There are challenges maintaining labor productivity and a lot of material (cost) escalation issues and even at the same given level of work it's a challenge executing that work and finding the labor availability to get it done," he added. "And I think that's pretty uniformly true for everybody."

Mahoney said the tight labor market could affect even planned work.

"You look at all your options, whether you choose to take a longer time to get the same amount of work done, or choose to scale back the amount of work you're doing, or whether you delay it or come up with an innovative way to work around the labor tightness," Mahoney said.

Mahoney said Koch Industries and Flint Hills were looking to grow and were always looking for the right opportunities.

Not wanting to comment directly about the accuracy of industry talk about Venezuelan state-owned PDVSA's possible interest in selling some of its U.S.-based Citgo operations, Mahoney said Flint Hills would be interested if any refineries were put up for sale, including on the Gulf Coast.

CANADA

Saskatchewan's only Oil Refinery looks at $1 Billion Expansion

The owners of Saskatchewan's only oil refinery will decide at the end of this year whether to give the go-ahead for a potential $1-billion project that could increase daily output by 30 per cent.

Should the project be approved, the Consumers Co-operatives Refineries Ltd. (CCRL) would have "nameplate" capacity of 130,000 barrels per day by 2011.

Federated Co-operatives Ltd. president Glen Tully confirmed CCRL, which is FCL's wholly owned refinery in Regina, could go through its second expansion within a decade to meet the increased needs of retail co-ops across Western Canada as well as meet the market need for more refining capacity in Canada.

Petro-Canada says Edmonton Refinery Repaired

Petro-Canada's refinery in Edmonton, Alberta, has been repaired following a fire the previous week that singed a processing unit, a spokeswoman said on March 13.

Production at the 125,000 barrel a day refinery is back at normal levels, Petro-Canada's Sneh Seetal said.

The fire damaged an alkylization unit at the plant, reducing output to 85 percent to 90 percent of capacity.

Petro-Canada's Edmonton refinery is undergoing a C$2 billion ($1.7 billion) retooling so it can run crude derived solely from Alberta's oil sands.

Areas under construction were not affected by the blaze, officials said.

Shell may Build New $6-$8 Billion Canadian Refinery

Shell Canada announced this month a proposal to build a massive new oil refinery in St. Clair Township north of Sombra. The refinery would be the first to be built in two decades in North America.

The refinery project could cost between $6 and $8 billion and provide 600 to 700 new permanent jobs, Sarnia Mayor Mike Bradley said. The project would require labor from Canada and the United States, he said.

The company operates a refinery in Corunna, Ontario, where it employs 290 people and processes more than 70,000 barrels of oil a day. The new refinery would process 150,000 to 250,000 barrels a day.

"If it comes to fruition, which we're hoping it will, it will be a very large investment in our community," said Steve Arnold, mayor of St. Clair Township. "One of the concerns that we always have is the environmental impacts."

In addition to environmental concern for the St. Clair River that forms a border between the United States and Canada, the proposed refinery site is near a Carolinian forest that includes several species of endangered flora and fauna, Arnold said.

The plant would have to comply with the newest environmental legislation and be one of the most environmentally-friendly refineries built in four decades, he said.

The company has proposed the refinery to meet growing demands for gasoline in Ontario, said Leigh Anne Richardson, a Shell Canada spokeswoman.

Ontario residents faced gas shortages and high prices earlier this year when Imperial Oil Ltd.'s refinery in Nanticoke, on the Lake Erie shoreline near Hamilton, cut back production due to a fire. The fire came on the heels of one at the company's Sarnia plant, which officials have said did not reduce supply.

Richardson said an environmental assessment must be completed before the proposed Shell Canada refinery is built. The assessment will include studies of the plant's potential effects on air and water quality.

The company will have two public meetings during March which area residents - Canadian and American - can offer suggestions and raise concerns.

Canadian law requires that provincial and federal governments approve an environmental assessment, including public comment, before projects of this kind can move forward. Shell has assigned 40 people to work on the project design, public consultation and an environmental-impact study.

The preliminary studies will cost $50 million.

The environmental study will take about a year, and the company won't make a final decision about building for two to three years.

The refinery probably won't have a huge impact on the St. Clair County work force said, Doug Alexander, executive director of the Economic Development Alliance of St. Clair County. He said taxation and customs regulations make living in the United States and working in Canada difficult.

"Because of immigration and multiple taxation and other issues, there are very few people that live in our area that work in the Sarnia area," he said.

"It's my estimation there will be an importation of skilled labor from the U.S. just to make this project work," Bradley said. "The border is invisible when they need to move labor back and forth."

BRAZIL

Petrobras-Pdvsa Refinery at Full Speed

The work schedule of a joint refinery of Brazilian Petrobras and state-run oil holding Petróleos de Venezuela (Pdvsa) are going as planned, said Petrobras CEO Sergio Gabrielli.

In this regard, the facilities located in Northeast Brazil could start operations well in advance.

"The refinery is expected to start operations by 2011. We are assessing the possibility of even, in any event, trying to advance a little bit the commissioning." said Gabrielli.

However, he clarified that a final decision has not been made yet, AP quoted.

According to Paulo Roberto Costa, the head of Petrobras Provision and Refining, the refinery is set to process 200,000 bpd, with 100,000 from each country.

DOMINICA

Dominica Says No to $50 Million Venezuela Refinery

Dominica's main opposition party is urging the government to reject Venezuela's offer to build an oil refinery, saying it will damage the Caribbean nation's image as a nature island.

United Workers Party leader Edison James said the government should instead seek to take control from Venezuela over the tiny, nearby Isla de Aves, or Bird Island, to help lure ecotourists.

