march 07 update

It’s just the beginning of 2007 and it’s already clear that this is going to be a particularly active year for refinery deals according to Oil Price Information Service (OPIS). The 2001-2006 “land grab” is over, and companies that spent billions to buy refineries may soon be more active as sellers than buyers. Meanwhile, new and equally active domestic and foreign investors from upstream oil, existing refining, or private equity firms are eager to put money into what they believe will be a long term renaissance for downstream profits.

In February, Valero confirmed what OPIS first reported on January 29, 2007; namely, that it would seek a buyer for its 170,000 b/d Lima, Ohio refinery. Just a week later, OPIS exclusively reported that ConocoPhillips would shop its Irish refinery, a story not picked up by financial wire services some six days later. And on Friday, January 26, OPIS reported that Tesoro was in advanced talks to purchase Shell’s 97,000 b/d southern California refinery. Three days later, Wall Street was shocked when Tesoro and Shell confirmed a $1.6-billion deal.

OPIS’ special report on refinery consolidation concludes that sellers of plants haven’t necessarily “soured” on refinery prospects; instead; some companies want to cull and “refine” their refining assets. It’s not just independent firms; OPIS editors have confirmed that several major oil companies are reviewing global refineries, and ranking those that are core and non-core.

1. AMERICAS

U.S.

DEP Opens Probe into Valero Gas Release

Paulsboro Investigators from the New Jersey Department of Environmental Protection are determining whether the February 6 emergency release of sulfur dioxide is a violation of the refinery's operating permit.

In November, the Valero Refinery was found to be in violation of its air operating permit after a loose 34-inch bull plug released 90 barrels of slurry oil, four to five of which coated the surrounding community in a sticky, misty rain.

That mistake cost the Valero Refinery some $35,000 in fines from the DEP, but it is unknown if the February 6 release will result in similar action.

"We haven't yet determined if there will be any fines," said DEP spokeswoman Elaine Makatura. "The DEP is still investigating it. We are going to review the facts and see if there was any violation of their permit."

Valero spokeswoman Claire Riggs explained that in the moments following the release, the company contacted both the DEP and the county emergency command center.

According to both Valero and DEP spokeswomen, the responsibility of notifying outside departments of an accident falls on Valero itself.

"Most of our refineries have a lengthy permit and part of their permit is reporting malfunctions and releases," said Makatura. "In these types of refineries it is hard to cover (anything) up, and if they did it would result in a full investigation."

Although this reporting practice is supported by the DEP, the state organization required to investigate environmental accidents, it has gained critics in refinery watchdog groups.

"Often everything is just self-reported, so you never really know what the cause was, what was put out and will these guys try to stop it from happening again," said Denny Larson, coordinator of the National Refinery Reform Campaign, which has branches in the Philadelphia region.

The material released within the refinery, hydrogen sulfide, is toxic at certain levels of exposure. According to Larson, the resulting flare, or burning of the gas to create sulfur dioxide, was the last measure before a larger problem could occur.

"A flare is a last-resort emergency release device, so when you have a whole bunch of dangerous and/or explosive gases in your process that have to be released in order to prevent a major catastrophic event, it is vented as a flare," he said.

"In the low concentrations we saw in the neighborhoods there shouldn't have been a problem," said Riggs.

A DEP investigation is still attempting to determine the cause of the accident and how much of the chemical was released into the atmosphere.

Fluor to Head $3.2 Billion Refinery Expansion in Garyville

Marathon Oil announced the slate of contractors February 22 who will build the company’s $3.2 billion refinery expansion in Garyville.

Site work should begin in April and heavy construction by midyear with Texas-based Fluor as project manager.

The expansion, which will boost Marathon’s output 73 percent to 425,000 barrels a day, will be completed in late 2009.

Along the way, an average 2,000 construction jobs will be supported, peaking at 4,000 workers in late 2008 and early 2009. Meanwhile, Fluor will share engineering and procurement work that precedes and supports the construction.

Baton Rouge-based Shaw Group and Chicago Bridge & Iron, headquartered in The Woodlands, Texas, will assist Fluor in that role.

“A project like this is almost too big for one company to handle,” said Marathon refinery manager Rich Bedell.

“That’s why we selected Shaw and (Chicago Bridge & Iron). We needed other contractors with good engineering experience.”

In May, Shaw finished a multiyear project to retrofit the existing refinery with $300 million worth of gasoline and distillate hydro-treating equipment that conformed Marathon’s plant to new clean-fuel standards.

Fluor, with more than $13 billion in annual revenue, oversees a book of business more than double that of Shaw, and ranks first on Fortune magazine’s index of U.S. engineering and construction firms.

But the company’s selection as project manager stemmed as much from Fluor’s early role in feasibility studies for the Marathon refinery job.

“We had them engaged very early,” Bedell said. “And then we went into front-end engineering. It was sort of a natural then that they take on the project management.”

At the contractor level, Marathon is hiring locally as much as possible.

A number of Baton Rouge regional companies will gain work in the expansion: Performance Contractors and Turner Industries will do steel and mechanical work; Industrial Specialty Contractors and Excel Construction Group will complete electrical and instrumentation work; while Cajun Constructors and James Construction Group will perform other jobs, including pile driving, concrete foundation and site preparation.

Marathon didn’t disclose the value of work subcontracted to each firm.

But the impact of the refinery work will be significant.

LSU economist Jim Richardson estimated payrolls will produce $377 million in construction worker income during the project.

The level of spending will produce about 7,400 direct and indirect jobs in the region, Richardson said.

Upon completion, Marathon’s permanent staff will grow from a current staff of 570 to 770.

Contract workers on site will increase by about 75 jobs to 425.

The Airline Highway site spans 3,500 acres, with the current refinery lying on 900 fenced acres. An adjacent 350 acres will be taken in for the expansion as workers begin clearing and grubbing former sugar cane fields starting in April.

Marathon scaled one of its biggest hurdles in late December, when the state Department of Environmental Quality approved permits needed prior to construction.

“They’re good to go on our end,” DEQ spokesman Darrin Mann said.

Marathon will erect seven major storage tanks for crude oil and refined products. In addition, the company will add crude, reformer, coker, hydrocracker and hydrotreater units, along with boilers, a water treatment plant and a pair of sulfur plants.

After the site is cleared, contractors will drive 25,000 piles and pour concrete foundations by the end of the year.

