The global refining picture remains bleak even amid a fledgling economic recovery, and the only short-term remedy is to continue reducing refining capacity, executives from some of the world's leading refining companies said March 9.

With the sector expecting refining margins to improve only slightly this year, Bill Klesse, CEO of San Antonio-based Valero Energy Corp., the nation's largest independent oil refiner, projected the grim outlook during the Downstream Oil Plenary at the CERAWeek energy conference in Houston.

He said refiners will have to trim another 2 million barrels per day of refining capacity to reach acceptable refining margins -- the difference between what a refiner pays for crude oil and the price it gets for refined products.

That would be on top of capacity cuts last year totaling about 400,000 barrels per day in the U.S. and 1.5 million barrels per day worldwide.

Klesse, speaking on the second day of the prestigious energy conference hosted by IHS Cambridge Energy Research Associates, said the recession "wiped out 11 years of demand" for refined products, leading to a large surplus of refining capacity.

As demand for refined products plunged in the down economy, refiners worldwide have announced permanent closures, temporary shutdowns and the sale of refining assets. More cuts are likely even as the economy crawls back to life, panelists said.

On March 8, French oil giant Total said it has decided to close its refinery in Dunkirk. And San Ramon, CA based Chevron said on March 9, it was cutting 2,000 jobs in its downstream division.

Complicating efforts in the U.S. and Europe to cut refining capacity, some refiners in the world's developing regions are bringing new capacity on line.

Klesse said analysts project that refining capacity will increase by 1.8 million barrels a day by year's end and 1.4 million next year, mostly from refineries in Asia and the Middle East.

Higher demand in those developing regions may not be much help to refiners in the U.S. and Europe because "the main-demand countries are building their own industries," said panelist Jon Jacobsen, executive vice president of marketing and manufacturing for Norway's Statoil.

And European refiners who export gasoline to the U.S. will suffer as long as North America remains in a slump, said Jean-Jacques Mosconi, senior vice president of strategy and business intelligence for Total.

Meantime, refiners will be shaving costs and reducing capital outlays as the fight for survival intensifies.

Shell to Trim Refining Capacity, Exit Retail Markets

Royal Dutch Shell plc on March 16 announced updates to its strategy, including plans to reduce its worldwide refining capacity by 15% and exit 35% of its current retail markets.

"Our 2009 earnings were sharply reduced by the recession, despite Shell's self-help programs and $2 billion of cost savings," said Shell CEO Peter Voser in a written statement. "Although oil companies have been cushioned from the recession by OPEC's action on quotas and oil prices, Shell has been disadvantaged recently, due to our higher exposure to refining and natural gas, where margins are hard-wired to the economy. This has come in a period where our spending is at historically-high levels, as we invest for medium-term growth."

Voser said that near-term pressures on downstream and gas margins remain. In contrast, he described medium-term upstream fundamentals as "robust" and stated the company expects oil to trade typically in the $50-$90 range. "In natural gas, cleanest of all fossil fuels, the medium-term fundamentals are also attractive for Shell," Voser continued. "However, the global refining industry may be in over-supply for some time."

The Shell CEO stated that the company's strategy focuses on strong operating performance and sustained investment for organic growth. "That strategy is robust, despite the difficult economic environment," he said. "But the company had become too complicated and slower to respond than we'd like. So we are sharpening up."

In terms of narrowing its near-term performance focus, Shell plans $1 billion of cost savings this year as well as the reduction of some 2,000 positions by the end of 2011. Also, it intends to exit from non-core positions companywide via $1-3 billion of asset sales. Finally, the company is pursuing new initiatives designed to improve its downstream business by focusing on its most profitable positions and growth potential. This will translate into an exit from 15% of its worldwide refining capacity, from 35% of its current retail markets, and various steps to further improve its chemical assets.

Despite its pending actions to reduce its downstream business, Shell is adding chemicals capacity in Singapore and refining capacity in the U.S. Moreover, the company states that it is advancing "selective growth investment" in marketing. "Downstream, we are making substantial investments in new refining and petrochemicals capacity," said Voser. "Once these projects are on stream, I expect the downstream growth emphasis will switch to further strengthening our marketing for the next several years."

AMERICAS

U.S.

Holly Corp Reports Fire at Navajo N.M. Refinery’s New Asphalt Tank

Holly Corp. announced that a fire was detected March 2 in a new asphalt tank that was under construction at its subsidiary's Navajo Refinery in Artesia, New Mexico. The fire was extinguished after approximately 90 minutes by the refinery's fire fighting team.

The fire resulted in two confirmed injuries, one missing and one likely fatality that is pending confirmation. The injured individuals are all employees of the independent contractor that was working on the new tank.

Holly Corp. has commenced an investigation to determine the cause of the fire and is working closely with the appropriate authorities.

The incident reportedly will have no impact on the refining capabilities or operations of the Navajo Refinery.

Cap-and-Trade Alternative Would Impose 'Linked Carbon Fee' on Fuels

The trio of senators negotiating a broad climate change and energy bill seems likely to abandon plans for an economy-wide cap on greenhouse gas emissions in favor of a sector-based approach that is winning cautious support by oil and gas industry leaders.

American Petroleum Institute President Jack Gerard said he was "encouraged" by the leading scenario being discussed on Capitol Hill to impose new greenhouse gas emissions limits on power utilities and a separate "carbon fee" on gasoline and transportation fuels.

That would replace a House-passed plan for an economy-wide "cap-and-trade" program forcing manufacturers, utilities and other polluters to buy and trade emission allowances to comply with steadily tightening limits on carbon dioxide.

It also would scrap plans in the House bill to require refiners to buy allowances to pay for carbon dioxide released when consumers burn their transportation fuels to power cars, trucks and planes.

That had been bitterly opposed by the oil industry as an unfair burden that could spur refining operations to move overseas.

"From our vantage point, clearly it's moving in a positive departure from the House-passed bill," Gerard said.

The new approach is being considered by Sens. John Kerry, D-Mass., Joseph Lieberman, I-Conn., and Lindsey Graham, R-S.C., as part of a last-ditch effort to forge a compromise climate bill that can pass the Senate.

Their biggest challenge has been how to put a price tag on carbon dioxide and other greenhouse gases blamed for global warming.

Republicans have widely decried the "cap-and-trade" model as a crippling tax on energy that would raise the cost of electricity and consumer goods.

Meanwhile, Rust Belt Democrats fear a cap-and-trade system could put domestic manufacturers at a disadvantage in the global marketplace.

Graham told reporters March 2 that the cap-and-trade proposal was dead in the Senate and would be replaced.

The leading alternative is to adopt different approaches for three sectors:

--Power utilities, which would immediately be forced to comply with new greenhouse gas limits. Under one option, utilities could be required to buy emissions allowances, with revenue being redirected to consumers.

--Transportation, with a new so-called "linked carbon fee" that would be imposed on fuels at the retail level.

--Manufacturers and other industrial emitters of carbon dioxide, with a slow phase-in of emissions limits for manufacturers and other facilities.

