After bottoming out last year at 9% below peak price levels from 2008, design and construction costs for refining and petrochemical projects should follow a definite upward trend by the end of 2010. So predicts IHS CERA, which recently released the latest edition of its Downstream Capital Costs Index (DCCI).

"It's not a fundamental turnaround," said Matthew Konvicka, Associate Director of IHS CERA's Cost and Technology Group. "It's more of a flattening/bottoming out. When world economic growth turns around, then we'll see nonresidential construction and refinery/petrochemical again be drivers for the next boom period."

Similar to the Consumer Price Index (CPI), IHS' proprietary DCCI measures project cost inflation and serves as a benchmark for comparing costs around the world. "The index is calculated using a portfolio of 30 projects in 18 countries," explained Konvicka. "The costs are updated every quarter." Because the costs are procured in the local currency and converted into U.S. Dollars, the resulting DCCI is sensitive to fluctuations in the Dollar's value relative to other currencies. When the value of the Dollar weakens the cost reflected in the DCCI will increase, and vice versa. "In the past six months, we've seen a fairly large effect from that," noted Konvicka. During the most recent six-month period, the DCCI rose 1.5% from 170 to 172.5; because the values are indexed to the year 2000, a project that cost $100 in 2000 would have cost $172.50 in the third quarter of 2009.

Reinflating the 'Double-Bubble'

The DCCI grew by more than 40% from 2006 through much of 2008. "Internally, we've been calling this a 'double-bubble' because there have been lots of demand drivers," said Konvicka, referring to refining and petrochemicals and nonresidential/commercial construction. A key demand driver is labor costs, which increase during a boom period because both sectors compete for workers with similar skill sets. In addition, the need to pay a premium price for a limited supply of general construction equipment – again, used in both downstream and nonresidential projects – stokes demand. Commodity prices also drive demand, added Konvicka.

The DCCI tumbled 9% in late 2008 and early 2009 but now appears to be gradually transitioning to an upward trend -- albeit one that is much flatter than what characterized the previous period of price escalation. According to IHS CERA, construction labor costs that rose by more than 5% drove the turnaround. However, the energy advisory firm attributes the increase solely to the weak U.S. Dollar; excluding exchange rates would have resulted in a 2% decrease rather than a 1.5% gain.

The labor cost increases largely stem from ongoing construction activity, from projects that had started construction prior to the downturn. There has been strong demand in regions such as China, India, Middle East, and SE Asia. In fact, Konvicka pointed out that more than 90% of the 1.3 million barrels per day of new crude unit capacity that went online last year is located at facilities in these regions. "We see this as not an anomaly," he said. "That's the way things are moving."

In contrast, project delays and cancellations have become commonplace in North America, Europe, and the Middle East. In fact, IHS CERA has predicted that the delays and cancellations will effectively shrink the amount of new refining and petrochemical projects over the next five years to 85% of the outlook reported at the end of 2008. (For the purposes of this article, new refining projects are measured in terms of new crude unit capacity while new petrochemical projects to the actual number of projects.) "The current abundance of spare refining capacity, low refining margins and the shrinking price differential between light and heavy crudes--as well as questions about biofuels and demand in some regions--have made the economics of new refining projects marginal," said Konvicka. "This is causing companies to reassess future refinery investments."

The IHS CERA analysis reveals that what ultimately becomes of shelved projects should correspond to a country or region's level of economic maturity. Although the economics for these projects may be unfavorable now, the likelihood is that most planned downstream construction projects in developing regions such as China and the Middle East will ultimately be carried out. Growing regional demand forecasts, along with economic support from local governments, should provide the impetus for these projects to proceed. In countries with developed economies collectively known as the OECD, the outlook for shelved projects is less encouraging. IHS CERA has predicted that petroleum demand in OECD countries -- with relatively older populations as well as innovations relating to transportation efficiency and alternative fuels – may never again surpass the peak 2005 level. As a result, the prospects are decidedly dim that shelved projects in OECD countries will ever be executed.

The weak dollar also has led to a modest (1%) gain in engineering and project management costs. Excluding the impact of exchange rates, however, reveals that the engineering market actually experienced the steepest decline among DCCI markets over the past six months, IHS CERA pointed out. "The impact of the weak U.S. dollar on engineering and project management costs is masking a very high level of competition in this market," said Jackie Forrest, lead researcher for IHS CERA's Capital Costs Analysis Forum for Downstream. "These firms are slashing profit margins, overhead costs, and risk premiums to win new work."

'The impact of the weak U.S. dollar on engineering and project management costs is masking a very high level of competition in this market.'

Given engineering firms' aggressive moves to boost their competitiveness, one might expect a healthy level of merger and acquisition activity in this sector. In IHS CERA's view, the number of M&A deals was lower than expected last year. "We actually expected to see more than what actually occurred in 2009," said Konvicka. He contends the unimpressive number of deals stems from a high level of selectiveness exhibited by prospective buyers as well as sellers. A larger company can patiently wait for an opportunity to buy a smaller firm that offers it specific skill sets and technologies to broaden its offerings, he explained. Meanwhile, a potential M&A target may be reluctant to enter into any deals now if it could likely command a higher sale price once demand for its services has picked up.

Konvicka believes that demand for these services will become stronger and labor and materials costs will increase once economic growth becomes more robust. "We could easily see the peak we saw in 2008," he said. However, he did express concern about a key variable that could dampen engineering firms' ability to capitalize on the next boom: a shortage of experienced personnel. The average age of engineers is steadily increasing, and engineering is widely considered a "graying" field.

A key variable could dampen engineering firms' ability to capitalize on the next boom: a shortage of experienced personnel.

Konvicka fears a scenario in which too many veteran engineers specializing in downstream projects will have left the profession, either through early retirement or layoffs, when the next boom does occur. What is an unknown at this point is whether enough of these individuals would return to downstream work once market conditions improve; many may simply opt to work in an area that offers greater stability.

Not having enough qualified engineers for the next wave of design and construction projects might ultimately translate into missed opportunities for an engineering firm: lacking sufficient depth in a given specialty area could quash the firm's chances of winning a contract. "If we're at 90% capacity now, we'll hit that ceiling faster when activity picks up," Konvicka noted.

For now, the DCCI concludes that downstream capital costs will increase slightly over the near term but not to a point where supply will be stretched thin. The longer-term scenario, however, depends on a combination of variables: exchange rates, changes to regulatory systems, commodity prices, labor costs, and the engineering community's ability to meet project demands.

Fitch Ratings Sees Refining Remaining Under Pressure In 2010

According to Fitch Ratings' 2010 outlook for the global oil & gas sector, the oil & gas industry is stable as the rally in crude oil prices from the lows experienced during the first quarter of 2009 continue to provide considerable support to industry activity levels and financial profiles. Credit profiles across the oil & gas sector are expected to be largely in-line with 2009 levels, with exceptions for the refining and drilling and service sectors. The key risk for upstream companies and integrateds relates to the potential for weaker oil prices during the year.

Fitch sees reasons to believe the current run in crude prices may not be fully based on fundamental factors, exposing the sector to changes in monetary and fiscal policy and modified inflation expectations in 2010. As a result, should global economies and/or the appetite for oil as an inflation hedge weaken in 2010, oil prices could fall dramatically leading to further downside potential for the sector.

As noted, Fitch's stable outlook is not uniform across all sectors and credits within the oil & gas industry. In general, upstream, oil focused companies should see improved cash flows and credit metrics during the year stemming from higher oil prices. Natural gas prices are expected to remain weak which could result in weaker credit profiles for companies focused on natural gas related drilling. However, the refining sector remains under the most pressure as a result of continued low utilization rates, weak margins and continued falling end-user demand.

