Refineries UPDATE
August 2010
McIlvaine Company
TABLE OF CONTENTS
Russian-To-Asia ESPO Pipeline Takes 100,000 bpd of Oil to West Coast
LyondellBasell Restarts Houston Refinery CDU
BP Prepares for Major $300 Mln Diesel/Hydrogen Unit Project at Cherry Point
Premcor to Pay Ohio $4 Mln in Penalties for Underground Gas Tank Leaks
Texas Challenges EPA's Flex Permit Ruling
EPA Wants Rulemaking to Integrate Environmental Justice
Tesoro Settles $366,375 in Air Quality Violations at Golden Eagle Refinery
Murphy Oil Plans to Sell Refineries without Plans to Shut Them
Delek Decides against Acquiring Shell Montreal Refinery
U.S. Bars PetroChina from Processing Sudanese Crude at New Qinzhou Refinery
India's BPCL Starts Ops at Madhya Pradesh Refinery
Taiwan's China Petroleum (CPC) to Produce Fuel Oil in $2.8 Bln Plant in S. Sulawesi
Pertamina, Kuwait Petroleum to Invest $9 Bln in West Java Refinery
Expert Says Philippines Should Assess, Review Refining Industry
Thai Esso OKs $394 Mln Upgrade Investment Plan to Meet Euro-4 Standard
Vietnam's Dung Quat Refinery Secures BP and SOCAR Crude Supply
European Refineries Handling 3.4 Mln bpd under Threat of Closure or Opting to Sell
Total Considers Options after Court Rules to Resume Flanders Refinery Ops
ConocoPhillips Scraps 260,000 bpd Wilhelmshaven Upgrade
Shell Divests Downstream Businesses in Greece
Foster Wheeler Wins FEED Framework Agreement for Karsto Project
Neste Sells Sines ETBE Plant to Repsol
ConocoPhillips Revamp of Coker Unit at Romania Petromidia Refinery
Shaw Wins PMC Contract for Grassroots Refinery in Turkey
HSBC Holdings Seeks Partner for $5 Bln Libya Refinery by End 2010
Nigeria's Zanfara State to Build $1.94 Bln, 200,000 bpd Refinery
Iran Plans to Spend $46 Bln on Refineries
Saudi Aramco Awards Yanbu Contracts
CB&I Wins Ruwais Refinery $70 Mln Storage Tank Contract
Russian oil has taken an unexpected turn to the U.S., where it is making inroads on the West Coast.
Oil refineries spanning the area between the Puget Sound in the Pacific Northwest and greater Los Angeles have been quick to try out oil that is landing in tankers sent from Russia's eastern coast. Imports have gone from zero to an estimated 100,000 barrels a day in a matter of months since a pipeline bringing crude from deep inside Eastern Siberia came online.
The influx has held down fuel prices in places like California, which often has the highest gasoline prices in the U.S. Traders have been caught off guard because the oil pipeline was built to target fast-growing Asian markets. Few people expected to see so many tankerloads reach U.S. shores.
Russia, which only recently joined the list of the top oil exporters to the U.S., is set to climb those rankings thanks to the Eastern Siberia-Pacific Ocean pipeline, or ESPO.
"Russian crude will be important," said Amrita Sen, a commodities analyst for Barclays Capital in London.
Ms. Sen said members of the Organization of Petroleum Exporting Countries, which historically have been key suppliers to the U.S., are sending more of their oil to Asia. "The U.S., on its part, is also diversifying its sources," she said.
At the same time, production from other U.S. suppliers, such as Mexico, is declining at "hefty" rates, Ms. Sen said.
Russia is the world's No. 1 crude-oil producer and No. 2 exporter after Saudi Arabia. The Russian oil industry has been fraught with scandal for decades, which has raised questions about its ability to be a reliable supplier over the long term.
Mikhail Khodorkovsky, at the helm of the Yukos oil company, was an outspoken supporter of a direct oil route to Asia before he was jailed and stripped of his oil assets, which went to a state-owned oil company. It was Yukos that in 2002 arranged the first direct shipments of Russian crude to the U.S., across the Atlantic Ocean.
Today, Tesoro Corp., one of the largest refiners on the U.S. West Coast, is testing the ESPO oil to see if it can be added to the mix of blends that are processed into products such as gasoline, diesel and jet fuel.
"This is one that potentially has some more positive benefits," Tesoro Chief Executive Bruce Smith said in April, referring to the quality and attractive pricing of the ESPO crude-oil blend.
After shaking up Asian energy markets since its opening last year, the ESPO pipeline is challenging Alaskan oil, underscoring once again Russia's potential to throw established trading patterns into disarray. The pipeline is expected to revive Russian production growth, giving the nation a way to ship Eastern Siberian oil overseas.
Its $14.4 billion first phase is due to reach capacity of 600,000 barrels a day by the end of the year. A 300,000 barrels-a-day spur that will carry crude to China is scheduled for completion at the end of the third quarter. One million barrels a day could be flowing by 2013, an amount that is comparable to Saudi Arabia's current exports to China.
U.S. refiners were initially offered ESPO oil at a reduced price. Many leapt at the opportunity, choosing to use the ESPO blend instead of Alaskan crude. Oil from Alaska has typically accounted for 35% to 40% of the crude BP PLC runs through its West Coast refineries and about 20% of the crude at Chevron Corp.'s plants in the region, but some of this oil will be displaced as more Russian crude hits the coast, experts say.
The switch has gained speed in recent months as the supply of oil from the Arctic drops due to seasonal maintenance from March to September.
The availability of this discounted oil has combined with weak demand and high inventories of both crude and gasoline to keep prices at the pump from rising as much as they usually do ahead of the summer driving season.
Retail gasoline prices on the U.S. West Coast rose just 5.3% in the first six months of 2010. They averaged $3.055 a gallon in th e week ended June 28. Prices typically increase by double-digit percentages during this period.