The trio also is negotiating provisions to boost nuclear power, expand offshore drilling and promote technology to capture carbon dioxide released at coal-fired power plants.

The transportation plan is likely to ease heartburn among refiners, which were concerned about shouldering the cost of consumers' tailpipe emissions. Graham earlier said he believed refiners had gotten "a bum deal" in the House-passed climate change legislation. That bill would have given them all the responsibility for paying for consumers' tailpipe emissions without control over motorists' driving behaviors and car choices.

Gerard said the approach has the benefit of being more transparent for consumers than refiner-purchased emissions allowances, "so a driver of a vehicle or a rider of a bicycle knows what their role is" and what they are paying for.

"What the industry has always been for is an efficient, transparent system to deal with the climate issue," Gerard said. "Generally, a fee of some sort is a far more transparent, efficient way to do this."

Sen. John Cornyn, R-Texas, said he had not seen details of the Kerry-Lieberman-Graham plan but added that "anything that would help in terms of supply and cost for domestic oil and gas would be good."

It was unclear on March 2 whether the new climate change plan could gain enough traction in the Senate to pass this election year.

Frontier Oil’s Refineries Experience Middle Ground in Economic Slowdown

Smaller refiners have hardly been spared from fluctuations in gasoline and diesel demand caused by the economic slowdown, but Houston-based Frontier Oil Corp. has avoided some of the heaviest buffeting dealt its larger competitors. The reason, says CEO Mike Jennings, is location. Frontier's two refineries, in Wyoming and Kansas, can process about 187,000 barrels per day for markets in the nation's heartland, more than a thousand miles from behemoth coastal refineries. All the same, Jennings, 44, says no refinery is an island, and capacity utilization at Frontier's plants has been trimmed. He recently spoke with the Houston Chronicle from Frontier's corporate offices about issues facing the sector. These are some edited excerpts:

Q: As a smaller refining company, are you immune from some of the pressures -- high crude costs and low demand -- that many integrated oil companies and large independent refiners are confronting?

A: Emphatically, no. We are not immune. We are, to a certain extent, insulated in that our geographic markets involve the U.S. mid-continent, so we don't have the direct pressure of coastal refiners, which are very large and very competitive. We're also insulated, to an extent, from imports which come in to the coastal ports from places like India, the Persian Gulf. Typically, the midcontinent is served by smaller refiners. A competitively sized plant might have up to 200,000 barrels, of daily capacity, whereas you look at big plants along the Gulf where we're talking about 500,000 barrels of daily production at an individual plant.

They have huge economies of scale, as well as very good access to waterborne crude oil. For that reason, we want to avoid competing against them. Fortunately, we are insulated by a distance of about 1,500 miles, so we're competing more on a regional basis against more similarly sized plants. But at the end of the day, this business is global, and the competitive pressure they feel on the Gulf of Mexico moves inland via pipelines.

Q: What are the pressures you face?

A: Global demand for refined products has contracted quite a bit. Gasoline demand is probably 5 to 8 percent off its highs. Diesel demand is twice that in terms of its decline. So, what you have then is a big, fixed industrial base -- that being our petroleum refineries -- now competing for a lot smaller market. These plants want to run at 95 percent utilization. The U.S. overall is running about 80 percent utilization. So we've got to scrap for market share. We sell a commodity. It's hard to differentiate it. The only real way to do so is through geography because a barrel on the Gulf of Mexico isn't the same as a barrel in Denver. Also, given our location, we are able to use crude sources coming out of Oklahoma, Kansas, North Dakota, and we are nearer to that production than some other refiners are, so we get the first chance to buy that barrel, oftentimes at a little bit of a discount.

Q: Some people say gasoline consumption hit its peak a couple of years ago. Do you think that is true, or could we see those levels when the economy comes back?

A: I'd like to say that news of our demise is greatly overstated. We have a really high unemployment rate right now. The construction sector, in terms of residential construction, is absolutely on its back. Both of those are drivers toward gasoline consumption. Will we get back to 2007 levels of gas demand? I don't know. Going against that is conservation and biofuels. On the other side is natural growth in population, in the standard of living, and probably in employment and economic activity.

Q: As other refiners think about divesting assets, do you see an opportunity for your company to grow? Will you be looking for opportunities to buy?

A: It's dependent on the asset. If you are talking about companies shedding a medium- to small-size asset on the Gulf of Mexico and consolidating production into other larger facilities, we don't want any part of that because it involves stepping into a disadvantaged position. If, alternatively, somebody is going to vacate a plant in our midcontinent or Rocky Mountains geography out of a strategic shift away from the U.S. downstream and is selling a quality asset in a good market, we are all over it.

Q: If a climate bill materializes any time soon, it looks like it will no longer deliver a double whammy to refiners who would have been subject to restrictions on both emissions from their plants as well as vehicle emissions. What are your thoughts on that and where things stand now?

A: That legislation doesn't appear to have legs at this point for a lot of good reasons. But carbon restrictions probably will be implemented at some point in our future. My view of it is the restrictions should be made neutral as to source and be a level playing field whether imported or produced from domestic sources. If Congress is going to try to provide an incentive to reduce consumption and carbon emissions, the consumer will be the one to pay the price. That is a political fact.

BP Says CO2 Rules May Delay U.S. Refinery Projects

The comments by Karen St. John, BP's U.S. director of regulatory affairs, follow an EPA announcement earlier in February that it would delay its new greenhouse gas regulations and raise the emissions limits for the initial stages of regulations.

St. John, speaking at an event examining the impacts of greenhouse gas regulations under the Clean Air Act, said even with the proposed EPA delay, a number of concerns are "keeping me up at night."

BP shared state regulators' fears that a lack of staff and resources wouldn't enable them to manage the expected large influx of new permitting applications in the early years of a greenhouse gas program.

"Insufficient state permitting resources translate directly into permit delays. Permit delays mean that projects do not get constructed in a timely manner, jobs are not created, revenues do not flow into state coffers," St. John said.

BP is modifying some of its refineries to meet new fuel specifications required by the Administration and has a number of natural gas developments in the pipeline, and "we are concerned about what the permitting impacts could be on these projects," she said.

This will be an industry-wide problem, she added. All the nation's major fuel providers, including ConocoPhillips (COP), Royal Dutch Shell (RDSA) and ExxonMobil (XOM) will be required to meet the new fuel specifications, and modifications of refinery plants across the country will be necessary.

St. John said it's not clear if projects planned for this year, before proposed greenhouse gas regulations are schedule to take effect in 2011, will retro-actively fall under the new rules, or be grandfathered in and not be required to apply for a new permit.

"You have another year before you ever know what's going to happen," she said.

Adding to concerns are ongoing uncertainties over how the new rules will be interpreted by the courts: legal challenges have already been filed and many more are forecast. The legal process can take years, potentially further delaying modifications or new construction, St. John said. "Legal uncertainties create legal compliance risks for business."

Another complication is that the EPA said it plans to determine that the type of technology to be required will be determined on a permit-by-permit basis. This, BP believes, doesn't provide "a level playing field for the business community [and] it makes determination of appropriate compliance strategies uncertain."

