Members of the Organization of Petroleum Exporting Countries, or OPEC, will be investing heavily in downstream activities over the coming years despite uncertainty about the global economic climate, OPEC Secretary General Salem El-Badri said in the latest OPEC Bulletin.

"Over the next decade, members were expected to invest around $40 billion in refining capacity expansion," El-Badri said according to the emailed bulletin.

He added that in 2009, around 30 projects came onstream in OPEC member countries, resulting in an increase of 1.5 million barrels a day in net crude and liquids capacity. Furthermore, over the next five years 140 projects are expected to be completed and this will add about 12 million barrels a day of gross crude and liquids capacity.

"This represents a huge level of investment, estimated at $160 billion. However, it should be enough to satisfy growing demand for OPEC crude, as well as provide a comfortable cushion of capacity, which already exceeds 6 million barrels a day," El-Badri said.

El-Badri warned that member countries from developing nations couldn't continue to invest such large sums unless they were convinced that the demand would be there once the capacity came onstream.

AMERICAS

U.S.

AG Abbott Sues BP over Texas City Refinery Emissions

Texas Attorney General Greg Abbott on August 9 charged BP Products North America with "illegally emitting" close to 500,000 pounds of pollutants from its Texas City refinery for more than a month.

The state's investigation shows that BP's failure to properly maintain its equipment caused the malfunction and could have been prevented, Abbott's office said in a statement.

According to the complaint, BP "admitted to the release of air contaminants to the atmosphere" at the refinery after an April 6 fire on part of a ultracracking unit.

BP restarted the ultracracker and another unit before repairing a compressor, sending benzene, carbon monoxide and other pollutants into the air for about a month, the state said.

"BP decided to continue those units so as not to reduce productivity," the State said in the complaint. "BP made very little attempt to minimize the emission of air contaminants caused by its actions, once again prioritizing profits over environmental compliance."

The State also has a pending action over an alleged release of contaminants related to a 2005 explosion at the Texas City refinery, Abbott said. That blast killed 15 workers and led to a $50 million fine by the U.S. for a violation of the federal Clean Water Act.

BP "will continue to cooperate with the Attorney General's Office" and the Texas environmental quality agency "to resolve their concerns," Scott Dean, a spokesman for the company, said in an e-mailed statement to Bloomberg News.

The company declined further comment on the litigation, he said.

Lawyers for workers at the Texas City refinery and nearby residents filed a class action the first week in August, alleging they were injured by emissions from April 6-May 16.

The lawsuits are unrelated to the Gulf oil spill.

Abbott is seeking civil penalties of no less than $50 and no greater than $25,000 per day of each violation of state air quality laws, as well as attorneys fees and investigative costs.

Assessment of Alon USA Says Bakersfield Refinery Conversion Progressing

New management at the former Big West refinery on Rosedale Highway appears "on track" to reopen the plant in the second half of next year, according to an otherwise critical assessment of the company's earnings potential.

Coming a day after news of the fifth consecutive quarterly loss by refinery owner Alon USA, the August 13 report by Macquarie Research points to progress at the refinery as a sign that management is positioning the Israeli-owned company for growth in 2011.

Though the report lacks specifics about the refinery, it offers a measure of optimism that Alon will be able to convert the long-troubled plant from a traditional crude oil refining operation to one that processes only byproduct gas oil from the company's plant in southeast Los Angeles County.

Industry and local observers have expressed skepticism that Alon will be able to make money shipping gas oil over The Grapevine into Bakersfield then refining it into primarily diesel fuel and gasoline for the local wholesale market. Alon has defended the plan as a sensible if unorthodox attempt to turn a profit where former owners have failed.

Earlier this year Alon paid $40 million, plus the market price of its fuel inventory to buy the refinery out of bankruptcy from Utah-based Flying J Inc. Five years earlier Flying J bought the plant from Shell for a reported $130 million.

Alon has hired the 65 or so former Flying J employees who kept the refinery on standby since it was idled in early 2009. But the company has said it has no immediate plans to rehire the roughly 175 full- and part-time workers who were laid off around the time of the refinery's closure.

Macquarie maintained its "underperform" rating on Alon's stock, noting the refiner's struggles with unprofitability, its substantial debt and weakness in asphalt markets where the company is active. But the equities research firm also noted that Alon's prospects seem to be improving.

Alon shares are "positioned for a possible rebound next year and better days are ahead," the Macquarie report said.

On August 12 the Dallas-based refiner reported losing $29.3 million in the three-month period that ended June 30, nearly twice as much as it lost a year before. Its stock closed up 3 cents August 9 at $6.49, near the low end of its price range over the past year, according to Yahoo! Finance.

Enbridge’s Lakehead Situation in Michigan Prompts United Refining to Reduce Crude Throughput

United Refining Co. has temporarily reduced its Warren, Pa., crude processing until a crude line operated by Enbridge's Lakehead System in Kalamazoo, Mich., can be repaired. On July 26, a leak was detected in the Line 6B pipeline on Enbridge's Lakehead System in Michigan and was subsequently shut down. In response to the partial reduction of its crude deliveries, the Company will be temporarily reducing crude run rates by approximately 35%.

The Company's supply group is evaluating alternative crude and product sourcing options. The Company will continue to assess the situation as more information becomes available.

United Refining Company's crude supply is substantially all Canadian and delivered to Warren through the Enbridge pipeline system to the Company's crude oil terminal in West Seneca, New York.

United Refining Co., a leading regional refiner and marketer of petroleum products operates a 70,000 bpd refinery in Warren, Pennsylvania. In addition to its wholesale markets, the Company also operates 367 Kwik Fill / Red Apple and Country Fair retail gasoline and convenience stores located primarily in western New York and western Pennsylvania.

ConocoPhillips Rodeo Refinery Reaches $600,000 Settlement for Wastewater Discharge

The ConocoPhillips refinery in Rodeo, CA could be fined $600,000 for discharging wastewater that breached water quality standards into San Pablo Bay.

The refinery also would purchase new equipment to stop a future release, under a tentative order from the San Francisco Bay Regional Water Quality Control Board that awaits final approval.

Samples of the discharge in 2008 and 2009 showed the refinery did not meet effluent limitations, including 21 times for acute toxicity, nine times for selenium, once for copper and once for chlorine residual. The water board found that the improper use of filters in the startup of a sulfur plant and a mechanical problem in another unit led to some of the violations.

The water board and the refinery have reached a settlement agreement and a proposed fine that might become final if officials do not receive major objections or comments from the public by August 23.

About half of the fine would go into a state fund designated for cleanup and restoration projects. Another chunk, $190,000, would be used to redesign a culvert where Pinole Creek runs under Interstate 80, so steelhead trout can pass.

The refinery must install new equipment or make upgrades by Oct. 1, 2011, to improve the quality of the water discharged from its plant. The measures are intended to prevent a repeat of what happened, said Yvonne West, staff counsel at the board's Office of Enforcement.

"These enhanced compliance projects are aimed at bringing them beyond compliance and provide safeguards to it happening in the future," West said.