"Bird Island would bring greater economic benefit to Dominica ... instead of an oil refinery," James said, adding it would boost "the island's nature tourism image through scuba diving and whale watching activities."

Venezuela has maintained ownership of the uninhabited, treeless island since 1865 and has a small outpost on it shared by naval troops and scientists. The island is about 350 miles north of Venezuela but closer to Dominica.

Dominica Foreign Minister Charles Savarin declined to comment March 18 on the opposition proposal. The island's premier, Roosevelt Skerrit, has recognized Venezuela's claim to Bird Island, as have the United States, France and the Dominican Republic.

The Barbados-based Caribbean Conservation Association has also urged Dominica to reject the refinery, which Venezuela has said will not harm Dominica's lush, forested environment.

The $50 million refinery would produce about 40,000 barrels daily and be built as part of Venezuela's Petrocaribe deal, under which 14 Caribbean nations benefit from preferential terms to buy oil from the South American country.

ECUADOR

Petroecuador Plans $4 Billion Refinery in Manabí

Ecuador's state oil company Petroecuador is analyzing the construction of a refinery with a 300,000b/d processing capacity that would require roughly US$4 billion investment, according to a Petroecuador project proposal.

The estimated cost includes a 30 percent margin of error and also entails investment for prospective pipeline works associated with the refinery.

The refinery would be built in one of three Manabí province counties: Jaramijó, Manta or Montecristi.

The Manabí refinery will aim to supply fuels to Ecuador's southern market, which represents some 65 percent of national demand and targets the export market.

Petroecuador intends to transport crude to the Manabí refinery through an oil pipeline stretching from the Quinindé station of the national Sote pipeline.

The crude from Sote, the OCP pipeline and residues from the Esmeraldas refinery would be mixed at the station before being pumped to the Manabí refinery.

A new pipeline would be needed between the Esmeraldas refinery's Balao terminal and the Quinindé station in order to transport refinery residues.

If processing Esmeraldas residues is not authorized, Petroecuador could construct a pipeline branch from the Puerto Quito station on the OCP pipeline to the Santo Domingo station on the Sote pipeline, from where the gas would be directed to Manabí.

The project also would require construction of a maritime terminal to receive crude from Venezuela.

Depending on the refinery's final capacity, it is likely the Venezuelan crude would be shipped by boat to the prospective pipeline being developed by Florida-based Phenix Group in Nicaragua to connect the Caribbean Sea and Pacific Ocean.

When accounting for existing and prospective domestic production, Petroecuador believes it could provide 160,000b/d of the refinery's oil-processing capacity as well as 40,000b/d of residues from the Esmeraldas refinery.

With respect to Ecuadorian products to be processed by the refinery, the plant would process Napo and Oriente crudes and Esmeraldas' residues in a first stage.

A second stage could add crude from the ITT project (Ishpingo-Tambochocha-Tiputini oilfields) in the northern Amazon region. A third stage could add crude from the Pungarayacu and Oglán fields in block 20 depending on the development of each respective field.

Before contracting a firm to conduct detailed engineering works, Petroecuador must carry out environmental impact studies, map the route of the pipeline and conduct basic project engineering, among other works.

Petroecuador and partners would form a company to perform project execution, operation and maintenance of the Manabí refinery, the document said.

However, there are three options Petroecuador could pursue for project development.

First, Petroecuador could form a consortium in which it would take a 25 percent stake in the project and commit to invest some US$1 billion.

Second, state investment fund for the power and hydrocarbons sectors FEISEH could contribute some US$2 billion to the project, thereby enabling Petroecuador to take a majority 51 percent stake.

Finally, FEISEH could finance the entire works in order to give Petroecuador sole ownership of the project.

Ecuador has a total processing capacity of 175,000b/d at its Esmeraldas, Libertad and Shushufindi refineries, meaning the project would increase processing capacity some 71 percent.

On the other hand, if Ecuador operates its existing refiners at 90 percent capacity for the next 10 years, it will have to import US$20 billion in fuels.

During 2006, Ecuador imported US$2bn in derivatives and has budgeted US$2.35 billion for 2007.

VENEZUELA

Repairs to Venezuela’s Puerto La Cruz Refinery on Standby

State-run oil holding Petróleos de Venezuela (Pdvsa) has not started yet, for security reasons, to repair the alkylation unit in eastern Puerto La Cruz refinery, after a fire in the beginning of March.

The oil company reported a fire of "moderate intensity" in the alkylation facilities of the refinery. There were no casualties and supply of fuel and other byproducts was ensured.

"We have not delivered it (the unit) to maintenance as far as we do not put the things at a one-hundred-percent security level (in the area,)" managing director of Pdvsa East refining said.

The official added that some issues needed to be corrected before the repair in order to ensure security both of workers and the facilities.

The fire was caused by a failure in the power head, resulting in a broken seal and leakage of the flammable liquid.

2. ASIA

CHINA

Chinese Petroleum Company Selects Chevron Lummus Global

Chevron Lummus Global (CLG) was awarded the license for Chinese Petroleum Corporation’s (CPC) No. 3 Residuum Desulfurization (RDS) unit at Taoyuan Refinery, located at Taoyuan, Taiwan, Republic of China.

The basic design for the unit, scheduled to come on-stream in 2010, is now complete. This 70,000 BPSD RDS plant will increase the low sulfur fuel oil production in Taiwan. CLG is the world's leading licensor of residuum upgrading technology and has two existing RDS units operating at CPC already, at the Talin Refinery, in Kaouhsiung. Their relationship in the hydroprocessing field also extends to the planned ISODEWAXING and ISOFINISHING complex at Talin Refinery to produce superior lubricant base oils.