In early 2008, steel will be erected, “and the whole process will come out of the ground then,” Bedell said.

Valero McKee Refinery to Partly Restart in April

Leading U.S. refiner Valero Energy Corp. said on February 26 partial production should begin at its fire-damaged McKee oil refinery in Sunray, Texas, by early April after repairs are made.

A fire erupted at the 170,000 barrel-per-day (bpd) plant in the Texas panhandle Feb. 16, injuring several workers and forcing plant-wide shutdown.

Valero said in a statement that the refinery could be restarted at 85,000 bpd of crude throughput in early April, bringing fuel production to 55,000 bpd of gasoline and 20,000 bpd of distillates.

"At that time, if repair and recovery efforts go as planned, we hope to have our crude unit, alkylation unit, reformer, fluid catalytic cracking unit and one of our sulfur recovery units recommissioned," Valero spokeswoman Mary Rose Brown said in the statement.

Valero added that its pipeline spin-off, Nustar L.P., has reversed a crude pipeline supplying the refinery so that the oil is being stored in tanks at Wichita Falls, Texas.

Workers at the plant, located 60 miles north of Amarillo, Texas, are expected to restore steam production soon, Brown said. Steam provides heat and is used directly in the refining process.

Investigators from the U.S. Occupational Safety and Health Administration and the U.S. Chemical Safety and Hazard Investigation Board have been able to get within 20 feet of the location where the fire began.

Some of the most heavily damaged areas at the refinery are being inspected for structural safety, Valero said.

The February 16 fire broke out after a propane leak began on a propane deasphalter unit, which uses propane to draw gasoline out of residual crude oil.

Delek Puts off Maintenance on Tyler, Tex Refinery

Delek US Holdings said it will not shut a sulfur recovery unit and a SCOT unit at its 55,000 barrel per day refinery in Tyler, Texas, to repair the SCOT unit, according to a filing with state environmental regulators.

This countermands another filing made earlier with the Texas Commission for Environmental Quality in which the company said it would shut SRU 2 and the SCOT unit for repair until March 3 and route the acid gas to SRU 1.

"The maintenance event will not be conducted according to schedule reported in the initial maintenance notification," according to the latest filing.

A company official was not available to comment.

Frontier Oil Undeterred by over $200 Million Refinery Growth Cost Rise

Frontier Oil Corp. said February 26 it would move ahead with over $200 million in new refinery expansion projects despite cost overruns and delays at existing expansion projects throughout the refining industry.

The company's board of directors was expected to approve at its Feb. 28 meeting three new capital projects at its 110,000 barrels per day (bpd) El Dorado, Kansas refinery that would cost $213 million, Frontier executives said.

"It is a tough environment for project execution but we are getting it done," said Frontier CFO Michael Jennings on the company's quarterly earnings call.

Frontier plans to spend $155 million to expand the 40,000 bpd fluid catalytic cracker at El Dorado, as well as to revamp a hydrotreater used to remove sulfur from the FCC feed by 2009. Another $58 million has been budgeted to expand the refinery's delayed coker by 2,500 bpd.

Frontier told analysts in September that the three projects would cost $162 million.

Rising raw materials prices and intense competition for labor have driven up the cost of capital projects at U.S. refineries in recent months. Sunoco Inc. disclosed this month that one project at its Philadelphia refinery was now expected to cost $200 million more than the $300 million originally budgeted.

Four existing projects underway at Frontier's two refineries are now expected to exceed budgeted costs by over $15 million, Frontier executive vice president Paul Eisman said.

The rise in costs is mainly due to delays in completing a planned expansion of the delayed coker at Frontier's Cheyenne, Wyoming refinery. Frontier now expects to shut down the Cheyenne plant in mid-May to complete the coker project, a month and a half later than originally planned.

Chevron Completes Refinery Expansion Project to Increase U.S. Gasoline Production

Chevron U.S.A. Inc., a wholly owned subsidiary of Chevron Corp., announced that its refinery in Pascagoula, Miss., completed the expansion of its Fluid Catalytic Cracking Unit, which will increase the refinery's capacity to manufacture gasoline by roughly 10 percent to about 5.5 million gallons per day. This expansion was completed during a large-scale, planned 75-day project shutdown in the fourth quarter.

The Pascagoula Refinery is Chevron's largest wholly owned petroleum refinery, processing an average of 330,000 barrels of crude oil per day and producing a variety of transportation fuels and other refined products.

CANADA

Flint Transfield to Provide Asset Management Services to Suncor and Sarnia Refinery

A subsidiary of Transfield Services won a CAN $1billion (A $1.1 billion) contract to provide asset management services to Canadian petroleum giant Suncor.

Flint Transfield, a joint venture of the Australian infrastructure and management services group and Canada's Flint Energy Services announced in February that it was the preferred tenderer to enter into exclusive negotiations for the five-year deal.

Flint Transfield will provide turnaround and shutdown services at Suncor's Fort McMurray oil sands operation and Sarnia refinery.

It will also be responsible for site-wide maintenance support services at Suncor's oil sands operation.

And it will provide maintenance services to the Sarnia refinery and the Fort McMurray oil sands facility.

Transfield Services chief executive Peter Watson said the magnitude of the deal firmly established Transfield in the North American market.

"The contract that we have has the ability to be able to expand across all of Suncor's assets," Mr Watson said.

Mr Watson also signaled that Transfield would use the deal as a platform to look beyond Suncor to providing services to some of the world's major oil firms.

"There are a number of global companies that are looking at what Suncor is doing and there’s a lot of global companies that are not familiar with what we're doing.”

"Shell's up there, Exxon Mobil's up there and these organizations are very familiar with co-operative models."

The Flint Transfield joint venture will employ about 1000 workers for the Suncor project.

Mr Watson was confident staffing and labor would not be a problem and said the joint venture had enjoyed friendly dialogue with Canadian unions.

Transfield Services could also draw on its 23,000 strong global workforce if necessary, he said.

The company hopes to conclude contract negotiations with Suncor by the end of the first quarter of 2007.

Operations at Fort McMurray are then expected to begin in the third quarter of 2007 and at the Sarnia refinery in the first quarter of 2008.

The joint venture was formed in August 2006 to target management and maintenance opportunities in Canada's oil sands industry. Canada has the second largest oil reserves in the world after Saudi Arabia.