While the drilling and services sector is expected to weaken modestly, contract backlogs and the run in oil prices are expected to continue supporting activity levels and credit profiles of these firms. Merger & acquisition (M&A) event risk continues to be a concern, although high oil prices and strong 2010-2011 futures prices for natural gas have mitigated activity to-date. Offshore drilling companies continue to look to the current downturn as an opportunity to expand fleets. Weak refining conditions have resulted in significantly reduced prices for refining assets leading to potential risks for bondholders across the sector. Fitch would note that event risk remains issuer-specific.

--North American Integrateds: Credit quality for the large, integrated oil companies is expected to remain robust as these firms benefit from oil-heavy upstream portfolios, sizable cash balances and still low net debt levels. Across all the sectors in the energy space, integrated oil has generally been the least impacted by volatile commodity prices, due to its high credit quality, significant headroom to absorb incremental leverage, and willingness to take a longer, 'through the cycle' view on reinvesting in the space. The decoupling of oil and natural gas pricing is expected to continue to benefit integrated firms in the near-term but also leave cash flows reliant on the continued strength of oil prices.

--European Integrateds: The creditworthiness of European integrated oil majors is supported by their ability to generate positive free cash flow (FCF) through the business cycle, strong oil markets, recovery expectations in 2010 and continued benefits from lower industry-wide operating costs. While credit profiles did weaken during 2009 resulting in all of the European Majors to return to the bond markets to meet capex and dividend outflows, Fitch expects improved industry conditions in 2010/2011 to support a return to their ability to internally fund capital expenditures.

--Russian Integrateds: The Russian oil industry continues to face significant challenges as the industry deals with a rapid slowdown in production growth. Higher oil prices are expected to reverse the trend in 2009 of capex cuts, although budgets have been slow to increase. Governmental policies continue to be accommodative; however, there is a risk in 2010 that economic growth could lead to scaled concessions for the industry in an effort to improve the country's federal budget deficit.

--Latin American Integrateds: The Latin American oil and gas sector is dominated by national oil companies (NOCs), many of which are highly linked to the sovereign ratings. As a result, the key risks for the stability of the ratings of Latin American oil and gas companies will be the impact of the global recession on the Latin American sovereigns as well at the price for crude oil and natural gas. Improved oil prices in 2010 should increase FCF generation and also decrease political intervention risk in the region. The sector continues to benefit from improved capital markets access both domestically and internationally and saw record issuances in 2009 resulting in strong liquidity for most companies.

--N.A. Independent E&P: Credit quality for North American independent exploration and production (E&P) companies is expected to stabilize at levels consistent with 2009 levels. While higher oil prices continue to support the industry, this group remains more heavily exposed to U.S. natural gas prices which are expected to remain weak in 2010. E&P firms should continue to benefit from lower costs and more flexible capital expenditure budgets resulting in neutral to modestly positive FCFs. Increased hedging should reduce cash flow volatility for many of the firms in the sector and proceeds from asset sales should allow for some de-leveraging during the year.

--Drilling and Service Companies: The drilling and service sectors outlook remains weak for 2010. Credit quality is supported by sizable contract revenue backlogs, reduced capital expenditures and lower costs stemming from restructuring efforts. Additionally, industry activity levels will benefit from strong oil prices and contango futures market prices. Asset quality will continue to be a key differentiator in 2010 and M&A risk for the offshore drilling sector remains high.

--Downstream: Refining continues to be the worst-performing subsector in energy, with an unfavorable supply/demand balance, low plant utilization, and rising competition from renewables all pressuring key credit protections. Currently, most refiners rated by Fitch have Negative Outlooks. Fitch anticipates that sector credit metrics may bottom out at levels worse than those seen during the last industry downturn (2002), and could remain depressed for an extended period, given high U.S. unemployment and the potential for a slow economic recovery. Event risk is also fairly high for the sector. Fitch notes that while refiners as a group have responded vigorously and early to the downturn by paring back operating costs, cutting shareholder distributions, eliminating non-critical capex, and shuttering some capacity there may be relatively little left to cut in the system at this point in the event of another leg down in industry demand.

To access the full report, "Oil & Gas 2010 Outlook: Exposure to Deflation Remains High," which includes a list of Fitch-rated issuers and their current Issuer Default Ratings in the U.S. and EMEA oil & gas sector, visit www.fitchratings.com.

AMERICAS

U.S.

Silver Eagle Takes First Step To Reopen Damaged Utah Refinery

Silver Eagle Refining Inc., the company whose refinery in Wood Cross was damaged by an explosion in early November, is planning to restart one of its crude-oil processing units January 24.

Restarting the system, which wasn't involved in the explosion and is known as Crude Unit One, represents the first step in what the company and regulators view as a long-term effort to return the refinery to full operations.

Silver Eagle, state regulators and federal investigators continue to investigate the November 4 explosion at the refinery that occurred when a pipe with hundreds of pounds of pressurized hydrogen ruptured in a catastrophic failure.

Although no one was injured, the massive explosion that could be heard for miles knocked one home in a nearby neighborhood off its foundation and severely damaged several others.

Nine days later, Silver Eagle operators, who already had started shutting down some of the refinery's processing units, agreed to voluntarily shut down the facility completely after the U.S. Chemical and Safety Board expressed concerns about the integrity of many of the plant's pipes and processing units.

"At this point, everything remains shut down," Silver Eagle spokeswoman Cindy Gubler said. "The company still is evaluating the damage and determining what repairs and improvements need to be made so the refinery can be operated safely."

A representative of the U.S. Chemical Safety Board said January 6 the agency was sending a two-member team to Salt Lake City within the week to meet with the company and regulators from Utah Occupational Safety and Health.

The goal is to develop protocols to remove damaged pipe so it can be tested and evaluated, said Don Holmstrom, who is directing the board's investigation. "Our people will be on site for the next week or so."

Utah Occupational Safety and Health is working closely with Silver Eagle on its plan to return Crude Unit One to operations, said Robyn Barkdull of the Utah Labor Commission, which supervises the state regulatory agency.

Crude Unit One "will not be restarted until everyone is in agreement that it can be operated safely," she said.

The unit is a low-pressure system that distills crude so gasoline, diesel and jet fuel can be recovered, said Mike Redd, the refinery's vice president of operations.

Since the explosion and refinery shutdown, Silver Eagle has been providing its Utah customers with products out of its on-site shortage tanks. It also has been bringing in refined products from its refinery in Evanston, spokeswoman Gubler said.

EPA Proposes Stricter Smog Standards

The U.S. Environmental Protection Agency proposed stricter national smog standards January 7, opting to tighten controversial Bush-era environmental regulations.

Tighter smog rules are expected to impact factories, oil and natural gas companies, and utilities, which will be required to reduce their emissions of nitrogen oxides. The standards govern what's known as ground-level ozone, which has been linked to asthma and other respiratory illnesses.

The agency proposed setting the acceptable ozone limit in the air between 0.06 and 0.07 parts per million. The EPA under President George W. Bush reduced the acceptable limit in the air to 0.075 ppm from the previous limit of 0.084 ppm.

The EPA in September announced it would reconsider new smog standards set under the Bush administration. Environmentalists and a coalition of states protested the Bush-era regulations as too weak, saying they didn't go far enough to ensure human health. Business groups contended the regulations are too strict and would be costly to compile with.