CLG licenses refining hydroprocessing technologies and catalyst systems worldwide, and is a 50-50 joint venture between Chevron U.S.A. Inc., a wholly owned subsidiary of Chevron Corporation, and ABB Lummus Global.

RAE Systems Awarded $2 Million Contract by PetroChina's Dushanzi Petrochemical Project

RAE Systems Inc. a leading global provider of rapidly deployable sensor networks that enable customers to identify safety and security threats in real time, has announced the award of an exclusive contract with the Dushanzi division of PetroChina to provide fixed toxic and combustible gas detection equipment at the construction site for a new refinery in Dushanzi, Xinjiang, China.

The value of the initial contract is estimated at $2 million. Bidding for the contract began in October 2006, with final selection made in late December. RAE Systems' China subsidiary, RAE-KLH, will supply a 1,600-point combustible and toxic gas detection system along with field services and technical support in 2007 and 2008. Ongoing annual services, spares and support contract revenues are projected to be eight percent per year of operation. In addition, RAE-KLH will be the preferred supplier for portable gas monitors and personal protection equipment.

"We are pleased to have had the opportunity to compete and win the supply contract for a project of this magnitude, said Robert I. Chen, chief executive officer of RAE Systems. "This is another example of the value of our more than ten-year investment in China and our ability to participate in China's vast industrialization. Our proven fixed-sensor technology is now seeing deployment in China's largest petrochemical plant."

PetroChina's Xinjiang Dushanzi Petrochemical Company manages one of the largest petrochemical projects in China. The new plant will refine sulfur-containing crude oil supplied through a pipeline from Kazakhstan. The facility will have the capacity to refine 10 million tons of oil and produce 1.2 million tons of ethylene per year. Project completion will take about three years, with production scheduled to begin in 2008.

Fixed gas detection systems consist of many sensor heads that are connected to a programmable logic controller and power lines through an explosion-proof conduit. The sensor head sends an analog signal (e.g., 4 to 20mA) or a digital signal via a serial port such as RS485 to the controller, or computer, in the control room. These systems are highly flexible and can automatically activate alarms, ventilation, fire suppression and safety lights. Fixed gas detection systems are best suited for situations requiring continuous monitoring of known toxic gases, such as oil refineries. A key advantage of wired systems is the ability to place sensor heads in remote areas and thus eliminate risk to workers."

The RAEGuard family of permanently mounted toxic gas monitors, are housed in an explosion- proof enclosure. Sensors deployed in this project will include Lower Explosive Limit (LEL) and Non-Dispersive Infrared (NDIR) for combustible gases as well as electrochemical and photoionization detectors (PID) for monitoring toxic gases and volatile organic compounds (VOCs). RAEGuard monitors are equipped with a local digital display of gas concentration and functional keys for performing calibration.

INDIA

Accidental Fire at India’s Guwahati Refinery

A major fire that broke out at the Guwahati Refinery March 5 was brought under control with oil experts launching a probe to investigate the cause of the blaze, officials said.

A refinery spokesperson said the fire at the crude distillation unit March 5 triggered panic around the crowded Noonmati area here.

"It was an accidental fire which was brought under control in about two hour's time," a refinery official said.

Officials are assessing the damage caused by the fire. "Barring the crude distillation unit, the refinery is now operating normally," refinery spokesperson Anjana Sharma said.

An investigation has since been launched to ascertain the cause of the fire.

India’s IOC Sets up Plans for Refinery, Petrochem Complex

IOC has chalked out plans to set up a 15 million tonne refinery and petrochemicals complex at Ennore in Tamil Nadu. The refinery, focused on the export market, will be set up jointly with Chennai Petroleum Corp., a subsidiary of IOC. IOC further stated that the Ennore project will be set up four years after it commissions its east coast Paradip refinery in Orissa.

The Paradip refinery is expected to be commissioned by 2011, while the Ennore refinery will come up around 2015-16.

ONGC to Set up a Refinery in Rajasthan

State-run Oil and Natural Gas Corp. has said it plans to set up a well-head oil refinery at Barmer in Rajasthan state.

ONGC said it was establishing the techno-economic viability of the project.

"ONGC has reported that the economic viability of the high investment requires fiscal incentives and other benefits from the government of Rajasthan" said Dinsha Patel, India's junior minister for petroleum and natural gas. "The company has requested the state government to consider the required fiscal incentives and support for the viability of huge investments in the well-head refinery project."

He said on receipt of a favorable consideration of the incentive package and other support from the state government, ONGC will be able to draw the road map for the development of the refinery.

"Considering that Rajasthan crude is heavy and viscous, which needs to be heated for transportation, short duration of peak production necessitating import of crude, limited market potential in Rajasthan necessitating export of products and other factors, ONGC has approached the government of Rajasthan for incentives and concessions to make the refinery financially viable," Patel told the upper House of Indian Parliament Tuesday.

He said that in consideration of the difficult characteristics of Rajasthan crude, it was envisaged that the feasibility of setting up a well-head refinery be explored by a joint venture involving Mangalore Refinery and Petrochemical Ltd., ONGC and Cairn Energy India Ltd.

SINGAPORE

ExxonMobil to Shut Singapore Refinery in June-July

Exxon Mobil Corp. will shut the larger of its two refining facilities in Singapore for a 45-day regular maintenance from mid-June, refining sources said on March 6.

The 309,000 barrels per day (bpd) plant on mainland Singapore will be shut until second-half July, with its crude distillation units (CDUs) as well as other secondary facilities taken down in stages, the sources added.

With this shutdown, the total regional capacity lost during June-July is about 8 percent less than in the year-ago period, which could pressure refining margins that turned positive in January after being in the red for about three months amid a weak middle distillates market, traders said.