Imperial Oil’s Nanticoke Refinery Restarted after Blaze

Imperial Oil says its Nanticoke, Ont., refinery has restarted crude oil processing at reduced rates, but a full return to normal operations is not expected until mid-March, extending a gasoline shortage in Ontario.

"All efforts are being made to secure additional supply for the Ontario market from trading partners and suppliers in other Canadian and U.S. markets, but the industry supply situation in Ontario remains very tight," the company said February 28.

"Our employees are working around the clock to make the necessary repairs to the damaged unit, find additional supplies for the Ontario market and manage critical needs," said Simon Smith, Imperial's vice-president and general manager of fuels marketing.

"We recognize the severity of this incident, but the situation is improving and we are doing everything in our power to minimize the duration and impact to our customers."

The company has said gasoline was in high demand even before the oil processing machinery in the southwestern Ontario refinery caught fire Feb. 15.

It was the firm's second refinery fire in several months — a fire hit the company's Sarnia operations late last year.

The company says it is working to boost inventory from supplies elsewhere in Canada and the U.S.

The supply problem was made worse by a strike by Canadian National Railway workers, which hampered Imperial's ability to move gasoline through its distribution system to fill gaps.

ECUADOR

ONGC to Set up $4.5 Billion Refinery in Ecuador

ONGC Videsh Ltd (OVL) will set up a $4.5-billion oil refinery and petrochemicals project in joint venture with PetroEcuador and Petroleos de Venezuela, Carlos Abad, Ecuador’s ambassador to India, said.

PetroEcuador is the state oil company of the Latin American country. Abad is Ecuador’s first ambassador to India. Ecuador established its embassy in India two years ago.

At a meeting organized by the Bharat Chamber of Commerce in February, Abad said Ecuador was looking at strengthening its trade ties with countries such as India to reduce its dependence on the US.

“We want more companies from India and China to invest in Ecuador, particularly in the oil, gas and power generation sectors. We have many companies from the US and Canada and we now want firms from other parts of the world to come to the country,” Abad said.

While Canadian companies account for 69 per cent of the total foreign direct investment in Ecuador, the US makes up for another 20 per cent.

ONGC Videsh and PetroEcuador signed a memorandum of understanding last July when Ecuador’s minister of external affairs, Francisco Carrion Mena, came to India. The MoU envisaged cooperation between the two companies in developing and promoting petroleum, gas, electricity, petrochemicals, hydrocarbon products and petroleum research.

According to the agreement, ONGC Videsh and PetroEcuador would also collaborate in exploration activities and bid for oil and gas blocks in Ecuador and other Latin American countries through joint ventures.

“Ecuador exports crude and imports refined petroleum. The country has no refinery like Nigeria,” said Vinay Goenka, who has been appointed as the honorary consul of Ecuador in Calcutta by the newly-elected government in the Latin American country. Over 59 per cent of Ecuador’s total exports comprise crude oil and natural gas.

2. ASIA

AUSTRALIA

Caltex Profits Stall as Refinery Upgrade Loses Speed

Caltex Australia has suffered a 22 per cent fall in full-year profit because of delays to the completion of a $500 million upgrade of its Sydney and Brisbane refineries to meet new fuel standards.

Australia's largest petrol company also warned on February 23 that motorists remained as exposed to the impact of a natural disaster as they were in late 2005 when the devastation wrought by hurricane Katrina in the Gulf of Mexico pushed petrol prices to record highs.

Caltex expects a greater supply of transport fuels after 2008 as refineries are built in China and India in response to demand for petrol and diesel from Asian economies.

But chief executive Des King said fuel supplies would remain tight for the next one to two years because of insufficient refining capacity.

As such, Caltex expects it will maintain its margins between about $US8 a barrel and $US10 a barrel over the period. Caltex's refiner margin last year averaged $US10.13 a barrel, a $US1.73 increase on 2005.

"Overall, that will bode well for Caltex," Mr King said. "Beyond 2008, it will be a function of how many refineries are built."

Caltex's sales were constrained in the first half due to higher petrol and diesel prices, but recovered in the second half when they eased.

CHINA

Three Oil Giants Ink China’s Fujian Refinery Deal

Saudi state oil giant Saudi Aramco, US major Exxon Mobil and China’s Sinopec have signed contracts for a project to triple the capacity of the Fujian oil refinery in southern China.

The three finalized the deal that they initially agreed in 2005, with a price tag then of $3.5 billion. Statements from Aramco and Sinopec February 25 did not give the final investment estimate for the project.

Rising steel and labor costs have led to spiraling project budgets, threatening the viability of multi-billion dollar energy schemes.

The Fujian deal gives Aramco and Exxon a foothold in China’s insular refining sector, dominated by state giants Sinopec and PetroChina.

The project will boost the Fujian refinery’s capacity to 240,000 barrels per day (bpd) from 80,000 bpd. The expanded refinery will start up in early 2009, Aramco said.

The refinery will process Aramco’s heavy crude. Chinese refineries find it difficult to handle this heavy oil, so Aramco has boosted the potential market for its crude by investing in the refinery upgrade.

As part of the project the three will also build a petrochemical complex to produce plastics and gasoline blending components, which will include an 800,000 tonne-per-year ethylene cracker.

Aramco, Exxon and Sinopec also signed contracts for a fuel marketing venture that will manage 750 service stations and a network of terminals in Fujian province.

That gives Aramco and Exxon access to China’s protected retail sector.

Global oil majors have jostled to get a foothold in China’s fast-growing retail sector. China is the world’s second-largest energy consumer.

Aramco and Exxon will each have 25 per cent of the refinery and petrochemical joint venture. The Fujian Petrochemical Company Limited (FPCL) will hold the remaining 50 percent.

Sinopec and the Fujian Provincial Government each hold 50 per cent of FPCL.

Sinopec owns 55 percent of the fuel marketing venture, while Exxon and Aramco will each own 22.5 percent.

Saudi Aramco’s signing of the two contracts is subject to final approval by the Saudi Arabian Supreme Council for Petroleum and Mineral Affairs, Aramco said.

INDIA

Mittal to Buy 49 Percent of HPCL’s Bathinda Refinery

HPCL is third time lucky in finding a partner for its Rs 16,700-crore Bathinda refinery project. LN Mittal has agreed to pick up a 49% stake in the greenfield refinery project in Punjab with an investment of around Rs 3,300 crore.