LyondellBasell announced that its Houston refinery returned a crude distillation unit to service on July 1. The unit, one of two heavy crude distillation units at the 268,000 barrels per day refinery, was shut down on May 17 as a result of a fire.
BP Cherry Point refinery is gearing up for a major project that will mean hundreds of construction jobs for the next two years and cleaner-burning fuel for boats and other off-road machines.
The company has begun applying for permits to build a $300 million diesel/hydrogen unit in the heart of its Cherry Point facility, said Mike Abendhoff, a spokesman for the company.
The new production unit will enable BP to create cleaner-burning fuel that releases less sulfur into the air. It's being done to meet tighter federal environmental regulations scheduled to begin in 2012.
The unit is similar to ones installed five to seven years ago for gasoline used by on-road vehicles, including cars, said Abendhoff. The new unit will not increase the refinery's capacity, but it will take out more sulfur than the level in fuel currently being produced.
The project will be a shot in the arm for the local construction industry. Abendhoff estimates the project will provide an average of 400 to 500 construction jobs for the duration of the two-year project, which is expected to begin once permits have been approved by Whatcom County and by the Northwest Clean Air Agency, possibly in 2011.
"Our goal is to get our local general contractors and subcontractors as involved as possible on this project," he said.
Once the project is completed, the new unit is expected to create an additional 10 to 12 jobs. The Cherry Point facility is one of Whatcom County's largest private employers, with a direct workforce of about 800 people.
Three Toledo sites are included in a legal settlement that will have a large oil refiner pay Ohio a record $4 million in penalties for leaking underground gas station storage tanks.
The settlement between the Premcor Refining Group Inc. and the state is the result of lawsuits filed by the Ohio attorney general in 26 counties over leaking storage tanks at 55 gas stations.
The other northwest Ohio counties included in the settlement are Wood, Seneca, and Van Wert. The penalty money will go into a state fund for environmental clean-ups, said Andy Thompson, chief of Ohio's Bureau of Underground Storage Tank Regulations, who described the settlement as the largest in his agency's history.
The violations, many involving paperwork, date to the 1990s. The Lucas County sites are all in Toledo -- at 4448 Monroe St., 4460 Lewis Ave., and 1410 Starr Ave. -- and have been on the city's radar.
The Lewis address is no longer operational and was suspected of leaking fuel in 2006, said Tim Murphy, Toledo's commissioner of environmental services.
The Monroe and Starr sites "are in pretty good standing," he added.
The only Wood County site is in Bowling Green; at 333 South Main St. The violations there stemmed from a leak of 824 gallons of gasoline.
Municipal officials were aware of it and "as far as I know, it's not a current issue," city attorney Mike Marsh said.
The tanks were all at Clark gas stations once owned by Premcor, whose corporate name was Clark Refining and Marketing Inc. prior to 2000.
Most of the stations were sold in 1999 to a new owner that assumed responsibility for cleanups related to leaking tanks, according to a statement issued by Premcor.
When that owner went bankrupt, the stations were sold again in 2003 to various buyers the U.S. Bankruptcy Court of Northern Illinois stipulated were responsible for cleanups. Ohio, however, took the position that Premcor was responsible and filed its lawsuits late last year.
Premcor of San Antonio is a refiner and supplier of unbranded fuel and other petroleum products, according to Bloomberg Business Week.
It markets its products in the Midwest, Gulf Coast, and eastern and southeastern United States and is a subsidiary of Valero Energy Corp., one of the country's largest gasoline retailers and refiners.
Premcor noted in its statement that it had spent millions of dollars since 2005 successfully cleaning up 37 of the Ohio sites.
The firm said it would continue to work with the state to remediate pollution at the remaining locations. Kristin Watt, the company's Columbus attorney, said she was not authorized to speak about the case.
Texas Attorney General Greg Abbott on July 26 filed a legal challenge to the U.S. Environmental Protection Agency's decision to disapprove the State's Flexible Permits Program. The State's petition for reconsideration was filed with the U.S. Court of Appeals for the Fifth Circuit in New Orleans.
Texas' Flexible Permits Program was established in 1994 in an effort to incentivize grandfathered operations to voluntarily enter into the State's air permitting and environmental regulation program. Facilities that were exempted because of their grandfathered status agreed to submit to state regulation because the program offered them operational flexibility. In exchange for emissions regulations, participants were authorized to allocate emissions on a facility-wide basis rather than by source point. The end result was a program that gave facilities greater flexibility and control -- but that reduced emissions and complied with all state health standards, as well as all applicable federal Clean Air Act requirements.
At the time that the Texas Commission on Environmental Quality (TCEQ) established the Flexible Permits Program, Texas had a large number of "grandfathered" facilities that pre-dated the State's permitting program, which did not begin until 1971. As the EPA acknowledges, neither the EPA nor the TCEQ had statutory authority to impose controls on -- or require permits for -- these grandfathered facilities.
Because of the Flexible Permits Program -- and the enactment of Texas laws that later imposed mandatory permitting requirements -- there are no longer any grandfathered facilities in the State of Texas. In contrast, multiple other states across the country are still home to facilities that are grandfathered and therefore exempt from both state and federal permitting requirements.
The TCEQ submitted its Flexible Permits Program rules to the EPA in 1994. Although the TCEQ has been issuing flexible permits without interference from the federal government since the first term of the Clinton Administration, the EPA rejected the rules and disapproved the Texas program on July 15, 2010.
Under the Clean Air Act, the EPA was required to act on Texas' rules within one year. Yet the federal government waited more than a decade -- three presidential administrations -- to take action on and ultimately reject the TCEQ's Flexible Permits Program rules. Despite the fact that more than a dozen years passed since the rules were first submitted, the TCEQ attempted to work with the Obama administration and resolve the new EPA administrator's objections. On June 16, 2010, the commission promulgated draft rules that amended the Flexible Permits Program in an effort to resolve the federal government's concerns. Despite TCEQ's efforts, the EPA summarily disapproved the Texas program just one month after the State's new proposed rules were published.