"This is Exxon Mobil's second big one in two years. After this, there shouldn't be any major ones, other than routine jobs on secondary units, for a while," a refining source said.

When contacted, a spokesman for the U.S. oil major declined comment.

Last March, the Exxon Mobil shut down its other plant, the 296,000-bpd facility on Jurong Island off the west coast.

It is not known if Singapore's two other refineries — Shell's 458,000-bpd complex and Singapore Refining Co.'s 285,000-bpd plant — will be taken down this year as both underwent major turnarounds last year.

Exxon Mobil's turnaround comes at the end of the second-quarter Asian maintenance season, which sees several regional refineries, including in South Korea, Japan and the Middle East, undergoing routine maintenance during the June-July period.

The total regional capacity that will be lost during June-July is about 938,000 bpd with the Exxon Mobil shutdown, compared to about 1.02 million bpd in the same period last year. In addition, Saudi Aramco will shut its 550,000-bpd Ras Tanura refinery from late-April till June. The capacity loss during the April-June turnaround season in the Asia-Pacific region this year, excluding the Exxon Mobil shutdown, will be 1.076 million bpd.

This is 5 percent less than for the same period in 2006, when many regional plants were forced to shut for maintenance after being optimized to meet increased demand a year earlier in the wake of the devastating hurricanes that hit the U.S. Gulf Coast.

"There will be some impact on the market but it won't be a big, rapid change in demand-supply patterns," a Singapore-based Western fuel oil trader said. "For example, I would expect differentials to show a steady state, subject to other short-term market forces."

The Exxon Mobil shutdown could also increase fuel oil volumes, supporting the market at a time when supplies are seasonally low due to the peak summer demand season in the Middle East, which typically sees exports from that region reduced by half, traders said.

SRI LANKA

Sri Lanka's only Oil Refinery is in Danger of Closing

The trade unions of Sri Lanka's government owned petroleum refiner and retailer Ceylon Petroleum Corporation (CPC) points out that its only oil refinery in Sapugaskanda is in danger of closing as the government constantly rejects proposals to renovate it.

The Ministry of Petroleum Resources Development has submitted two proposals costing Rs. 350 million and Rs.1500 million respectively for the renovation. But the government has informed the Ministry that it cannot allocate that amount. The CPC sources say that it is not in a position to obtain a massive loan from the open financial market due to its strained budget.

Meanwhile trade unions point out that the CPC refinery in Sapugaskanda is in danger of shutting down by the time a new privately owned refinery is opened in Hambanthota within two years.

3. EUROPE / AFRICA / MIDDLE EAST

LITHUANIA

AB Mažeikių Nafta Selects Exelus’ Solid-Acid Alkylation Process to Revamp Oligomerization Unit

Exelus Inc. announced that it has been awarded a contract for the basic engineering design of a revamp of a 3,500 bpd Oligomerization unit to produce high-octane gasoline using ExSact iso-paraffin alkylation technology. The revamped plant will be the world’s first commercialization of a solid-acid alkylation process. The revamped plant will use the existing fixed-bed reactors.

The ExSact process was recently demonstrated using untreated MTBE Raffinate feed-stock supplied by AB Mažeikių Nafta. “Since the process uses fixed-bed reactors, scaling up from the pilot-plant to the commercial-scale unit is a relatively straightforward”, says Mitrajit Mukherjee, president of Exelus.

In 2000, Mazeikiu Nafta launched a comprehensive modernization program aimed at achieving future EU fuel quality requirements, increasing flexibility of operations, improving refining efficiency, and reducing operational costs. The revamping of the oligomerization unit is part the modernizing program.

Mazeikiu Nafta operates the most advanced refinery built in the former Soviet Union and the only one in the Baltic States refining 8 million tonnes of crude a year. Technologies applied in the refinery and constant process improvement allow Mazeikiu Nafta to make high-quality products, in compliance with specific standards of the countries it operates in. Facing the new EU fuel standards to be introduced in the coming years, Mazeikiu Nafta is in the process of implementing a comprehensive modernization program to raise the Refinery’s capabilities to the levels set by tomorrow’s quality requirements.

SPAIN

Foster Wheeler Awarded Contract by CEPSA for New Refinery Units in Spain

Foster Wheeler Ltd. has announced that its Spanish subsidiary, Foster Wheeler Iberia, S.A.U., part of its Global Engineering and Construction Group, has been awarded a contract by Compania Espanola de Petroleos, S.A. (CEPSA), one of the main Spanish refining companies, for the detailed engineering of new crude, vacuum and gas recovery units at La Rabida Refinery in Huelva, Spain.

This refinery expansion is part of an investment by CEPSA that is aimed at meeting growing demand in Europe for middle distillates such as diesel fuel and kerosene. This latest award follows the successful completion of the front-end engineering design (FEED) for these units by Foster Wheeler Iberia.

The Foster Wheeler contract value was not disclosed. The project will be included in the company's first-quarter 2007 bookings.

The crude distillation unit will have a capacity of 90,000 barrels per stream day (BPSD), the vacuum distillation unit capacity will be 30,500 barrels per stream day (BPSD) and the capacity of the gas concentration unit will be approximately 148 tons per hour. Mechanical completion of the new facility is expected during the last quarter of 2009.

THE NETHERLANDS

BP Agrees to Buy Nerefco Refinery for $900 Million

BP PLC said March 5 it has agreed to buy Chevron Corp.'s Netherlands manufacturing company, Texaco Raffinaderij Pernis BV, for around $900 million, excluding working capital and hydrocarbon inventory.

BP will acquire Chevron's 31 percent minority shareholding in the Netherlands Refining Co., or Nerefco, as well as Chevron's stake in the jointly owned wind farm located at the refinery and shareholdings in the nearby crude oil terminal and storage facility and a number of associated pipelines.