“This is the first foreign direct investment in the refinery sector.

HPCL is entering into a JV with Luxemborg-based Mittal Investments for 9 MMTPA Guru Gobind Singh Refinery project and allied facilities at Bathinda,” petroleum minister Murli Deora sa id. Earlier on two occasions HPCL failed to forge alliances with BP of the UK and Saudi Aramco of Saudi Arabia.

Mr Deora said after six years of waiting, the JV could finally be formed. HPCL and Mittal Investments will hold 49% equity each in the project, while the 2% balance will be held by financial institutions, he added. It is expected that a formal agreement between the two partners will be signed during the proposed visit of Mr Mittal on March 2. Petroleum secretary MS Srinivasan said that the public sector Oil India (OIL) may also join the project at a later date. It is expected that OIL may get a 10-15% stake in the project out of HPCL’s 49%. The HPCL board had cleared the JV proposal February 19. The project is expected to be commissioned by 2010.

Mittal Investments is a wholly owned by the Mittal family and is registered in Luxembourg. It holds 38% in Mittal Steel Company.

HPCL chairman & managing director MB Lal said the partnership would be extended beyond the Bathinda project. “We are also looking at taking Mittal's help in acquiring refineries abroad. It is also possible that Mittal may participate in our Vizag petrochemical complex and Vizag refinery expansion project,” he said. HPCL and Mittal may also explore partnership in the natural gas business. HPCL said that the project would not wait for an FIPB approval.

Mittal, Bathinda Equal Partner Plan may Face Policy Hurdles

Hindustan Petroleum Corp’s (HPCL) plans of roping in the LN Mittal group as its equal partner with 50% stake in the Bathinda refinery may face policy hurdles.

FDI norms for the refinery sector allow foreign players to own a maximum of 26% in joint ventures with PSU oilcos. “FDI in refining sector is capped at 26% if the JV is with a PSU. Under no circumstances can foreign equity in a public sector refinery cross the limit,” a government official said quoting press note 4 of 2006 series.

Sources said that the Mittal group is talking to the company for a 50% equity stake in the proposed Rs 16,000-crore Guru Govind Singh Refinery in Punjab. The deal is expected to be finalized by month end. Petroleum ministry officials also confirmed that the Mittal group was interested in picking up an equity stake in the Bathinda refinery.

HPCL is expected to consider a proposal in this regard in its forthcoming board meeting scheduled to be held in the Capital in the last week of February, sources said. It is understood that the equity stakes of the two partners have been decided and a formal announcement was expected after the Punjab Assembly elections.

According to sources close to the deal, there has been less probability of public sector Oil India (OIL) joining the project. “HPCL has decided to accept the Mittal proposal as OIL has not been able to make a decision in this regard,” a source said. Earlier, OIL had said that it would join hands with HPCL in developing the 9 mmtpa Bathinda refinery. OIL had evinced interest in picking up at least 26% equity stake in the project.

In the light of current FDI norms, HPCL has two options: Mittal and OIL taking 26% equity each and balance equity being retained by the promoter. Another possibility is that the three companies may have 26% each and balance would be held by Indian public.

The HPCL-promoted project has so far been unlucky in finding a partner for the refinery project. Earlier, British Petroleum had walked out of the project after signing an MoU with HPCL.

ONGC may have to Re-think Kakinada Refinery Project

ONGC may be compelled to reconsider the decision to shelve its plans to build a greenfield refinery project in Kakinada, Andhra Pradesh. The Union Petroleum Minister, Mr Murli Deora, said that he is going to hold a meeting with ONGC officials wherein he is going to ask them to reconsider their decision.

Speaking to the media February 22, Mr Deora said, the Prime Minister, Dr Manmohan Singh, was very eager for the company to meet its commitment to build a refinery in that State. The Andhra Pradesh Government has been time and again holding talks with the Centre on the reported move by the ONGC to put its plans on the proposed project in Kakinada on hold.

The Chief Minister of Andhra Pradesh, Dr Y.S. Rajasekhara Reddy, has taken up the matter with the Prime Minister as well as the Petroleum Minister. ONGC had decided to defer its plans to invest in the Kakinada Special Economic Zone and to develop an export-oriented refinery in Kakinada as preliminary reports about the feasibility of the project were not optimistic.

As per the preliminary study, the refinery size should be at least 15 million tonnes (mt) to make it viable, whereas the original proposal was for a 7.5-mt per annum refinery with an investment of over Rs 7,500 crore.

ONGC, along with its subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL), had inked two separate MoUs with the State Government and infrastructure lender during September last year. The first MoU was signed between the Andhra Pradesh Government, Infrastructure Leasing & Financial Services Ltd (IL&FS) and Kakinada Seaports Ltd (KSPL) to promote the Kakinada SEZ through a special purpose vehicle called Kakinada Special Economic Zone Ltd.

The second related to setting up an export-oriented refinery through a joint venture of ONGC-MRPL, the Andhra Pradesh Government and IL&FS.

Foster Wheeler Ltd Announces Service Contracts for 15 million TPA Paradip Refinery and Petrochemicals Complex

Foster Wheeler Ltd has announced that two subsidiaries in its Global Engineering and Construction Group, Foster Wheeler Energy Ltd and Foster Wheeler India Private Ltd, have been awarded services contracts by Indian Oil Corp. Ltd (IOCL) for the Paradip Refinery Project, which is expected to be one of the largest integrated refinery petrochemicals complexes in India.

This facility, comprising a new export refinery and petrochemicals complex, will be built in Orissa State. Foster Wheeler's scope includes the front-end engineering design, preparation of cost estimates and the overall project strategy, and supervision of early works on site up to financial investment decision for the refinery, which is expected in mid-2008.

The planned refinery, with a crude processing capacity of 15 million tonnes per annum (TPA), will include a fluidized catalytic cracking unit, an aromatics complex and a polypropylene unit. The new complex will ultimately produce 700,000TPA of polypropylene, 1.2 million TPA of paraxylene, 600,000TPA of styrene monomer, along with 10.5 million TPA of refined petroleum products. This award also includes a detailed feasibility study for Phase 2 of the development, the Paradip Naphtha Cracker Project.