BP Faces $3 Mln in Safety Fines for its Toledo Ohio Refinery

BP Plc was accused of more problems in its U.S. operations on March 8 when the U.S. Occupational Safety and Health Administration announced dozens of safety violations found at the BP-Husky refinery in Toledo, Ohio, that could cost the energy giant more than $3 million in fines.

OSHA's announcement comes five months after the agency hit BP with a record $87.4 million fine for failing to fix safety problems at its giant Texas City, TX refinery after a March 2005 explosion that killed 15 workers and injured 180 other people.

"OSHA has found that BP often ignored or severely delayed fixing known hazards in its refineries," said U.S. Labor Secretary Hilda Solis in a statement. "There is no excuse for taking chances with people's lives. BP must fix the hazards now."

BP faces a total of $3,042,000 in fines for the violations cited by OSHA at the Toledo refinery.

BP has 15 days to appeal the violations to the Occupational Safety and Health Review Commission, which is already weighing the appeal of the latest fine against the Texas City refinery.

In a statement, BP again reiterated its commitment to safety throughout all its operations.

"The Toledo refinery's 2009 rate of recordable injuries was more than 25 percent lower than the refining industry average," said BP spokesman Scott Dean in a statement. "In addition, the Toledo refinery has made steady, measurable improvement in matters of process safety."

Dean said BP was disappointed OSHA characterized the majority of violations as willful.

"We will continue to work closely with our local OSHA representatives and look forward to further cooperation with the agency," Dean said.

An internal OSHA memo, provided by Ohio Rep. Marcy Kaptur's office, said problems with pressure relief valves at the Toledo refinery were "similar to the conditions that existed shortly before the massive 2005 Texas City refinery explosion."

Brent Coon, lead attorney for BP blast victims, said OSHA's findings about the Toledo refinery were not surprising and the financial penalties would do little to change the company's behavior.

"Until our regulatory agencies start throwing the decision-makers in jail to think about it for a while things will never change," Coon said in a statement.

A Husky Energy spokesman said the company had no immediate comment and would probably defer to BP, which operates the plant.

As BP has had to contend with federal and independent safety investigations at its refineries since 2005, the company also has come under scrutiny for maintenance of pipelines in Alaskan oil fields.

In December, BP discovered three oil leaks from Prudhoe Bay field pipelines.

BP previously pleaded guilty to a U.S. Clean Water Act violation for a 2006 spill that released 212,252 gallons of oil on to the tundra, the largest recorded on Alaska's North Slope. The company was placed on probation and told to improve pipeline maintenance.

Last year, BP pleaded guilty to a criminal violation of the U.S. Clean Air Act stemming from the 2005 Texas City refinery blast and paid a $50 million fine. The company was also placed on probation for that violation.

The company paid out more than $2 billion to settle civil lawsuits brought against BP for the Texas City explosion.

BP also has said that it has spent more than $1 billion to fix safety problems at the 455,790-bpd Texas City refinery, which is the third largest in the United States.

At 155,000 bpd, the Toledo refinery is the 47th largest refinery in the country. BP and Husky formed BP-Husky LLC, a 50-50 joint venture to upgrade the refinery to run sour crude from the Canadian oil sands fields.

The Toledo refinery has been inspected 12 times since 1991 by OSHA.

In the most recent inspection, OSHA said it found 38 per instance, willful violations including 26 instances of deficient pressure relief.

Flint Hills Refinery Turns Canadian Oil into Gasoline for Wisconsin

The Flint Hills Resources Pine Bend Refinery was built in the 1950s to handle crude oil from western Canada, then tapped through conventional drilling in central Alberta.

But beginning in the 1960s and expanding greatly in the 1990s, Canadian oil companies have mined crude in the northeastern Alberta oil.

This "feedstock," or unrefined oil, is separated from the sand and sent by pipeline to refineries in the northern United States.

Other Midwestern refineries are bigger - the Whiting, Ind., facility near the shore of Lake Michigan can process about 400,000 barrels per day - but Pine Bend is the largest refinery this far north.

It's capable of churning through 325,000 barrels of crude a day, said Gary Ista, a Pine Bend production supervisor.

In comparison, the Marathon Oil refinery in St. Paul Park can handle 75,000 barrels a day, the Murphy Oil refinery in Superior, Wis., about 45,000 barrels a day.

Pine Bend is owned by Flint Hills Resources, a subsidiary of Koch Industries, one of the largest privately held companies in the world. Both are based in Wichita, Kan.

The fenced-in refinery covers 1,000 acres and has about 10 miles of roads, plus 2,000 to 3,000 miles of intertwined pipe.

Outside the fencing are about 1,500 acres of natural areas and another 1,500 acres in agricultural use.

The refinery employs about 900 people, many from western Wisconsin. Another 500 to 2,000 contractors may be on site at any given time, doing maintenance or construction.

"It requires a lot of maintenance," said Jake Reint, refinery communications director, "because of the weather and the feedstock we use, which is very corrosive."

That heavy crude from Canada's oil sands, which makes up 80 percent of what Pine Bend processes, is high in sulfur and contains about 40 percent asphalt per barrel, compared with 15 percent for light crude.

"Its physical properties are denser, which make it more challenging to refine," Reint said. A federal law also requires that refiners produce ultra-low sulfur fuels

Unlocking what lies inside such crude requires more energy: The refinery uses about 120 megawatts of electricity a day, Ista said. That's enough to serve 91,000 homes, said Neil Kennebeck, director of planning services for Dairyland Power Cooperative.

"We're Xcel Energy's biggest customer," Reint said.

Still, the refinery has been recognized for energy conservation programs and has among the lowest emissions per barrel in the industry, down more than 50 percent in the past 10 years despite expanding production, he said.

Along with gasoline and diesel fuel, the process yields asphalt, carbon dioxide for food processing, propane and butane gas, sulfur for manufacturing, Reint said.

The refinery even supplies the Minneapolis St. Paul International Airport with jet fuel by pipeline.

Huge drums called "cokers" further wring out gasoline and other products from the 40 percent asphalt, including petroleum coke for electric power generation.

"Virtually every drop of a barrel of oil gets used as a product," Reint said.

Through this, Pine Bend produces 30 percent to 40 percent of Wisconsin's transportation fuel, Reint said,

"We provide a significant amount of the gasoline in Wisconsin," he said. "Kwik Trip is a large customer of ours."

The La Crosse-based company has 110 tanker trucks and 55 drivers who have a nonstop cycle transporting gasoline from the refinery to its 363 convenience stores in Wisconsin, Minnesota and Iowa.

Alon Reiterates CA Refinery Plans

Alon, the company hoping to buy Big West refinery in Bakersfield CA reaffirmed that it hopes to resume refining operations there if it prevails in an auction set for later this month.

Speaking with industry analysts in an earnings conference call March 3, Alon USA Energy Inc. CEO Jeff Morris said that restarting Big West after more than a year of near inactivity would be fairly inexpensive. He added that Alon intends to "integrate" the refinery by pipeline with another complex it owns in Los Angeles County -- a disputed proposition that he declined to discuss in detail.