The deal, which is expected to be completed during the first half of the year, will make the Nerefco Refinery a 100 percent BP owned asset.

"Nerefco is a large, flexible refinery that is ideally configured to serve the growing demands for clean transport fuels, particularly diesel, throughout Europe," says John Manzoni, chief executive of BP refining and marketing. "As sole owners we will be able to simplify the existing operations which were designed to meet the individual requirements of each party."

The sale marks Chevron's latest effort to reduce its presence in Europe. The San Ramon, CA-based company also is talks with Delek Petroleum Ltd. to sell its fuel-marketing operations in the Netherlands, Belgium and Luxembourg.

Although Chevron is scaling back in Europe, the company has no plans to withdraw completely from the region. Chevron runs a large refinery in the United Kingdom that remains an important part of its business, said spokeswoman Stephanie Price.

TURKEY

LUKoil Suspends Talks with Turkey on Refinery Construction

LUKoil has suspended talks with Turkey on the construction of the oil refinery plant in Turkey, the Russian oil giant's President Vagit Alekperov told journalists March 6. According to him, the company is currently looking into the possibility of boosting its refinery plant's capacity in Bulgaria instead of building a new refinery in Turkey. Alekperov also said that the company would expand its refinery's capacity in Bulgaria from 2.5m tonnes to 10m tonnes.

NIGERIA

Nigeria to Review Sale of Kaduna Refinery

Nigeria’s federal government is considering a review of the plan to hand over management of the Kaduna refinery to the China National Oil Company (CNOC), coming barely 72 hours after the Asian country shut out Nigeria from countries it was willing to pump in investment.

Director General of the Bureau of Public Enterprises (BPE), Mrs Irene Chigbue, said the plan to get the Chinese national oil company to manage the 110,000 barrels per day (bpd) Kaduna refinery, had run into hitches as the CNOC have not been forthcoming with the takeover plans.

The Federal Government had actually handed over four oil blocks to CNOC between 2005 and 2006, in return for a promised $4 billion Chinese investment in oil and infrastructure projects in Nigeria.

CNOC was first awarded two oil blocks during the 2005 licensing round and another two at the 2006 mini bid round, both of which elicited protests from western multinational oil companies.

India's Reliance in Talks to Acquire Nigeria Refinery

Reliance Industries Ltd is in talks to acquire a refinery in Nigeria and a petrochemical complex in the Gulf region, the Economic Times reported, citing people familiar with the matter.

The two separate deals, if concluded, could be worth close to US$10 Bln, the report said.

Reliance is currently conducting due diligence on a Nigerian refinery, which could possibly be 9-mln-tonne Port Harcourt refinery, it said.

Nigeria’s Port Harcourt Refinery to Resume Production

The Nigerian National Petroleum Corporation (NNPC) said March 13 the Port Harcourt refinery would most likely restart production of Premium Motor Spirit (PMS) within the week.

Managing Director of the Pipeline Products Marketing Company, a subsidiary of NNPC, Mr. Sulaiman A. Achimugu said production activity at the refinery was suspended three months ago so that the company could carry out technical maintenance of its fluid catalytic cracking unit (FCC).

So far work is going on at the refinery trying to regenerate the fluid catalytic units and after that it should be able to run and make some PMS, possibly about 6 million liters per day", he said.

The plant is the only functional refinery out of three as it was not affected by the disruptive pipeline vandalizing.

Achimugu who commented on the state of petroleum product supply in the country and the effort to restore the all important Channomi Creek pipeline in the Escravos, said actual work on the pipeline began the previous week and would last for 10 weeks.

On the current status of petroleum product in the country, the PPMC boss said there is now over 35 days supply.

He said as result of the closure of all the refineries, the country was importing virtually all petroleum products to meet domestic demands, adding that about one and half cargo of imported product are being discharged on a daily basis.

Speaking on the poor financial performance posted by PPMC during the accounting year, Achimugo said the company had not done badly considering stiff challenges it faced during the period.

"PPMC has done very well because we are fighting two major monsters, the (bigger) of which is vandalizing. Our products are still sold at subsidized rates. When you look at these factors you will see that we have made some good progress", he said.

According to the operational record of the company, as at December 31, 2003, out of a gross profit of N7.2bn, it posted a loss before taxation of N9.4bn. The record also showed that the company expended about N3.6bn on maintenance and repairs of facilities during the period.

Nigeria Shortlists Five Asian Groups for Refinery Sale

Nigeria has shortlisted five Asian-led consortiums and three others for a majority stake in its 210,000 barrels per day (bpd) oil refinery complex, the privatization agency said on March 20.

Attempts to privatize the Port Harcourt Refining Company Ltd (PHRC) have suffered a series of setbacks since 2002 as the plant, in Africa's oil heartland the Niger Delta, failed to attract enough international interest.

The Bureau for Public Enterprises (BPE) said the new suitors are India's Mittal Investments, Essar and Global Oil and Energy, Indonesia's Indorama and Chinese-led Linkglobal International.

A consortium led by Switzerland's Refinee Petroplus and Nigeria's leading fuel retailer Oando Plc and Bluestar Oil services, a unit of top industrial conglomerate Transcorp, also made the shortlist.

"The firms are currently conducting due diligence and site visits of the PHRC facilities," the BPE said in a statement.

The privatization agency had suspended a previous attempt to sell 51 percent or more of government equity in the refinery in March 2006, citing multiple membership in bidding consortiums.

The four companies that were pre-qualified for the botched sale were asked to revise their bids when the privatization process was restarted in December. They all made the new list.