MALAYSIA

Foster Wheeler Announces Malaysia Refinery Project

Foster Wheeler Ltd has announced that its subsidiary, Foster Wheeler E&C (Malaysia) Sdn Bhd, part of its Global Engineering and Construction Group, has been awarded a contract by Malaysian Refining Co. Sdn Bhd (MRC), a joint venture between Petronas and ConocoPhillips, for the basic design engineering package and the engineering, procurement and construction management for a debottlenecking/revamp project at MRC's PSR-2 Melaka Refinery in Malaysia.

The debottlenecking and revamp project is expected to permit MRC to increase the overall refinery throughput from 130,000 to 175,000bpd. This project includes the revamp of the hydrocracker unit, significant modifications to the internals of the vacuum distillation and crude distillation units, the installation of additional heat exchangers, and modifications to other process units and associated offsites and utilities.

TAIWAN

Taiwan’s Formosa Petrochemical Corp. Plans Oil Refinery Growth to 690,000 Bpd

Taiwan refiner Formosa Petrochemical Corp. has belatedly joined its expanding Asian peers with a plan to boost capacity by nearly a third to lift high-quality diesel exports and supply its petrochemical plant.

Energy Bureau has approved Formosa's plan to expand its seven-year-old Mailiao plant by as much as 150,000 barrels per day (bpd), which would lift capacity to 690,000 bpd, government and company officials said February 7.

But it still requires a green light from the Environmental Protection Administration (EPA) and other relevant government departments, the officials said, a process that has held up greenfield industrial projects in the past.

A Formosa executive, who spoke on condition of anonymity, said there was no timetable as yet for the expansion.

Over the past two years, a host of other Asian refiners including South Korea's S-Oil , China's Sinopec and India's Reliance have set out major expansion plans as refining margins enjoyed a multi-year rally thanks to limited investment and rapid demand growth.

But margins turned lower in mid-2006 while construction costs have ballooned, prompting some U.S. refiners to put plans on ice and raising questions about whether the industry is overbuilding capacity that will drag down profits at the end of this decade.

"We are looking for another 100,000 bpd, but the capacity could range from 100,000-150,000, depending on the feedstocks," said the executive.

The plan will include the installation of a hydrocracker to produce ultra-low-sulfur diesel, the bulk of which would be earmarked for export, the executive said.

The integrated refiner is building a new 1.2 million tonnes per year (tpy) ethylene plant, which, after several delays, is expected to be completed around mid-2007.

The new plant would raise its annual ethylene production to 2.9 million tonnes, increasing its need for the feedstock naphtha.

"It's a combination of trying to capture the diesel premium margin and (producing) naphtha in order to balance their own feedstock for their downstream," said Cindy Park, senior equity analyst at Nomura Asian Equity Research in Seoul.

VIETNAM

Vietnam’s First Oil Refinery gets $1 Billion State Loan

State-run oil and gas giant, PetroVietnam in February struck a credit deal worth US$1 billion from the Vietnam Development Bank (VDB) to finance the ongoing construction of the country’s first oil refinery. The mammoth credit loan carries an annual interest rate of 3.6 percent for a 16-year term.

PetroVietnam will used the cash to handle payments for foreign contractors involved in building the oil refinery in the central Quang Ngai Province’s Dung Quat Economic Zone.

The loan would be paid mainly for the consortium carrying out the EPC (engineering-procurement-construction) – a major part of the refinery, said Tran Ngoc Canh, general director of PetroVietnam.

He added that the funds would assist PetroVietnam – the sole investor of project – in forging ahead with the refinery construction as scheduled.

The Dung Quat oil refinery is set to come online in early 2009.

A VDB representative said the credit assistance was the biggest single loan for the bank, established on the basis of the reorganization of the Development Assistance Fund last May.

The Hanoi-based bank is tailored to implement state policies on development investment credit and export credit activities and its operations are not for profits purposes.

Four foreign commercial banks joined forces to provide a $300 million loan last month for building refinery infrastructure.

The consortium included Tokyo branch of BNP Paribas, Bank of Tokyo-Mitsubishi UFJ, Mizuho Corporate Bank and Australia & New Zealand Banking Group Ltd, or ANZ.

Last November the State Bank of Vietnam (SBV) approved the country’s biggest state bank for foreign trade, Vietcombank, to provide a credit extension to PetroVietnam for the refinery.

The loan was estimated at $323 million, bringing the bank’s total finance to the project to $615 million.

SBV in October agreed four state-run commercial banks could provide loans to finance the Dung Quat refinery.

The central bank directed its letter to banks expected to participate in financing the project: Vietcombank, Industrial and Commercial Bank of Vietnam (Incombank), Bank for Investment and Development of Vietnam (BIDV), and Vietnam Bank for Agriculture and Rural Development (Agribank).

The central bank has approved such special credit extension to PetroVietnam due to the Dung Quat’s economic significance in securing a domestic source of natural gas and oil.

The Dung Quat refinery plant is being built in Binh Son District in the central province of Quang Ngai, covering 338ha of land and 473ha of offshore area.

In addition to the main plant, the refinery will have supporting facilities such as a power station, tanks for storing crude and refined petroleum products, and cargo ports.

The main plant itself will be a complex of ten different mills.

The complex with an annual capacity of 6.5 million tons of crude oil will produce petrol, diesel fuel, fuel oil, liquefied petroleum gas, and kerosene after commencing operations in 2009, accounting for one-third of the domestic market.

3. EUROPE / AFRICA / MIDDLE EAST

BOSNIA

Serbian Share in Janaf Refinery may be offered to Russians

RS Economy Minister said the share in Jadranski naftovod will be offered to the Russians when ownership over the refinery is determined. The Bosnian Serb entity of Republika Srpska Minister of Economy, Gojko Ubiparip, said that upon the sale of the oil Refinery in Bosanski Brod to the Russian Zarubeznjeft company the ownership share was not sold which this company has in Jadranski naftovod (Adriatic oil pipeline) and that this issue will be solved through interstate negotiations.

He added that the share in Jadranski naftovod will be offered first to the Russian company as soon as the ownership of the refinery is determined.

Bosnia’s BiH Oil Industry Goes Private

Republika Srpska has concluded one of its most significant privatization ventures so far, selling off two state-owned refineries and a gas station chain.

After several years of decline, the state-owned oil refinery in Brod, the motor oil refinery in Modrica and the Petrol gas station chain have been sold to the Russian-owned firm NeftegazInCor, a subsidiary of Zarubezhneft.

