jan 07 update

After two decades of fighting to stay in the black, the stars aligned in 2004 and refiners like Valero Energy VLO , Frontier Oil FTO , Sunoco SUN , and Tesoro TSO have been enjoying outsized profits ever since. With mandatory environmental upgrades and hurricane repairs pretty much in the past, and cash flooding in, refiners are setting their sights on boosting capacity, improving reliability, and increasing the complexity of their refineries. This increased investment will likely be the proverbial rain on the parade, driving refining margins back to more reasonable levels.

Because a refiner's gross refining margin, is essentially the difference between the price it sells a barrel of refined product and the price it pays for a barrel of oil; the more money a refiner receives for its products and the cheaper it can buy its oil, the more money it makes.

Refining bulls always make the argument that margins should remain wide forever, because a new refinery hasn't been built in the U.S. since the 1970s. But after increasing by 210,000 barrels per day (b/d), or about 1.2%, in 2005, domestic refining capacity is expected to increase by 2 million barrels per day by 2010, a 12% increase. Although all of this expansion is in the form of improvements to existing refineries, it represents the equivalent of eight new world-class facilities.

Expansion is proceeding at full steam worldwide as well--worldwide capacity is expected to grow by more than 10 million barrels per day over the same period. The majority of that capacity is being built in the thirsty and growing Asian market. Also, Saudi Arabia is planning twin 500,000 b/d export refineries, with one unit targeting Asia and the other targeting Europe and North America. Due to differing environmental regulations around the globe, refined products are not as fungible as raw crude oil, but the additional capacity should cause margins to contract worldwide as capacity growth is expected to outpace demand growth over that time period.

In addition to capacity additions, refiners are also looking to improve the complexity of their refineries. This will allow them to handle poorer-quality crudes that often sell on the cheap and to produce higher-margin products like gasoline and ultralow-sulfur diesel. We think this is an excellent way to improve the competitive position of a refinery, as it makes a refinery less susceptible to periods of weak demand.

Low-quality crudes are expected to make up a growing proportion of the worldwide oil production mix. One of the drivers behind this influx of poor-quality crude is the number of Canadian oil-sands projects coming online over the next several years. ConocoPhillips and BP recently announced large-scale expansions designed specifically to handle Canadian crude from the oil sands.

However, there are concerns that too much conversion capacity is being built. While production from the oil sands is expected to be heavy, the oil could be upgraded (i.e., converted into a higher-quality oil) in Canada before being transported to U.S. refiners, and this upgraded oil is expected to sell on par with light-sweet crude, the worldwide oil price benchmark. There are also several proposals to build an oil pipeline to the west coast of Canada, where the oil could then be shipped to other areas of the globe, namely Asia. Too much conversion capacity and too little heavy oil would cause the price of heavy oil to be bid up, eliminating the incremental margins earned by processing this type of crude.

It is believed that gross refining margins will remain above their long-run averages, but some risks remain. A simultaneous increase in refining capacity and a slowdown in economic activity would cause refining margins to collapse for a period of time. Moreover, engineering and construction firms like Chicago Bridge and Iron CBI , Fluor FLR , and Foster Wheeler FWLT are enjoying large amounts of pricing power, which could potentially inhibit returns for these expansion and improvement projects. Tesoro recently pulled a project off the table after a revised cost estimate for a proposed project increased by more than 40%. If more refiners pull or delay projects, we would expect the gross refining margins of complex refiners like Valero or Frontier to remain high for an extended period of time.

While the future of the industry looks cautiously optimistic, investors still itching to gain exposure to the refining industry might set their sights on the major integrated oil companies like BP, Chevron CVX , ConocoPhillips, ExxonMobil XOM , and Royal Dutch Shell RDS.A . The majors have loads of refining capacity not only in the U.S., but also in emerging markets. Moreover, unlike pure-play refiners, they have substantial upstream operations that generate stronger and more-stable returns on capital over the course of the cycle.

1. AMERICAS

U.S.

Ex-BP Manager says Texas Refinery was Under-funded

“Band-Aids” and “Super Glue” were holding BP’s refinery together in the years before a blast that killed 15 people, the plant’s former manager told attorneys in a deposition.

Don Parus also outlined how he was trying to improve the refinery.

Parus’ statements are in a transcript of a deposition he gave in July.

Part of that deposition and other documents are posted on a Web site set up by the law firm that represented Eva Rowe, who sued BP over the deaths of her parents.

James and Linda Rowe were among the 15 killed when a series of explosions ripped through an octane-boosting unit at the refinery on March 23, 2005.

Documents on the Web site are the first of thousands to be released as part of BP’s settlement with Rowe.

Parus, who took over in 2002, described finding a refinery that made heavy use of “Band-Aids,” by which he meant clamps used to keep units running instead of making complete repairs. Clamps are supposed to be a temporary fix for leaky pipes and valves.

Parus also said BP was not spending enough money to maintain the facility. That lack of spending existed before BP acquired the facility in a merger with Amoco.

“The underinvestment of the site spanned a significant number of years, even prior to BP’s merger,” he said.

“So the condition of the site was a result of the accumulation of many years of under-investing, under-maintaining the infrastructure.”

Still, three years after the BP/Amoco merger, spending levels were not nearly enough, Parus told Rowe’s attorneys.

Parus also said that decisions about spending on improvements at the refinery came from BP’s corporate offices in London.

He said he and a staff of new managers had worked to correct problems. He said he made changes in the refinery’s top management structure and had convinced his bosses in London to increase spending to correct problems and improve maintenance.

He said his management team, including Kathleen Lucas, who recently had been hired as operations manager, followed the course used to improve the New York subway system by focusing on the visible signs of disrepair.

“So, we basically picked up the theme of ‘broken windows,’ in that the place has to look like a first-class site for it to start acting like a first-class site,” Parus said.

Parus remains employed by BP, but is on medical leave. He was removed as refinery manager two months after the blasts.

Brent Coon, Rowe’s attorney, said his firm would be releasing more documents and clips from video depositions. Each will have a theme and be made available via the Web site.

A refinery trade group has drafted a series of recommendations about the placement of temporary work structures near active units. The American Petroleum Institute’s new health and safety guidelines come six months after a federal investigative agency asked for the review.

In its draft policy, the trade group doesn’t specify a recommended distance for the placement of work trailers, but rather outlines what refiners should note as levels of risk associated with placing trailers near active units.

The U.S. Chemical Safety and Hazard Investigation Board, which is investigating the deadly March 23, 2005, blast at BP’s Texas City refinery, has been critical of the company’s placement of temporary work trailers near the unit that blew up.

The board asked that the American Petroleum Institute review its own recommendations for the placement of trailers and make adjustments.

The trade group said a final vote on the new policy would come in the summer.