The PHRC comprises two refineries -- the 60,000 bpd Eleme plant, which first started production in 1965 and was rebuilt in 1985 after it was largely destroyed by fire, and the 150,000 bpd Port Harcourt II plant that was originally designed for export and came on stream in 1988.

The plants need huge investment to become fully operational and meet international environmental standards, according to industry analysts.

Privatizations are among a batch of free-market economic reforms being carried out by President Olusegun Obasanjo, who must step down after landmark elections in the world's eighth biggest oil exporter next month.

The International Monetary Fund has said the pace of the program is too slow.

SOUTH AFRICA

Multi-billion Rand Oil Refinery in Cards for Coega, South Africa

In a boost for Coega, South Africa an international company wants to build a multi-billion rand oil refinery at the deep water harbor.

Negotiations were under way and a team of international oil, gas and logistical engineers were in Port Elizabeth for an official announcement March 6 of a pre-feasibility study on the project.

Experts said that a refinery of this nature could cost up to R21-billion to build, but would make good business sense because crude oil from Nigeria and Angola was being shipped to the Americas to be refined before it was shipped to the East.

Representatives of the Rio de Janeiro and Japanese-based company K. Inada were silent about the announcement, but the firm‘s chief executive officer, Alfredo Kaiichi Inada, said the announcement followed two years of talks.

It also came after the signing of agreements with Port Elizabeth-based black empowerment company Bidevco, which is involved in cargo, storage, crude oil and general trade. Inada said talks with Bidevco had started in Rio de Janeiro two years ago and had been followed up with several visits to Port Elizabeth.

Although not prepared to link the refinery directly to Coega, he admitted that the deep water port made the Industrial Development Zone strategically one of the best places to build a refinery.

“This is a study to investigate the viability of a model we have developed over the past two years. It will take at least four to five months to finish,” Inada said.

He said they would talk to government agencies, study legislation, community needs, environmental practices, local and international needs as well as supply markets of crude oil and markets for the offset of refined products before decisions could be taken.

Time frames would be subject to information gathered from the feasibility study.

One of the team members, Luis Gomes Barroso, an oil and gas engineer, said any refinery would have to conform to the best international standards, keeping in mind environmental needs.

Inada stressed that the initiative would not “in the least” impact on local petroleum operations.

“This is focused on international needs. It is the rest of the world, particularly the East, which needs the bi-products of a refinery. But we will also look at opportunities for local entrepreneurs.”

TANZANIA

Tanzania’s CCM Admits Stake in Consortium That Won $2.6 Billion Oil Refinery-Pipeline Contract

The controversy surrounding the awarding of the $2.6 billion contract to build an oil refinery and pipeline to transport petroleum products to Mwanza, Kigoma and neighboring countries, has taken a new twist with the revelation that Tanzania's ruling Chama cha Mapinduzi (CCM) has an interest in the project.

The CCM-owned Tanzania Green Company Ltd has come out and stated categorically that it has a stake in the project that was to be revealed by the end of March in the signing of the agreement between the government and the company.

This revelation comes at a time when the losers - three local and international investors - are planning to seek a court injunction to stop the government from implementing the project.

The oil refinery and pipeline project, conceived 10 years ago, has been awarded to a consortium of local and foreign firms led by a Qatar oil firm, Noor Oil and Industrial Technology Ltd that also includes Roneg AG of Germany and Stroytransgaz and Prometeus of Russia.

John Chaggama, managing director of Tanzania Green Company, told The East-African in Dar es Salaam recently that the CCM-owned company has a stake in the project but stopped short of disclosing how much and said his company would soon be signing an agreement with the government over the execution of the project.

Surprisingly, as of the beginning of March, there had still been no mention of the local Tanzanian company in the consortium which was awarded the project.

This is the CCM-owned company's second involvement in a major project. Tanzania Green Company was among seven investors and consortia of investors short-listed in the sale of 49 per cent of the shares in the National Microfinance Bank (NMB). Tanzania Green was a member of the Consortium for a Sustainable Tanzania Development Strategy. Its bid was not successful.

Investigations by The East-African have established that the CCM-owned company invited a high-level delegation from the Russia State Duma to the country to meet with CCM and government top brass in Shinyanga during the 2005 general election campaigns. CCM won the elections.

One of the delegates was an oil-sector economic advisor to Russian President Vladimir Putin.

The decision to award the project to Qatar's Noor Oil has prompted Africommerce International Ltd with its partners, Fieldstone Capital Group and El Paso Corporation of United States, to jointly threaten to seek damages incurred for pioneering and promoting costs accrued to the tune of $12.8 million.

The investors, through their Tanzanian counterpart Africommerce International Ltd, have already issued a 90-day notice to the government to come to terms with the pioneers of the project (Africommerce International) or risk being taken to court to stop the implementation of the project.

The move comes three weeks after the government signed a contract with Noor Oil and Industrial Technology Ltd of Qatar, which leads a consortium of three firms from Russia, Germany and Tanzania, for the execution, construction and management of the oil refinery plant and pipeline.

Elisante Muro, chairman of Africommerce International, reported that his company, which "pioneered the project," was not satisfied with the way the process of awarding the project was conducted. According to Mr Muro, the "Africommerce project" was approved by the Tanzania parliament through letter number BC.50/155/05 of 2005.

It endorsed the project to be implemented by Africommerce in partnership with a US gas and pipeline firm - El Paso Corporation of Houston, Texas - and the financial advisor of Fieldstone Capital Group of New York.

Responding to Africommerce International's allegations, the Minister of Planning, Economy and Empowerment, Dr Juma Ngasongwa, said the government "will not be intimidated by Africommerce and will go to court to defend itself against the claim."

Dr Ngasongwa said that Africommerce failed to implement the project after El Paso pulled out from the partnership in 1999.