By rejecting Texas' Flexible Permits Program, the EPA has unilaterally declared that the program is not in compliance with federal law. The EPA's decision not only imposes significant uncertainty on entities that employ thousands of Texans, but it threatens the livelihood of their employees -- who depend upon those facilities for their jobs. According to the Texas Governor's Office, recent decisions by the EPA to extend federal control over the state threaten tens of thousands of Texas jobs.
The EPA's decision also threatens a regulatory program that has successfully reduced harmful emissions in the State of Texas. Emissions data cited by the Governor's Office indicates that the Texas clean air program achieved a 22 percent reduction in ozone and a 46 percent reduction in NOx, which outpaces the eight percent and 27 percent reductions that were recorded nationally.
The EPA opted to disapprove the State's Flexible Permits Program and impose the federal government's judgment on the State despite Section 101 of the Clean Air Act, which provides that air pollution prevention "is the primary responsibility of the States and local governments." Section 110 of the Act provides a similar admonishment to respect the states' authority, stipulating that "[e]ach State shall have the primary responsibility for assuring air quality within the entire geographic area comprising such State."
The Texas Attorney General's Office filed the July 26 legal action against the EPA on behalf of TCEQ in an effort to defend the State's legal rights and challenge improper overreach by the federal government.
The U.S. Environmental Protection Agency (EPA) is releasing an interim guidance document to help agency staff incorporate environmental justice into the agency's rulemaking process. The rulemaking guidance is a step toward meeting EPA Administrator Lisa P. Jackson's priority to work for environmental justice and protect the health and safety of communities who have been disproportionally impacted by pollution.
"Historically, the low-income and minority communities that carry the greatest environmental burdens haven't had a voice in our policy development or rulemaking. We want to expand the conversation to the places where EPA's work can make a real difference for health and the economy," said EPA Administrator Lisa P. Jackson. "This plan is part of my ongoing commitment to give all communities a seat at the decision-making table. Making environmental justice a consideration in our rulemaking changes both the perception and practice of how we work with overburdened communities, and opens this conversation up to new voices."
The document, Interim Guidance on Considering Environmental Justice During the Development of an Action, seeks to advance environmental justice for low-income, minority and indigenous communities and tribal governments who have been historically underrepresented in the regulatory decision-making process. The guidance also outlines the multiple steps that every EPA program office can take to incorporate the needs of overburdened neighborhoods into the agency's decision-making, scientific analysis, and rule development. EPA staff is encouraged to become familiar with environmental justice concepts and the many ways they should inform agency decision-making.
EPA is seeking public feedback on how to best implement and improve the guide for agency staff to further advance efforts toward environmental justice.
To view the interim guidance and submit feedback: http://www.epa.gov/environmentaljustice/resources/policy/ej-rulemaking.html
The Bay Area Air Quality Management District has fined the Tesoro Refining and Marketing Company $366,375 to settle air quality violations at the company's Golden Eagle Refinery east of Martinez.
The payment covers 44 notices of violation at the Avon refinery from 2006 through 2008, including excessive emissions of carbon monoxide, particulate pollution, ammonia, sulfur dioxide and smog-forming pollutants and failure to fix leaking tanks and other equipment.
The settlement is the largest Tesoro has paid the air district since a May 2008 fine of $1.5 million. In both cases, the settlements were reached to cover numerous violations over a period of time, said air district spokesman Ralph Borrmann.
The fine will go to the air district's general fund and will help pay for refinery enforcement and other programs, Borrmann said.
Murphy Oil Corp. Chief Executive David Wood said that the company is planning to sell its three refineries after receiving "unsolicited" inquiries, but there are no plans shut them.
In a conference call with analysts to discuss the strategy, Wood expressed confidence that the company will be able to sell its refineries by the first quarter of 2011 and said that the cash will be used to buy "oily" reserves and pay down debt.
"Our main growth vehicle and how we see ourselves valued is our upstream business," which grew 15% over the last five years, Wood said. The company will also hold on to its network of 1,070 U.S. stations and ethanol plant.
Murphy's strategy diverges from other integrated oil companies in that the company wants to maintain its retail footprint and upstream operations while carving out the refining business. Over the past decade, major oil companies such as Exxon Mobil Corp. (XOM) and BP PLC (BP) sold off their retail stations.
Historically, refineries were seen as away to offset volatility in commodity prices from exploration and production operations and boost revenues by producing higher-valued products such as gasoline and diesel. But the highly profitable plants became a drag on company profits as demand for refined fell sharply. Margins have improved but refining executives expect them to hover at these lower levels for the next few years because the recovery in demand for gasoline is being pressured by more biofuel blending and excess refining capacity.
Refiners also face greater environmental restrictions, though a push to put a price on carbon have stalled.
Given the tough margin environment and growing competition as new refining capacity comes online in the U.S. and overseas, big oil companies and independent refiners have talked about selling or shutting down their most troubled plants. But sales have been intermittent and closures limited.
Murphy is looking for one buyer to purchase its three refineries and U.K. retail network of 457 stations, but it is too early to tell if that is possible. The book value of these assets is about $1.2 billion and the tax base is $700 million, Wood said.
The process for selling the refineries are still in "phase one" as the company waits for bids, Wood said. "We are just starting the process so I don't know what the bids are."
The downstream assets for sale include a 125,000-barrel-a-day refinery in Meraux, La., its 35,000-barrel-a-day plant in Superior, WI and its 108,000-barrel-a-day refinery in Wales, U.K.
The sale of these refineries, particularly the Meraux plant, is not expected to affect supplies to Murphy's U.S. retail operations.