Western Refining Probes Texas Refinery Upset

Western Refining Co. was investigating an upset in the light ends recovery unit at its 116,000 barrel per day (bpd) refinery in El Paso, Texas, according to a notice filed with state pollution regulators.

The 7-hour upset occurred on November 30, according to the notice filed with the Texas Commission on Environmental Quality.

Giant Industries Reports Fire at Ciniza Refinery

Giant Industries said on December 27 that a fire broke out in a heater used in a unit that manufactures ultra low sulfur diesel at its Ciniza refinery, where it has temporarily shut down all of its operating units.

The fire was contained and no injuries reported, Giant Industries said. Giant is evaluating the timing to repair the damaged heater area at the New Mexico refinery, which has a daily crude oil processing capacity of 20,800 barrels.

Oil refiner Western Refining Inc. in August agreed to purchase Giant Industries. But it cut the proposed purchase value in November to about $1.13 billion from $1.22 billion, largely due to higher insurance costs incurred from previous fires at Giant refineries.

Shell Reports Wilmington Refinery Problem

Shell Oil Products US reported its Wilmington, California refinery suffered a sulfur recovery problem that forced the flaring of sulfur-dioxide gas, state records showed December 26.

On December 25 the Los Angeles-area refinery "lost an SCC (sulfur recovery) unit. The gas compressor went down. They had to depressurize the unit," a report on the California Governor's Office of Emergency Services said.

No one was hurt and no evacuations were required as a result of the incident, the report said. The company could not be reached for further explanation.

The incident involved flaring or burning off 500,000 lbs of sulfur-dioxide "vapor" and was contained and cleaned up by the company, the report said.

The Wilmington facility has a capacity of 98,500 barrels a day, according to state records.

Planned Refinery Unit Maintenance Forecast to Decrease in 2007

The number of planned unit maintenance shutdowns for the North American Petroleum Refining Industry will decrease in 2007, marking the second year in a row for declining planned maintenance. This trend is forecast to change in 2008 as refiners schedule maintenance shutdowns to coincide with the first wave of unit additions associated with an industry-wide plan to increase refining capacity.

ARUBA

Contract Ends Walkout at Aruba’s Valero Refinery

A walkout at Valero Energy Corp.'s Aruba refinery ended December 4 when the Independent Oil Workers Union of Aruba signed a new five-year contract, plant managers and union officials said.

Ninety-five percent of the employees represented by the bargaining agreement approved the contract, and all committed to return to work December 5 at the refinery in the Caribbean.

Both parties said the contract is the best package the plant workers have ever received. Details of the contract were not disclosed.

Almost half the plant employees had walked off the job Nov. 28 when the bargaining talks broke down over a number of issues.

The contract was hammered out with the help of a mediator, said Ray Buckley, vice president and general manager of the Aruba plant.

Jay Jeffries, lead negotiator from the United Steelworkers, which the oil workers' union is affiliated with, said the agreement is good news for the employees, the refinery and the community.

Alfred Geerman, an operator at the refinery who went on strike, said in a phone interview that he and his fellow workers are "very happy" with the contract. "By Aruban standards, we're at the top right now. There is no tension between us and Valero."

Geerman said the workers weren't looking for wages comparable to those in the United States, but did seek higher pay and more vacation.

Valero has said the workers will get a 47 percent increase in wages and other benefits over the five years of the contract.

The Aruba plant, one of 18 Valero that owns, is the company's second-largest. Valero acquired it in 1994.

Sunoco Plans February Work at Philadelphia Refinery

Independent refiner Sunoco Inc. will carry out a "major" turnaround at its 330,000 barrels per day Philadelphia refinery beginning in February, trade sources said on December 5.

Traders said the work would include a lengthy shutdown of the fluid catalytic cracker at the plant, which is currently undergoing a $400 million overhaul and expansion.

"It's a major turnaround. The catcracker is going to be down for eight weeks, we are hearing," said one trader.

Other units at the refinery, including one crude unit, also are expected to be shut down for planned maintenance.

A Sunoco spokesman was not immediately available for comment.

The catalytic cracker expansion will add 15,000 bpd of new conversion capacity at the refinery as well as allow Sunoco to use more lower-value heavy feedstocks in the unit.

The expansion had originally been budgeted at $300 million in December 2005, but design changes and soaring costs for engineering and construction work in the refining sector drove up the cost of the expansion sharply.

The jump in costs led Sunoco to announce in November that it would put on hold the second phase of an expansion project at its Toledo, Ohio refinery while it reviewed its capital expenditure plans.

CANADA

Unit Outage Cuts Imperial Edmonton Refinery Output
Output at Imperial Oil Ltd.'s Edmonton refinery will be reduced by 87 percent until early January during repairs to one of the units, a company spokesman said on December 28.

Imperial, Canada's biggest oil refiner, has brought a catalytic cracker at the plant down for unplanned maintenance and expects to bring it back into service between Jan. 8 and 10, Imperial's Pius Rolheiser said.

The refinery is currently processing about 145,000 barrels of crude oil a day. It normally runs 165,000-175,000 barrels a day.

Output at Imperial Oil Ltd.'s (IMO.TO: Quote, Profile, Research) Edmonton refinery will be reduced by 87 percent until early January during repairs to one of the units, a company spokesman said.

The refinery is currently processing about 145,000 barrels of crude oil a day. It normally runs 165,000-175,000 barrels a day.

Likely Cause of Explosion at Imperial Oil Refinery Revealed

An investigation into a recent fiery explosion at a Sarnia refinery has revealed a faulty pipe was likely what caused the blaze.

An investigation by the Ontario Fire Marshal concludes that a high-pressure pipe carrying hydrogen into the Imperial Oil refinery broke and caused the explosion in its hydrocracker unit Dec. 14.

No one was injured, and employees were back to work at the plant by the next day.

Imperial Oil spokeswoman Julie Ferguson says that the company has not yet completed its internal investigation of the incident.

More than 1,000 people work at the plant, which is equipped to refine more than 100,000 barrels of crude oil per day.

COLOMBIA
Technip Awarded Contract by Ecopetrol for Refinery in Colombia
French energy-services company Technip has been awarded by Ecopetrol, Colombia's State oil company, a project management consulting (PMC) contract worth approximately $50 million for the expansion of its refinery in Barrancabermeja, Colombia. The contract, on a unit rates and reimbursable ("cost plus fee") basis, covers front end design, detailed engineering and procurement services for the process units, as well as supervision of contractors' activities for engineering, procurement and construction (EPC).

This expansion will enable the Barrancabermeja Refinery to produce gasoline and diesel in compliance with international environmental regulations regarding sulfur content reduction. The project is scheduled to be completed in the 4th quarter 2009.