Dave Black, a member of a Good Neighbor group of residents from Crockett and Rodeo that monitors the refinery, said he is pleased a regulatory agency is tracking it. He added, "No fine is going to fit any sort of violation like that. The profits they make offset any sort of penalty."

A refinery spokesman confirmed that a settlement agreement had been reached with plans to upgrade its system.

The effects of some of the latter violations were not as bad as they could have been because the use of a deepwater diffuser diluted the toxicity, according to the tentative order. The refinery had three violations earlier from July 2003 to August 2005.

Idaho Wants $10 Mln Bond from Exxon Mobil to Transport Refinery Equipment

Idaho Gov. Butch Otter's office says Exxon Mobil will have to put up a $10 million bond before transporting oversized refinery equipment through the state along U.S. 12.

Jon Hanian, Otter's press secretary, says the governor is seeking the bond from Exxon Mobil. The Idaho Statesman reports that Otter has already gotten ConocoPhillips to agree to the bond for separate shipments of large equipment on the narrow highway to a refinery in Billings.

Imperial Oil, a subsidiary of Exxon Mobil Corp., wants to transport large machinery over highways from Lewiston through Montana and to the Kearl Oil Sands in Alberta, Canada.

Hanian says that Montana officials will likely seek a bond as well.

Three Idaho residents filed a lawsuit August 16 to stop the ConocoPhillips shipments, scheduled to begin as early as August 18.

Tesoro Says Hydrogen Attack Caused Anacortes Blast

The refinery has been shut down since April but plans to restart operations in early October, with the affected units being replaced by the end of August.

Tesoro Anacortes Refinery announced August 27 what investigators determined was the likely cause of an April 2 blast that killed seven workers.

The refinery has been shut down since April but plans to restart operations in early October, with the affected units being replaced by next week.

Testing of the damaged heat exchanger at an Ohio lab revealed that a chain of events called a high temperature hydrogen attack caused the fire, Tesoro investigators found.

They believe hydrogen molecules worked their way over time into small imperfections in the steel casing of the heat exchanger. The hydrogen then reacted with carbon in the steel, forming bubbles of methane. Those bubbles led to cracks in the steel, causing it eventually to give way.

Tesoro investigators believe such a reaction caused the heat exchanger's casing to rip apart, releasing hydrocarbons and hydrogen that mixed into a deadly fireball, company spokesman Lynn Westfall said.

Total Celebrates Milestone in Port Arthur Project

On August 16, Total Port Arthur Refinery began production of ultra-low sulfur diesel, Darrell Jacobs, refinery manager, said.

The product, he said, is more environmentally friendly as it contains 97 percent less sulfur and substantially lower emissions from diesel engines.

The milestone is part of the refinery's $2.2 billion Deep Conversion Project, which began two-and-a-half years ago on Feb. 12, 2008, when Total was granted approval to go forward with the project.

The largest unit at the facility, the distillate hydrotreater, or DHT-3, is the centerpiece of the operation. The unit was constructed in Paris and weighs 922 tons, according to information provided by Total.

"We are proud of the safe and successful start-up of the distillate hydrotreater and its related units," Jacobs said. "We look forward to the completion of all the units in this project in the next year which will enhance our ability to process heavy and sour crude oil and produce clean distillate fuels."

Andre Tricoire, Total's senior vice president of refining worldwide, said the world's economy has changed since the project started in 2008 but the multi-billion project still fits with the company's long-term goals.

In addition to the DHT-3, the Deep Conversion Project includes a 50,000 barrel-per-day coker and a vacuum distillation unit. The new units of the $2.2 billion project will increase the facility's deep-converion capacity and expand its ability to process heavy ad sour crude oil.

Coalition Seeks Hearings on EPA's Pending E15 Action on Ethanol

Thirty-nine environmental, food, motor vehicle, energy, power equipment and recreational industry groups on August 25 requested House and Senate hearings on a pending Environmental Protection Agency action that could sharply increase the amount of ethanol permitted in gasoline.

In letters to the chairmen and ranking members of the House Energy and Commerce Committee and the Senate Environment and Public Works Committee, the groups request the hearings be held in September to question top EPA and Department of Energy officials regarding the safety of a proposal to increase the amount of ethanol in gasoline from the current 10 percent (E10) to 15 percent (E15).

EPA has indicated it will make a decision by the end of September on whether to approve E15 in gasoline.

The 39 groups frequently oppose each other on a broad range of policy issues, but have launched a joint campaign calling on Congress to require thorough and objective scientific testing before allowing an increase in the amount of ethanol in gasoline.

Ethanol burns hotter than gasoline and corrodes soft metals, plastics and rubber. The groups believe more testing is needed to determine how much ethanol is too much for different types of existing engines to use safely without risking engine damage and failure that could leave vehicles stranded and endanger motorists and users of gasoline-powered equipment.

Environmental groups have raised serious questions about harmful environmental effects of ethanol.

Conoco Reports Power Failure at Wood River Refinery

ConocoPhillips reported an August 28 power failure at its Wood River refinery in Illinois, according to a filing with state regulators.

“Power failure caused sulfur to convert to SO2 and be released from flare stack,” the company said in a filing with the Illinois Emergency Management Agency. The refinery reported power was restored Aug. 29 and the plant was “still emitting more than 500 pounds of SO2 per day.”

Bill Stephens, a company spokesman, confirmed that a power disruption occurred at the refinery August 28. “Refinery teams responded safely and promptly to address the issue without offsite impact,” he said in an e-mail. “We do not provide operational status of our refinery units.”

The Wood River plant is part of a joint venture with Alberta oil-sands producer Cenovus Energy Inc. The venture was established to increase the amount of heavy Canadian crude processed in ConocoPhillips’s Wood River and Borger, Texas, refineries.

The refinery is located on the east side of the Mississippi River in Roxana, Illinois, about 15 miles northeast of St. Louis, Missouri, according to the company’s 2008 Fact Book. The plant processes light, low-sulfur and heavy, high sulfur, crude oil.

The refinery has a capacity of 380,900 barrels a day, according to data compiled by Bloomberg.

Chalmette Refinery to Shut 3 Units in Reconfiguration Plan

Exxon Mobil Corp's 196,000 barrel per day (bpd) joint-venture Chalmette, Louisiana, refinery will shut three secondary units in a reconfiguration planned to save between $8 million and $9 million per month, according to sources familiar with the plans.

The refinery, a 50-50 joint venture between Exxon and Venezuela's national oil company PDVSA, planned to shut a distillate hydrocracker, a gasoline reformer and a coking unit, according to the sources.

Exxon, which is the managing partner of the joint-venture, said on August 26 that some units would be shut at the refinery, but declined to say which units would be shut.

An Exxon spokesman declined to discuss which units would be shut.

"We are not commenting on the operational details of the reconfiguration process, such as what units may or may not be shutdown," said Exxon spokesman Kevin Allexon.

The refinery has another hydrocracking unit that processes gas oil, as well as another gasoline reformer. It also has another coking unit.

Exxon has said the refinery's capacity will remain at 196,000 bpd, but declined to disclose the current amount of crude oil being processed by the refinery.