"We sell four times gasoline than we actually make and we have a series of swaps and trades in place; the sale of Meraux would not impact that [retail] business," Wood said.
Murphy shares were recently up 2.5% at $53.10, but the stock is down 4.4% so far this year.
Delek US Holdings, Inc. announced July 20 that it is no longer exploring the possible purchase of Shell Canada's Montreal Refinery.
The independent refiner, which evaluated the facility earlier this year, also noted that it not discussing a possible deal with Shell Canada. Delek issued the statement in advance of an appearance before the Canadian House of Commons Standing Committee on Industry, Science & Technology. The committee is investigating the impending closure of the refinery and its potential impact on the local economy.
Shell Canada, which sought to sell the 130,000-b/d refinery for nearly a year beginning in mid-2009, announced in early June that it will convert the facility to a terminal.
PetroChina, the largest oil and gas firm in China, has scrapped plans to process Sudanese crude at its new refinery in south China under U.S. pressure, sources told Reuters.
"There is a freeze on Sudanese crude into the new plant, as it is under the U.S.-listed PetroChina, not the parent company CNPC which produces crude in Sudan," said an industry official with direct knowledge of the issue.
Qinzhou refinery was due to become operational next August and was to mainly refine low-cost Sudan crude oil via ship and PetroChina has revamped the port to accommodate 300,0000 deadweight ton.
C1 Energy journal says that the refinery, located in Guangxi Zhuang region, is the first oil refining project of PetroChina in South China with topping capacity of 10-mil mt per year. It is equipped with 2.2-mil-mt/yr continuous reformer, 2.2-mil-mt/yr hydrocracker, 3.5-mil-mt/yr fluid catalytic cracker, etc. It is capable of producing 7-mil mt of oil products annually.
The refinery was supposed to be online last year, but was delayed for insufficient storage capacity and unfavorable domestic product oil market.
Company sources told Reuters last May that Qinzhou is geared to process mostly low sulfur crude oil with a cap on sulfur content at 0.5 percent. The new plant will also be able to process acidic grades such as Dar Blend and Nile Blend that the Chinese state oil giant is producing as an equity investor in Sudan in northeast Africa.
PetroChina started test runs in the beginning of July at the 200,000 barrels-per-day refinery in Guangxi region, which borders Vietnam, the sources said.
Because of the political pressure, PetroChina has for now shifted to more West African crudes for the new plant, which is slated to enter commercial productions around the end of August.
PetroChina's Hong Kong-based spokesman declined to comment.
It was not immediately known how the freeze on Sudan oil could be executed, as the African state is already China's sixth-largest crude supplier, with daily exports of 252,000 barrels in the first five months of this year, as reported by official Chinese customs data
"One possible way out is for PetroChina to transfer the refinery assets to parent company CNPC," said a second senior industry source
Washington imposed economic sanctions on Sudan in 1997 and strengthened them in subsequent years.
Foreign activity in Sudan's oil industry has come mainly from Asian investment, while Western oil companies have been reluctant to work in the country due to U.S. sanctions and higher risks associated with the country's instability.
China National Petroleum Corp (CNPC), Malaysia's Petronas and India's Oil and Natural Gas Corp (ONGC) are among the foreign oil firms in Sudan.
Bharat Petroleum Corp Ltd (BPCL) on July 2 said it has started operations at its new Bina refinery in Madhya Pradesh, six months later than envisaged.
The crude distillation unit (CDU) of the refinery, which has an annual capacity of six million tonnes, was "commissioned on June 29," BPCL said in a statement in New Delhi.
The US$2.46 billion (Rs 113.97-billion) Bina refinery has started producing kerosene and liquefied petroleum gas (LPG), it added.
"All other units of the refinery will be commissioned sequentially, and full commercial production should start by end-September," BPCL said.
Though the refinery, built by Bharat Oman Refineries Ltd - a joint venture of BPCL and Oman Oil Company, was mechanically completed in December 2009, it could not start processing crude oil as state-owned BHEL had not completed a 99-MW captive power plant on time.
BHEL was to set up a captive power plant at the refinery by May 2009, but implemented the project a year late. Besides supplying power to the refinery, the 99-MW unit was also meant to provide steam for conversion of crude oil into petroleum products.
The Bina refinery, in which Oman Oil Company has 26 per cent stake, was initially planned to be completed by December 2009.
BPCL said that LPG and kerosene produced at Bina is being sent to the company's marketing terminal in Bina for onward sales.
While nearly half of the refinery output would be diesel, it will produce 0.6 million tonnes each of petrol and jet fuel. All the products produced would be for sale in the country.
"However, if there is an excess of naphtha that is not sold in India, it will be exported," it said.
Crude oil for the refinery is being imported mainly from Saudi Arabia. BPCL has already contracted 0.5 million tonnes of crude oil from Saudi Arabia to start the refinery.
BORL has laid a 1,000-km pipeline from Vadinar to Bina to bring crude oil to the refinery.
BPCL currently owns a refinery with an annual capacity of 12 million tonnes in Mumbai and a 9.5-million-tonne unit in Kochi. It also owns a majority stake in the 3 million tonnes a year Numaligarh refinery.
BHEL was, in October 2006, awarded a lump-sum turnkey EPC contract for setting up the captive power plant. The Rs 9.5-billion contract was to be completed in 30 months.
The delay occurred because multiple units of BHEL were to supply equipment to the power plant.
The equipment for the project is being supplied by BHEL plants at Hyderabad, Trichy, Ranipet, Bhopal, Jhansi and its electronics division in Bangalore.
The civil works, erection and commissioning of the captive power plant is to be done by BHEL's Nagpur unit.
A Taiwanese natural oil processing company, China Petroleum Corporation (CPC), will start producing different types of fuel oil in Selayar regency, Indonesia's South Sulawesi province next year.