COSTA RICA
Costa Rica's State Oil Refiner to Call for $125 Million Revamp Proposals in early 2007
Costa Rica's state oil refiner Recope plans to publish a request-for-proposals early next year for an EPC contract to modernize and expand its refinery, Recope president José León Desanti said.

"We are waiting to finalize financing and legal paperwork," León said.

The project aims to increase the refinery's processing capacity to 38,000b/d from 25,000b/d, in particular the production of lead-free gasoline and low-sulfur diesel. The refinery is at port city Limón.

The 38,000b/d-figure represents 75% of the country's consumption, he said. The new processing capacity is due to come online in early 2010.

The Central American Bank for Economic Integration (Cabei) has approved a US$125mn loan to finance the revamp project.

ECUADOR

Ecuador to Invest $6 Billion in Refinery Projects in Next 5 Years

Ecuadorean state-run oil firm Petroecuador expects to spend $6 billion in the next five years to build a new refinery and improve three others, a top company official said December 22.

Revenues from oil fields that once belonged to U.S.-based Occidental Petroleum Corp. would finance the projects, said Diego Tapia, vice president of Petroindustrial, the unit of Petroecuador that operates the refineries.

Petroecuador would spend about $4.5 billion to build the new refinery, which would process 220,000 barrels of heavy 18 API crude oil a day, he said.

About $1.5 billion would go to three existing state refineries to upgrade processing facilities. The improvement projects will be awarded next year, Tapia added.

The goal is to cut Ecuador's reliance on diesel imports by 75% and meet local demand for gasoline and liquified petroleum gas, Tapia said.

Ecuador spends most of its oil-export profits to pay for petroleum derivatives, including gas used in homes.

Officials estimate the cost of importing derivatives will reach $2.3 billion this year, with an increase of 5% for next year.

Meanwhile, between January and November, sales of crude oil and derivatives such as fuel oil generated $4 billion for Petroecuador.

Fuels are subsidized in Ecuador. A cylinder of gas is sold to homes for $1.16, while it costs Petroecuador $9.91; a gallon of diesel is sold for $0.90, but it costs $2; and a gallon of gasoline is marketed at $1.31, but it costs $1.91.

Occidental's former oil fields have generated $930 million between May - when they were seized - and November. Next year, officials estimate they will generate $1.5 billion.

By law, money from the fields has to be put in a specific fund and spent only on oil- and electricity-related projects, as well as financing the fields' operations.

Ecuador ended Occidental's contract and seized the company's assets in May, alleging that the firm broke contract terms. The oil firm estimated its assets in Ecuador reached $1 billion.

TRINIDAD

Samsung Engineering wins $180 Million Refinery Order from Trinidad

South Korean builder Samsung Engineering Co. said December 17 it has won a $180 million order to build an oil refinery from Petrotrin, a state-run oil company in Trinidad and Tobago.

The refinery capable of churning out 28,000 barrels of oil a day is scheduled to be completed on a turnkey basis in November 2008, the company said.

2. ASIA

CHINA

CNPC, Rosneft to Build Oil Refinery in China by 2010

China National Petroleum Corporation (CNPC) and Rosneft will build a joint oil refinery in China by 2010, the Russian state-run oil firm said December 5.

The joint venture, one of two joint projects of the companies, will be located near Beijing and will refine crude, sell oil derivatives and operate a network of 300 gasoline stations around the refinery.

"The plant will refine about 10 million metric tons of oil, and will be completed by 2010," Sergei Goncharov, head of Rosneft in China, said.

Speaking at the third Russian-Chinese-Kazakh oil and gas forum in Shanghai, Goncharov said Rosneft, Russia's third-largest crude producer, would hold 49% in the joint venture, and China's subsidiary PetroChina would control 51%.

Goncharov said the companies expected to launch the project next year.

"We think we will be able to put the joint venture into operation next year," he said.

Goncharov said Russia supplied about 10 million metric tons of oil, worth more than $6 billion, to its East Asian neighbor's rapidly growing economy in 2006, and would further increase deliveries next year.

He said deliveries through the Kazakhstan-China pipeline from Atasu to Alashankou would be raised by one million metric tons, and that more oil would be pumped through the Sakhalin-I project in Russia's Far East.

Rosneft President Sergei Bogdanchikov said early last month that the company was capable of increasing crude deliveries to China by 60% to 20 million metric tons against the 12-13.5 million metric tons expected this year.

Rosneft and CNPC, China's top energy group, are also setting up the other joint venture - on Russian territory. Goncharov said it had already been registered in Russia as Vostok Energy Ltd.

"It has been registered in Russia, and the partners have made the required contributions to the fixed capital," Goncharov said, adding that Vostok Energy would be controlled by Rosneft (51%) and would do geological prospecting and produce crude in Russia.

Rosneft is also the main supplier in the East Siberia-Pacific pipeline project to China and other Asia-Pacific nations.

Sinopec Guangzhou Refinery Sees 2007 Runs up by a Third

China's Guanghzou refinery, a unit of top state refiner Sinopec Corp. expects to raise its 2007 crude throughput by a third after its new refining units are fully operational, company sources said.

The refinery, in the heart of China's manufacturing hub of Guangdong province, is forecast to process at least 10 million tonnes of crude next year, or 200,000 barrels per day, up from this year's estimate at 150,000 bpd, sources close to the plant's operations.

INDIA

IOC to Deploy FCC Tech at Paradip Refinery

Indian Oil Corporation Ltd is deploying FCC (Fluidized Catalytic Cracking) technology at its upcoming 15 million tonnes integrated refinery at Paradip.

This refinery is to be commissioned by 2011-2012, the complex will comprise a 15 million tonnes per annum refinery and facilities for production of front-end petrochemicals, including Paraxylene, Polypropylene and Styrene.

The company informs that the FCC refining process technology named INDMAX (Indane Maximization) developed by IndianOil enables high yields of LPG and high-octane gasoline (petrol) by using various refinery streams, including heavy residues and naphtha as feedstock.

The Tata Group may Acquire 26 Percent Stake in Nagarjuna Refinery

The Tata group is believed to be close to buying a stake in Nagarjuna group’ oil refinery project for about Rs 400 crore, a senior official of the South-based group said.

In a move to increase its presence in the oil sector, the salt-to-software Tata group is believed to be in advanced stages of investing in the 6-million tonne, over Rs 4,000 crore plus refinery project coming up in Cuddalore, Tamil Nadu.

“The group is also in talks with some Russian and Middle East companies for funding the remaining equity portion of the project,” the senior group official added.

The Tata group is believed to be buying about 26% for about Rs 400 crore. The project’s equity base is about Rs 1,500 crore.

A Tata group spokesperson declined to comment on the issue. But a senior official, speaking on condition of anonymity, said the announcement of the deal is likely to happen very soon. He also added that the project’s debt of about Rs 3,000 crore is also likely to be tied up soon. The Nagarjuna group will hold a majority stake of 51% in the venture.