Republika Srpska Prime Minister Milorad Dodik and Zarubezhneft president Vladimir Ivanovic-Kushnarev attended the signing ceremony in Banja Luka at the start of this month, concluding a deal that has been in the works since August 2006.

The purchase price was 119m euros -- 42m euros for an 80% share of the oil refinery, 67m euros for a 75.6% share of the motor oil refinery, and 10m euros for Petrol and its 80 stations.

The new owner is also obliged to invest 970m euros over the next four years and ensure production at the Brod refinery -- once one of Bosnia and Herzegovina's most successful companies until it was crippled by a 150m-euro debt. Vnesheconombank is financing the project and all planned investments.

Under the sales contract, half of the plant's debt will be covered by the buyer in the next nine years, while commercial debts will be paid off from the price of the capital. The new owner must also pay back wages owed to employees, who will be retained until repairs at the refinery are complete. Officials say it should be online within the next six months.

With Brod back in operation, the annual level of RS crude oil production is expected to rise to 4.2m tonnes by 2010.

One of the tasks facing the new buyer will be to bring the oil refinery into line with European standards. In the meantime, the government and Council of Ministers are expected to allow fuel sales with a higher percentage of sulfur, compared with those standards.

Meanwhile, high-standard eurodiesel is also to be produced, and will be used as the basis for motor oil production. That, in turn, will provide an incentive for the motor oil refinery in Modrica to increase production.

NeftegazInCor hopes to take over the entire BiH oil market, which consumes 1.5 million tonnes of oil per year. With its capacities nearly tripled, the refinery should be in a position to challenge the key regional players, Croatia's INA and Hungary's MOL, for market share.

HUNGARY

Hungary's MOL Remains Top European Refinery Pick for Merrill Lynch

Merrill Lynch has said its top pick in the European refinery universe remained Hungarian fuels group MOL, it was reported on February 21.

Merrill believes MOL's aggressive production targets could be achieved cost efficiently via a deeper co-operation with Russia's Gazprom, therefore MOL will remain unwilling to carry out expensive acquisitions. “If acquisition goals failed, dividend policy would become aggressive instead," Merrill was cited as saying.

MOL is positioned well to exploit high diesel margins and generate huge cash flow. While refinery margins may be weak in the short run, they should improve by the second quarter. The company is expected to become one of the leaders in the gradual consolidation of Central and Eastern European oil companies, Merrill Lynch added.

ROMANIA

OMV's Romanian Petrom to Split Refinery, Petrochemical Ops

OMV's Romanian unit Petrom intends to spin off its petrochemical from its refinery operations into a separate business in a bid to make the company more efficient, Austrian daily Der Standard reported.

The spinoff, called Petrochemical Arges, is expected to start operations during the second half of 2007.

A final decision on the restructuring is to be taken shortly, it was also reported.

SERBIA

Chemical Pollution Triggers Alarm in Pancevo near Belgrade

High levels of cancer-causing gases, apparently released by an oil refinery, on February 7 triggered a public alarm system in an industrial city near Belgrade.

Sirens sounded in the morning and overnight in Pancevo, 10 kilometers (6 miles) east of the Serbian capital, prompting thousands of residents to remain indoors as air levels of benzene and chlorine rose to 10 times normal levels, officials said.

Serbia's environment minister Miroslav Nikcevic accused HIP Petrohemija — Serbia's largest petrochemical plant with annual production of 800,000 tons of gasoline a year — of releasing the substances into the air.

"They were siphoning the benzene in an open area, and the wind was blowing toward Pancevo's downtown," Nikcevic said. "The problem is that the plant's management informed no one about the operation."

Nikcevic said that criminal charges would be filed against the refinery's management for the leak, and ordered them to stop the benzene and chlorine siphoning by the evening of February 7.

Toxin levels were recorded at 118 micrograms per cubic meter of air, or about 10 times the "normal levels" in Pancevo, at the time of the leak Nikcevic said.

That has triggered concerns in Pancevo, a city of 50,000 people, as well as among Belgrade's population of nearly 2 million.

The plant was heavily bombarded during the 1999 NATO air attacks on Serbia over the Kosovo conflict, causing leaks and contamination of air and land. It has undergone repairs but still lacks safeguards.

SPAIN

UK’s Peter Brotherhood Ltd to Secure Compressor Contract for Repsol’s La Coruna Refinery

Spain-based companies Intecsa Uhde and Repsol YFP Madrid have chosen Peterborough, UK-based engineering company Peter Brotherhood Ltd to supply a reciprocating gas compressor for the Repsol La Coruna Refinery, also based in Spain.

Peter Brotherhood will design, manufacture, install and commission the compressor. Delivery of the equipment to the refinery is scheduled for July 2007.

The compressor is a two-throw reciprocating unit with one stage for make-up gas that compresses 99.9 per cent hydrogen from 20.4 bara to 49.2 bara and one stage for recycled gas that compresses 93 per cent hydrogen from 48.6 bara to 63 bara.

The package will comprise a concrete mounted compressor and main drive motor with separate oil and cooling water consoles.

Peter Brotherhood's compressor technical support manager Allan March said: "We are delighted to have won this latest contract from Repsol. Our company has extensive experience of designing and manufacturing API 618 gas compressors and has supplied a number of machines to Repsol over the years."

SWITZERLAND

BP Sells Remaining UK Refinery to Petroplus

Energy giant BP’s last remaining UK oil refinery – at Coryton in Essex – has been sold to Petroplus in Switzerland in a £711m deal. Business Weekly reported in June 2006 that BP aimed to sell the Essex refinery after a review of the company’s European refining portfolio concluded that maintaining a smaller network of advantaged refineries in Europe would provide greater benefit to the BP Group. The total price of £711m for the installation, capable of producing 172,000 barrels of oil per day, includes the adjacent bulk terminal and BP’s UK bitumen business which is closely integrated with the refinery. Petroplus already operates a refinery in Teeside, which it acquired in 2000, and others in Belgium and Switzerland.

Petroplus has entered into a long term supply contract with BP starting in mid-2007, when the sale is expected to be complete. The Swiss company said it expects to retain all of the 540 staff currently employed by BP at the plant, in addition to the 500 plus contractors.

The facility produces petrol and diesel, including the new ‘cleaner’ fuels, aviation fuels, liquefied petroleum gas (LPG), fuel oils and bitumen. It supplies both Heathrow and Gatwick airports with jet fuel via direct pipelines and has one of the largest road distribution terminals in Europe.