Deputy Selayar Regent Nurhamsinah said in Makassar June 30 -- after presenting the plan to South Sulawesi Governor Syahrul Yasin Limpo -- that production will be started after moving the company`s oil plant from Kaoshiung, Taiwan, to Selayar.
"The permit for the transfer and production is still in the process. The Taiwanese side will invite the Indonesia`s economic ministry to Taiwan on July 8 and a return visit to Indonesia will be conducted on July 17," he said.
He believed that the moving and building of the oil plant will soon be completed because only the materials will be moved as they are ready for installation.
The regency government provides the location for building the US$2.8 billion plant in north of Selayar Island on 1,000 hectares.
In the first year, the production capacity of Taiwan CPC may reach 100,000 barrels per day. It will be raised regularly in line with the production in Taiwan reaching 220,000 barrels per day.
Before that, he added, East Kalimantan was also interested in fixing the Taiwanese oil plant, but CPC chose Selayar and the central government has issued a permit to build the project in Selayar.
South Sulawesi Governor Syahrul Yasin Limpo hoped the plan could be realized soon this year.
PT Pertamina and Kuwait Petroleum will invest as much as US$9 billion in an oil refinery in Balongan, West Java, an official said.
The joint venture refinery will have a processing capacity of 300,000 barrels of crude oil per day. Industry Minister MS Hidayat said July15.
However, no time frame was offered for the project, Previous similar plans to build refineries have fallen through, the newspaper Jakarta Globe said.
Hidayat said the Kuwaiti firm, also known as KPC, and Pertamina would sign an MOU on the project at the end of this month.
The crude oil will be supplied from Kuwait Petroleum at a discount price.
This is a business-to-business negotiation with the backing of each government, he added.
Pertamina President Karen Agustiawan said KPC wants fiscal facilities in Vietnam or Malaysia, adding that the investment agency (BKPM) was negotiating the terms.
Pertamina plans to build refineries in West and East Java in joint ventures with foreign investors, and seeks to boost capacity at existing facilities in Balikpapan, Dumai and Balongan.
Pertamina is also building refineries in Banten and Tuban, East Java, in cooperation with Iran's Saudi Aramco.
A foreign expert has advised the incoming Aquino administration in the Philippines to assess and review carefully the oil refinery industry in the country following the changing global oil markets.
David Ernsberger, global editorial director of Platts, said the new administration must study whether it is for the long-term interest of the Philippines to have a refining industry.
"That is the decision that needs to get made first and foremost," Ernsberger said.
He said the two existing refineries, namely the 180,000 barrels refinery of Petron in Bataan and the 110,000 barrels refinery of Shell in Batangas are "too small and too old."
He said that Petron and Shell were among the two refineries in the world that were not profitable "and it's a major long-term challenge for the country to make these refineries profitable." The two refineries struggle to cover their operating costs because the crude oil they buy and the refined products they sell are not quite enough to cover most of their costs.
"With the change of administration is a chance for the government to look again what kinds of incentives it has in place for investment in the refineries in the Philippines, and maybe if it makes sense to build those refineries out and make them larger and maybe some how make profitability that way. Older smaller refineries do not have a long life-span ahead of them," he said.
He also said that its possible that Shell would decide to sell its refinery in the country since it had been actively selling its refineries for the last three or four years.
"I imagine, Shell could be tempted to sell," he said.
Shell has shelved its refinery expansion plans due to several reasons.
Ernsberger also cited the possibility that San Miguel Corp., which now operates Petron, would acquire Shells refinery should the company decide to shut it down.
"Now whether San Miguel wants to buy two refineries as opposed to just one is a question for San Miguel. I can't imagine any other company in the Philippines that has the appetite to buy a refinery except for San Miguel," Ernsberger said.
Ernsberger also noted the decision of the Arroyo government to remove tariff on imported crude products a sensible step from an energy security and national security point of view."
Esso, a Thai unit of Exxon Mobil, said July 16 its board has approved an investment plan worth around $394 million to upgrade its refinery facilities to produce Euro-4 emission standard fuel products.
The Sriracha Clean Fuels project is expected to be completed in the next 15 months and its commercial start-up is scheduled by January 1, 2012--the implementation date required by the Thai government, it said in a statement to the Stock Exchange of Thailand.
The funding will come from the company's cashflow, bill of exchange issuance and credit facilities from Thai and foreign banks and ExxonMobile affiliates.
The Vietnam National Oil and Gas Group (PetroVietnam) has successfully negotiated for BP and SOCAR of Azerbaijan to supply crude oil to Vietnam's Dung Quat oil refinery.
Under the plan, SOCAR will provide 65,000 cu.m of crude oil to Dung Quat from mid-August, while BP will supply another 65,000 cu.m in late August.
Nguyen Hoai Giang, General Director of the Binh Son Refinery and Petrochemical Co. (BSR) under PetroVietnam, on July 26 said that since the refinery's official operations began in February 2009, Dung Quat has received over 5 million tonnes of crude oil and turned out 4.2 million tonnes of refined products.
Located in the central province of Quang Ngai, Dung Quat is the first oil refinery in Vietnam to be built with a designed capacity of 6.5 million tonnes a year.
In mid-July, the hydroskimming margin for refiners operating unsophisticated refineries in Northwest Europe was at a discount of $1 a barrel versus Brent crude, suggesting simple refineries would make a loss, EMC, an energy consultancy in London said.
Vienna-based consultancy JBC Energy forecasts that refineries handling 3.4 million barrels a day, or 19% of Europe's total refining capacity, are under threat of closure by 2020 because they are unprofitable. But companies are reluctant to shut plants, given environmental cleanup costs and the opposition from both governments and labor unions, industry executives and analysts say.
Instead, many companies have opted to sell.