It’s for the first time that the Tata group has shown interest in oil refining, though it has presence in upstream business as Tata Petrodyne is actively acquiring oil and gas assets in the country.The rationale behind the move is not known.

“For Nagarjuna, the deal will unlock more value. Nagarjuna’s plan is to sell 49% of its equity in the refinery project,” the official added. “The refinery project is financially very attractive and would get premium from investors. The total project is Rs 4,000 crore and NFCL has invested more than Rs 600 crore in the project,” said sources.

Nagarjuna Oil Corporation, a subsidiary of Nagarjuna Fertilisers and Chemicals (NFCL), is setting up the project.The refinery was initially scheduled to go on stream in 2002, but has not yet taken off due to problems in raising funds. Sources said all statutory clearances required for setting up the refinery and the marine facilities are in place.

The project is now expected to go on stream 33 months from the date of financial closure. “Moreover, the promoters are planning to integrate the first and second phases of the project, which would increase the project cost to nearly Rs 5,000 crore. Hence, for raising this large sum, partnering with a foreign entity has become necessary,” sources said.

The Cuddalore refinery plans to produce 6 million tonnes of crude petroleum per annum by relocating a refinery from Germany and adding new process units and utilities.

Crude receipt and product evacuation facilities are also planned. The refinery will produce Euro IV auto fuels such as petrol, diesel apart from products such as liquefied petroleum gas and bitumen. The project site is spread over 1,600 acres, which includes 300 acres of greenbelt. About 40% internal roads are already laid.

Steel Tycoon Mittal may Partner HPCL for $3 Billion Bhatinda Refinery

NRI steel tycoon Lakshmi N Mittal may partner Hindustan Petroleum Corporation (HPCL) in the under-construction $3 billion refinery at Bhatinda in Punjab.

"Mittal Investments and HPCL are close to signing a joint venture agreement for building the 9 million tonne a year Bhatinda refinery," an industry source said.

As per the broad understanding reached between the two firms during preliminary talks, HPCL and Mittal Investments may hold 49% stake each in the Guru Gobind Singh Refinery, the company implementing the project. The remaining 2% would be offered to financial institutions.

In the likelihood of state-run exploration firm Oil India (OIL) joining the project, the shareholding may be 26:26:26. The balance would be offered in an initial public offering (IPO) closer to commissioning of the refinery in 2010-11.

Mittal is the latest in a series of joint venture partners HPCL has been in talks for the Bhatinda refinery. BP of UK walked out of the project in March this year. Earlier, Saudi Aramco of Saudi Arabia had exited the project in 1998.

Mittal Investments is wholly-owned by the Mittal family and is registered in Luxembourg. It holds 38% in Mittal Steel Company, the Netherlands-based flagship company of the LN Mittal Group.

Officials of both Mittal Investments and HPCL could not be immediately reached for comments.

The source said the Mittals may extend the partnership with HPCL to also include participation in the expansion of 7.5 million tonne a year Vizag refinery and joint pursuit of oil assets abroad.

BHEL Bags $36 Million Power Plant Order for Haldia Refinery Complex

State-owned engineering major Bharat Heavy Electricals Ltd (BHEL) has bagged a Rs.1.65 billion ($36 million) order from Indian Oil Corp to set up an energy efficient co-generation power plant at its Haldia Refinery Complex.

'IndianOil has placed an order worth over Rs.1.65 billion for a Frame-5 gas turbine-based co-generation power plant on lump-sum turnkey (LSTK) basis,' BHEL said in a statement December 21.

In addition to ensuring uninterrupted power supply, the co-generation plant will meet the steam needs of the refinery in West Bengal. It is scheduled for commissioning in 22 months.

BHEL's scope of work in the project envisages design, engineering, manufacture, supply, erection and commissioning of a Frame-5 gas turbine generator and a heat recovery steam generator (HRSG) of 130 tonnes per hour capacity with associated auxiliaries and balance of plant -- in addition to complete civil works and select spares.

While the gas turbine generator will be manufactured at BHEL's Hyderabad plant, the HRSG and state-of-the-art control system will be manufactured at the company's Trichy plant and Electronics Division, Bangalore, respectively.

BHEL is already executing a similar turnkey contract for setting up a Frame-5 gas turbine-based co-generation power plant at the Haldia Refinery Complex. It has earlier installed several co-generation power plants of various capacities on turnkey basis at IndianOil's other refineries.

INDONESIA

Pertamina to Invest $2.3 Billion and Expand Capacity of Two Oil Refineries

State-owned oil and gas company PT Pertamina has announced a plan to invest around US$2.3 billion in the expansion of its Dumai and Cilacap oil refineries.

Pertamina President Ari Hernanto said on December 5 that the company had already reached a $1.3 billion financing agreement with Mitsui & Co for the Cilacap project, which is scheduled to be completed in 2009.

The processing capacity of the Cilacap refinery will be expanded to 250,000 barrels of crude oil per day from the current 200,000 barrels, he said.

Meanwhile, financial support is being sought from SK Corp for the expansion of the Dumai refinery.

VIETNAM

LUKoil to Build Oil Refinery in Vietnam

Russian oil company LUKoil has announced plans to build an oil refinery in Vietnam. Analysts say this will allow LUKoil to sell oil products to India and China. LUKoil President Vagit Alekperov said on December 15 that his company had been invited by the Vietnamese authorities to take part in the construction of one or two oil refineries in the country.

3. EUROPE / AFRICA / MIDDLE EAST

BOSNIA

Zarubezhneft to Control Bosnian Refinery

Zarubezhneft will gain control over an oil refinery in Bosnia. Zarubezhneft is the leading foreign economic enterprise in the oil and gas industry of Russia. The Bosnian parliament signed a decree to the effect of giving Zarubezhneft control over Bosnia's only oil refinery, which is comprised of a motor oil refinery and the Petrol gas stations chain.

Analysts believe that the Bosnian government made another step towards creation of the third oil and gas holding. Zarubezhneft has been negotiating with the Bosnian government to purchase stakes in local refineries, including 65 percent and 62.3 percent in Bosanski Brod and Modrica refineries, respectively, as well as in the Petrol chain.

The Bosnian assets are not considered to be large. Bosanski Brod's output fell from 5m tonnes to 1.5m tonnes after the war. Moreover , the oil refinery has liabilities worth EUR190m.

GERMANY

Petroplus Purchase of ExxonMobil’s Ingolstadt Refinery Cleared by EU

The European Commission said it has cleared oil refiner Petroplus International BV's proposed acquisition of ExxonMobil Corp's Ingolstadt refinery, Esso Bayern and its industrial and wholesale marketing business in Germany.