CHECHNYA

Regional Leader says Oil Refinery to be Built in Chechnya

The new president of Chechnya announced plans March 6 for the construction of a major oil refinery in the war-scarred region, his office said.

Ramzan Kadyrov, a regional strongman picked by President Vladimir Putin to replace the ousted Chechen president, said the government planned to build a refinery with the capacity to produce 5 million tons of oil products a year, according to a statement from his office.

Kadyrov, who was Chechnya's prime minister before his promotion, has been at the center of efforts to rebuild the region, devastated by two wars since the 1991 Soviet collapse pitting separatist rebels against federal forces.

The small southern Russian region's only major oil refinery, idle since specialists left Chechnya before the outbreak of the first war in 1994, was destroyed in the years of fighting, and parts that could be salvaged were looted and sold for scrap.

Kadyrov has been struggling with state oil company OAO Rosneft for greater control and a larger share of profits from Chechnya's oil. Rosneft controls 51 percent of Chechen oil company Grozneftegaz, which produces around 2 million tons of oil a year.

GEORGIA

Kazakhstan Eyes Building Oil Refinery in Georgia

Kazakhstan is considering the construction of an oil refinery on Georgia's Black Sea coast, Kazakh President Nursultan Nazarbayev said March 6, the Kazakh state news agency Kazinform reported.

The Kazakh national oil and gas company Kazmunaigas also plans to buy a controlling stake in the Georgian Batumi port, Nazarbayev said.

Nazarbayev March 6 held talks with visiting Georgian President Mikhail Saakashvili, during which the two leaders discussed energy transportation.

"Building an oil refinery in Batumi is a project worth about a billion dollars," Saakashvili was quoted as saying by Kazinform. "It's very important not only for Georgia's economy, but also for the whole region."

Kazakhstan is seeking to diversify its export routes for oil produced in western Kazakhstan. The country is aiming to increase crude oil and condensate output by 2015 to 2.6 million barrels a day from about 1.3 million b/d. Chevron Corp. (CVX)-led Tengizchevroil, or TCO, operator of the giant Tengiz field, will increase production by the end of 2007 to 550,000 barrels a day from about 291,000 barrels a day.

TCO has said it is considering exporting part of its increased oil output across the Caspian Sea to Azerbaijan's capital Baku and onwards to the Georgian port of Batumi on the Black Sea.

TCO currently exports all of its oil through the Caspian Pipeline Consortium, or CPC, which connects Tengiz to the Black Sea port of Novorossisk in Russia.

Russia, a significant CPC shareholder, has blocked attempts to expand the pipeline's capacity, and sought to raise shipment tariffs for the CPC.

RUSSIA

Russian Oil Major Lukoil to Start Talks on Refinery in Europe

Russian oil major Lukoil plans to start talks with foreign companies in the near future on the construction of a refinery to process heavy oil in Europe, Lukoil President Vagit Alekperov told journalists March 6.

"I hope that we will start talks with ConocoPhillips and other large refiners in the near future on participation by our company in oil refining projects," he said.

According to Alekperov, a plant in Europe would complete the chain for the processing of heavy oil from the Yareg field in Komi republic. Primary refining is carried out at the Ukhta oil refinery.

LukOil to Restore Ops at Volgograd Refinery in May after Fire

Russian energy group LukOil is confident it can restore full operations at the Volgograd refinery in May after a fire broke out at the site on March.

No one was hurt during the fire, which occurred on March 10.

Vladimir Nekrasov, the group's first vice president, said 'equipment decompression' may have caused the incident. 'The environmental situation raises no concerns. The land was not contaminated,' he said.

LukOil hopes to restore full refinery operations at Volgograd on May 1, he said, adding the damage will be fully covered by insurance.

TURKMENISTAN

First Foreign-owned Oil Refinery Opens in Turkmenistan

Dragon Oil launched the first foreign-owned oil refinery in Turkmenistan. Dragon Oil is registered in Ireland but owned by Dubai's Emirates National Oil Corporation Company Limited (ENOC) with 52 percent of Dragon Oil shares, RusEnergy reports.

The refinery's capacity is 2.5 million barrels of oil per year. It is expected that the oil refinery would produce diesel fuel and naphtha from oil and gas extracted under Block 2 project which is also developed by Dragon Oil.

The Ireland-based company is willing to sell part of its Turkmen assets to buy assets of its competitors.

Dragon Oil is developing 32 wells on 7 platforms in Turkmenistan. In 2005, the company reported a growth in its proceeds to US $ 248.8 million.

Dragon Oil has been pondering construction of a refinery since the late 1990's. The investor has found a successful combination of its own interests and the Tajik government's. Refining and chemistry and related projects have been in the focus of the government for many weeks.

KUWAIT

Kuwaiti Oil Minister Says Kuwait Needs Fourth Oil Refinery

Kuwait definitely needs a fourth oil refinery, Kuwaiti Oil Minister Sheikh Ali al-Jarrah al-Sabah said on March 14.

But bids to build the planned 615,000 barrels per day Zour refinery were very expensive.

“We will reconsider the project but there is no question that we need a fourth refinery,” the minister said.

“The prices that we have received were unbelievable,” he added.

The minister also said Kuwait was in discussions with Royal Dutch Shell RDSa.L and BG Group BG.L on a possible liquefied natural gas import terminal to help meet the country’s rapidly rising power demand.

Kuwait is also talking with both companies about exploring and developing its gas reserves, he said.

Another potential option is importing gas from Iran and Iraq, he said, and Kuwait is in talks with both.

Power demand in the region was rising so quickly that Kuwait and other Gulf Arab states were seriously considering nuclear power plants.

“We are in very serious talks (about nuclear power),” he said. “We have to consider alternatives with the cost of fuel and gas.”