About 70 employees will be laid off due to the reconfiguration, Exxon has said. The company will also reduce the number of contract workers at the refinery.

U.S. refineries have reduced production since the recession crushed demand beginning in 2008. Total run rates for U.S. refineries were 85 percent of capacity towards the end of August, according to the U.S. Energy Information Administration.

Environmental Groups Plan to Sue over Washington Refineries Pollution

Two environmental groups said August 24 they intend to sue the Washington Department of Ecology and two clean air agencies for not limiting global warming pollution from oil refineries.

The Washington Environmental Council and the Cascade chapter of the Sierra Club said the agencies have violated the federal Clean Air Act by failing to require the state's five oil refineries to install technology or take other measures to control greenhouse gases.

"There are reasonable things that the oil companies can do to clean up their air pollution and they're not doing it. The law says they must," said Becky Kelley, campaign director with the Washington Environmental Council.

The groups notified Ecology, the Northwest Clean Air Agency and the Puget Sound Clean Air Agency of their intent to sue in federal court.

Seth Preston, a spokesman for Ecology, said the department is still reviewing the groups' letter. He said "the state of Washington has been, and will continue to be, a national leader in addressing greenhouse gas emissions."

Officials at the Puget Sound Clean Air Agency also said they are reviewing the groups' claims, and executive director Craig Kenworthy said his agency is committed to reducing greenhouse gas emissions.

There are five oil refineries in Washington State operated by BP PLC, ConocoPhillips, Shell Oil, Tesoro Corp. and U.S. Oil. Two are in Anacortes, and the others are in Blaine, Ferndale and Tacoma.

The environmentalists estimate that the refineries together account for about 8 percent of the state's total greenhouse gas emissions, mainly in the form of carbon dioxide released through the combustion of fossil fuels.

The groups noted in their letter that only one of the five refineries -- Tesoro's facility in Anacortes -- has an operating permit for air emissions that has not expired. They said none of the permits contain requirements to control greenhouse gas emissions.

Washington state law requires the refineries to use reasonable methods for controlling their greenhouse gas emissions, said Joshua Osborne-Klein, an attorney representing the groups.

But "there are no readily available technologies to remove CO2 (carbon dioxide), because it's never been regulated, and it has never been associated with health risk," said Tupper Hull, a spokesman with the Western States Petroleum Association.

Last year, the EPA classified six greenhouse gases, including carbon dioxide and methane, as pollutants that threaten the health and welfare of the American people.

Washington is drafting a rule that requires the state's largest emitters to report their greenhouse gas emissions. The state expects to collect that information starting in 2011, Preston said.

Kelley said the failure of climate change legislation in the U.S. Senate this summer means "the ball is really back in the state's court. The problem hasn't gone away, so we have to find ways to move forward."

U.S. Refinery Status with Upset Reported At Valero Three Rivers, Texas Plant

Valero Corp. August 26 reported emissions associated with a process upset at sulfur recovery unit no. 1 at its Three Rivers, Texas, plant. The emissions event lasted about 24 hours, the evening of August 25; the status of operations at the SRU was not noted in the filing to environmental regulators.

Valero Energy Corp. said August 30 that a hydrocracker unit at its Benicia, Calif., oil refinery was restarted over the weekend following about five days of unplanned maintenance to repair a valve leak.

Valero Energy said August 31 a coker unit at its Benicia, California, refinery was in restart mode following an extended period of maintenance. The unit was taken out of service in June for what was expected to be 40-days of unplanned work. The time frame was extended to about 60-days, a company executive said on July 27.

Tesoro Corp. expects to restart its refinery in Anacortes, Washington in early October after it was shut nearly five months ago following a deadly blast, a company spokesman said August 27. The company previously said the plant would return to service in September. The refinery was shut after a deadly blast in April.

Husky Energy said August 26 that scheduled fall turnaround maintenance is on track to begin in Oct. for 40 days.

ExxonMobil Corp.'s Baytown, Texas, refinery began a period of extensive turnaround maintenance the company said August 25 involving several processing units, including a crude distillate unit and four hydrofiners. The company would not say when the work was expected to end, but trade sources said it would last for at least two months.

Exxon Mobil Corp. said August 26 that it is making operations changes at the Chalmette, La., refinery that will include shutting down "redundant" processing units and cutting 70 jobs for economic reasons, a company spokesman said.

Exxon Mobil Corp. said August 30 that all customer obligations are being met following a compressor snag at an unspecified piece of equipment August 27 at its oil refinery in Joliet, Illinois. The problem caused a brief period of flaring. All other refinery operations are normal, a company spokeswoman said.

ConocoPhillips August 25 reported a brief period of emissions owing to an unspecified unit upset at its joint-venture Borger, Texas refinery. The status of operations at the plant was not indication in the filing to environmental regulators.

ConocoPhillips said August 30 that refinery teams at its joint-venture Wood River oil refinery in Roxana, Ill., responded safely and promptly to a power disruption Saturday but provided no further details. Traders doing business in the Midwest spot markets said both crude units at the 306,000-barrel-a-day plant were being restarted and the coker unit restart would follow. Two gasoline-making fluid catalytic cracking units that were placed in hot-circulation mode are also expected to resume operations.

Chevron Corp.'s refinery in El Segundo, CA is restarting a gas compressor that shut down due to "some minor operating issues" at a processing unit August 23, a company spokesman said. Traders and brokers indicated that the refinery's 52,000-barrel-a-day hydrocracker and 50,000-barrel-a-day reformer were temporarily taken out of service because of the downed compressor.

Murphy Oil Corp.'s refinery in Meraux, La., has returned to normal operations after changing out catalysts, a company spokeswoman said August 24. Production is about 120,000 barrels a day versus total capacity of 125,000 barrels a day.

Delek US Holdings Inc.'s refinery in Tyler, Texas, is performing "unanticipated maintenance" on the fluid catalytic cracker, a key gasoline-making unit, according to a filing with state environmental regulators. Emissions are expected to last August 19-31.

Sunoco Inc. said August 30 that one of the reformer units at its Philadelphia oil refining complex had experienced operational issues. The upset has had minimal impact on operations in the rest of the facility, a company spokesman said. The status of the reformer is unclear.

Hovensa LLC will continue to monitor weather forecasts as Hurricane Earl churned towards the northern Caribbean August 30, and has contingency plans in place in case the storm changes its current expected path, a company spokesman said.

Marathon Oil Corp. on August 28 restarted a platformer following annual maintenance to change out catalyst at its Texas City, Texas, oil refinery, a filing to Texas state environmental regulators said.

Frontier Oil Corp. said August 27 it has restarted the crude unit of its refinery in Cheyenne, Wyo., that had been closed because of a fire July 28.

CANADA

Shell, Delek End Talks Regarding Potential Sale of Montreal Refinery

Shell Canada Products (Shell) and Delek US Holdings, Inc. (Delek US) on August 2 announced that they have agreed to end negotiations regarding a potential sale of the Shell Montreal East refinery.

Shell and Delek US met the last week of July in an effort to address outstanding issues that both parties had been unable to resolve in negotiations held earlier this year. Negotiations once again reached an impasse, leading both parties to terminate discussions.