In early July, Petroplus said the acquisition of the 110,000 barrel a day Ingolstadt refinery will result in a 30 pct increase to its current refining capacity.

Financial details of the deal, which Petroplus said it expects to close in early 2007, were not disclosed.

LITHUANIA

Poland, Lithuania to Finish $852 Million Refinery Sale

The Lithuanian government is likely to complete the sale of its stake in the Mazeikiu Nafta oil refinery to Polish oil retailer PKN Orlen by Dec. 15, officials on both sides said December 4.

"We have agreed in principle on the last details ... of this very important deal," Lithuanian Prime Minister Gediminas Kirkilas told reporters after a meeting with PKN Orlen President Igor Chalupec in Vilnius.

Under the deal struck in May, the Polish company will buy the Lithuanian government's 30 percent stake in Mazeikiu Nafta, the only oil refinery in the Baltics, for US$852 million (euro666 million). It represents Poland's largest foreign investment to date, Chalupec said.

PKN Orlen is also set to buy a 53 percent stake in the refinery from Russia's embattled Yukos for US$1.49 billion (euro1.16 billion), giving it full control over the enterprise.

PKN Orlen delayed the completion of the deal after an Oct. 12 fire broke out at the refinery's diesel complex, causing US$48.5 million (euro37.9 million) in damage.

However, the company signed credit deals with eight Polish and foreign banks to finance the purchase.

"We do not want to waste time, because the situation in Mazeikiu Nafta after the fire is not very good," Chalupec said.

A Lithuanian state commission investigating the cause of the blaze was expected to submit its findings to the government. The European Commission approved the deal last month.

Polish Firm Buys Lithuania Refinery Stake from Yukos

U.K.-based Yukos International U.K. B.V., a subsidiary of bankrupt Russian oil firm Yukos, sold a 53.7 percent share in the Lithuanian oil refinery Mazeiku Nafta to Poland's PKN Orlen for $1.49 billion Dec. 14. With this purchase, PKN Orlen also won the Lithuanian government's 30.66 percent share in the refinery. PKN Orlen was due to sign the contract with Yukos on Dec. 15.

POLAND

ABB Wins $130 Million Refinery Order in Poland
ABB has won a contract from Grupa Lotos S.A. to provide engineering, procurement and construction for a diesel desulphurization (HDS) project in Gdansk, Poland.

The $130 million investment is part of the $1.3 billion Residue Upgrade Project that Grupa Lotos has begun in a complex of Gdansk refineries to help them operate more efficiently and satisfy growing regulatory demands for environmentally friendly refinery products.

The desulphurization unit will enable Grupa Lotos to comply with EU requirements that diesel oil contain less than 10 parts per million of sulphur, which will come into force in 2009.

ABB Lummus Global's business in Wiesbaden, Germany, is responsible for detailed engineering, procurement of equipment and material, construction and civil work, and construction management including commissioning.

The project will be implemented on a fast-track schedule, with start-up planned for early 2009.

The desulphurization technology is based on a Chevron Lummus Global process, and will allow Grupa Lotos to increase production of ultra-low diesel fuel to approximately 2.3 million metric tons annually. This number will increase when a new crude distillation unit is added to the project.

Technip Awarded Contract for Hydrodesulphurization Unit at Polish Refinery

Technip has been awarded a contract worth EUR 67 million by PKN ORLEN SA for the construction of a new diesel oil hydrodesulphurisation unit in its refinery in Plock, in the center of Poland.

Technip's operations and engineering center in Rome, Italy, will execute the project that includes license, basic and detail engineering, procurement and supply of equipment and materials, supervision of construction, pre-commissioning and commissioning, start-up and test runs.

Services, materials and equipment supply will be delivered on a lump sum basis; activities at site will be charged on a reimbursable basis.

The construction of the unit is scheduled to be completed in June 2009. The new unit, based on the “Albemarle ultra deep HDS” process, will produce 260tns/hr of high purity diesel oil (with a maximum of 10ppmwt of sulfur).

The project, which also includes a wild naphtha stripping unit and a gas amine-treating/regeneration unit, will enable the Plock refinery to increase the production of high purity diesel oil in compliance with the European norm.

SPAIN

Foster Wheeler Iberia Awarded Lump-Sum Contract for New Units at La Rabida Refinery

Foster Wheeler Ltd has announced that its Spanish subsidiary, Foster Wheeler Iberia SA, part of its Global Engineering and Construction Group, has been awarded a lump-sum contract by Compania Espanola de Petroleos SA (CEPSA), one of the main Spanish refining companies, for the front-end engineering design (FEED) and early procurement services for new crude, vacuum and gas concentration units at La Rabida Refinery at Huelva, in Spain.

The design for the new units will be based on a UOP basic design package. 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 BPSD and the capacity of the gas concentration unit will be 148 tons per hour.

Axens’ Technology Selected by Repsol-YPF for Expansion of Cartagena Refinery

Repsol-YPF has selected Axens to furnish technologies for the expansion of the Cartagena refinery in Murcia, Spain. The new refining train will include a 50,000 barrel per day hydrocracker to convert a blend of heavy vacuum (HVGO) and heavy coker gas-oils (HCGO) into high quality, ultra low sulfur middle distillates for the strong European market demand. The hydrocracker technology can convert VGOs from conventional, heavy and extra-heavy crudes, deasphalted oil (DAO) or HCGO into high quality middle distillates while affording residue fractions that are suitable as very high VI lube oil base-stocks. By selecting the appropriate catalyst, the process can produce oils ranging from transformer oil to bright stocks.

Axens will also provide a C5-C6 alkane isomerization unit to boost gasoline pool octane, two HDS units to produce ultra-low sulfur diesel from straight run and light coker gas-oil, and a coker naphtha HDS unit. Start-up is scheduled for last quarter of 2010.

NIGERIA

BPE Invites More Investors for Port Harcourt Refinery

Nigeria’s Bureau of Public Enterprises (BPE) is seeking prospective core investors to purchase 51 per cent or more of the Federal Government shares in Port Harcourt Refining Company Limited (PHRC).

The privatization of the refinery was stalled by conflicting interests among Federal Government agencies, as well as the uncertain legal framework surrounding the nation's downstream sub-sector of the petroleum industry. BPE which had already pre-qualified some prospective investors did not explain why it decided to invite fresh Expressions of interests.

A statement issued by the head of Public Communications of the bureau, Mr. Chigbo Anichebe, in Abuja, said that the deadline for submission of applications has been fixed for January 19, 2007. However, the agency said existing pre-qualified bidders need not re-apply, urging those still interested in participating in the bid process to revise their bids. PHRC has two refineries at Alesa-Eleme near Port Harcourt in Rivers State - Port Harcourt 1 and Port Harcourt 2. Port Harcourt 1 is a topping and reforming refinery with a name-plate distillation capacity of 3,000,000 MTA (60,000 bpd).