"It's hard to predict how long the (pipeline) permits will take," Morris said.

His comments yielded little new insight, and some in the industry still wonder about the logistics of Alon's plan. But the statements did provide a level of reassurance that the company is serious about refining at Big West rather than just remove certain critical equipment and possibly redevelop the site, a move that would likely mean fewer well-paying jobs for the area.

Alon, the Dallas-based subsidiary of Alon Israel Oil Co. Ltd., announced last month that it has offered $40 million for the refinery, making it the lead bidder in an auction set for March 19. Alon also said it would connect Big West by pipeline to a refinery complex it owns in Long Beach and neighboring Paramount.

The pipeline proposal has drawn skepticism within the industry because the company said it plans to ship gas oil, a refining byproduct, from L.A. County to Bakersfield for further processing, and not the other way around. To do so, Alon would have to build a new pipeline, which several observers have said would be costly and time-consuming.

Tesoro Considers Future of its Hawaii Refinery

The owner of Hawaii's largest oil refinery is studying whether it should stop refining crude oil in the state and use the site as a terminal from which to distribute fuel.

"It lost money last year and it's continuing to lose money this year," said Lynn Westfall, senior vice president and chief economist for refinery owner Tesoro Corp. "It's something we're concerned about and are looking at."

Tesoro, like other refiners, has been squeezed by high crude oil prices at a time when demand has been dropping. Tesoro's 93,500-barrel-a-day refinery last year operated well below capacity, averaging only 68,200 barrels.

Tesoro's review follows one done by Chevron Corp., which last year contemplated shutting what is the smaller of Hawai's two refineries.

Chevron had looked at converting the local 54,000-barrel-per-day facility into a terminal and in March said that option has been taken off the table. Chevron left open the possibility that some of the 2,000 job cuts it is ordering for its refinery operations worldwide may occur here.

"Refining right now is a brutal industry," said Pavel Molchanov, an analyst with Raymond James & Associates who follows oil and gas companies. "It's true everywhere."

Molchanov said Hawaii also has the added problem of being a small, isolated market where all crude oil needs to be imported.

"Hawaii is kind of a quirky niche market with its own dynamics," Molchanov said. "But it's also a tough market."

He noted Chevron recently announced it will sell a refinery in Europe. That follows Valero Energy Corp. announcing a shutdown of a Delaware refinery in November, while Royal Dutch Shell Plc said in January it was converting a Montreal refinery to a storage facility.

Westfall said the company is studying alternatives at its seven refineries and has two options under review here.

One is to keep the refinery running, or pieces of it.

The other contemplates a shutdown of the refinery operations and maintaining the facility as a terminal where products refined elsewhere can be stored.

Tesoro's refinery produces about half of the state's gasoline and feedstock for utility generators. It also is the primary supplier of jet fuel and diesel used in cars and trucks.

Westfall said the local operation suffers from being a small market with low growth prospects. He said the company also has uncompetitive contracts to supply fuel to utilities here and has an ongoing need for capital.

"The short-term dynamics are certainly challenging right now."

Financial analysts have periodically inquired on conference calls about Tesoro's plans for Hawaii because of the operation's low profitability. They've also asked whether Tesoro had looked at selling the refinery. Tesoro also operates about 30 service stations here and employs about 600 in the state.

Westfall said Tesoro's examination of assets here will go beyond whether the operation is profitable. The Hawaii refinery is one of five the San Antonio-based company has around the Pacific, with others in California, Washington and Alaska working together to fill capacity needs in each other's markets, he said.

Hawaii also has a strategic value for the company should it pursue expansion into Asia, Westfall said.

The longer-term outlook for the local operation is brighter and Tesoro has continued to pursue renewable energy projects here, he said.

The state is aggressively pursuing a plan to get 70 percent of its energy needs from clean sources by 2030.

That would drastically cut into the current business of the two refineries here.

Tesoro has a half-dozen renewable energy ventures it is pursuing that tie into its ability to produce fuels. These include pilot projects with Envergent Technologies for a bio-crude oil produced from plant materials, an algae-to-fuel project with Phycal Hawaii and a 5-megawatt solar farm with Axio Power Inc.

Tesoro also has agreements with Kuehnle Agrosystems on algae-based biofuel, another with Hawaii BioEnergy LLC to turn locally grown crops into fuel, and one with UOP LLC, which has a $25 million federal grant to convert biomass into transportation fuels.

"We see a long-term future for this market," Westfall said. But the real issue is how "are we getting through the next couple of years."

Governors Ask Congress to Stop GHG Rules

Governors of 18 U.S. states on March 10 urged Congress to stop "harmful" Environmental Protection Agency regulation of greenhouse-gas emissions, saying the agency isn't equipped to deal with "the very real potential for economic harm."

The governors, led by Mississippi Gov. Haley Barbour, made their request in a letter to Senate Majority Leader Harry Reid (D., Nev.), House Speaker Nancy Pelosi (D., Calif.) and their Republican counterparts. The letter was also signed by Minnesota Gov. Tim Pawlenty, a Republican who has been cited as a possible contender in the 2012 presidential election.

"We feel compelled to guard against a regulatory approach that would increase the cost of electricity and gasoline prices, manufactured products, and ultimately harm the competitiveness of the U.S. economy," the governors wrote. "We strongly urge Congress to stop harmful EPA regulation of greenhouse-gas emissions that could damage those vital interests."

The Obama administration's EPA fired back that it "rejects the premise that addressing greenhouse gases threatens the economy," saying that other EPA actions "have led to innovations and the creation of new markets that can spur economic growth." The EPA "will continue to follow the law and the science, which overwhelmingly indicates climate change is a real and growing threat to the American people," spokesman Brendan Gilfillan said in a statement.

The governors' letter, signed mostly by Republicans, intensifies a battle with the Obama administration's EPA as it prepares to regulate greenhouse-gas emissions from vehicles and stationary sources such as power plants. The rules are due to be finalized by the EPA later this month. EPA Administrator Lisa Jackson has said the regulations for power plants, factories and oil refineries will be effective on a delayed basis, beginning in 2011, allowing companies extra time to plan ahead.

Coal, oil and manufacturing states have warned of the costs of complying, which could involve equipment purchases and other spending. In Congress, multiple measures are pending to hinder the EPA. One measure, from coal-state lawmakers including Sen. Jay Rockefeller (D., W.Va.) would suspend EPA regulations for two years. Another measure, led by oil-state Sen. Lisa Murkowski (R., Alaska) would overturn the EPA regulations.

"A simple delay of EPA action will do nothing to provide relief to Americans looking for jobs or businesses looking to make new investments in our states," the governors wrote in urging Congress to stop the EPA outright and to pass comprehensive energy legislation. "Furthermore, such delay of EPA action only creates more uncertainty in a difficult fiscal environment."

The letter emboldened Republicans already at odds with the EPA. Sen. Jim Inhofe (R, Okla.) said in a statement that the EPA should "stop this tax and the regulatory nightmare it will create, and work with Congress to pass an all-of-the-above energy plan that means more jobs, more energy, and more security for America."