"Unfortunately, after considerable efforts to find common ground on a number of complex issues, both sides have determined not to pursue further negotiations with regard to the Montreal East Refinery," said Uzi Yemin, President and Chief Executive Officer of Delek US Holdings.

"We thank Delek US for their interest in the Montreal East Refinery," said Richard Oblath, Vice President, Downstream Portfolio for Shell. "This concludes a more than one-year process conducted by us to find a buyer for the Montreal East refinery. During this time, more than 100 companies were contacted regarding the asset, none of whom saw an acceptable future for the site as a refinery."

"Because no buyer for the refinery had been identified by the end of last year, we announced on January 7, 2010 that we intended to convert the refinery to a terminal and so started detailed planning for the conversion," said Oblath. "Although we retained hope that a buyer could be found, the conversion was planned in parallel to the sale process, since there was no guarantee a sale would occur."

"We must now direct our attention toward converting the refinery into a terminal in a way that is safe and ensures that there is an adequate supply of fuel for our customers in Quebec, Atlantic Canada, and Eastern Ontario. In this light we look forward to the completion of the regulatory review so we can complete this activity as soon as possible," concluded Oblath.

Shell has been operating in Canada since 1911 and employs approximately 8,000 people across the country. A leading manufacturer, distributor and marketer of refined petroleum products, Shell produces natural gas, natural gas liquids and bitumen, and is Canada's largest producer of sulfur. Shell is one of Canada's oil sands developers and operates the Athabasca Oil Sands Projects on behalf of the joint venture partners.

ASIA

CHINA

China's Rapid Refining Buildup Risks Overcapacity

A slowing economy is triggering concerns that China's aggressive expansion in refining capacity will leave it oversupplied with oil products within a few years.

This has important implications for regional refiners as China will likely seek to sell overseas any surplus products that it cannot store effectively at home, putting pressure on refining margins in Asia-Pacific and beyond.

Until recently, China's state refiners didn't have a significant overseas trading network that they could utilize to export surplus output.

That changed last year with PetroChina Co.'s (PTR) purchase of a majority stake in Singapore Petroleum Co., which leases about 220,000 cubic meters, or about 185,000 metric tons, of gasoil and gasoline storage in Singapore. PetroChina also leased space to store millions of barrels of bunker fuel in the Caribbean and California earlier this year.

"Refining overcapacity is foreseeable, based on the current plans," said Yang Weijun, head of refining at China Petroleum Planning and Engineering Institute, PetroChina's think tank.

But he added: "Not all projects will be completed on time, so China's oil supply may only be slightly higher than demand in five years' time."

China's government holds a tight grip on approvals for projects, and could force delays if the threat of overcapacity in the sector grows.

It has also intervened before to ensure oil refiners raise or cut crude runs when there has been a sudden change in market conditions.

Still, the International Energy Agency, a Paris-based body that advises most of the world's biggest economies on energy policy, expects China to be churning out more oil products than it can use up to 2015.

Its forecast is based on China's capacity additions in the near-term and a drop-off in demand for middle distillates, such as gasoil.

According to a report by the CNPC Research Institute of Economics & Technology, China's refining capacity will expand at a rate of 6-7% each year through 2015.

That means China would have 750 million tons of capacity in 2015, up from 483 million tons in 2009, it said.

Several foreign companies are eager to become involved in the expansion by forming joint ventures with PetroChina and domestic peer China Petroleum & Chemical Corp. (SNP), better known as Sinopec.

Among those vying for a slice of the Chinese market are BP PLC, Royal Dutch Shell PLC, OAO Rosneft, Qatar Petroleum and Kuwait Petroleum Corp.

Equity held by foreign investors in China's refining sector is expected to reach the equivalent of 31.5 million tons a year by 2015, or three times the current level, Sinopec said in an in-house newsletter in May.

This expansion in China's refining capacity will necessitate more crude oil imports, as the country's oil production is broadly stagnant. Declining output from major mature fields like Daqing in Heilongjiang province is barely offset by new discoveries.

While China is making progress on developing renewable energy, and encouraging greater consumption of natural gas and nuclear power, the pace of its economic growth at above 8% a year is ensuring continued sharp growth in oil demand.

The IEA estimates China's oil consumption will rise by 4%-6% through 2015, accounting for almost half of global oil demand growth in that period.

Analysts said any production surplus that China cannot be stored would be shipped overseas, but they stressed volumes so far were small relative to demand.

"China is essentially balanced on gasoline and diesel," said Victor Shum, of consultancy Purvin & Gertz Inc.

"Just a small pickup in demand growth will wipe out all the gasoline and diesel surpluses."

In the first six months of the year, China's net exports of gasoline and diesel totaled about 140,000 and 75,000 barrels per day respectively. But domestic demand is substantial: about 1.6 million barrels a day for gasoline, and 3 million barrels a day for diesel, Shum said.

China doesn't want to import high-value transportation fuels like gasoline and diesel, and has honed its refining strategy around this point, Shum said.

A wildcard in forecasting potential overcapacity in the sector is the output and expansion programs of independent refiners, which make up around 19% of China's total capacity and are mostly based in eastern China's Shandong province.

Beijing has little influence over these refineries, which are protected by local governments because of the jobs and revenues they generate.

The central government has tried for years to drive them out of business, first by denying them access to crude oil supplies and then by forcing any with a capacity below 20,000 barrels per day to shut permanently.

However, the refineries have avoided closure by using fuel oil as feedstock and by expanding capacity to lift them above the 20,000 barrel-a-day threshold.

Sinopec to Boost Yangzi Refinery Capacity by 56 Percent

China Petroleum and Chemical Corp. (SNP) plans to expand the refining capacity of its subsidiary Sinopec Yangzi Petrochemical Co. by 56% to 12.5 million tons a year, or 251,000 barrels a day, in Nanjing city in eastern China, parent company China Petrochemical Corp. said.

It will also upgrade the ability of the Sinopec Yangzi facilities in the eastern city of Nanjing to process high-sulfur crude oil, raising capacity to 9 million tons a year, or 180,700 barrels a day, of crude with 2% sulfur.

The CNY7.3 billion ($1.07 billion) expansion and upgrade project passed the government's environmental impact assessment earlier this month, China Petrochemical, known as Sinopec Group, said in an in-house newsletter.

Sinopec Yangzi Petrochemical Co. will build a new atmospheric-vacuum distillation unit with an annual capacity of 8 million tons, while scrapping an old distillation unit with a capacity of 3.5 million tons, Sinopec Group said.

The company will also build a residue hydrotreating unit with an annual capacity of 2 million tons, and convert a 1 million-ton medium pressure hydrogenation unit to a 3.7 million-ton diesel Hydrofining unit, the group parent said.

Also to be eliminated are a catalytic cracking unit with an annual capacity of 800,000 tons and a delayed coking unit of the same size, it said.

Sinopec's Yangzi refinery is current undergoing large-scale maintenance, for which 15 main production units have been shut down, it said August 24 in a separate statement.