A scientific advisory committee to the EPA had urged the Bush administration to adopt limits no higher than 0.07 ppm parts, and urged it to consider even lower limits.

"Using the best science to strengthen these standards is a long overdue action that will help millions of Americans breathe easier and live healthier," said EPA Administrator Lisa Jackson in a statement.

API says EPA Proposal 'Lacks Scientific Justification'

The American Petroleum Institute issued the following statement January 7 on EPA's Notice of Proposed Rulemaking on the 2008 ozone standard:

"The action lacks scientific justification. EPA acknowledges the newer studies on ozone 'do not materially change any of the broad scientific conclusions regarding the health effects of exposure'. Given that conclusion, there is absolutely no basis for EPA to propose changing the ozone standards promulgated by the EPA Administrator in 2008. To do so is an obvious politicization of the air quality standard setting process that could mean unnecessary energy cost increases, job losses and less domestic oil and natural gas development and energy security.

"Since 1990, the oil and gas industry has invested more than $175 billion towards improving the environmental performance of its products, facilities, and operations, and many of the investments in cleaner fuels will continue to improve air quality in the years ahead."

Graham Corp Wins $3 Mln in Refinery Orders

Graham Corp., a manufacturer of critical equipment for energy, petrochemical and other process industries, announced that it has been awarded two orders from refinery customers totaling approximately $3 million.

One order is for an upgrade to an existing Graham ejector system at a U.S. refinery that is being reengineered to expand the refiner's capability to process a wider variety of crude feedstock. The order is expected to ship in the second quarter of Graham's fiscal year 2011, which begins on April 1, 2010.

The second order is for custom-engineered steam surface condensers to be installed at a large oil refinery currently under construction in the Middle East and is Graham's third order related to this project. The two previous orders are currently in backlog. Shipment of the condensers is scheduled for the fourth quarter of fiscal year 2011. With this most-recent order, Graham has now received approximately $23 million in bookings from major refinery projects that are currently moving forward in the region, although the Company does not expect that additional significant orders will be released for the major refinery projects in that region for the next nine to 18 months.

Graham's total order activity for the third quarter of fiscal year 2010, which ended December 31, 2009, was approximately $51.6 million. Such amount represents orders received from a variety of markets, including refining, chemical processing, power generation and fertilizer for projects in China, Indonesia, Thailand, India, Mexico, Saudi Arabia and the United States. Included in the $51.6 million was a very large order, exceeding $25 million, from Northrop Grumman Shipbuilding for the supply of four steam surface condensers for the U.S. Navy's second aircraft carrier of the Gerald R. Ford class, the unnamed CVN 79. Revenue for the large order for the U.S. Navy aircraft carrier is expected to be recognized beginning in fiscal 2012 and is expected to continue to be recognized into fiscal 2014.

Consistent with its prior guidance, Graham continues to expect that revenue for fiscal year 2010, which ends March 31, 2010, will be in the range of $60 million to $65 million and gross margin will be in the 33% to 35% range.

James R. Lines, Graham's President and Chief Executive Officer, commented, "Throughout the downturn in our primary industries that began over 18 months ago, Graham's focus has been on strengthening customer relationships in order to identify and win potential orders in an extremely competitive environment. We believe that the recent robust order level and the diversity of end-user markets and geographies are encouraging signs. Because we historically have tended to lag economic recovery by nine to 18 months, we believe that sales over the next few quarters will continue to reflect the sporadic nature of order receipt that began over a year ago. However, we also believe this should be the bottom of the cycle for us, and we expect to begin to see revenue growth during the second half of fiscal 2011."

NPRA Files Comments Opposing PSD, GHG Tailoring Rule

NPRA, the National Petrochemical & Refiners Association, submitted comments December 23 to the Environmental Protection Agency (EPA) opposing its proposed rulemaking on "Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule."

"The path to [Clean Air Act (CAA) greenhouse gas (GHG)] regulation that EPA has chosen is difficult, uncertain, and unnecessarily risky in these troubling economic times," the Association states in its comments. "The Tailoring Rule that is the subject of these comments is doomed to failure.

"Fortunately, the timing, manner, and content of EPA's overall approach to regulating GHGs under the CAA are firmly within the Agency's control. Our comments below outline ways in which EPA could proceed down alternative pathways that provide more sensible regulation without resort to extraordinary administrative law principles that cannot be applied in these circumstances.

"In sum, EPA is not required to follow the regulatory pathway the Agency has chosen to pursue in this proposed rulemaking or in the Section 202 rulemaking proposed in late September. The regulation of GHGs under authority of the Clean Air Act, as this course of action is being currently defined by EPA, undoubtedly represents the largest expansion of the Agency's CAA authority since the enactment of the 'modern' CAA in 1970. Yet EPA has failed to provide the public with anything approaching a complete economic analysis of this seminal event. Instead, the Agency has ignored statutory obligations to conduct required and appropriate regulatory analysis, analysis that could outline alternatives to the course of regulation that EPA has chosen or demonstrate less costly approaches to any regulations that may ultimately be required.

"In addition, in this proposed rule, the Section 202 Rule, the 2008 ANPR and other documents, EPA posits deeply flawed legal theories for GHG regulation under the CAA. These legal theories could send the Agency down a path of applying GHG command and control technology to thousands of individual sources in the near-term and millions of individual sources in the longer run. The Agency must stop this rush to judgment and its headlong plunge into increasing the burdens on our economy."

Recommendations to EPA from NPRA's Comments:

"EPA could interpret the CAA to trigger [Prevention of Significant Deterioration (PSD)] only once a NAAQS has been established for a pollutant. Under this interpretation, which is fully consistent with the CAA and EPA's regulations, the 202 Rule would result in GHGs only being subject to Best Available Control Technology ('BACT') requirements if a source otherwise triggers PSD for a criteria pollutant.

"EPA could delay issuance of the 202 Rule until the agency and the states are better prepared to address GHG permitting. EPA could use this time to pursue streamlining of PSD and Title V requirements on an aggressive timescale to avert the large economic impacts that the Agency indicates Congress did not intend.

"EPA can specify that under the 202 Rule the date when GHGs are considered subject to 'actual control' is when vehicle manufacturers must comply with an attribute-based standard for Model Year 2012. This will avoid an imminent PSD trigger for stationary sources and give states and EPA more time to address GHG permitting issues."

Australia’sTransfield to Continue Services at Conoco's U.S. Refineries

Australia's Transfield Services Ltd has renewed its maintenance contract with U.S. energy producer ConocoPhillips for a further three years.

Transfield Services's U.S. oil and gas maintenance company TIMEC will continue to provide ConocoPhillips with routine maintenance, turnaround and minor capital work services at its U.S. oil refineries, the company said December 29.

TIMEC has had ConocoPhillips as a client since 1971.

Transfield Services managing director and chief executive Peter Goode said the contract renewal highlighted the company's ability to "maintain long-term relationships by providing services safely and efficiently to our clients".

"This renewal will see our relationship with ConocoPhillips extend beyond 40 years," Dr. Goode said in a statement.

Transfield Services said that in 2009 TIMEC achieved zero recordable injuries at ConocoPhillips's Wilmington, Carson, Santa Maria and Ferndale sites.

Transfield Services won contract extensions with Chevron and BP in October this year.

N.D. Refinery Expansion Study Should Conclude In July

An integrated construction company from Minnesota with a regional office in Beulah, N.D., has been picked to study whether it's feasible to increase North Dakota's oil refining capacity.

The study should be complete in July.