The EPA's biggest champions in Congress have so far remained silent. A spokesman for Reid declined to comment. A spokesman for Pelosi didn't respond to a request for comment.

The EPA is acting after a 2007 Supreme Court decision found that carbon dioxide and other greenhouse gases are pollutants under the Clean Air Act and ordered the agency to determine whether to regulate the gas. The Obama administration's EPA last year found that greenhouse gases endanger the public, providing a basis for the rules it already has begun rolling out.

The agency is moving ahead as the Democratic-controlled U.S. Congress has struggled to advance Obama's energy agenda. The obstacles were highlighted on March 9, when Obama summoned 14 senators to the White House to discuss energy policy. No one could agree on an approach, except on the need to use energy more efficiently.

"We share the governors' opinion on one point: Administrator Jackson has said all along we would like to see comprehensive legislation to address this challenge and take advantage of the opportunity it poses," the EPA spokesman said.

The letter was also signed by West Virginia Gov. Joe Manchin, a Democrat, and Republicans including Alaska Gov. Sean Parnell and Louisiana Gov. Bobby Jindal. In addition to the 18 state governors, the governors of Guam and Puerto Rico also added their names.

KBR Wins $400 Mln Toledo Refinery Contract

KBR announced March 10 that it has been awarded a contract with BP-Husky to provide engineering, procurement and other project related services for BP-Husky Refining LLC's $400 million Reformer 3 equipment upgrade of its Toledo Refinery located in Oregon, Ohio.

KBR will provide design and support services needed for the project, replacing two existing naphtha reformers and a hydrogen plant with a single, state-of-the art reformer. The new unit is expected to increase the refinery's gasoline yields, increase co-product hydrogen production and improve overall plant reliability. Additionally, the new equipment will assist the refinery in meeting future environmental regulations, with an anticipated air emissions reduction of more than five percent. The award of this work follows KBR's completion of front end engineering for the project for BP-Husky. Work will be executed out of KBR's Houston and Monterrey, Mexico offices.

"As a long-time client of KBR, we are proud that BP has once again selected KBR as their contractor of choice for the Toledo project," said John Quinn, President, KBR Downstream. "This project is an important one for the current refining market, and KBR's project team will work with our valued client to achieve the successful execution of this facility upgrade." KBR is a global engineering, construction and services company supporting the energy, hydrocarbon, government services, minerals, civil infrastructure, power and industrial markets.

Backlash Begins Against California GHG Law

A backlash against efforts in California and Congress to rein in greenhouse gas emissions is brewing in hard economic times.

A coalition of businesses -- including two Bay Area oil refiners -- and an anti-tax group has begun a signature drive for a November ballot initiative that would suspend California's pioneering law to combat global warming until the jobless rate drops back to 2006 levels.

Supporters of California's law, including Gov. Arnold Schwarzenegger, say the initiative would cripple the state's emerging clean energy industry.

Backers of the initiative say it's the wrong time to carry out a law that will raise energy and fuel costs, crimping efforts to recover from the recession.

"This is going to have a hit on the California economy. Let's not do this at a time when the economy can least afford it," said Bill Day, director of media relations for the Valero Energy Co., operator of oil refineries in Benicia in Solano County and Wilmington in Los Angeles County. "To me, that's common sense."

Similar arguments about the economy have reverberated in Congress, where a climate action bill passed by the House in June has stalled in the Senate. Democrats in the Senate from coal states are calling for delays.

In California, the role of Texas oil companies in the initiative is another element in the debate over the plan to suspend the state's 2006 greenhouse gas law until the state's unemployment rate reaches 5.5 percent or less for four consecutive quarters. The rate now exceeds 12 percent.

The state law, Assembly Bill 32, requires California greenhouse gas levels to be rolled back to 1990 levels by 2020.

Day confirmed in March that Valero, the San Antonio-based oil company, is contributing $500,000 to the campaign for the proposed ballot measure called the California Jobs Initiative.

Another Texas-based oil company -- Tesoro, which operates a refinery north of Concord -- has been identified in several media reports as a key backer of the initiative. Tesoro officials at the Contra Costa refinery declined to comment, and officials at corporate headquarters did not return messages.

CA High Court Faults Air District over ULSD Project Review

California’s state Supreme Court sided with environmentalists and labor groups in March in a long-running dispute over a project at Wilmington's ConocoPhillips refinery.

A 21-page ruling faults the South Coast Air Quality Management District for not fully analyzing the refinery's plan to replace and retrofit its equipment for the production of ultra-low sulfur diesel fuel.

Work on the project was completed in 2006. But in its ruling March 15, the high court said the AQMD "abused its discretion" in determining that the new refining process would have no significant adverse effects, and ordered a full-scale environmental impact report.

The decision was cheered by the organization Communities for a Better Environment, which had joined with two labor groups and private citizens in challenging the project in July 2004.

Staff attorney Shana Lazerow called the ruling "precedent setting" and "really significant from a public policy perspective."

Lazerow said the organization hopes the decision will ultimately lead to an open public review process and additional pollution control measures.

"The point of the full EIR is to explore all of these alternatives," she said. "It's been a real effort."

ConocoPhillips' project came in response to federal and state rules requiring a reduction in the sulfur content of motor vehicle diesel fuel.

In reviewing the project several years ago, the air district decided ConocoPhillips' plans would not significantly increase air pollution, and therefore did not require a full environmental review.

But opponents argued the new refining process would increase daily nitrogen oxide emissions by hundreds of pounds per day, and that a full-scale study was needed to identify ways to offset any negative effects.

The high court agreed that the district should prepare an EIR. And in doing so, the judges ordered the AQMD to take into account "baseline" physical conditions at the refinery when the project was proposed -- as opposed to emissions thresholds set under a previous permit for four steam boilers at the site.

"The California Supreme Court has never spoken directly on this point before," Lazerow said. "And that's how different agencies were getting away with playing accounting games."

Nitrogen oxides react with ammonia, moisture, and other compounds to form small particles that can penetrate a person's lungs, causing respiratory disease.

According to AQMD spokesman Sam Atwood, the agency acknowledged the new refining process would increase nitrogen oxide emissions, but those emissions were determined to be within already permitted levels.

Atwood said the agency disagrees with the ruling and was weighing its next steps.

And he maintains the production of ultra-low sulfur diesel has helped reduce particulate pollution, which he described as "the No. 1 bad actor in air pollution" that is responsible for respiratory and heart disease, among other ailments, as well as premature death.

"It's important to note that the project was essentially ordered by state and federal law, which was in itself a tremendous benefit to air quality," Atwood said.

Tony Cordero, a ConocoPhillips spokesman, said the company does not comment on litigation.

CANADA / QATAR

Honeywell Secures Five-year Automation Deal with Shell

Honeywell announced March 8 that it has signed a global five-year agreement to be a Main Automation Contractor (MAC) for Shell. The Global Framework Agreement (GFA) is part of Shell's long-term MAC strategy to maximize production while lowering total operating costs by equipping its worldwide facilities with integrated process automation technology.