China's Shandong Independent Refinery Capacity Poised for 17 Percent Increase

Annual oil-processing capacity at China's independent refineries in eastern Shandong province will likely rise 17% by the end of 2011, following substantial capacity growth since the end of last year, an analyst with domestic consultancy China Chemical Network said August 20.

The expected expansion adds to analysts' concerns that China will likely face refining overcapacity in the coming years, as the nation's state oil firms aggressively increase their refining capacity in a bid to meet expected robust local fuel demand.

Overall capacity at Shandong's independent, or teapot, refineries will likely rise to 70 million metric tons, or 1.4 million barrels a day, by end-2011, after rising 11% since December, to 60 million tons a year, due to expansion and upgrade programs amid a government campaign to shut down small refining units and to adopt more environmentally friendly fuel standards, said the analyst, Jiang Xin.

Shandong is home to nine of the nation's 10 largest independent refineries, which have very limited access to stable supplies of crude oil, as the bulk of domestic output and imports is managed by state oil firms.

As a result, teapot refineries tend to process fuel oil or even asphalt into off-specification oil products, mostly diesel.

China has a plan to shut all inefficient refining units--with annual processing capacity of less than 1 million tons--by the end of 2011.

In addition, the nation aims to adopt fuel-emission norms at least equivalent to the Euro III standard across the nation by early next year.

To meet the norms, which set upper limits for vehicle emissions of a number of gases and particulate matter, refineries will have to install advanced facilities.

China's 95 teapot refineries; 37 of which are in Shandong, accounted for around 8% of the nation's total crude throughput in 2009, according to Jiang.

According to a report by the CNPC Research Institute of Economics & Technology, China's refining capacity will expand at a rate of 6%-7% a year through 2015, which would translate to 750 million tons of capacity in 2015, up from 483 million tons in 2009.

China's Refinery Expansion Plans

PetroChina Co Ltd will start operating a 60,000-barrel-per-day refinery in Qingyang, northern Gansu province, next month, the second plant to be added by the state oil giant this year.

China will likely add nearly 3 million bpd of new refining capacity between 2010 and 2015, industry officials and Chinese media have said, in a new refinery building boom to fuel robust economic growth.

The expansion pace, some half a million bpd on an annual average, does not look huge compared with China's annual incremental oil demand growth, but some market analysts have said that China may already have a structural surplus of gasoline and diesel.

Following are the major Chinese crude refining units planned and proposed.

(Capacity in barrels per day (bpd), unless indicated) ============================================================== Plant Company New capacity Start Date ==============================================================

Tianjin Sinopec 200,000 Jan 2010, Qilu Sinopec 50,000 April 2010, Guangxi PetroChina 200,000 H1 2010, Gaoqiao Sinopec 34,000 Q2 2010, Qingyang PetroChina 60,000 Q3 2010, Ningxia PetroChina 100,000 late 2010, Jinling* Sinopec 100,000 2011/12, Luoyang Sinopec 80,000 2011, Sichuan PetroChina 200,000 2012, Jiujiang Sinopec 60,000 2012, Anqing Sinopec 60,000 Sep-2012 ,Jieyang PetroChina/PDVSA 400,000 2013/14, Quanzhou Sinochem 240,000 2013/14, Huizhou CNOOC 200,000 2013/14, Zhanjiang* KPC/Sinopec 350,000 2013/14, Dagang* PetroChina/Rosneft 200,000 2013/14, Maoming* Sinopec 240,000 2015, Zhenhai* Sinopec 180,000 2015 ------------------------------------------------------------- TOTAL 2.954 mln bpd

* Pending government approval -------------------------------------------------------------- The following are proposals which are at early stages of planning. -----------------------------

Jiangsu PetroChina/Qatar/Shell 200,000 NA, Fujian Sinopec/Exxon/Aramco 240,000 NA, Beihai Sinopec 200,000 NA, Ningbo Sinochem 240,000 NA, Zhejiang Sinopec 300,000 NA, Liaoning CNPC 200,000 NA Hebei CNOOC/Zhongjie 200,000 NA. Haihua CNOOC 100,000 NA, Huizhou CNOOC 360,000 by 2020, Kunming PetroChina 200,000 NA, Chongqing PetroChina 200,000 NA, Shangqiu PetroChina 200,000 NA -----------------

INDIA

Jacobs Wins Delayed Coker Contract for India’s IOCL with Project Cost Estimated at $60 Mln

Jacobs Engineering Group Inc. announced August 24 that it has received a contract from IOT Infrastructure & Energy Services Limited (IOT) (formerly Indian Oiltanking) to provide engineering services for Indian Oil Corporation Ltd.'s (IOCL) Delayed Coker Unit (DCU) project. The DCU will be built at IOCL's Guwahati, refinery in Assam, India.

Officials did not disclose the contract value, however they indicated that the total installed cost of the project is estimated at US$60 million. IOT is executing this contract on an EPC basis for the Owner, IOCL. Jacobs will perform engineering and design services from their offices in India.

In making the announcement, Jacobs Group Vice President Chris Nagel stated, "We are delighted to continue our working relationship with IOT as their engineering provider for process industry projects and we look forward to helping them meet IOCL's expectations for high-quality products."

Indian Oil Corporation Ltd. is currently India's largest company by sales with a turnover of US$60 Billion and is also the highest ranked Indian company in the Fortune 'Global 500' listing. IOT Infrastructure & Energy Services Limited, founded in 1996, is a joint venture between Indian Oil Corporation Limited and Oiltanking GmbH.

IBM to Be HMEL Tech Partner for $4 bln Punjab Greenfield Refinery

IT giant IBM on August 26 said it has been appointed as the technology partner for HPCL-Mittal Energy Ltd's (HMEL) Bhatinda Refinery in Punjab.

HMEL is a joint venture between state-run Hindustan Petroleum Corporation Ltd and Mittal Energy Investments.

Under the partnership, IBM will design and implement the manufacturing execution system (MES) for HMEL's refinery at Bhatinda, IBM said in a statement.

Through the 1.5 year, multi-million dollar agreement, IBM will integrate all of HMEL's operations -- from manufacturing to marketing and distribution.

HMEL is investing more than US$4 billion to build the greenfield refinery, which will be able to process 180,000 barrels of crude oil per day. The refinery is expected to be commissioned by early 2011.

INDONESIA

Indonesia's Chandra Asri Wants to be Part of a Pertamina $7 Bln Refinery Project

Indonesian petrochemical company PT Chandra Asri said it wants to take part in a US$7 billion oil refinery project to be built in Bojonegara, Banten.

The project, which will have a processing capacity of 300,000 barrels of crude oil per day, has long been planned by Pertamina in a joint venture with Iran's NIORD and Malaysia's Petrofield.

Chandra Asri corporate secretary Suhat Miyarso said the company hopes to have a 20-25 percent stake worth around US$1.85 billion in the joint venture.

Other foreign investors, such as those from South Korea, have showed interest in the project but collapsed after failures in share splitting and difficulty in crude oil supply.

Chandra Asri produces ethylene and propylene for which it needs naphtha as feedstock to be produced as a by product by the oil refinery.