The following refineries have been put up for sale in Europe: Total SA's (TOT) Lindsey refinery in the U.K., Royal Dutch Shell PLC's (RDSB) Heide and Harburg plants in Germany, its Stanlow refinery in the U.K. and its Gothenburg plant in Sweden, Chevron Corp.'s (CVX) Pembroke refinery in the U.K and Ineos PLC's Grangemouth refinery in the U.K.
Total announced that it has been appraised of a ruling issued June 30 by the French Douai Court of Appeals.
The employee information and consultation process on the proposed changes at the Flanders refinery, which was ongoing at the time of the Court of Appeals hearing on May 28, was completed on June 24 after the employee representatives submitted their opinion.
The completion of the information and consultation process allows Total to proceed with the permanent shutdown of refining operations at the facility in Dunkirk. The Court of Appeals' ruling does not bar this.
However, in the same ruling, the Court of Appeals contradicts this by ordering Total to resume refining operations at the Flanders site.
In light of this paradoxical and complex legal situation, Total intends to explore the various options available, as soon as possible, to obtain the necessary clarifications, in compliance with the law and in the interests of all parties.
It should be noted that the shutdown of refining operations in Dunkirk came at a time of sharply declining petroleum product demand in France, the rest of Europe and the United States, and that many stakeholders, both public and private, support such a reduction.
ConocoPhillips on June 22 scrapped plans to upgrade its 260,000 barrel-a-day Wilhelmshaven oil refinery in Germany, which will result in a non-cash impairment charge of $1.1 billion after tax to the company's second-quarter earnings.
ConocoPhillips may also sell the facility or convert it into an oil terminal. It joins other major oil companies looking to shed refining assets in Europe, where refining margins are being squeezed by weak demand and excess global capacity.
"This move is consistent with our stated strategy of maintaining capital discipline and reducing our downstream portfolio over time," Willie Chiang, Conoco's senior vice president of refining, marketing and transportation, said in a statement.
The Wilhelmshaven plant has faced a series of setbacks in the last year. It remains idle following a May 1 fire, and prior to that it was shut down for maintenance amid poor economic conditions for six months between October and April.
The upgrading project was most recently delayed in November--it was originally scheduled for 2008.
The Wilhelmshaven refinery is relatively unsophisticated, so it can't churn out as many high-quality, expensive fuels, like gasoline and diesel, as other European plants.
"It is fairly basic," said Roy Jordan, downstream consultant for EMC, an energy consultancy in London. "It would be a risk (to buy the refinery) because it does need so much updating and investment put in that I think you'd have to be fairly brave to take that challenge on."
Conoco bought the plant from commodities firm Louis Dreyfus in early 2006. Since then, it has undergone several periods of reduced production due to poor economic conditions.
ConocoPhillips owns or has an interest in four refineries in Europe, with a total crude oil processing capacity of 610,000 barrels a day.
Shell and Motor Oil (Hellas) Corinth Refineries S.A on June 30 announced the completed sale of Shell's downstream businesses in Greece and an agreement for the continued use of the Shell brand in the Greek market.
The sale includes Shell's retail, commercial fuels, bitumen, chemicals, supply and distribution, and liquefied petroleum gas (LPG) businesses, as well as a lubricants oil blending plant. The purchase price is €245.6million (around $300 million). With the completion of the agreement Shell Hellas A.E.'s company name will change to Coral A.E.
"The decision to sell our downstream businesses in Greece follows a comprehensive strategic review," said Shell Downstream Director Mark Williams. "It fits with our drive to simplify our global downstream portfolio and concentrate on larger, integrated assets in growth markets."
Motor Oil's Executive Vice Chairman, Ioannis V. Vardinoyannis, said: "The acquisition of Shell in Greece, a leading company with a top position in our country and an internationally recognized brand, is a strategic success for us. As leaders in refining and trading of oil products, Motor Oil has now further enhanced its position in the marketing of fuels and chemicals. At this point the Motor Oil Group owns an extensive network of retail stations and a wide range of quality products, allowing us to meet the needs of the most demanding Greek consumer."
The deal also includes the creation of a marketing joint venture (MJV) between Shell and Motor Oil Hellas for the trade of aviation fuels under the company name Shell & MOH Aviation Fuels A.E. The Shell retail network of around 700 retail stations, as well as the new aviation joint venture, will retain the Shell brand and products through trademark licensing agreements. The LPG business will continue to operate under its new name, Coral Gas S.A.
This agreement was approved by the Hellenic Competition Commission on 11 June 2010.
Foster Wheeler's Global Engineering and Construction Group has entered into a Framework Agreement, awarded by Statoil, acting on behalf of Gassco AS as operator for the Gassled joint venture, for front-end engineering design (FEED) services valid through 2013 to support the development of the Kårstø oil and gas processing plant in Norway. The Kårstø processing plant is ranked as the third largest liquid petroleum gas (LPG) export facility in the world. Statoil is modifying, on behalf of Gassco, the processing plant, via the Kårstø Life Extension project, to enable it to process new light oil/condensate production coming on stream in the Norwegian North Sea.
The Framework Agreement covers a series of different FEED projects. Foster Wheeler has been awarded the first FEED call-off contract for the Gudrun Onshore Modifications project, the objective of which is to enable the Kårstø plant to process light oil from the new Gudrun Field.
The Foster Wheeler contract value for the Gudrun Onshore Modifications FEED was not disclosed and will be included in the company's second-quarter 2010 bookings. The booking values for subsequent FEED awards will be recorded as individual call-off contracts are received.
"This Framework Agreement represents an important opportunity for Foster Wheeler to expand its relationship with Gassco and Statoil. We have the right upstream expertise and project execution skills to deliver high quality FEEDs for Gassco and Statoil and we also have a track record of project success in Norway and of building strong and long-lasting relationships through delivering excellence in alliance-type relationships," said Umberto della Sala, president and chief operating officer, Foster Wheeler AG.
Gassco is operator for the Kårstø terminal, which is owned by the Gassled joint venture, with Statoil as the technical service provider.