State leaders are interested in the potential for more refining capacity in light of explosive oil production over the past two years, the growth attributed primarily to the Bakken and associated oil formations.

The study is being conducted by the North Dakota Association of Rural Electric Cooperatives, with $415,000 in funding from federal Department of Energy.

Dennis Hill, general manager of the co-op association, said a steering committee picked The Corval Group, headquartered in St. Paul, MN, because of its response to the committee's priority of first determining if a business case can be made for more capacity.

The Corval Group will team with Purvin & Gertz, an energy consulting firm, and Mustang Engineering, both of Houston. The study will be headed by Kurt Swenson, vice president of The Corval Group's Northwest Beulah office.

The study will be done in two phases.

If a business case for more refining is made, the next step will look at logistics, configuration, capital costs and potential locations, Hill said.

The steering committee is co-chaired by Sen. Rich Wardner, R-Dickinson, and Rep. Kenton Onstad, D-Parshall.

It includes representatives from production, pipeline, refinery and petroleum marketing companies that do business in North Dakota. An advisory committee of representatives of industry associations, state government, economic development agencies, energy providers and higher education participated in the study design and decision.

The Corval Group describes itself as a fully integrated construction, fabrication and solutions management company that provides specialized expertise in project development, engineering, technology application, construction, maintenance and facilities management.

Saudi Aramco Joins MIT Energy Initiative

Saudi Aramco recently joined the Massachusetts Institute of Technology Energy Initiative (MITEI) as a sustaining member. The five-year alliance will support MITEI's research and development of new energy technologies and improve processing techniques for cleaner fuels.

Isam A. Al-Bayat, Saudi Aramco's vice president of Engineering Services, and Rafael Reif, MIT provost, signed a letter of acknowledgement at MIT's offices in Cambridge, Mass. to formalize the relationship.

Additional representatives from Saudi Aramco and Aramco Services Co. (ASC) joined others from MIT to help celebrate the event. They were Ali Abuali, ASC president and CEO; Nasser Al-Wohaibi, then-manager of Saudi Aramco's Research and Development Center (R&DC); Mohammed Al-Dossary and Mohammed Aljishi, both lab scientists with R&DC; Ali Al-Somali, a Saudi Aramco visiting scientist at MIT; and Maher Uraijah, a research and technology coordinator with ASC Engineering Services.

Reif expressed his gratitude to Saudi Aramco and its global affiliates for their support and vision of an abundant and cleaner energy future. "This relationship has great potential to make a major contribution to how the world produces and consumes energy," Reif said.

Al-Bayat said Saudi Aramco was honored to join with such a world-class organization "to support innovative energy research to help meet the world's energy challenges."

Established in 2006, MITEI brings together top researchers from MIT and the business sector to launch new initiatives focused on energy security, clean-fuel technologies and education.

Others signing on to the initiative include oil industry majors such as BP, Chevron, Schlumberger, ENI and Total; as well as companies such as ABB, Bosch and Siemens that represent other energy sectors.

As a sustaining member, Saudi Aramco will have a seat on the MITEI governing board, which provides key input into the initiative's research portfolio. Saudi Aramco's participation will also allow the company to work through MITEI to conduct customized research that supports R&DC's priorities.

Two research projects currently under way are "Whole Crude Oil Desulfurization by Supercritical Water," and "Bioprocess Engineering on Microbial Desulfurization."

Additionally, Saudi Aramco's collaboration with MIT will provide a range of education-sharing programs, including opportunities for company-sponsored students to attend MIT to conduct their post-graduate studies related to the funded research.

Representatives from Saudi Aramco's R&DC -- along with ASC Engineering -- worked with MITEI to propose research projects and review seed-fund initiatives and will continue to represent the company on MITEI's various committees and work groups.

BP Announces $400 Million Upgrade to Ohio Refinery

BP PLC (BP) announced January 14 a $400 million project to upgrade its Ohio refinery to be able to produce more gasoline.

The announcement comes in the wake of spate of oil refinery closures in the U.S. due to waning demand for fuel and the poor economics associated with producing it. Many refiners have been cutting capital spending by delaying or canceling projects as they struggle to compete in a market that is oversupplied with oil products.

BP said the project will better its chances at survival.

"The project will improve the efficiency and competitiveness of the refinery by reducing energy consumption and lowering operating costs," BP said in a statement.

Construction will begin this year at the 160,000 barrel-a-day plant located near Toledo, Ohio, which BP jointly owns with Husky Energy Inc. (HSE.T). The work should be finished by 2012.

Three older refinery units will be replaced with a 42,000 barrel-a-day reformer, which uses catalysts to transform naphtha into high octane gasoline.

In 2007, BP and Husky formed a venture linking the BP refinery with Husky's Sunrise oil sands project in Alberta, Canada. It was one of a few deals U.S. refineries made with Canadian companies as a way to secure the supplies to oil sands production.

BP Sets Shutdowns for Repairs at Whiting Refinery

BP will temporarily shut down some units at the Whiting refinery for routine maintenance in the coming months.

Sources familiar with the refinery said spring maintenance is coming up -- a typical move for refineries ahead of a busy summer season with higher demand for gasoline.

BP spokesman Scott Dean said he does not comment on day-to-day operations or maintenance because it's "trade sensitive." He said planned maintenance doesn't necessarily have anything to do with the $3.8 billion expansion.

Routine maintenance typically involves bringing in contractors who specialize in doing work on certain units. It does not mean layoffs.

BP filed a notice with the Indiana Department of Environmental Management to do a planned, total or partial shutdown of the refinery in the 2010 first quarter.

Valero Reported Trying to Sell Paulsboro N.J. Refinery

Valero Energy Corp. said January15 it wouldn’t comment on a report by Bloomberg LP that it had hired UBS AG to negotiate a sale of its Paulsboro, N.J., refinery.

Bill Day, a spokesman for the Houston-based refiner, would only say that Valero said in October that it was exploring strategic alternatives for three refineries, including the one in Paulsboro, Gloucester County.

Valero has since shut the other two refineries, which were in Delaware City, DE, and Aruba.

Valero employs 450 at its Paulsboro refinery. It had employed more, but about 100 workers there accepted voluntary retirement packages in the fall, Day said. The refinery can process 195,000 barrels of oil per day.

Philadelphia-based Sunoco Inc. shut its Eagle Point refinery in Westville, N.J., last year, leaving it with two in the Philadelphia area.

If Valero closes or sells its Paulsboro refinery, it would have none left in the area.

CANADA

Pipeline Prepares for Montreal Refinery Closure

One of Portland Pipe Line's largest customers, an oil refinery in Montreal that receives its oil through the port of Portland, plans to close at the end of 2010.

The refinery, which has the capacity to refine 130,000 barrels of oil a day, is one of two refineries in Montreal that bring in oil through two 236-mile-long pipelines that run underground between South Portland and Montreal.

Portland Pipe Line operates the pipelines, a tank farm and an unloading terminal on the waterfront in South Portland. The company is now pumping 300,000 to 350,000 barrels a day.

The refinery that will close, owned by Royal Dutch Shell, "no longer fits with Shell's long-term strategy," Shell said in a press release during the first week of January.

The Montreal Gazette reported that the refinery will be converted to a storage unit for gasoline, diesel and aviation fuels to be distributed from the company's nearby terminal.

A drop in demand for petroleum products such as diesel, jet fuel and gasoline has forced several oil companies to close refineries permanently or indefinitely. Shell decided to close its refinery after efforts to sell it attracted no buyers.