It began operations in 1965, but was largely destroyed by fire in 1989. It was then rebuilt using current technology. Port Harcourt 2 is a complex, conversion refinery with a name-plate distillation capacity of 7,500,000 MTA (150,000 bpd). It came on stream in 1988 and was originally intended to serve as an export refinery. It has been subsequently dedicated to domestic market service given frequent interruptions in supply from the other three refineries in Nigeria.

Port Harcourt 2 has considerable clean fuel capability, including lead-free gasoline. Interested applicants are expected to be international and local oil and gas companies with a proven track record in successful ownership, management and operation of crude oil refineries. In order to be pre-qualified, prospective investors must provide verifiable evidence of their ability to own, manage and operate a refinery of similar capacity.

BELARUS

Mozyr Refinery Selects Axens’ Heavy Oil Conversion Technologies

Mozyr Oil Refinery in Belarus has selected Axens’ H-OilRC technology for the hydroconversion of 3,000,000 metric tons per year (approximately 60,000 bpsd) of Urals vacuum residue (VR).

The new H-Oil plant will convert high levels of the VR to low sulfur distillates and produce a low sulfur residue. The Mozyr H-Oil plant will be the most advanced process plant of its kind.

The plant will employ Axens’ interstage separation (IS2) and advanced hydrogen and catalyst management systems that minimize capital investment and operating costs and maximize unit profitability. The plant also includes an integrated Prime-D unit directly on the H-Oil distillate to produce a 10 ppm sulfur diesel fraction. The high quality vacuum gas oil (VGO) product will be fed to a catalytic cracking unit. An optimized blend of catalytic cracking cycle oils and unconverted H-Oil residue will produce a stable, low sulfur fuel oil with sulfur content below 1 wt%.

H-Oil technology is the industry benchmark for the conversion of difficult streams and is employed for heavy oil residue conversion (H-OilRC), and for difficult distillate conversion (H-OilDC) applications. Recently, the HOilDC technology has been started-up on mixtures of VGO, light cycle oil (LCO), heavy coker gas oil (HCGO) and aromatic extract oils, in Russia, licensed for use on Canadian bitumen DAO and is under construction for the upgrading of VGO from a direct coal liquefaction plant in China. H-Oil technologies have been licensed for total capacities exceeding 600,000 barrels per day and benefit from nearly 40 years of operating experience on a variety of feeds.

IRAN

Third Phase of Development Plan at Iran’s Abadan Refinery Kicks off

Development operations of the third phase of Abadan Refinery has been launched recently in the southwestern province of Khuzestan, an official with Erection and Construction Company (ECC) said on December 6

The project has so far progressed by 8 percent, and will increase Iran’s gasoline production by 6 million liters per day, Mohammad Hassan Kadivar told Mehr News Agency.

“Consequently, the gasoline imports should decline by 25 percent,” he noted.

Having a contract worth €400 million, the project to develop Abadan Refinery phase 3 is scheduled to be implemented within three years, the head of the Board of Directors at ECC stated.

He added that no foreign company is involved in implementation of this project.

Having a high level of gasoline consumption, Iran has to spend considerable amount on importing the product to meet the domestic need. As an alternative countermeasure, the country has started upgrading and developing its refineries.

Bandar Abbas, Isfahan, Arak, and Abadan are among the refineries for which development contracts have been signed.

Gasoline Production Deal at Isfahan Refinery

A contract on construction of a unit to produce gasoline at Isfahan Refinery will be signed within the next month, the managing director of the National Iranian Oil Refining and Distribution Company (NIORDC) said on December 16.

Calling for an investment of €218 million, the contract will be signed in cooperation with the Iranian Namavaran Company, Mohammad-Reza Nematzadeh noted, without going into details.

The official said that Isfahan Refinery stands first in Iran in terms of production of oil products.

Iran’s Abadan Oil Refinery under Reconstruction

Iranian Oil Minister Seyed Kazem Vaziri Hamaneh, speaking in London, said that the Abadan Oil Refinery Plant was undergoing reconstruction and that a number of oil projects were on line for implementation in Abadan such as commissioning of a second refinery plant with a projected capacity of 180,000 barrels of oil per day (b/d).

He added that implementation of the projects will begin after the necessary budgets are earmarked.

Not wanting to state a possible time schedule or credit for implementation of the projects, he said that an invitation had been extended to local and foreign investors to participate in implementation of the second refinery plant.

He also referred to his talks with his Iraqi counterpart during the recent visit of an Iraqi delegation presided by the country's prime minister, and said talks were held with the Iraqi oil minister on areas of possible cooperation between the two states and ways of getting projects started. The two sides, he added, agreed to hire the services of a mutually acceptable foreign consultant to undertake the necessary feasibility studies.

The oil minister further said that Tehran and Baghdad were determined to increase their oil relations.

He further referred to the equal share of Iran and Qatar in gas exploitation in South Pars Gas Field, adding that the two states are now actively exploiting the field on an equal basis, and noted that the more investment Iran puts into the field the greater will be the rate of return in the phases being currently exploited.

Turning to the subject of membership in OPEC, Vaziri Hamaneh said that Angola was set to join the cartel and will raise the membership to 12. OPEC, he added, will then have a stronger voice in the international energy market both in terms of supply and prices.

IRAQ

Iraq Opens New 10,000 bpd Refinery but Problems Still Remain

In October, Iraq opened a new 10 000-barrel per day (bpd) oil refinery near the city of Najaf.

Although small, the opening of this facility was significant, as it is only the second refinery commissioned since April 2003. Constructed by the Ministry of Oil’s Project Implementation Company, Najaf took just nine months to build and it may be expanded at a later date.

However, Najaf’s impact on domestic product supplies will be limited until the existing sector can be modernized and more refining capacity added. For now, Iraq remains dependent on imports for at least one third of its petroleum product consumption, with the country’s outdated facilities unable to meet demand in a sector further undermined by sabotage, smuggling and lack of security.

The ministry this year unveiled a large-scale plan to expand production of petroleum products with the construction of several new refineries that will be located outside the central region of the country. This is the region most prone to violence, but also the main area of consumption due to its large population. Kirkuk in the north and Basra in the south are where the majority of Iraq’s proven crude reserves are located.

The Ministry of Oil wants to build a 70 000-bpd refinery – Koia – in the northern town of Kowsinjaq and another 150 000-bpd refinery – to be known as Nahrein – near the town of Karbala. In the south, it plans to build a 300 000-bpd plant in the city of Nasiriyah, which would process crude from oil fields around Basra. The ministry has set up a tender committee to run a bidding process for the construction of the new refineries, which are expected to cost US $1 billion. There are also plans for two smaller refineries – each with a capacity of 140 000 bpd – which could be built at a later stage at Al-Nahrein in Al-Hinddia, south of Baghdad.