”The sale will enable us to concentrate on continually improving our remaining European refineries so that they remain top class assets,” said John Manzoni, chief executive of BP’s refining and marketing business. BP stressed that it still intends to provide petroleum products for its home country: “We are very much committed to the UK and do not need to own a refinery in the UK to offer our UK customers the best in fuel products,” said Manzoni.

News of the sale comes after BP reported record profits for 2006, rising to £11.3bn, a result of high oil prices early in the year. The strong full-year performance came despite low figures for Q4, caused by increased safety spending. The acquisition will provide a significant boost to the production capabilities of Petroplus, it said. The company’s existing facilities are capable of producing 295,000 barrels per day, which will increase by a further 110,000 after the firm’s planned purchase of yet another refinery in Ingolstadt, Germany from ExxonMobil.

THE NETHERLANDS

Exxon Mobil Rotterdam Refinery to Shut for Maintenance

Exxon Mobil Corp. will shut its Rotterdam refinery in the second half of February for six to eight weeks of planned maintenance, European oil traders said February 7.

A London-based broker said the refinery would be partially shut for the maintenance work, though he didn't have details on which units would be affected.

The refinery's flexicoker, which converts heavy oil fractions into lighter products such as gasoil and diesel, is currently out for maintenance, according to a source at the refinery. She didn't have more details on how long this work would last.

ExxonMobil spokesman Dimitri Schildmeijer said the company doesn't comment on day-to-day operations.

A Rotterdam-based gasoil trader said it would be "a busy period for refiners in Rotterdam," adding "probably another major will pick up the volume" to which ExxonMobil is committed. In cases of planned maintenance, the majors will swap contracts for their relevant affected periods, he said.

The refinery, located in Botlek at the Port of Rotterdam, has a capacity of 10 million metric tons a year.

Chevron Authorizes Sale of 400,000 Bpd Nerefco Refinery

Chevron Corp. the second-largest U.S. oil company, said it has authorized the sale of its 31 percent stake in the Nerefco refinery in the Netherlands.

In its annual report filed with the U.S. Securities and Exchange Commission on February 28, the company said that the sale was still subject to the signing of a sales agreement and obtaining necessary regulatory approvals.

The company would not disclose any further details such as possible buyers or deal value, but spokesman Don Campbell said Chevron should have something more to say in the near term.

Chevron also said it expects to record a gain upon the close of the sale.

The 400,000 barrels per day Nerefco refinery is a joint venture with BP Plc.

SOUTH AFRICA

Shell 'must' Fix its Durban Refinery at an Estimated Cost of $6 Billion

Shell Accountability Group, a global network of environmental groups, has called on Shell to replace, at an estimated cost of $6-billion (R43-billion), the Durban-based refinery that is jointly owned by it and BP through the SA Petroleum Refineries (Sapref) joint venture.

The call was made in a report, which was published to coincide with the release of Shell's financial 2006 results, written by a coalition of environmental, human rights and community groups.

It calls on Shell to use some of its multibillion-dollar profit to begin to clean up the damage it has caused to communities and environments across the globe.

Referring to the Sapref refinery in Durban, which was built in 1963, the report states that there have been multiple fires and explosions due to ageing infrastructure and lack of maintenance.

"The litany of problems the refinery and pipeline cause has been well documented since 1998.”

“Shell has refused to commit to permanent solutions to the problems. For example, instead of replacing the old and rusted pipelines, it fixes them to last until the next leakage appears."

Sapref said that it was committed to continually improving its operational and environmental performance, and had implemented several initiatives to reduce its environmental impact.

ZAMBIA

Zambia Refinery Workers Resolve Wage Dispute

Workers at Zambia's sole oil refinery, Indeni, have agreed to resume work after days of a stand off emanating from a wage dispute, an industry official said February 21.

The official, from the state-run Energy Regulatory Board, said a settlement was reached earlier in the week following a number of meetings between the management and the National Union of Transport and Allied Workers.

The official said workers returned to work and the refinery operations were expected to reach full capacity by the end of that week.

e refinery, raising fears this could lead to erratic fuel supply and hurt the country's copper mining sector. Indeni can produce up to 20,000 barrels of fuel a day, and the majority of its output is consumed by Zambia's copper mines.

Since 2005, the refinery has been dogged by a series of breakdowns due to aging machinery and lack of investments which has sometimes paralyzed operations in the mining industry.

The Zambian government and France based Total SA (TOT) jointly own the refinery.

IRAN

Gasoline Production at Iran’s Arak Refinery to be Boosted to 98,000bpd

Upon completion of the Arak refinery development project, gasoline production from the refinery will be boosted from the present 28,000 barrels per day (bpd) to 98,000 bpd, it was reported.

In line with the terms of the engineering procurement and construction (EPC) contract concluded on Sept. 16, 2006, construction works on the development project began four months ago, noted Asghar Salehi, the refinery managing director.

Other equipments and necessary gears required by the project were to be ordered by the beginning of March, he announced adding that upon completion of the project, the refinery’s capacity is expected to increase by 250,000 bpd.

Referring to the completion of the project he explained that, the Arak refinery development would be carried out in two separate phases the first of which will be completed in 39 months and the second was expected to take 45 months.

He further explained that the development project would include the adding of 14 new units to the refinery as well as the refurbishment and renovation of the eight existing units. He also commented that after the development of the project, the qualities of the products from the refinery would be much closer to standards set by the European Union in the sector.

JORDAN

NWOG Negotiates Owner/Operator Role in Jordanian Refinery

From February 12-14, North West Oil Group President Ernest G. Malyshev was a delegate at a meeting between Russian government officials and Jordanian officials in Amman, Jordan. The intent of the meeting was to reinforce economic and political relations between the two countries, in part, through collaborative oil and gas projects.

The Russian government invited JSC "North-West Oil Group" to participate because of the company's reputation and its support of the government. Discussions focused on the creation of a working group to investigate the construction of a new refinery or reconstruction of an old refinery to be located in Jordan and operated by NWOG, Inc.

Mr. Malyshev will return to Jordan in March to sign a memorandum of understanding, detailing the scope of the project as well as NWOG's role and ownership percentage.

There is no relationship between this project and the Deir Ez Zor project in Syria beyond the desire of the Russian government and NWOG to strengthen ties with the Middle East.