David Cyr, treasurer of Portland Pipe Line, said it is too early to gauge the impact of the closing. He said his company will proceed with "business as usual" as it waits for more information from Shell.

Since it was founded in 1941, Portland Pipe Line has always been able to adapt to changing market conditions, Cyr said, and he is confident that it will continue to do so.

Portland Harbor has been the largest oil port on the East Coast in recent years, with about 180 oil tankers visiting each year.

Jeff Monroe, a former port director who now works as a transportation consultant, said the refinery's closing will hurt the city's port for a couple of years, but he is confident that it will recover because the infrastructure of Portland Pipe Line has maintained its strategic value.

For much of Canada, Portland remains the closest port that is ice-free year-round, he said.

"There is no question there will be fewer ships calling on the port, but nobody is going to allow the expensive infrastructure at Portland Pipe Line to go unused for very long," Monroe said.

The pipeline was built in 1941 to transport oil safely to Quebec at a time when German U-boats patrolled the western Atlantic. The flow has continued because it has proven to be the most cost-effective way to move foreign oil to Quebec.

Portland Pipe Line and its parent company in Canada, Montreal Pipe Line, have studied spending $100 million to reverse the flow of oil through one of the two pipelines. The reversal would let the company deliver western Canadian crude oil to refineries in the United States.

The project was put on hold in the beginning of 2009, but the company will continue seeking the permits it needs for construction, Cyr said. "We are waiting for conditions that are more favorable to resume the project."

KBR to Fabricate Pipe Spools for Canadian Refining Complex

KBR announced January 13 that it has been awarded a contract by Houston-based International Alliance Group (IAG) on behalf of Consumers' Co-operative Refineries Ltd. (CCRL) to provide fabricated pipe spools for CCRL's industrial facility in Regina, Saskatchewan, Canada

KBR will fabricate pipe spools in a controlled manufacturing environment which allows for improved quality and lower overall costs. The work will be executed in KBR's Canadian fabrication facility in Edmonton, Alberta, Canada.

"We are pleased to have been selected by our client, CCRL for this contract award," said David Zimmerman, President, KBR Services. "With nearly 60 years of experience providing cost effective, pipe fabrication solutions to our clients, we are well positioned to provide the services necessary to make their project successful."

Canadian Natural, North West Plan Alberta Bitumen Refinery

Canadian Natural Resources Ltd. and private Calgary-based North West Upgrading Inc. have submitted a joint proposal to the Alberta government to build and operate a bitumen refinery near Redwater, Alberta.

In connection with the joint proposal, Canadian Natural said it has agreed to acquire 50% of the assets of North West Upgrading for an undisclosed amount and form a partnership to construct and operate the facility.

Closing of the acquisition is targeted for later this year, subject to a number of conditions.

Canadian Natural said Phase I of the proposed refinery includes a one-step conversion process of 50,000 barrels a day of bitumen to finished products and an integrated CO2 management solution. The proposed facility can be expanded in two additional phases of 50,000 barrels a day of bitumen.

Canadian Natural, a major heavy-oil producer, said it will hold a 50% interest in the venture and has agreed to supply 12,500 barrels a day of its own bitumen production to Phase 1 of the proposed facility.

BRAZIL

Petrobras to Change Scope of Comperj Refinery Project

Brazilian state-run energy giant Petroleo Brasileiro SA, (Petrobras) is considering a change in its Comperj refinery project to focus on heavy oil processing rather than petrochemicals, local business daily Valor Economico reported January 13.

Comperj would be constructed as a so-called "premium" fuels refinery that would process 300,000 barrels of oil daily, the newspaper said. The primary raw material would be heavy oil from the prolific Marlim field.

"We are evaluating the current scenario to make the project more competitive," Valor quoted Petrobras downstream director Paulo Roberto Costa as saying.

Petrobras was not immediately available to comment on the report when contacted by Dow Jones Newswires.

Difficulties finding partners for the petrochemicals project forced Petrobras to consider the shift in focus, Valor said. The refinery was originally designed as an $8.5 billion petrochemicals plant.

The refinery was part of Petrobras' $174.4 billion five-year investment plan announced in January 2009, which included five new refineries to boost output. Comperj was expected to start operations in 2012.

Petrobras has said the Comperj refinery was the company's single largest undertaking. It was originally planned to process 150,000 barrels a day of heavy oil from the Campos Basin, where Marlim is located. Petrochemicals output was to include polyethylene, polypropylene, PTA, PET, ethylene glycol and styrene.

The basic petrochemical unit was also expected to produce petroleum coke, sulfur, heavy naphtha and benzene, as well as diesel oil and petrochemicals feedstock.

Brazil’s Petrobras Starts Construction of Biggest Refinery in Latin America

Brazilian oil and fuel giant Petrobras January 15 started construction of the biggest refinery in Latin America, and the fifth largest in the world, in the state of Maranhão, in northeast Brazil.

The unit will have a production capacity of 600,000 barrels per day when in full operation as of 2015, with production of fuels such as diesel, aviation fuel, and petrochemical nafta, according to information from the Brazilian state.

The project will require investment of 40 billion reals and will have the capacity to process one third of Petrobras’ current production.

The refinery is located in the city of Bacabeira, 60 kilometers from the future port terminal in the state capital São Luís, with which it will be linked via a pipeline.

The work will be carried out in two phases, the first of which will be concluded in 2013, when the refinery will reach production capacity of 300,000 barrels per day.

Petrobras currently controls 11 refineries in Brazil, four abroad and five which are under construction, such as the one at Abreu Lima, also in northeast Brazil, in partnerships with Petroleos de Venezuela.

Petrobras currently has a refinery capacity of 1.9 million barrels per day, which is close to its total production of around 2 million barrels of oil per day.

ECUADOR

SK Engineering Seeks Ecuador Refinery Project

South Korea's SK Engineering & Construction Co. said January 7 that it is pushing ahead with a project to build a refinery in Ecuador.

"We are going ahead with a project to build a refinery in Ecuador, but details on the project have yet to be decided," said a spokesman with the unlisted builder, which asked not to be identified. "The project will take years to complete."

Earlier reports by Reuters and other foreign media outlets said SK Engineering is to build a US$12.5 billion refinery on Ecuador's Pacific coast as part of a joint project with Venezuela.

The project, launched in July 2008, is expected to be completed in 2013, the reports said.

PERU

Petroperu and Axens Sign $1 Billion Contracts for Modernization Project

Petroleos del Peru-PETROPERU S. A and Axens S.A. have signed contracts to provide processing technologies for the $1 billion Talara refinery modernization project. The main objectives are the expansion of the refinery and the implementation of new units for higher quality products.

The contracts cover naphtha hydro desulfurization and catalytic reforming, hydro desulfurization of fluid catalytic cracked naphtha and LPG treatment. The revamp aims to increase refinery capacity to 95,000b/d from 62,000b/d, optimize fuel quality at existing units and construct new ones. Talara is 1,185km north of Lima. Bidding was underway in September 2009 for the project's FEED-EPC and management/supervisory services contracts.

ASIA

VIETNAM

PetroVietnam Sets Refinery Investment Threshold

The president of Vietnam's State-owned Oil and Gas Group (PetroVietnam) on January 5 announced a decision not to invest in oil refineries with an annual capacity of 6.5 million tonnes or less.

Dinh La Thang said the decision was drawn from a lesson learned regarding the nation's first oil refinery Dung Quat in the central province of Quang Ngai.