As a MAC, Honeywell will design automation and safety systems that will help Shell meet its customers' energy demands in economically and environmentally responsible ways. For more than three decades, Honeywell has served as a MAC on hundreds of Shell projects. Currently, Honeywell is working on three of Shell's largest projects: its new gas to liquids (GTL) plant in Qatar, the Athabasca Oil Sands Project (AOSP) designed to help Shell dramatically increase production in Western Canada's oil sands, and the expansion of its Port Arthur Refinery.

"Honeywell's performance in helping us execute these highly complex projects was one factor in selecting the company for this work," said Ronaldo Marques, Shell's Enterprise Group Categories Manager Equipment. "This agreement allows us to provide consistent global delivery of the highest-quality technology with best-in-class strategic support at sites around the world."

By designing their production facilities with integrated process automation systems, manufacturers can improve overall plant safety, reliability, efficiency and sustainability while ensuring critical information gets to the right people at the right time. Using integrated systems such as Honeywell's Experion Process Knowledge System (PKS) and Safety Manager Solutions, plant personnel at all levels get a better picture of how various process subsystems affect the entire operation. Plant operators, for example, can make better decisions in the control room when systems like Experion can tell them how a specific process is affecting the rest of the plant.

In addition, designing a new facility with an integrated system allows manufacturers to more accurately plan how to integrate new technology in the future. This saves money in the long term by preventing systems from becoming obsolete.

"More and more, our clients want our early engagement and to design integrated process automation systems from the ground up because it's a smart strategy for protecting an asset's long-term viability and the business' profitability," said Norm Gilsdorf, president of Honeywell Process Solutions. "Shell recognizes this opportunity, and this MAC agreement is a proactive step in maximizing its global production while providing a technological path forward as needs change."

ARUBA

Valero Considering Future Options for Aruba Refinery

Valero Energy Corp. Chief Executive Bill Klesse said March 9 that he is considering selling the Aruba refinery or taking on a partner in the money-losing operation that has been shut down since last year.

Valero could also decide to keep and restart the 235,000 barrel-a-day plant, Klesse told reporters on the sidelines of the IHS Cambridge Energy Research Associates energy conference in Houston.

Valero has been able to improve the future of the plant by settling a tax dispute with the Aruba government, the chief of the San Antonio-based company said. The agreement spans 20 years and is subject to approval by the country's parliament.

The negotiations were eased by new leadership in Aruba, Klesse said. Prime Minister Mike Eman's, People's Party, took over power last fall.

"The government has been much more open-minded," Klesse said.

In January, Klesse said the Aruba refinery would not be profitable if it had been restarted and running then. The refinery has been idle since last year.

MEXICO

Saipem Wins $800 Mln EPC Contract from Pemex

Saipem has been awarded new onshore contracts for a total value of approximately US$800 million.

In Mexico, Saipem has been awarded by the Mexican Oil Company PEMEX the EPC contract for two desulphurization units and two amine regeneration units to be built at two of the client's refineries. The scope of work will consist of the engineering, procurement and construction, along with commissioning and testing, of two desulphurization units and two amine regeneration units (URA) and relative auxiliary systems. The facilities will be built at the Miguel Hidalgo refinery near the town of Tula de Allende, approximately 150km north of Mexico City and 2,000m above sea level, and at the Antonio M. Amor refinery, near the town of Salamanca, approximately 300km northwest of Mexico City and 1,700m above sea level.

The maximization of local content and the procurement and logistics strategy adopted are the key elements of Saipem's success in awarding this project, which presents particular difficulties for the transportation of the large-size and heavy equipment that will be assembled at the construction sites. The works will be completed within a period of 38 months.

Furthermore, in the Middle East and West Africa, Saipem has agreed with its clients various increases in the scope of its work on existing onshore contracts.

Saipem is organized in three Business Units: Offshore, Onshore and Drilling, with a strong bias towards oil & gas related activities in remote areas and deepwater. Saipem is a leader in the provision of engineering, procurement, project management and construction services with distinctive capabilities in the design and the execution of large scale offshore and onshore projects and technological competences such as gas monetization and heavy oil exploitation.

BRAZIL

Skanska to Build $623 Mln Refinery Unit for Petrobras

Skanska has been awarded a contract to construct the first phase of a new refinery for crude oil in Brazil.

The total contract value is US$623 Mln, of which Skanska's share is 40 percent, corresponding to about $50 Mln, or about SEK 1.8 billion, which will be included in order bookings for the first quarter. The customer is Petrobras, one of the world's leading energy companies and one of Skanska's repeat customers.

The contract is for the first processing unit of a new oil refinery at Petrobras Petrochemical Complex in the Rio de Janeiro state.

The project relates to a crude and distillation unit for crude oil entering the refinery. The unit will have the capacity to process about 150,000 barrels a day.

Skanska will head the consortium responsible for design, detailed engineering executions and construction of the facilities, including electromechanical installations. The contract also encompasses the procurement of material and equipment and Skanska will also provide assistance in connection with start up and operation.

Work is scheduled to commence immediately and will be completed within 36 months. About 3,000 workers will be involved when work on the project is at its peak.

The facilities at Petrobras Petrochemical Complex, Comperj, will cover an area of 45 square kilometers and will be operational during 2013.

Skanska Latin America is one of the continent's leading contractors. Operations focus primarily on construction, operations and services for the international oil & gas and energy industry. In 2009, the company with about 10,000 employees, had revenues of about SEK 6 billion.

Skanska AB may be required to disclose the information provided herein pursuant to the Securities Markets Act.

ECUADOR

SK Engineering Wins Study for $12.5 Bln Ecuador Refinery

SK Engineering & Construction Co., a South Korean builder, said March 8 it has won a US$260 million order for an oil refinery project in Ecuador.

Under the deal with Ecuador's state-run oil company, Petroecuador, SK will conduct a basic engineering study to build the oil refinery in Ecuador's coastal province of Manabi, the Korean builder said in a regulatory filing.

Petroecuador plans to build the oil refinery with a daily production capacity of 300,000 barrels for $12.5 billion, according to the Korean company.

PERU

CB&I Wins $45 Mln Contract to Supply Gas Plant for Pluspetrol Peru Camisea Expansion

CB&I has been awarded a contract to supply a cryogenic natural gas processing plant in Malvinas, Peru, as part of an expansion of the Camisea gas project. CB&I's contract, valued in excess of US$45 million, is with Pluspetrol Peru Corporation S.A. as operator and contract administrator, acting on behalf of the licensees.

CB&I will be responsible for the engineering, procurement and modular fabrication of a cryogenic unit designed to process 520 million standard cubic feet per day of gas. The unit, which is scheduled for completion later this year, will treat gas extracted from the Pagoreni field, separating the natural gas liquids out of the gas stream.

CB&I has been involved in the Camisea project since its inception, having supplied four cryogenic plants at Malvinas, as well as a fractionation and topping plant at Pisco, and the associated refrigerated and atmospheric storage tanks on the site.