Chandra Asri depends on imports for naphtha.

Pertamina to Team Up with Kuwaiti Company for Refinery

Indonesian state-owned oil company Pertamina plans to build an oil refinery in cooperation with a Kuwaiti company, according to Industry Minister MS Hidayat.

"A memorandum of understanding will be signed on August 19 for the construction of the refinery," he said after attending a parliamentary meeting in Jakarta.

Besides with Kuwait, Indonesia was also cooperating with Iran to build a refinery in Bojonegara, Banten.

"A delegation from the Capital Investment Coordinating Board (BKPM) will soon depart for Iran to discuss the project in light of crude oil price developments," he said.

The refinery project in Bojonegara would be carried out by a joint venture company set up by PT Pertamina and the National Iranian Oil Refining and Distribution Company and Petrofield Malaysia and was expected to cost US$7.4 billion.

So far the project has received supply commitment of 150,000 barrels a day from Iran while the refinery is designed with a total capacity of 300,00 barrels a day.

The development of oil refineries in Indonesia are expected to boost downstream petrochemical industrial growth that will produce ethylene, propylene, polyethylene and polypropylene.

The industry has so far received raw materials supply from abroad. With the domestic refineries naphtha supplies may be acquired more easily and cheaply.

Regarding gas supply problems Hidayat said the government had sought several solutions of the problems. "This year if everything is completed there will be six new gas companies to be built in Indonesia," he said.

Hidayat said the government had negotiated with a Singaporean company that owns a gas resource to assure domestic supply.

"Next year it will have to be concrete. The coordinating minister of economic affairs has conducted negotiations with the gas source company from Singapore," he said.

JAPAN

Japan Has New Refinery Residue Cracking Ratio Law

Japan's trade ministry imposed new rules on refiners last month requiring a higher ratio of residue cracking units to total processing capacity. Here are some questions and answers on the mandate:

WHAT DOES THE REGULATION CALL FOR?

The measure calls for Japan's refiners to increase the ratio of residue cracking units to crude distillation units (CDUs) by the end of March 2014. Japan's current overall ratio is about 10 percent, lower than several other nations, including China and the United States, and Japan's Ministry of Economy, Trade and Industry (METI) aims to lift the figure to around 13 percent. The capacity of cokers, residue fluid catalytic cracking (RFCC) units and residue hydrocracking units (RHCU) will be used to compile the ratio. RFCC and RHCU convert residue, a very heavy feedstock, into semi-finished products for further processing into fuels such as gasoline and distillates. Here is a breakdown of how much refiners need to increase current percentages by:

Ratio Increase needed 0 pct TBD

less than 10 pct 45 pct 10 pct - less than 13 pct 30 pct 13 pct and above 15 pct

WHY HAS THE REGULATION BEEN ENACTED? The trade ministry says the regulation is aimed at increasing Japan's capacity to handle cheaper, heavier oils, production of which is expected to rise in the future, in order to boost global competitiveness of its refineries. But analysts and industry sources say the measure is aimed at reducing Japan's overall refining capacity further to offset declining demand.

WHAT MEASURES NEED TO BE TAKEN IN ORDER TO COMPLY?

Oil firms will either have to close existing CDUs or build new facilities that can process residue. Reducing refining capacity of existing CDUs or reconfiguring existing units to handle heavy feedstock in order to comply with the new regulation is prohibited. Oil firms are required to submit plans to the government by October 31 on how they will meet the requirement.

HOW WILL THE FIRMS LIKELY COMPLY?

Reduce refining capacity. The likelihood of other refiners building new units is very low. The regulation says that METI may grant an exception to firms that operate only one refinery if applying the requirement would have a negative impact on Japan's oil supply security. This may apply to firms such as Nansei Sekiyu and Taiyo Oil. Oil demand has already peaked in Japan. With the nation's population in decline, manufacturers moving operations abroad and use of green energy on the rise, the likelihood firms would spend the hundreds of millions of dollars or more needed to build a secondary unit is slim.

WHICH OIL FIRMS WILL BE IMPACTED BY THE LAW?

According to Reuters’ calculations, the Exxon Mobil Japan group, Cosmo Oil, Fuji Oil and Taiyo Oil all need to cut crude processing capacity or build new units to meet the rules. Idemitsu Kosan and Showa Shell Sekiyu have already announced plans to scrap refining units that would enable them to comply. Inpex Corp's (1605.T) unit Teiseki Topping, a 4,724-barrels per day refinery that processes domestically produced crude, has no residue cracking units but is exempt from the mandate since its annual crude processing is less than the law's threshold of 3 million kilolitres. JX Holdings (5020.T), Idemitsu Kosan Co (5019.T), Showa Shell Sekiyu (5002.T) and Cosmo Oil had announced total cuts of 900,000 bpd of refining capacity by March 2014 even before the new rule was announced, reflecting the overcapacity in the industry. But the regulation is likely to lead to further cuts. Some other firms are expected to announce capacity cuts as well. Top refiner JX Holdings would need to cut up to 20,000 bpd in addition to its planned 600,000 bpd cut by March 2014, while Fuji Oil, a unit of AOC Holdings (5017.T), will clear the target if it decides to permanently close a 52,000 bpd CDU, which has been shut since 2000. Okinawa-based Nansei Sekiyu, a unit of Brazil's Petrobras (PETR4.SA) (PBR.N), which has no heavy oil cracking units at its 100,000 bpd plant, has begun considering building a new secondary unit, industry sources familiar with the move told Reuters. Here is a table of Japanese refiners CDU capacity and crude to residue fuel ratio that takes in account announced plans for CDU capacity reduction and construction plans for new heavy feedstock processing units. Every refinery has a different target to meet because each has a different ratio of secondary processing capacity.

Refiner Current Ratio Needed Ratio Plans to Meet

JX Holdings 9.9 pct 12.9 pct No (12.8 pct)

Idemitsu Kosan 13.0 pct 14.9 pct Yes (15.4 pct)

Showa Shell Group 17.1 pct 19.7 pct Yes (22.3 pct)

Exxon Mobil Group 7.4 pct 10.7 pct Unknown

Cosmo Oil 3.8 pct 5.5 pct Unknown

Fuji Oil 15.6 pct 18.0 pct Unknown

Taiyo Oil 20.8 pct 24.0 pct Unknown

Nansai Sekiyu 0.0 pct Unknown Unknown

WHAT WOULD HAPPEN TO FIRMS THAT DON'T COMPLY?

Refiners that fail to submit their plans by October 31 would face a small fine of 500,000 yen ($5,840). The penalty for companies that fail to meet the regulations is 1 million yen. METI officials acknowledge that while the government cannot force businesses to close because they failed to meet the regulation, inability to meet the norms may be an embarrassment in a country proud of its efficiency and pioneering green technological innovations, forcing them to toe the line.

PAKISTAN

China to Invest $535 Mln to Restart Karachi Refinery Project

China is to invest US$535 million to restart a stalled refinery project in Pakistan, which foreign investors and contractors abandoned amid the political turmoil in the country following the assassination of former prime minister Benazir Bhutto in December 2007.