KUWAIT

Kuwait to Reopen Bidding for $6 Billion Refinery

Kuwait said February 21 it will reopen bidding for a new refinery project in the country after it complained about the high estimates in initial tenders by international companies.

"We will be shortly re-tendering the project after the bids we received were found to be very high," Sami Al Rasheed, chairman of Kuwait National Petroleum Company (KNPC), said.

"The new tender will be based on a cost plus profit margin" which means paying the cost to the foreign companies plus an agreed profit,” Rasheed said.

KNPC, the downstream arm of state-owned Kuwait Petroleum Corp, has projected the cost of the 615,000 barrels per day (bpd) refinery at around $6.3 billion.

But the refinery project director Ahmad Al Jeemaz has complained that some companies bidding for the project have inflated their estimates to as high as $15bn.

KNPC has received nine bids from seven of the 11 international companies selected to submit offers to build the refinery, which is due to come on stream in early 2010.

KNPC, which owns all refineries in the emirate, has divided the project into four major contracts.

Kuwait currently has three refineries at Al Ahmadi, Mina Abdullah and Shuaiba, all in the country's oil-rich southern region, with a combined refining capacity of about 915,000 bpd.

State-owned KNPC also plans to modernize the first two at an estimated cost of $3bn, a project planned for completion in early 2011.

Once the new refinery and the upgrades are completed, KNPC plans to shut down Shuaiba. This will leave three refineries with a production capacity of around 1.4 million bpd.

Kuwait’s Parliament Urged to Probe Shuaiba Refinery Gas Leak

The Kuwait Human Rights Society (KHRS) has appealed to the parliament to investigate a recent gas leak at Al-Shuiba refinery which affected a large number of employees. KHRS Chairman Dr Adel Al-Damkhi said such an incident has occurred in succession at Al-Shuaiba Refinery with the latest affecting tens of laborers who were hospitalized after inhaling the poisonous gas. He condemned the concerned authorities for their inability to provide proper protection to the employees indicating “as one of the oil-rich countries in the region, it is an embarrassment for Kuwait not to have most-advanced protection gears for oil sector employees.”

Al-Damkhi pointed out Kuwait had earlier signed an agreement with the Organization of Islamic Conference (OIC) to protect the basic human rights of the laborers. Besides granting social insurance to laborers, Article 13 of the said agreement also stipulates that laborers should work in a safe environment at all times they should not be forced to perform tasks that are beyond their capabilities, he explained.

He then urged the Ministry of Energy to closely monitor the activities of oil companies, conduct a thorough investigation of the issue, and file a case against those who are responsible for the gas leak. Confirming that KHRS and the oil sector labor unions are willing to coordinate with the parliament in investigating the issue, Al-Damkhi stressed “the concerned parliament committees should immediately address the problem to avoid the recurrence of the incident and ensure the safety of all employees in the oil sector.”

OMAN

Oman’s 116,000 Bpd Sohar Refinery to Start in March

Oman plans to open its long-delayed Sohar refinery on March 11, Reuters reported. The refinery has a capacity of 116,000 bpd. Meanwhile, the Muscat plant will restart on March 25 after being closed since 10 January for expansion and maintenance. The plant's capacity will rise to 106,000 bpd from 85,000 bpd.

SAUDI ARABIA

Yokogawa Receives Record Plant Control System Order for Rabigh Refining and Petrochemical Complex

Yokogawa Electric Corporation has received an order to supply plant control systems for the Rabigh Project, which is constructing one of the world's largest integrated refining and petrochemical complexes in Saudi Arabia.

This project is under the management of the Rabigh Refining & Petrochemical Company (PETRORabigh), a joint venture between the Saudi Arabian Oil Company (Saudi Aramco) and Sumitomo Chemical Co., Ltd. (Sumitomo Chemical).

Following the informal appointment of Yokogawa as the plant control system supplier for this project, the contract was formally concluded by Yokogawa Engineering Asia Pte. Ltd., which is a wholly owned Yokogawa subsidiary.

In the Rabigh Project, which is slated for completion in the second half of 2008, PETRORabigh is enhancing an existing oil refinery at Rabigh on the Red Sea coast and constructing a new petrochemical complex that will annually produce 1.3 million tons of ethylene and 2.4 million tons of petrochemical derivatives such as polyethylene and polypropylene. The new complex will be fully integrated with the existing refinery, which is currently undergoing an upgrade to a more sophisticated configuration.

This order for the Rabigh Project is for the upgrade of the control systems at the existing refinery and to provide control systems for the petrochemical plants that are being constructed. The systems include the CENTUM CS3000 R3 integrated production control system, ProSafe-RS safety instrumented system, PRM plant resource manager, DPharp EJA pressure/differential-pressure transmitter, and OmegaLand integrated dynamic simulation environment. This last product is manufactured by a Yokogawa subsidiary, Omega Simulation Co., Ltd. Delivery is scheduled for September 2007.

This is Yokogawa's largest order ever for a single project.

YEMEN

Yemen invites RIL to Invest in 50,000 Bpd Oil Refinery

Yemen has invited Reliance Industries (RIL) to build a refinery there in return for an upstream acreage, even as RIL has an existing partnership with a Yemeni firm for a 50,000 bopd refinery, reports Financial Express.

Oil minister of Yemen Khaled Mahfoudh Bahhah has invited RIL to build another 50,000 barrels a day plant. The proposed locations for the refinery are Hadramout and Mukalla on the Gulf of Aden coast.

Yemen relies heavily on imported gasoline as its ailing refining sector struggles to meet soaring domestic demand. So the country is trying to encourage investment from Indian companies like RIL and ONGC for new exploration across the country. At present, Reliance has a partnership with private sector Yemeni firm Hood Oil to build a 50,000 bopd refinery at the Red Sea port of Ras Issa with an option to double this with a product mix of petrol, diesel, aviation turbine fuel, kerosene, liquefied petroleum gas and benzene.

RIL has already established a substantial presence in exploration and production of crude in Yemen, some of which is imported as feedstock for its Jamnagar refinery. This is from onshore fields of Block 9, also known as Malik, which Reliance has explored and developed also with HoodOil and Calvalley Petroleum, Canada.

RIL has stake in two onshore oil blocks, 34 and 37, in Yemen where it is partnering HoodOil. Both blocks measure 7,500 sq km each and are located along the border with Oman.

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