As a result, the two oil refinery projects, Nghi Son in the central province of Thanh Hoa and Long Son in the southern oil-rich province of Ba Ria-Vung Tau, will have an annual capacity of 10 million tonnes each, he added.

The Nghi Son project is likely to launch construction bidding and signing of the engineering, procurement and construction contract in 2010.

In regards to the Long Son project, PetroVietnam is negotiating with foreign contractors, including Malaysia and the Republic of Korea, on conditions to set up joint-ventures. Despite some disagreements, PetroVietnam expects to sign agreements within this year.

PetroVietnam is also working with a design contractor to increase the Dung Quat refinery's annual capacity to 10 million tonnes of product from the current 6.5 million tonnes.

The nation's leading oil and gas group has also worked out a number of targets for 2010, which include the extraction of 15 million tonnes of crude oil and 8 million tonnes of gas.

Other major targets are the production of 740,000 tonnes of urea fertiliser, 10.5 billion kWh of electricity, 4.9 million tonnes of assorted fuels and gas, 651,000 tonnes of LPG and exportation of 9.43 million tonnes of crude oil.

The targets were announced by the group at an online meeting recently between Hanoi, Quang Ngai province, Can Tho city and Ho Chi Minh City.

EUROPE / AFRICA / MIDDLE EAST

BELGIUM

Nynas AB Strikes Bitumen Supply Deal with Vitol

Nynas AB reported January 12 that it has agreed to the transfer of the Antwerp (Belgium) bitumen refinery from Petroplus to Vitol.

As part of the deal, Nynas has secured a new long-term bitumen supply deal from the refinery for its Continental Europe business. Vitol's new acquisition will be renamed Antwerp Processing Company N.V. Nynas will continue to supply crude to the bitumen refinery, which will manufacture the Swedish company's supply of bitumen.

As part of the arrangement, Nynas will continue to work closely with Petroplus in Mainland Europe where we take responsibility to market their free bitumen production.

Russell Childs, Vice President of Nynas Bitumen said "We are delighted to have concluded this deal which secures the long term processing of Nynas crude at Antwerp and provides rights to the bitumen produced. We are pleased to join forces with the Vitol Group and will work hard together to identify further areas of cooperation of mutual benefit to improve our respective businesses. The continued cooperation with Petroplus is an important part of the deal with more potential to develop for both parties."

FRANCE

Total may Close Dunkirk Refinery and Invest in EDF's Dunkirk LNG Project

France's Total could invest in a liquefied natural gas plant project led by EDF in Dunkirk to offset possible job losses if the refiner decides to close a refinery in the same town, an industry source said on January 29.

Oil giant Total is considering permanently shutting its 137,000 barrels-per-day Dunkirk refinery in northern France, or a 13 percent share of the group's French output capacity, which could result in some 600 job losses, a source close to the situation said earlier this month.

Total is expected to make the announcement on the possible closure after an extraordinary meeting with unions on February 1.

The French government has pressured Total to find an alternative industrial project to compensate for the possible job losses, three months before key regional elections.

"It's possible that an announcement will be made on an agreement (next week)," an industrial source close to the matter told Reuters.

EDF and Total declined to comment.

EDF, which is planning to make a final investment decision on the Dunkirk LNG plant in the next six months, said at the end of 2009 that it was looking for financial partners for half of the 700-million euro investment.

The plant is expected to start running in 2014 and produce some 13 billion cubic meters of gas.

Total, France's largest company by market capitalization; halted its Dunkirk refinery mid-September due to poor demand for fuel products and low refining margins.

The group started to restructure its French refining sector in March 2009, when it presented a plan to cut one quarter of output capacity at Gonfreville, its largest refinery also in northern France, a move which led to 249 job cuts.

The move provoked public outcry in a year of record profits.

Refinery run cuts have spread across Europe in the past year as fuel demand has remained poor.

France's refining sector has been under increasing pressure in the last few years as it struggles to sell refined oil products in Europe and export gasoline to the United States, where demand for auto fuel is in decline.

France exports one third of the gasoline it produces and imports one quarter of the diesel, a fuel used by three quarters of French motorists.

France has 13 refineries with six of them owned by Total.

GREECE

ABB Wins $26 Mln Order to Power Elefsina Refinery in Greece

ABB, the leading power and automation technology group, has won an order worth $26 million from Hellenic Petroleum SA to provide an integrated power and automation system for the upgrade of Hellenic Petroleum’s Elefsina refinery, west of Athens. The environmentally friendly refinery will manufacture products in accordance with best in class technology and global standards to minimize environmental impact. The order was booked in the third quarter.

ABB will design, supply, install and commission the electrical and automation system to power the refinery. The turnkey electrical solution aims to strengthen the reliability and quality of power supply to the refinery, while improving energy efficiency and reducing overall electricity consumption and costs. The project is expected to be completed in 2010.

ABB will supply medium-voltage equipment including the latest ZX2 gas-insulated switchgear and ZS1 Unigear air-insulated switchgear. ABB will also install intelligent low-voltage switchgear (MNSiS) as well as a fully automated power management and load shedding system based on the company’s System 800xA automation platform and IEC 61850 compatible communication networks. Integrating the electrical and automation system on the common 800xA platform provides additional benefits including reduced maintenance, engineering and overall lifecycle costs.

“This versatile solution is a good example of how ABB´s power and automation technologies combine to deliver integrated industry solutions to optimize operational costs, enhance plant performance and improve energy efficiency,” said Franz-Josef Mengede, head of the global Power Generation business, a part of ABB’s Power Systems division.

Hellenic Petroleum S.A. one of the largest industrial groups in Greece and a leading energy company primarily engaged in refining and marketing of petroleum products, petro-chemicals, power production and natural gas; operates three refineries in Thessalonica, Elefsina and Aspropyrgos, accounting for nearly three fourths of the total refining capacity in Greece.

SERBIA

Gazprom and Srbijagas Create South Stream Serbia AG Joint Venture

In November 2009, the constituent documents, including the charter, of the South Stream Serbia AG joint engineering company (JEC), created by Gazprom and the Serbian state-owned company Srbijagas to implement the South Stream project in Serbia, were signed and registered in Bern, Switzerland

Among other things, South Stream Serbia AG will prepare a feasibility study of the Serbian section of the South Stream project. In addition, if a decision is made to go ahead with the investment, the company will design, finance, build and operate the gas pipeline in Serbia. Gazprom’s share in the JEC will be 51 per cent, while Srbijagas will hold 49 per cent.

The agreement also defines procedures, terms and conditions of incorporation, as well as the operating mechanisms for the joint venture to be responsible for the construction and operation of an underground storage area with an active capacity of 450 million cubic meters.

The registration procedure will be completed in the near future.

“South Stream and Banatski Dvor are the projects of strategic importance to the entire Southeastern Europe. Once constructed, the transnational gas pipeline will diversify the Russian gas export routes and cut the transit risks, while the UGS facility will help optimize the amount of hydrocarbons supply in line with seasonal fluctuations.

Comprehensive execution of the projects will reinforce Serbia’s energy security, provide the financial, resource and technological basis for the country’s industrial development making it a key player on the Balkan gas market,” stated Alexey Miller, Chairman of the Gazprom Management Committee.

In 2008 Gazprom export supplied Serbia with 2.2 billion cubic meters of natural gas.

Founded on October 1, 2005 by the Government of the Republic of Serbia within the reorganization of the state-owned Naftna Industrija Srbije (NIS), Srbijagas is the state-owned company dealing with natural gas transmission, distribution and storage in Serbia.