ASIA

INDIA

Indian Refiners to Receive Larger Shipments of Saudi Crude

Saudi Arabia said it will double the supply of crude oil to India to around 40 million metric tonnes (MMT) per annum, a move that will help India meet the growing needs of its refineries.

The assurance came at a meeting between Minister of Petroleum and Natural Gas Murli Deora and his Saudi Arabian counterpart Ali bin Ibrahim Al-Naimi in Riyadh February 28. Deora is part of the delegation accompanying Prime Minister Manmohan Singh on a visit to Saudi Arabia.

He pointed out that India looks for doubling of crude oil supply from Saudi Arabia as its three grass-root refinery projects at Bhatinda, Bina and Paradip near completion.

Naimi assured Deora that his country will increase allocation of crude oil for supply to India from about 25.5 million metric tons (MMT) per annum to about 40 MMT, according to an official statement.

The Petroleum Minister also referred to a greater possibility of cooperation and asked the Indian Oil Public Sector Undertakings (PSUs) led by Engineers India Ltd (EIL) to jointly open an office in Riyadh.

Besides, India also showed interest in sourcing heavier crude from Saudi Arabia and carry out an exchange of technical personnel between the two countries and cooperate on training in skill development in the oil and gas sector.

THAILAND

Vogt Power to Supply HRSG's for Thai Refinery

Vogt Power International, located in Louisville, Kentucky, U.S.A., has been selected to supply Jurong Engineering Limited (JEL) with six heat recovery steam generators (HRSG) for the IRPC Public Co. Ltd.'s CHP plant in Rayong, Thailand. IRPC is a petroleum refinery and petrochemical manufacturer belonging to the PTT Group.

Vogt Power will design, manufacture and deliver six unfired, one pressure level HRSG's to JEL. Vogt Power's HRSG's will be installed behind GE Frame 6 gas turbines. The electricity and steam generated by the CHP plant will be utilized at IRPC's petrochemical complex. The CHP plant is expected to provide 220 MW of generation capacity and 400 tons per hours of steam for the complex and is scheduled for completion in May 2011.

EUROPE / AFRICA / MIDDLE EAST

FRANCE

Total Unveils Flanders Refinery Plans

In response to a structural decline in petroleum product demand, on March 8 Total presented the Central Works Council with a plan to permanently shut down refining operations at its Dunkirk site, which will be repurposed.

In order to ensure the site's future and maintain jobs, Total will:

· Develop new refining operations support and petroleum logistics activities on the Dunkirk site.

· Partner French electric utility EDF in the implementation of the planned LNG terminal project for Dunkirk.

· Participate actively in local discussions on revitalizing the Dunkirk region's economy.

· There will be no lay-offs. All employees concerned are guaranteed jobs with Total.

The collapse in petroleum product demand in France, Europe and the United States has compelled Total to adjust its refining capacity, in particular in northern France.

The Flanders refinery reported a loss of more than EUR130 million in 2009. Production was halted in September 2009. Given the poor outlook, resuming refining operations at the site is no longer considered viable.

Under the plan, the Flanders refinery will be shut down permanently, resulting in a gradual dismantling of units that could continue to 2013.

The refinery will be repurposed as an industrial and technical facility engaged in three new activities that will leverage the industry-specific expertise of employees. A total of 240 jobs will be maintained at the site, equivalent to two-thirds of the current workforce.

A refining operations support center employing 180 people that will provide other Total refineries with technical support for routine operations and assistance with preparing, defining and organizing major maintenance and revamping projects. The center's teams will also be responsible for static equipment inspection.

A refining training center employing 25 people that will train Group employees in the technical competencies required for refining. Other Total Refining & Marketing and Total Petrochemicals businesses will also benefit from these services.

A logistics depot employing 15 people, utilizing the refinery's tank farm.

In addition, there will be administrative positions for a further 20 people involved in site management.

Total and its partners will study the possibility of maintaining the existing ethyl tertiary butyl ether (ETBE) production unit at the Dunkirk site. ETBE is used in biofuels. In addition, it will offer the site to its BioTfueL project partners for a second-generation biofuel pilot unit.

The cluster would provide jobs for around 30 people.

Total's Participation in EDF's Planned LNG Terminal

Total and EDF have signed an agreement whereby Total reserves regasification capacity in the planned Dunkirk LNG terminal being developed by Dunkerque LNG, an EDF subsidiary in which it will acquire an interest.

With regasification capacity of between 10 billion and 13 billion cubic meters per year, the Dunkirk terminal would be able to meet more than 20% of French natural gas demand, which is equivalent to over 150% of the Flanders refinery's energy production capacity. Dunkerque LNG will make the final investment decision by summer 2010, with a view to commissioning in 2014. The project remains subject to the necessary regulatory approvals, successful marketing and construction calls for tenders.

Up to 1,200 people will work on the project during the construction phase. Terminal operation will create at least 50 direct jobs, along with an estimated 150 indirect jobs. The partners would lend their expertise and staff during the construction and operating phases.

The letter of intent signed with EDF stipulates that Flanders refinery employees will be given priority consideration for the sustainable, direct jobs created.

The plan provides voluntary solutions for each employee.

The 370 people concerned by the refinery shutdown will be offered three options.

They can stay in Dunkirk to:

1) Work at the repurposed facility (240 people), in:

- The refining operations support center (180 people).

- The training center (25 people).

- The depot (15 people).

- Administration (20 people).

2) Transfer to the LNG terminal project (50 people).

They can transfer to another Total facility in France to:

Work in other Total refineries (80 people).

Work in other Total units (30 people).

3) Take early retirement (20 people).

Because of the unusual nature of the planned repurposing, each employee will be offered a choice of at least two jobs within the Group, which will set up an organization to help families move and offer financial support to employees who decide to set up their own businesses.

Total will continue to actively work with the public authorities and other businesses in the Dunkirk region.

In particular, it will leverage the experience of its subsidiary Total Developpement Regional (TDR), which supports job creation by small and medium-sized regional businesses, in partnership with local socioeconomic stakeholders. In the last ten years, TDR has helped to create or maintain 25,000 jobs in France.

During the local Dunkirk round table discussions, TDR will share with the relevant public authorities the findings of a community and regional audit to identify the real impact of the planned repurposing on employment in the area, in the industry and by category.

Total has pledged to share all its tools and resources with Dunkirk stakeholders to help maintain jobs in the area.

As a responsible corporate citizen, Total knows that it must adjust to declining oil consumption in Europe and the shift in demand to more environmentally friendly products.

The Group has made a number of firm pledges to address employee concerns and demonstrate to stakeholders its assertive commitment to working with them on innovative, sustainable solutions to maintain businesses and jobs in the region.

The pledges made by Total, reiterated on February 23 following talks with labor unions, are:

· To guarantee each employee a job at Total that fits with his or her competencies.

· To continue to be a major economic partner of the Dunkirk region, especially the port, by taking part in EDF's LNG terminal project.

· To take an active part in regional dialogue: on March 10, Total will take part in a round table discussion of the economic outlook for the Dunkirk region that will consider the future of the Flanders refinery and its impact on local employment, the port, industrial activities and service provider jobs.