Neste Oil announced that it is divesting its Portuguese subsidiary Neste Oil Portugal S.A., which owns an ETBE plant in Sines, to the Portuguese company Repsol Polimeros LDA.
The acquisition price is not disclosed. This divestment will have a minor positive impact on Neste Oil's second quarter result.
The Sines plant has an annual capacity of 50,000 tonnes. It produces ETBE (Ethyl Tert-Butyl Ether), which is a bioethanol-based gasoline component designed to enhance combustion and reduce tailpipe emissions. Neste Oil started MTBE production in Sines in 1992, and the plant was converted to producing ETBE at the beginning of 2005.
"This divestment allows Neste Oil to focus on its strategic priorities. Repsol is in a natural position to develop the ETBE site as an integrated part of their Sines Petrochemical site" said Matti Lehmus, Executive Vice President, Oil Products, Neste Oil Corp.
Neste Oil Corp. a refining and marketing company concentrating on low-emission, high-quality traffic fuels, is the world's leading supplier of renewable diesel. Neste Oil's refineries are located in Porvoo and Naantali and have a combined crude oil refining capacity of approx. 260,000 barrels a day. The company had net sales of EUR 9.6 billion in 2009 and employs approximately 5,100 people.
ConocoPhillips, Rompetrol Rafinare and Rominserv announced a license and technical services agreement for the revamp of the existing delayed coker unit at Rompetrol's Petromidia Refinery in Romania. The revamp will utilize ConocoPhillips' ThruPlus® Delayed Coking Technology to further improve the reliability, the environmental performance and the operability of the existing 22,000 barrels-per-day unit.
"ConocoPhillips has incorporated many years of operating experience into our ThruPlus® Delayed Coker Technology. This revamp will upgrade the Petromidia coker to enable world-class reliability and environmental performance," said Loretta Koster, Manager, ConocoPhillips Global Specialty Petroleum Coke and Licensing.
ConocoPhillips holds the unique position of being the largest delayed coking technology licensor that also owns and operates delayed cokers. The company owns, operates or has joint-venture interest in 18 delayed cokers worldwide feeding more than 600,000 barrels per day (BPD) combined. ThruPlus® delayed coking technology is externally licensed in 42 installations with a combined capacity in excess of 1.7 million BPD out of a worldwide coking capacity of approximately 4.5 million BPD.
Since 2007, ConocoPhillips has started-up one major grassroots coker, has initiated two company grassroots cokers projects, and has granted eight external ThruPlus® Delayed Coker Technology licenses.
The Shaw Group Inc. announced July 28 that it has been awarded a contract by Dogu Akdeniz Petrokimya ve Rafineri Sanayi ve Ticaret A.S. (DAPRAS), a subsidiary of Cal k Enerji, to provide project management consultancy (PMC) services for a grassroots refinery in Yumurtal k located in the Ceyhan region of Turkey on the eastern Mediterranean coast. Shaw also will conduct pre-front-end engineering design development for 14 process units, utilities, offsites and marine facilities at the site.
The planned facility, the Adana Dogu Akdeniz Refinery, will be designed to process 212,000 barrels of crude oil per calendar day. The crude will flow into the Ceyhan region from various sources, including Iraq, Russia and Caspian areas, and target the domestic and regional export markets.
"Shaw has a long track record of executing industrial projects in Turkey," said Lou Pucher, president of Shaw's Energy & Chemicals Group. "Forty years ago we provided our proprietary technology and engineering for the first ethylene plant in Yarmca, and since that time, we have completed more than 50 projects for the petrochemical, power and refining industries in Turkey."
The undisclosed value of the contract was included in Shaw's Energy & Chemicals segment's backlog of unfilled orders in the third quarter of fiscal year 2010.
Cal k Enerji is part of the Cal k Holding Group, a Turkish conglomerate based in Istanbul, active in the sectors of energy, oil & gas development, oil trading, construction, finance, telecommunication, textile, mining and media. Through its ventures in and outside of Turkey, Cal k Holding Group employs over 19,000 people.
HSBC Holdings PLC plans to bring on board by year-end an international oil company as strategic partner for a new refinery project by Libya's Zwara Oil Refining Co., or Zorco, business weekly Middle East Economic Digest reports in its July 16 issue..
"We are focusing on a limited target list of IOCs, who would be suitable for the project. Ideally, we would secure one by the end of the year," head of project finance for HSBC Middle East Jonathan Robinson said, MEED reports.
Zorco appointed HSBC as financial adviser on the 200,000-barrel a day refinery in December 2008. HSBC expects to take the estimated $5 billion project to the international financing market in the second half of 2011, Robinson said, according to MEED.
A 200,000 barrels per day capacity refinery is to be built in Nigeria's northern Zanfara state, Mahmud Aliyu Shinkafi, the state's governor said July 20
He said the state government has earmarked $1.94 billion (1.5 billion euros) for the refinery project and its ground breaking ceremony has been fixed for next month.
A statement by the Nigerian National Petroleum Corporation, or NNPC on July 20 said Shinkafi submitted the feasibility report of the refinery to Austen Oniwon, NNPC's group managing director in Abuja, the Nigerian capital.
Nigeria has four refineries but they all work below their installed capacities and the country, an oil exporter and member of OPEC, relies heavily on imports to provide gasoline products to its 150 million people daily.
Oniwon said the proposal by Zanfara to build a refinery was "in alignment with the corporation's vision to establish more refineries across the country to augment petroleum products supply and distribution to the people."
He said the NNPC would put in place a "dedicated team of experts" to study the feasibility report and "come up with the economic viability of the project."
Oniwon appealed to private investors to be part of the hydrocarbon industry by investing in the sector.
Iran's has announced plans to invest $46 billion in oil refineries to make the country self-sufficient.