The Indus Refinery Ltd (IRL) was a joint venture project between Middle East-based investors with an 86.7% shareholding and local sponsors with 13.3%, proposed in 2004.

"The Chinese have been really helpful," The News quoted IRL chairman Sohail Shamsi as saying. "I thought no one would come and invest in the country. We tried to convince several Middle East investors, even the monarchs. But no one was interested."

The Chinese will replace the Middle East-based investors, after IRL signed a contract with the government in Beijing for the civil works for the project to be restarted, possibly as early as next month.

The China International Project Investment Management Center this month signed an agreement with IRL to establish the refinery, which will be the country's largest in the private sector. China National Chemical Engineering Group Corp is expected to be the contractor starting the physical work on the project. As a result of using the latest production technologies and through economies of scale, it will have a competitive edge over Pakistan's existing refineries.

IRL will be the sixth refinery in Pakistan, after National Refinery, Pakistan Refinery, Attock Refinery, Pak-Arab Refinery and Byco Petroleum Pakistan Ltd (BPPL). The country has an installed refining capacity of 12.82 million tonnes a year, but the country's five refineries together produced only 8.11 million tonnes in the fiscal year ended June 2010, an 8% decline over the previous year, against local demand of 20.3 million tonnes of petroleum products.

Registered as a public company in 2004, IRL had later engaged world-class engineering firm SNC Lavalin of Canada to act as project manager, Ventech Engineers International as process engineer, and advisory firms Jacobs Consultancy and Vitol. The civil work on the project was started by Descon Engineering in 2007.

However, the foreigners working on the project in Karachi packed up their bags and left the country in the aftermath of Bhutto's assassination during her election campaign in December 2007. The Chinese will now be the lead investors and contractors.

Despite Pakistan's worsening internal security, the Chinese government and Chinese companies have shown themselves keen to invest in Pakistan's energy sector, which desperately needs foreign investment. Most recently, oil exploration company, Zhenhua, has shown interest in increasing its interest in Pakistan Petroleum Ltd (PPL), the nation's top oil producer. The Chinese company already partners PPL in some joint ventures.

Recently, Zhenhua vice president Heyang Zuxi called on Federal Minister for Petroleum and Natural Resources Syed Naveed Qamar in Islamabad and told him about the company's plan to invest in PPL, whose output has been hit by the recent floods that have swept Pakistan, inundating some production blocs and cutting PPL production by about 7 million cubic feet.

China was also earlier interested in constructing an oil refinery in Gwadar, in southern Balochistan province. Petroleum products refined there were to be transported by pipeline through Pakistan to Kashghar in China. The Gwadar project, however, was deleted in the last financial year from the financial development program agreed between the two countries, reportedly in reaction to the global economic recession.

Unlike the Gwadar project, they IRL refinery output will be predominantly for domestic market. "They [the Chinese] are not investing in Indus Refinery to export products from here to China, but petrol can be exported," IRL chairman Shamsi told The News.

United Arab Emirates' state-run International Petroleum Investment Co (IPIC) has also halted work on the $5 billion Khalifa oil refinery project in coastal Balochistan. The project was suspended last January due to technical and political reasons. IPIC holds a 74% stake, and Pakistan-Arab Refinery Co the remainder.

About 50% of Pakistan's energy needs are met by indigenous gas production, 29% by domestic and imported oil, and 11% by hydro-electricity.

VIETNAM

Vietnam to Expand Dung Quat Refinery

Vietnam's deputy Prime Minister Hoang Trung Hai has officially ratified plans to raise the annual capacity of Dung Quat Oil Refinery from 6.5 million tonnes of oil to 10 million tonnes.

The plans were drawn in tandem with the refinery's investor, Vietnam National Oil and Gas Group (PetroVietnam).

The new plans were agreed upon by the ministries of planning and investment, industry and trade, and construction and finance, said Le Van Dung, deputy director of the Dung Quat Economic Zone's management board.

"We are still finalizing our plans and cannot discuss (our source of capital) at the moment," said Nguyen Hoai Giang, director general of the Binh Son Refining and Petro-chemical Co Ltd.

Dung Quat, located in the Dung Quat Economic Zone; is the country's first oil refinery and has a total investment capital of US$3 billion. The refinery currently has more than 1,000 employees working at its facilities.

The Dung Quat Oil Refinery currently refines 6.5 million tonnes of crude oil per year, which meets 30 percent of the country's total domestic demand.

The refinery is able to produce various kinds of petrol products, including liquefied petroleum gas, A95 and A92 petrol, kerosene, diesel, fuel oil and Jet A1, said Dung.

The refinery was financed entirely by PetroVietnam. The Government has agreed to allow the State company to equitise Dung Quat. PetroVietnam is considering selling off 49 percent of the refinery's total stake to foreign firms after the plant becomes fully operational and stable.

The Quang Ngai Province's People's Committee has asked the Government to expand the Dung Quat Economic Zone to 45,332ha, which would be four times larger than its current area.

The committee also asked the Government to transform Dung Quat zone into an industrialized city with urban areas and ports.

During the first seven months of this year, the zone earned $218 million from exports. Poly-Propylene products, paper materials, wooden furniture, textiles and garments, and machines were the primary commodities that were exported from the zone.

The zone contributed about VND500 billion ($26.3 million) to the State's budget in July and VND3.5 trillion to the budget during the first seven months.

The PolyPropylene production factory officially commenced operations in July and began churning out the country's first PolyPropylene products.

The factory is able to produce 150,000 tonnes of petroleum-based products a year. The factory hopes to earn $170-200 million in revenue and $15-20 million in profit per year.

EUROPE / AFRICA / MIDDLE EAST

GERMANY

Rosneft Close to Acquiring Stakes in Four German Refineries

Russian oil giant OAO Rosneft is close to acquiring stakes in four German refineries, marking one of the largest purchases of assets in Western Europe by a state-controlled Russian energy company.

The deal would also have positive implications for BP PLC, the U.K. oil company that has been badly hit by the Gulf of Mexico oil spill.

Rosneft is in "advanced negotiations" to buy a 50% stake in Ruhr Oel GmbH from the Venezuelan state oil company Petroleos de Venezuela SA for between $1 billion and $2 billion, according to people familiar with the matter. It could be several weeks before a deal is concluded, these people said.

Ruhr Oel is a 50-50 joint venture between PdVSA and BP. Formed in 1983, it has stakes in several German refineries -- Bayern Oil, Gelsenkirchen, MiRO Karlsruhe and PCK Schwedt -- which together account for about a quarter of all German oil-refining capacity.

BP has a right of first refusal on PdVSA's stake, but in exchange for waiving that right, it has been offered a lucrative deal by Rosneft to explore for oil in the Arctic Ocean, say the people familiar with the matter.

Such an agreement would be a big vote of confidence in BP. Industry observers have speculated that the Deepwater Horizon disaster could deter state-controlled oil companies in Russia, Africa and the Middle East from wanting to work with BP, badly crimping its growth prospects.