The Kurdistan Democratic Party said in September that it wanted to build a new refinery. It would be located at the town of Zakho, which is on the Kirkuk-Ceyhan pipeline route, close to the border with Syria and Turkey. It has been reported that an unspecified US company would build the facility and that the design would be completed by the end of this year. Details regarding the construction time and final capacity of the refinery have not been divulged.

Iraq will require foreign assistance to build the new refineries. Unrest since the US-led invasion in 2003, coupled with more than a decade of sanctions, has left the country’s sector deprived of access to modern technology. The issue of the nationality of companies that would be awarded contracts is of course politically charged, while the security situation may preclude the involvement of some of the usual candidates.

Iraq does have an existing co-operating agreement with the Kuwait Petroleum Company (KPC) covering technical aspects of future refining facilities, but this stops short of any form of joint venture.

The executive chairman of KPC has been quoted as saying: “Our participation will only be technical as we have not been asked to be partners in the [new] refineries.” Iraqi Ministry of Oil officials this year visited Kuwait to see its refinery operations and how they are managed.

According to the US Energy Information Administration, Iraq’s nameplate refining capacity is 700,000 bpd, but full production is only around 600,000 bpd when everything is working properly. Though in effect, most of the country’s eight refineries are operating at anywhere between 50 and 75% of full production.

The largest refinery in Iraq is north of Baghdad at Baiji, with a capacity of 310,000 bpd. The second biggest, at Basra, is capable of producing 150,000 bpd and the third largest is Daura, which produces 110,000 bpd.

In 2005 a US firm, Hydrocarbon Supply and Prokop from the Czech Republic signed contracts worth US $110 million to upgrade Daura, adding another 60 000 bpd of refining capacity.

Despite the ongoing shortage of supplies, a four month oil crisis earlier this year has not recurred. In August 2006, the Iraqi Prime Minister, Nuri Al-Maliki, said that the Ministry of Oil had adopted new measures to address the shortfall of oil supplies and contain sabotage.

The Ministry’s new strategy is centered on the establishment of new oil refineries, while at the same time increasing imports of refined products to meet demand. According to Ministry of Oil data, Iraq is producing around 10 million liters per day of refined petroleum and imports another seven million liters, while demand is 22 million liters. The country produces around 2.4 million bpd of crude.

As well as the dilapidated state of the Iraqi oil sector, sabotage and smuggling continue to undermine the Ministry’s efforts to ensure regular supplies and create the right security environment for construction of new refining capacity.

Sabotage brought oil production in the north of the country to a stop in July this year after an attack on the pipeline linking the Bayji refinery and the Al-Dura refinery in Baghdad. These two refineries account for 80% of Iraq’s current petroleum product output. When operating normally the facilities produced around 20 million liters of gasoline per day, but this is now around 3 million liters per day – as long as operations are not affected by technical problems or further sabotage.

To meet current demand ahead of any new capacity, Iraq is planning to increase imports from neighboring countries. These are expected to reach 11 million liters per day by the end of 2006, compared to 8 million liters per day in September. However, supplies from its neighbors have not been without their problems. In particular, relations have become strained with Turkey following attacks on the Kirkuk-Ceyhan pipeline. This has forced the Iraqi Ministry of Oil to use truck convoys to take crude out of the country for refining in Turkey then re-import it – making the exercise costly and inefficient.

Other potential suppliers include Syria and Iran; agreements have been signed in principle with both countries. A memorandum of understanding (MOU) has been agreed covering a swap deal whereby 100,000 bpd of Iraqi crude will be refined in Iran, the latter receiving paraffin in exchange. In 2005, the two countries signed another MOU to build a pipeline between Abadan and Basrah.

Under this agreement, Iraq would swap crude with Iran in exchange for a range of refined products. The status of both projects is unclear. A further MOU was signed in August, with Jordan, for the construction of a pipeline between Iraq and Al-Aqabah on the Jordanian coast.

The need to import oil is undermining the already fragile economy. Inflation has been running at more than 50% this year, with a lack of revenues from crude exports and mounting import bills for refined products cited as a major factor for the increase. According to government data, Iraq is expected to spend around over US $2 billion this year on oil imports. Monthly import bills are averaging between US $200-$250 million. Meanwhile, a recent US government report said Iraq has lost up to US $16 billion in oil export revenues over the last two years.

Further costs are due to the government’s high subsidization of gasoline prices – currently at less than 10 cents per gallon. Attempts to change this system and increase prices have proved deeply unpopular – in December 2005 they led to violent protests. The fuel subsidy system is estimated to cost the Iraqi government US $8 billion per year.

Subsidies have also encouraged the smuggling of oil out of the country – particularly rife around Basra – reducing supplies even further. Iraq ultimately wants to achieve self-sufficiency in petroleum product output. However, to make this happen it will need to ensure sufficient crude supplies and that sector is also operating at way below its potential. The Ministry of Oil is reportedly working on a draft investment law for foreign oil companies to work in the country, which should be completed by the end of this year.

Deputy Prime Minister, Barham Salih, was quoted as saying in October that given appropriate levels of investment, the Iraqi oil sector could be producing as much as 6 million bpd by 2012. Before Iraq’s invasion of Kuwait, output was as much as 3.5 million bpd and is currently around 2 million bpd.

How soon international oil companies will enter Iraq remains to be seen. However – security concerns aside – there is obvious foreign interest. At the end of October, Japan’s ministry of Trade and Industry (MITI) announced a loan of US $17.5 million to upgrade the 150 000-bpd refinery at Basra. Japan’s news followed a visit by Iraq’s Oil Minister Hussain Al-Shahristani, where the two countries discussed other forms of co-operation and investment in Iraq’s oil sector.

Part of the new production from Basra will be exported to Japan. The country is concerned about future oil supplies, given the strong demand from some of its Asian neighbors and after Iran’s decision to remove the majority holding held by Japan’s Inpex Holdings in the Azedegan field. As MITI’s director of oil and gas division, Shin Hosaka, was quoted as saying: “We don’t want to miss a boat that leads to vast oil reserves in Iraq.”

Make Oil Wins Deal to Build 250,000 Bpd Refinery in Iraqi Kurdistan

Iraqi Kurdistan will soon have its own oil refinery with a capacity of 250,000 barrels per day.

Construction should last between two and three years, and once completed the refinery will be able to handle C barrels per day, said Make Oil lead engineer Mahmoud Darwish. The company's investors for the Kurdistan refinery hail from the Gulf, Europe and the United States.

Make Oil has also proposed to build a smaller refinery in Dhouk that can launch operations in nine months, while work on the bigger facility continues, Kheireddine said.