Gazprom is investigating the possibility of constructing a pipeline across the Black Sea to South and Central Europe – the South Stream project – in order to diversify natural gas export routes.

On January 25, 2008 Russia and Serbia signed the Umbrella Intergovernmental Agreement for the South Stream project and the Banatski Dvor UGS project.

On December 24, 2008 Gazprom and the state-owned Srbijagas signed the Major Terms of the Basic Agreement of Cooperation for the South Stream project implementation in Serbia, and the Memorandum of Understanding to cooperate in natural gas storage within the Banatski Dvor UGS project.

On May 15, 2009 the parties signed the Basic Agreement of Cooperation for the South Stream project in Serbia. The document sets the specific principles of interaction between the parties and defines the procedure, terms and conditions of incorporation, as well as the operating mechanisms for the JEC.

The Banatski Dvor UGS facility will be based on a depleted gas field with the same name. The field is located 60 kilometers northeast of the city of Novi Sad.

SPAIN

Foster Wheeler to Build HRSG at Spain’s Cartagena Refinery

Foster Wheeler AG announced January 7 that a subsidiary of its Global Power Group has been awarded a contract to design, supply and erect a heat recovery steam generator (HRSG) by the Spanish company, Repsol Petroleo S.A. The HRSG and auxiliary equipment will be integrated in a cogeneration plant being built at the REPSOL Cartagena Refinery in Murcia, Spain. Foster Wheeler will also provide start-up supervision services.

Foster Wheeler has received a full notice to proceed on this contract. The terms of the agreement were not disclosed, and the contract value will be included in the company's fourth quarter 2009 bookings. Commercial operation is scheduled for the first quarter of 2012.

The HRSG will be coupled with a General Electric PG-6581 gas turbine and recover heat from the gas discharge stream, producing high pressure and medium pressure steam for use in refinery processes and electricity generation at the Cartagena facility. The unit will be equipped with a bypass stack and diverter, as well as post-firing and fresh air capability, for continuous operation even after a combustion turbine trip.

"This boiler is the seventh HRSG awarded to Foster Wheeler by Repsol, a true testimony that Foster Wheeler meets the high degree of design and quality standards demanded by Repsol," said Eric Svendsen, chief executive officer of Foster Wheeler Energia, S.L. in Madrid.

THE NETHERLANDS

CB&I Awarded $60 MlnContract for Diesel Hydrotreater Project at Pernis Refinery

CB&I has been awarded a contract valued in excess of US$60 million by Royal Dutch Shell plc for the engineering, procurement and construction of a diesel hydrotreater at the Pernis Refinery in Rotterdam. The hydrotreater reduces the sulfur content in the diesel to meet European environmental standards, while significantly increasing the refinery’s capacity to produce clean diesel fuel.

SUDAN

Sudan, China Hold Refinery Expansion Talks

Sudan's oil minister Al-Zubair Ahmed Al-Hassan was in China for talks on Khartoum refinery expansion, the official news agency SUNA reported January 13.

The minister of energy and mining, Al-Zubair, discussed during a regular meeting of Khartoum Refinery Board the performance of the refinery during the past year and plans for the new year.

The minister, who chaired the meeting, also tackled with Chinese officials an agreement to increase its production to 200,000 barrels per day instead of its current capacity of 100,000 bpd to meet the growing need of oil derivatives.

Sudan and the state firm China National Petroleum Corp (CNPC) signed on November 17, 2009, an agreement on the second phase of the expansion of the refinery.

China National Petroleum Corp. (CNPC), a leading energy investor in Sudan and parent of Asia's top oil and gas firm PetroChina, owns 50 percent of the refinery, which it built and operates. The Sudan government holds the rest.

In London, Archbishop Daniel Deng, leader of the Episcopal Church of the Sudan, accused China of pursuing a damaging policy of economic gain in Sudan and urged Beijing to use its influence to help ease rising tension ahead of elections.

"China is looking only for minerals, they are looking for economic benefit. That is all. That is damaging the country. They are not even making peace," the Anglican archbishop said during a visit to Lambeth Palace in London January 11.

"They are not interested in whether Sudan goes to war or not. That is not their mission, that is not their problem," he further said.

Deng was joined by the Archbishop of Canterbury Dr Rowan Williams, who recommended a single high level figure to act as a mediator between the feuding parties and called on China to play a "positive" role in peace efforts.

The Archbishops later expressed their concerns in a meeting with the British Prime Minister Gordon Brown.

UGANDA

CNOOC May Take over Tullow Oil Assets in Uganda

The UK oil producer Tullow Oil lately decided to sell its oil and gas assets in Uganda, charming China's three oil front-runners and several foreign counterparts. Amongst them, China National Offshore Oil Corporation (CNOOC) and Total have been selected as the potential partners.

However, overseas sources said that both Tullow and the Ugandan government preferred CNOOC to Total.

Some insiders from CNOOC decline to make any response to the reports and to reveal more details, but the Beijing-located company has expressed its intention of forming a partnership with Tullow Oil to create an oil refinery and a 1,300-kilometer pipeline in Uganda.

In particular, China National Petroleum Corporation (CNPC) and China Petrochemical Corporation (Sinopec Group) have gained the negotiation licenses, but whether the three Chinese oil titans will join hands or fight for this deal remains unknown.

Total oil reserve involved in these assets has exceeded 400 million barrels, in accordance with the commercial exploitation standard, estimated an English energy expert.

ZAMBIA

Essar Mulls Stake Purchase in Zambian Refinery

India's Essar Group plans to acquire a majority stake in Zambia's state-owned Indeni Refinery, which has a capacity to refine around 1 million tonnes per annum (mtpa) of crude. South Africa's Sasol Ltd is among the companies vying for the same stake.

Essar plans to enter the fuel retailing business in Zambia and supply petroleum products to countries in the vicinity by acquiring the refinery, located in Ndola, 420km north of the capital Lusaka.

Total SA of France had a 50% stake in the refinery which was recently acquired by the Zambian government.

"The Zambian government has to take a decision whether they want to divest the refinery along with the 1,300km Tazama pipeline that brings crude from Dar es Salaam port in Tanzania," said a person aware of the development who did not want to be identified.

Essar plans to use the refinery, one of the few inland refineries in Africa, to supply petroleum products to the Democratic Republic of Congo, Malawi, Zambia and even East Angola.

Currently, the liquefied petroleum gas (LPG) produced at the refinery goes to Kenya by road. Essar plans to take petroleum products instead of LPG to Mpulungu Harbor in north Zambia, which is located on lake Tanganyika, and then supply it to countries such as Libya, Kenya, Tanzania, Burundi and some East African countries by ship as the lake connects all these countries. Essar will also reportedly use the refinery to supply petroleum products to the Democratic Republic of Congo, Malawi and Zambia.

An official at the Indian High Commission in Lusaka, who didn't want to be named, confirmed Essar Group's interest in the refinery.

An Essar Group spokesperson, in an email reply to queries from Mint, said: "As a group we keep on looking for opportunities in the sectors that we are in. However, we do not comment on any specific proposal."

Essar Group has a presence in Africa's refining sector with its Mombasa refinery acquisition in Kenya. The group has a 14 mtpa refinery at Vadinar in Gujarat which it plans to expand to 34 mtpa.

Analysts say that with a significant number of Indian firms picking up stakes in hydrocarbon blocks in the region, a refinery arrangement would be an asset to the value chain.

The firm that gets the refinery will have to invest around $100 million (Rs458 crore) for refurbishing and augmenting refining capacity as its current configuration allows separation of only diesel and LPG. The government of Zambia is expected to make a decision on the stake sale by March.