· To participate in national dialogue: on April 15, Total will take part in a national round table discussion on the future of the refining industry in France, sponsored by the Minister of Industry.

· Not to close or sell any French refinery over the next five years, with the exception of the planned repurposing of the Flanders refinery.

GERMANY

Shell Said to Shut Diesel Unit at Godorf Oil Refinery

Royal Dutch Shell Plc stopped a diesel unit at its Godorf oil refinery in Germany after a leak, two people familiar with the situation said, curbing supplies at a time of mounting maintenance shutdowns.

The hydrocracking unit halted March 11, one of the people said, declining to be identified because the information is confidential. Rainer Winzenried, a spokesman for The Hague-based Shell, said he couldn’t immediately comment.

The outage at the 200,000 barrel-a-day Godorf refinery coincides with work at the Miro refinery, the biggest in Germany, and follows the idling of a ConocoPhillips plant in Wilhelmshaven.

Shell’s unit was due to be shut down for maintenance for about three weeks in mid-April, two people with knowledge of the matter said on February 25.

Refinery work is escalating around Europe. A hydrocracker at Ineos Group Holdings Plc’s Lavera plant in France is in the midst of four weeks of maintenance and is expected to be back in operation at the end of the month, company executives said on a conference call with investors on March 10. A diesel unit at Ineos’s Grangemouth refinery in Scotland is also about to be halted for 45 days.

EGYPT

Egyptian Refining Secures Loans for Hydrocracking/Coking Project

The African Development Bank (AfDB) has approved a US$ 200-million senior loan and a US$ 25-million Subordinated Convertible Loan to the Egyptian Refining Co. (ERC).

In addition, the Bank will if requested by the Borrower consider providing a B-loan of up to US$80 million.

The loans, approved by the AfDB Board on March 17, will enable the ERC to construct and operate a new hydrocracking/coking facility and ancillary units adjacent to the existing refining units of the Cairo Oil Refinery Co. ("CORC"). The ERC will use low-quality atmospheric residue from CORC as feedstock and produce 4.8 million tons of refined products per year for the domestic market.

ERC was incorporated in July 2007. Private Egyptian and regional investors, led by Citadel Capital own 85% of its shares while the Egyptian General Petroleum Corp. (EGPC) owns the remaining 15%. Citadel Capital is a private equity firm with a strong record in the oil & gas sector.

Demand for refined products in Egypt has grown rapidly since 2003 and supply from the existing refineries is not sufficient to bridge the gap. The ERC project will supply refined products to Cairo, the main consumption center. It offers strong resilience to economic downturn given its low production costs.

The project is in line with Bank Country Strategy for Egypt which focuses on supporting infrastructure development, trade and economic growth. The institution's 2007- 2011 assistance to Egypt will have two thematic strategic objectives aimed at:

Furthermore, the project is in line with the Bank strategy to support Egypt's power sector and efficient use of its oil & gas resources. The project relies on private funding as an efficient recourse for Egypt to finance large investments, releasing more financial resources to carry out poverty-reduction programs.

The Bank's presence complements other lenders in the transaction such as the European Investment Bank (EIB) and the Korean Exim Bank (KEXIM), and encourages the participation of commercial banks.

The project will create a large number of jobs for Egyptians, including 8,000 indirect employments during construction and 790 permanent positions during operations, as well as jobs generated by government revenues derived from the project. It will also have a significant impact on local industries which will support the construction and operation activities.

SAUDI ARABIA

Saudi Aramco Awards Jacobs SRU Contract

Jacobs Engineering Group Inc. announced March 2 that it received a contract from Saudi Aramco, the state-owned oil company of Saudi Arabia, to develop a basic engineering package for four sulfur recovery units, each with an expected production capacity of 1,200 tpd.

This new, four-train sulfur plant will be part of the Wasit Gas Development Program in the Kingdom. Jacobs has designed over 350 sulfur recovery units since 1985, and they will license its proprietary EUROCLAUS, and sulfur degassing technology for the project. The project will be executed from Jacobs office in Calgary, Alberta, Canada.

Saudi Aramco's Wasit Gas Development Program will provide for the production and processing of up to 2.5 billion standard cubic feet per day of gas from the Aribiyah and Hasbah offshore non-associated sour gas fields. This investment involves building gas processing plants, two offshore gas platforms, one tie-in platform, subsea power and communication links and pipelines.

In making the announcement, Jacobs Group Vice President Robert Matha stated, "We are pleased to receive this new contract. It underscores the high level of confidence we have earned from Saudi Aramco and we look forward to continuing to support their long-term growth. This project also meets our corporate objective to continue expanding Jacobs' presence In-Kingdom."

Sasref Inaugurates ULSD Unit at Jubail

Saudi Aramco Shell Refinery Co. (SASREF) on March 13 inaugurated an ultra-low sulfur diesel (ULSD) unit at its Jubail refinery. The inauguration ceremony was attended by Saudi Aramco President and CEO, Khalid A. Al-Falih, Saudi Aramco Senior Vice President for Operations Services, SASREF Chairman, Abdulrahman F. Al-Wuhaib, Saudi Aramco Senior Vice President for Refining, Marketing & International, Khalid G. Al-Buainain and Shell International Downstream Executive Director, Mark Williams.

SASREF President, Abdulhakim Al-Gouhi said the ULSD unit has started commercial production of around 100,000 barrels per day of diesel with less than 10 parts-per-million sulfur.

"The start of the ultra–low sulfur diesel Unit reinforces our strategy to keep pace with future trends and comply with environmental and marketing requirements which will help SASREF to maintain its competitiveness as one of the leading refineries in the Middle East and Asia," Al-Gouhi added.

The new unit will reduce sulfur emissions for a cleaner environment and it also meets the high-standard diesel specifications in Europe, he added.

SASREF is a joint venture export refinery owned 50-50 by Saudi Aramco and Shell. It operates a 305,000-bpd refinery in the industrial city of Jubail on the Arabian Gulf and its main products are chemical feed naphtha, dual purpose derosene, ULSD, fuel oil and LPG with the main export destination to Asia.

UAE

S. Korean Firms Sign UAE Refinery Deals Totaling $8.5 Bln

GS Engineering & Construction Corp. and two other South Korean builders said that they have signed record deals to build and expand oil refinery facilities in the United Arab Emirates (UAE).

GS Engineering & Construction said it has signed a US$3.63 billion plant construction project, the biggest-ever won by a single South Korean company.

Samsung Engineering Co., South Korea's largest plant builder, also signed a US$2.73 billion order to build an oil refinery in Ruwais, 250 kilometers west of Abu Dhabi.

SK Engineering & Construction Co. also inked a US$2.1 billion contract to build an oil refinery.

The three South Korean builders won the deals in November last year from Takreer, also known as Abu Dhabi Oil Refining Co.

The contracts are part of a project to expand crude oil refinery facilities in Ruwais. The project aims to raise the site's refining capacity by 417,000 barrels per day.

McIlvaine Company,

Northfield, IL 60093-2743

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

E-mail: editor@mcilvainecompany.com