The minister, in Vienna for the March 15 OPEC meeting, said he would not support any possible cut in the group’s oil output and that Kuwait favoured OPEC making no change in the group’s output policy.

Many oil ministers have already said they expect OPEC to leave its output unchanged.

Sheikh Ali said that international political tension was adding around $8-$15 a barrel to the price of oil, but even so crude price was not causing pain to consumers and producers.

“I think OPEC countries, suppliers and consumers, are fine with the market... they are happy (with the price),” he said.

For Kuwait, the preferred price for the basket of crude that OPEC members produce was between $55 and $60 a barrel, he said. The OPEC basket is typically valued at $5-$6 below the US light crude benchmark CLc1, which stood just above $58 on Wednesday.

Kuwait was not concerned about a potential for an economic slowdown after the recent slide in global stock markets.

“We have to sit and watch the behavior of the stock market,” he said. “You can’t predict the economy.”

Sheikh Ali said he would meet with investment banks undertaking a review of a controversial plan to boost the country’s oil output soon.

He said he hoped that there would be progress with the scheme, known as Project Kuwait, before the end of the year. At least two oil majors had confirmed they were still interested in the project, which has been under discussion since the early 1990s.

Kuwait holds nearly a tenth of the world’s oil reserves and produces about 2.5 million barrels per day.

Kuwait’s Refinery Project Cancellations Rise as Costs Grow

Refinery project cancellations have accelerated in recent weeks as escalating costs raise more questions over the future profitability of new units making key transport fuels.

Kuwait's energy minister said March 13 the Gulf Arab state might scrap a plan to build a 615,000-barrels-per-day oil refinery and upgrade its existing Shuaiba plant instead.

State refiner Kuwait National Petroleum Co had said it would reissue a tender for a new refinery soon, after it deemed bids in the first round too costly.

Earlier this month, Russia's Lukoil and Austria's OMV scaled back their Turkish refinery plans, while Angolan state oil company Sonangol ended talks with China's Sinopec on a new refinery in the southern African country.

The cancellations form a growing global trend of both new plants and refinery upgrades being shelved due to swelling costs, a shortage of engineers and uncertainty about future returns.

"We've seen costs of both new projects and add-ons three times higher than they were previously due to rising costs," said Damian Kennaby of Texas-based oil consultancy Purvin & Gertz.

"Many companies are therefore thinking twice and asking 'do we really want to go ahead with these projects'."

But while shelved expansion plans will cut into future refining capacity, some analysts said they had already factored in such a scenario into their expectations.

"When we talk to people who build refineries, they tend to say they're rushed off their feet and will be for several years," said David Martin, refining analyst at the International Energy Agency (IEA). "It's not a surprise that some of these projects are falling by the wayside."

The IEA in its medium-term oil market report last month lowered its prediction of new refinery crude distillation capacity between 2006 and 2011 to 10.2 million barrels per day, 82,000 bpd lower than its initial forecast last July.

The Paris-based agency, which advises 26 industrialized nations on energy policy, said last July that 15.2 million bpd of new refining capacity had been announced for completion before 2011, but expected just 10.3 million bpd to be completed.

Lukoil said recently it had suspended plans for a new refinery in Turkey, while OMV said it was open to scaling back its participation in a refinery it aimed to build in the same country. Both companies had announced their Turkish project plans less than a year ago.

The cancellations and delays around the world follow years of rebounding refinery profit margins driven by accelerating transport fuel demand in countries including China and the United States.

That strained refiners' capacity to supply sufficient volumes of oil products such as diesel, gasoline and jet fuel, prompting a wave of expansion plans to meet the shortfall.

But as new capacity has started to come on line, analysts and refiners have started to fret over future profitability.

"We are not very optimistic as far as refining margins are concerned," OMV Chief Executive Wolfgang Ruttenstorfer said recently. "Over three to four years, they could come down."

While expectations of lower returns may prompt the shelving of projects still on the drawing board, upgrading work already under way would continue and take priority, analysts said.

"Anything due in 2008 will not be cancelled," said Mike Wittner, oil analyst at Calyon investment bank. "There's a lot of crude distillation capacity due next year, and this will put pressure on cracks."

Beyond that, the IEA last month raised its forecast for capacity expansion in 2009 by almost two-thirds to 1.9 million bpd because it expected Reliance Industries' expansion of its Jamnagar refinery in western India to be completed that year, earlier than expected.

"We brought the start date forward because they made better progress than we'd expected," the IEA's Martin said. "It's not all doom and gloom."

SAUDI ARABIA

Government Allocates Land for 400,000 Bpd Refinery in Eastern Saudi Arabia

Saudi Arabia has allocated land to two companies that plan to build a 400,000 barrel-a-day refinery in the eastern port city of Jubail, the official Saudi Press Agency reported March 20.

The refinery will be built by state-run Saudi Arabian Oil Co and the French oil company Total SA on 5 million square meters of land, according to the agency.

Aramco and Total signed the deal for the project, which is expected to cost US$6.4 billion in May 2006.

Prince Saud ibn Abdullah ibn Thunayyan, chairman of the Royal Commission for Jubail and Yanbu, said the project will create about 1,000 jobs.

The Jubail refinery will provide basic petrochemical products, such as benzene, liquidate gas and propylene, said the prince.

Each company will hold a 35 percent ownership stake, according to the memorandum of understanding signed by the two giants in May. The companies plan to offer up to a 30 percent stake in the project, scheduled to begin service in 2011, to the Saudi public.

McIlvaine Company,

Northfield, IL 60093-2743

Tel: 847-784-0012; Fax: 847-784-0061;

E-mail: editor@mcilvainecompany.com;

Web site: www.mcilvainecompany.com