Make Oil is also among the bidders to build a $2.2 billion refinery in Basra. That project would take about two and a half years to finish, and would have a capacity of 150,000 barrels per day, Darwish said.

Make Oil's biggest problem in completing the Basra deal is getting to Basra - because of the sectarian conflict in Iraq, company executives are unwilling to travel there to finish negotiating the deal. But Kheireddine expressed hope that the contract would be signed in two or three months if the situation allowed it.

In Kurdistan as in Basra, Make Oil has faced fierce competition from Gulf oil firms, many of which enjoy vast financial resources and experience. The Lebanese say their good relationships with the ministry and the Kurds have helped their cause, and they are eager to build factories and public-works projects in Kurdistan.

The raging war in Iraq has not affected Make Oil's work, nor should the refinery be a target for attack, officials said.

"There's no danger in Kurdistan," Kheireddine said. "It's a separate territory. We're not taking a risk."

Make Oil officials also brushed aside talk of Kurdistan becoming an independent country - Turkey and the US will not allow the Kurds to secede, according to Make Oil deputy general manager Samer Zeitoun.

"This won't happen," Zeitoun said. "Even if this happens, we won't have any problem."

The Kurdistan project will be the first refinery built by Make Oil, which has offices in Germany, Spain, England, Sudan and Syria.

Aside from the Iraqi quagmire, oil prices will continue to climb for a long time thanks to China's strong economic growth, Kheireddine said.

"The Chinese need for oil is increasing," he said.

KUWAIT

KNPC to Receive Bids for New $6 Billion Refinery

Kuwait National Petroleum Co (KNPC) expects to receive international firms' bids for a 615,000 barrels per day refinery from a state tenders agency, a KNPC official said.

Eleven international companies are bidding for building the new refinery which is set for completion by 2010 and is estimated to cost about $6 billion. The complex will mostly produce low sulfur fuel oil for state's electricity plants.

'The company will study the technical and the commercial aspects of the bids,' Ahmad Al Jemaz, who heads the new refinery project, told the official Kuwait News Agency (Kuna).

Jemaz said the Central Tenders Committee would announce the winner.

Last month, KNPC chief Sami Rushaid said the state refiner postponed the award of the tender for the refinery by three months to March due to delayed bidding by international firms.

The new refinery, coupled with planned upgrade works on two of three existing refiners, will boost Kuwait's overall refining capacity to 1.5 million bpd from 930,000 bpd.

Kuwait’s Al Zour Refinery Faces Cost Overrun

Kuwait National Petroleum Company has received bids to build an oil refinery up to two-and-a-half times the original budget, Middle East Economic Digest reported. KHPC's original budget for the 615,000 bpd Al Zour refinery had been revised up from $6.3bn to $10bn, while the combined size of the lowest bids is more than $15bn. There were four main packages on offer.

OMAN

Oman to Expand Refinery Capacity for $320 Million

Oman Refinery Company (ORC) will shut its 85,000 barrel per day (bpd) refinery in Muscat from mid-January until April as it works to expand capacity by 25 per cent, two refinery sources said.

'The refinery is running until mid-January 2007,' one source said.

The $320 million expansion project will see the refinery's processing capacity jump to 106,000 bpd by April.

Oil traders had suspected a maintenance closure after ORC tendered to buy 2.2 million barrels of gasoline during the first quarter, more than twice its normal imports, signaling it was anticipating lower domestic supply.

The shutdown of the refinery may also release up to five 500,000 barrel Oman cargoes a month into the market, although traders said the impact may be limited with the new 116,000 bpd Sohar refinery expected to come fully on stream soon.

Sohar was first expected to begin operations in the summer, but has been repeatedly delayed by operational hiccups. A senior official said last month that it was now due to begin commercial operations in early December.

A source in Oman said the Sohar refinery was not yet running at full capacity.

QATAR

Japanese Firms Join $800 Million Qatar Refinery Project

Four Japanese firms led by Idemitsu Kosan and Cosmo Oil have agreed to join a new Qatari refinery project, marking the Japanese industry's first overseas refinery investment. The project is expected to cost US$800 million. Idemitsu and Cosmo Oil, Japan's No 3 and No 4 refiners, will each take a 10% stake in Qatar Petroleum's Laffan Refinery, which plans to build a 146,000bpd plant in Ras Raffan Industrial City in Qatar. Japanese trading houses Mitsui and Marubeni will each take 4.5%, reducing Qatar Petroleum's holding to 51%. Exxon Mobil and Total hold 10% each. The new refinery is expected to come on-stream in 2008 and use condensate as a feedstock.

UAE

GE to Supply Steam Turbines for Refinery Upgrade to UAE

GE's Oil & Gas business will supply eight compressors and a steam turbine power generation set for the expansion of Emirates National Oil Company (ENOC) condensate refinery at Jebel Ali, near Dubai in the United Arab Emirates.

When the expansion project is completed by the end of 2007, the output of the existing units at the refinery will be sustained at 120,000 barrels per day of distillates. The upgrade will enable the refinery to produce high grade reformate. The engineering, procurement and construction (EPC) contractor for the project is Foster Wheeler London UK.

GE will provide five centrifugal compressors and three reciprocating compressors, all driven by electric motors, for use with the expanded plant's naptha hydrotreater and continuous catalytic reformer. The GE steam turbine-generator set will operate on steam coming from the refinery processes to produce power for the plant. All of GE equipment will be manufactured at GE's facilities in Florence, Italy.

YEMEN

RIL to Partner Hood Oil to Build $450 Million Refinery in Yemen

Reliance Industries will partner Yemen's Hood Oil to build a 100,000 barrels per day refinery in that country at a total project cost of $450 million.

"Hood Oil will hold the majority 74 per cent stake in the Ras Issa refinery and reliance the remaining 26 per cent," a source said.

The Mukesh Ambani Group firm already partners Hood Oil and Calvalley Petroleum in oil production block 9.

International Finance Corp (IFC), World Bank's private sector lending arm, is to provide a 45 million dollar loan to the refinery to be built on the Red Sea coast. The total project cost is estimated at 450 million dollars.

An RIL spokesperson could not be immediately contacted for comments.

"The founders of Hood Oil and Reliance have long-standing ties, the groups are engaged in various commercial endeavors," the source said.

The refinery, which would produce gasoline, diesel, Jet fuel, kerosene, benzene and liquefied petroleum gas, is expected to begin operations by 2008.

"Reliance-Hood Oil has begun work on project design. US Chicago Bridge & Iron carried out the front-end engineering and design work," the source said.

Yemen has two existing refineries: the 10,000 barrels per day Marib Refinery, which is undergoing an upgrade and expansion program, and the larger 90,000 barrels per day Aden Refinery. Aden was due to be upgraded and privatized in 2001 but these plans were later scrapped.

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