Alireza Zeighami, Iran's deputy oil minister said the country would invest the funds to develop and optimize the country's oil refineries. United Nations sanctions, he said, would not curb the refineries' construction.
The announcement comes as Iran's import of gas nosedives as a result of a new round of UN sanctions. According to a report by Reuters, only three ships brought gas to Iran in July, as international traders begin to shy away from doing business in Iran.
"This is a hopeful stab at defiance against the sanctions regime being imposed on Iran," Rory Fyfe, an expert on the Middle East oil and gas industry with the Economist Intelligence Unit told the Media Line. "But it will be some time before we know whether the sanctions are having their desired effect."
The United Nations Security Council slapped a fourth round of sanctions on Iran last month, barring dealings with firms linked to the Iranian Revolutionary Guard Corps.
The Revolutionary Guard is a separate organization from the Iranian army and operates its own armed forces, navy, air force and militia. Its goal is to preserve the theocracy in Teheran, but over the years it has widened its scope and runs a vast business empire, ranging from construction to telecommunications.
Potkin Azarmehr, an Iranian opposition blogger, said the sanctions seem to be having an effect and that the government is concerned.
"Despite the government putting on a bravado face, the sanctions are appearing to have a bite," Azarmehr told The Media Line. "We see in the news that we are getting from people in Iran that the economic conditions are getting worse, there are long queues for petrol [gas] and price hikes like never before."
"The merchant class is also getting worried and they are usually a good indication on the economy," he added.
Despite Iran having some of the largest proven oil and gas reserves in the world the country suffers from a severe lack of refining capabilities. The crude oil needs to be exported to be refined into consumer products such as gas, which then has to be re-imported at a higher cost
The new UN sanctions are the latest stage in an ongoing standoff between the United States and Iran over the end goal of Iranian's nuclear program. Washington and others claim Iran is using its program as a cover to produce atomic bombs, but Tehran argues the program is for the peaceful purpose of power production.
Following the new U.N. sanctions, which cover all 192 member states of the global body, both the United States and European Union tightened their own sanctions further.
Saudi Aramco on July 28 signed several contracts with local and international contractors for the detailed Engineering, Procurement and Construction (EPC) of the Yanbu' Export Refinery Project at Yanbu' Industrial City, located in the Western Province of Saudi Arabia.
The newly incorporated Red Sea Refining Company will be responsible for the execution and operation of this landmark project.
EPC contracts for the major process units were awarded to:
The Project Management Team advised that several remaining packages will be awarded over the next few months.
Early this year, the Project Management Team awarded the Site Preparation contract to Abdulrahman Al-Shalawi Establishment to ensure that the site would be ready for EPC contractors in the construction phase.
"Signing these contracts represents a critical milestone for the Yanbu' Export Refinery Project and will pave the way for many other major activities in the Yanbu' area," said Motassim Al-Ma'ashouq, Saudi Aramco executive director of New Business Development, who attended the signing ceremony together with representatives of the winning contractors.
The Yanbu' Export Refinery Project is one of a number of downstream projects that Saudi Aramco is pursuing, and unequivocally demonstrates the company's commitment to meeting future worldwide fuel demands. As part of its long-term strategy, Saudi Aramco is now making downstream investments following a massive upstream program that increased the company's crude oil capacity to 12 million barrels per day (bpd).
The Project will build a new "grassroots" refinery in Yanbu' Industrial City on a site of approximately 5,200,000 m². The new refinery will process 400,000 barrels per day (bpd) of Arabian Heavy crude and produce 90,000 bpd of gasoline, 263,000 bpd of ultra low sulfur diesel, 6,300 metric tons per day (mtd) of coke and 1,200 mtd of sulfur.
The new refinery will use existing Saudi Aramco facilities to receive crude oil and export the refined products. It will include refinery process units, utilities and interconnecting piping, associated feedstock and refined product storage, as well as offsite facilities necessary to support the safe and efficient operation of the refinery.
The signing of the EPC contracts is a culmination of a process that started in January 2006, when a team commenced the development of the base configuration and preliminary engineering, and initiated the selection process for the contractor and process technology licensors.
"We have taken many steps along the way to ensure the Yanbu' Project will pioneer many firsts for the Kingdom in the areas of detailed engineering, human resources development, and support of local equipment and material manufacturers. Approximately, 70% of the total project value will be spent within the Kingdom," said Fahad Al-Helal, the designated president and CEO of the Red Sea Refining Company.
Al-Helal confirmed the Project's commitment to local sourcing by stating that: "We have mandated that more than one million man-hours in detailed engineering must be executed in the Kingdom. That includes the full execution of the detailed engineering of the refinery's Sulfur Recovery Unit in the Kingdom, which is the first time a major process unit of this size will be fully executed in-Kingdom. In addition, several in-Kingdom lump-sum turnkey (LSTK) packages will be executed covering cross-country pipelines, communication and electrical work. We will also make maximum use of the Saudi work force during the detailed engineering and construction phases."
Al-Helal, explained that: "The winning international EPC contractors are committed to the hiring and training of many Saudi engineers in the fields of process and mechanical engineering at their worldwide offices during the detailed engineering phase. Among our main objectives are the development of young Saudi professionals, helping technology transfer to the Kingdom and maximizing local content in all goods and services used by the Project."
The Yanbu' project is expected to create numerous economic benefits, including business opportunities for local enterprises and new job opportunities, each of which typically creates five to six indirect job opportunities.
CB&I Wins Ruwais Refinery $70 Mln Storage Tank Contract
CB&I has been awarded a contract valued in excess of US$70 million by Daewoo Engineering and Construction Co., Ltd. to provide the propylene storage tanks for the Ruwais Refinery expansion project in Abu Dhabi. Takreer, the Abu Dhabi Refining Company, is expanding the refinery to add 400,000 barrels per day capacity. CB&I's scope of the project is expected to be completed in 2013.
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