"Since India is looking at Africa for acquiring equity in hydrocarbon blocks, I wouldn't be surprised if more such opportunities are not pursued by Indian companies," said a senior official in the Indian government who did not want to be identified.

Africa is estimated to have around 10% of the world's oil reserves. Indian hydrocarbon firms such as ONGC Videsh Ltd and Oil India Ltd are present in the hydrocarbon sector in the continent, where they are seeking more acquisitions.

RUSSIA

Gazprom Komplektatsiya LLC Places Major Order with Lurgi

Gazprom Komplektatsiya LLC (a Gaxprom subsidiary) has launched an investment program to increase the octane number of the existing gasoline production and also the profitability of its refinery located in Astrakhan, Russia, on the coast of the Caspian Sea. The refinery was first put in service in 1985.

The contract for the realization of this project was concluded with MAVEG Industrieausrüstungen GmbH, a German company with offices in Ratingen.

Frankfurt-based Lurgi GmbH and MAVEG were selected to supply Engineering and Procurement Services for this project and will handle a Naphtha Hydrotreater and a C5/C6 isomerisation unit to be integrated into the refinery. Start-up of the overall plant is scheduled for 2012.

“This order demonstrates Lurgi’s abilities in the Refinery Sector, with a particular focus on technologies allowing to improve crude conversion while improving fuel quality and participating to a reduction of their environmental impact. This new project illustrates our position as the “Clean Conversion Partner.” Stated François Venet, CEO of Lurgi GmbH.

”We selected our partners because we believe that their experience and expertise will bring our modernization project to a successful completion.” (Gazprom)

JORDAN

Jordanian Panel Wants Expert to Oversee Refinery Expansion Bid

The ministerial committee tasked with reviewing the Jordan Petroleum Refinery Company (JPRC) expansion project on January 12 recommended the appointment of a technical, legal and financial expert to oversee the tendering process.

The committee, headed by Minister of Energy and Mineral Resources Khalid Irani, said in its report to the government that the selected expert should work under the direct supervision of the ministries of finance and energy and mineral resources, and be tasked with revisiting and formulating the terms of the expansion agreement as well as negotiating on behalf of the government with potential bidders for the tender, a government official said after a recent Cabinet meeting.

The committee's report, he added, also suggested that the expert be in charge of revisiting the financial status of the JPRC and the company chosen to be a partner in the project, and provide the government with an action plan to ensure that the tender process is conducted in an impartial and fair manner.

The committee, formed in December by Prime Minister Samir Rifai, also recommended upholding the government's decision to suspend all previous procedures and decisions related to the expansion project.

SAUDI ARABIA

Four Firms Bid on Saudi 400,000 bpd Jizan Refinery Project

Saudi Arabia has received two bids from four firms to build, own and operate a new export-oriented refinery in Jizan with a capacity of up to 400,000 barrels per day.

One of the bidders is Corral Petroleum Holdings AB, Swedish-registered and owned by Saudi billionaire Mohammed al-Amoudi, industry sources told Reuters.

Corral Petroleum owns Sweden-based oil company Preem AB, Sweden's fourth largest exporter with two oil refineries in Sweden. It is also the largest shareholder in Morocco's only oil refinery Samir.

Also a consortium formed by Saudi industrial group Tasnee 2060.SE, Saudi Nama Chemicals Group 2210.SE and Saudi Advanced Refineries and Petrochemicals Co (ARPC) is fighting for the contract.

The Jizan refinery would have a capacity of 250,000 to 400,000 barrels per day of crude oil. It's the first Saudi oil refinery to be fully privately owned.

The tender for Jizan has been delayed several times. Saudi Oil Minister Ali al-Naimi is expected to announce the winning bid by the end of the year.

SASREF Inaugurates New Control Facilities

Saudi Aramco Shell Refinery Co. (SASREF) recently inaugurated its refurbished Central Control Room and the Instrumentation Master Plan (IMP) Project.

SASREF chairman Abdul Rahman F. Al-Wuhaib cut the ribbon at a ceremony on December 14, accompanied by SASREF's Board of Directors, the management team, and president and CEO of Yokogawa Middle East Akira Ogawa.

In his address, Al-Wuhaib said he hoped SASREF's "leading-edge technology, optimal utilization and obsolescence abatement will further boost its international competitiveness as a firmly established pacesetter refinery."

The IMP project, according to SASREF President Abdulhakim Al-Gouhi, is to ensure reliable operations and to inspire best-in-class achievement and performance in the Asia-Pacific and Middle East regions.

IMP project manager Ahmad Al-Abdrabbuh said IMP major accomplishments include the replacement of SASREF's obsolete relay-based Instrumented Protective System (or safeguarding system) and relevant field instruments, the replacement of SASREF's obsolete Distributed Control System, the replacement of other obsolete stand-alone automation systems and applications, and integration of the new facilities with the upgraded systems and instruments from prior stages of the IMP.

SASREF is a 50/50 joint venture between Saudi Aramco and Shell. It is an export refinery where Arabian Light Crude is upgraded into high-quality refined products, including kerosene, naphtha, benzene, fuel oil and liquefied petroleum gas. It has a production capacity of 305,000 barrels per day.

Saudi Aramco to Build $10 Bln Jazan Refinery

Saudi Aramco has been entrusted with the task of building and financing the $10 billion Jazan refinery, which will have a capacity of 250,000 to 400,000 barrels per day, Minister of Petroleum and Mineral Resources Ali Al-Naimi announced January 19.

He said the Saudi oil giant would carry out the project quickly, adding that Custodian of the Two Holy Mosques King Abdullah had approved the plan to commission the state-owned company to build the refinery, one of the major projects to be undertaken at Jazan Economic City.

Al-Naimi’s announcement came after eight Saudi firms and 42 international oil companies were short-listed for the tender.

“The Ministry of Petroleum and Mineral Resources appreciates and values the companies that made a serious attempt to compete vigorously for the project’s license,” Al-Naimi said.

“But the government, considering its current capacity and ability to ensure the establishment of this important development project in Jazan, has commissioned Saudi Aramco to implement and finance the project wholly,” the minister said.

The bidding process for the Jazan refinery project was delayed several times. The Kingdom has struggled to attract foreign interest in the project as the refinery is far from Saudi oil and gas fields.

The surprise announcement came after Al-Naimi said last month he expected the winner of the contract would be declared soon. King Abdullah approved the project in 2006 as part of a wider development plan for the southern province.

Saudi Arabia had hoped the refinery would be built and owned entirely by the private sector, a first in the Kingdom. But the plan failed to generate interest from foreign investors, who were concerned the cost of supplying crude to the plant could make it unprofitable in the future. Refineries elsewhere in the Kingdom are fully owned by Aramco, or by joint ventures between Aramco and international energy firms.

“Despite their industrial experience and strong interest, none of the Saudi companies is in a position to execute such a vast program,” said Sadad Al-Husseini, a former top executive at Aramco.

Saudi industrial group Tasnee, Saudi Nama Chemicals Group and Saudi Advanced Refineries and Petrochemicals Co. (ARPC) formed one of the consortiums that bid for Jazan. Corral Petroleum Holdings AB teamed up with Jeddah-based Arabian Peninsula Co. for Industrialization and Oil Services in a second consortium, said sources. “The project is not simple, it requires technology, special techniques,” Saleh Al-Nazha, president of Tasnee, told Reuters. The bidders made some proposals to make the project more profitable, such as building it with an integrated petrochemical plant.

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