Rosneft and BP already have close ties. The U.K. major bought around $1 billion worth of Rosneft shares when the company listed in London in 2006. The two are partners in a clutch of oil exploration projects off Russia's far eastern island of Sakhalin. And in 2006, they signed an agreement to jointly bid for and develop oil and gas fields in the Russian Arctic.

The Ruhr Oel deal will build on that arrangement, "taking it to a new level," a person familiar with the matter said. The person said it would relate to a specific area of the Arctic, and might involve BP and Rosneft being given a license to jointly explore for oil there.

Russia's Arctic seas are thought to contain billions of barrels of oil and gas. But the hurdles to actually producing hydrocarbons in this harsh, remote environment are huge. The most advanced project -- the vast Shtokman gas field in the Barents Sea, which OAO Gazprom is developing with Statoil ASA of Norway and France's Total SA -- has faced repeated delays. Also, BP and Rosneft have had little success in their exploration campaign off Sakhalin.

Russian oil companies have long been on a mission to expand beyond Russia's borders, showing particular interest in refineries in Western Europe, some of which are heavily dependent on Russian crude. OAO Lukoil, one of Russia's largest oil producers, has been more successful than its peers, buying a stake in a Dutch refinery from Total last year and a stake in Italian refiner ERG's Isab di Priolo refinery in 2008.

TNK-BP, BP's 50-50 Russian joint venture, eyed Ruhr Oel in 2003, but at the time BP opposed the deal.

The 50% stake was originally thought to be worth at least $2 billion. But low profit margins, over-capacity in the industry and falling demand for petroleum products in Europe have severely depressed refinery valuations.

Shell Agrees to Sell German Heide Refinery to Klesch after Fuel Demand Slump

Royal Dutch Shell Plc agreed to sell its 90,000 barrel-a-day Heide refinery in Germany to private investor Klesch & Co. Ltd. as Europe’s largest oil company reviews its global crude processing business.

Klesch will keep Heide running as a refinery and is interested in expanding more in oil processing, Chairman Gary Klesch said August 20. Heide is Klesch’s first refining asset.

“We want to build a platform in oil refining,” said Klesch, the founder of the company. “We won’t limit ourselves to Europe but I’m not looking to have 20 refineries around the world.”

Shell is reviewing its refineries as it seeks to reduce costs and spending after the global recession curbed demand for fuels such as diesel. Shell put Heide and neighboring Hamburg-Harburg up for sale last year.

Heide was one of at least 13 refineries in Europe at risk of closure or conversion into a storage facility. Petroplus said last year it was converting its Teesside plant in the U.K. to a storage terminal and ConocoPhillips last month said it may close or sell its Wilhelmshaven site in northern Germany.

The Heide sale is subject to regulatory approval and includes associated local infrastructure and businesses in Germany, The Hague-based Shell said August 20. There was no price provided and company spokesman Kim Blomley declined to comment.

Shell has said it plans to divide the remaining $6 billion in divestments for the coming 18 months among the company’s divisions.

Lazard Ltd. advised Shell on the sale.

SERBIA

Jacobs Wins $100 Mln Contract for Hydrogen Plant in Serbia

Jacobs Engineering Group Inc. announced August 10 that it received a contract from Heurtey Petrochem SA, France to provide engineering services for a new hydrogen plant generation unit at the Naftna Industrija Srbije (NIS) refinery. The NIS refinery is located in Pancevo, Serbia and is under a license from Haldor Topsoe.

Officials did not disclose the contract value, however indicated that the total installed cost of the project is estimated at approx. US$100 million (70 million euros).

Jacobs' scope of work for the project includes detailed engineering services which will be executed from their offices in India. The engineering of the new plant is expected to be completed by the end of the year.

In making the announcement, Jacobs Group Vice President Christopher E. Nagel stated, "We are delighted to work with Heurtey and NIS to assist them in meeting their goals and we look forward to working with them on this important project."

Heurtey Petrochem SA is a France-based company that specializes in the design and construction of tubular process fired heaters, cracking furnaces and reformers for the hydrocarbon industry. The Company offers a range of services, including feasibility studies and estimating, basic design, technical assistance, revamping projects and spare parts sourcing. It also provides maintenance and renovation services. Heurtey Petrochem SA has affiliate companies in Romania, Germany, South Africa, India, South Korea, the United States, and Singapore, and has licensees and local representatives throughout the globe.

TURKEY

Merichem to Provide Treatment Tech at Turkish Izmir Refinery

Turkish Petroleum Refining Corp. (TUPRAS) has selected Merichem Co. to provide multiple technologies for the treatment of kerosene/jet fuel as well as technology for on-site treatment of associated spent caustic at the company's Izmir refinery.

Having already completed basic engineering, Merichem will now provide proprietary hardware and licensing for its Napfining, Mericat II, and Aqauafining technologies for treatment of the 22,643-bpsd hydrocarbon stream to meet jet fuel specifications. These technologies are based on Merichem's proprietary, state-of-the-art, non-dispersive Fiber-Film Contactor. Merichem will also provide basic engineering, modular supply of equipment, and licensing for its Mericon Spent Caustic Neutralization Technology for treatment of up to 1.6 m3/hour of spent caustic ahead of the existing wastewater treatment plant. This technology is based on Merichem's more than 60 years' experience in treating spent caustic solutions at its own facilities in the U.S.A.

TUPRAS is Turkey's largest industrial enterprise with a total crude processing capacity of 28.1 million tons per year among its four refineries, including 11 million tons/year of crude processing capacity at Izmir. The company is primarily owned by Koc Holding A. S., while 49% of its shares are publicly traded.

Merichem has more than 35 years of acidic impurities removal and sweetening experience and offers a complete portfolio of H2S, CO2, naphthenic acid and mercaptan removal or sweetening processes, systems and products to fit a wide range of applications.

EGYPT

Citadel Capital Announces $2.6 Bln Debt Package for $3.7 Bln Egypt Refinery

The Egyptian Refining Co. (ERC) announced August 9 that it signed a debt package of US$2.6 billion to finance construction of its state-of-the-art US$3.7 billion second-stage oil refinery in the Greater Cairo Area. The refinery will produce over 4 million tons of refined products per annum when completed, including 2.3 million tons of EURO V diesel, the cleanest fuel of its type in the world.

"We are delighted to announce the debt package for what we believe stands as one of the largest project finance deals ever assembled in Africa," said Citadel Capital Managing Director Marwan Elaraby. "ERC has won outstanding backing from leading global institutions because it will have a notable effect on both Egypt's economy and on the environment, particularly in the Greater Cairo Area. It has similarly enjoyed the full backing and support of the Government of Egypt and, in particular, of the Ministry of Petroleum."

"That this project remained on track through the deepest financial crisis in living memory is a testament to ERC's solid economic fundamentals," added Citadel Capital Managing Director Ahmed El-Houssieny. "Iron-clad fundamentals and strong support from both legislators and regulators are exactly what financial institutions look for when considering which projects to back."

The debt package includes US$2.35 billion of senior debt and US$225 million of subordinated debt. Institutions participating in the senior debt package include the Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI), the Export-Import Bank of Korea (KEXIM), the European Investment Bank (EIB) and the African Development Bank (AfDB). First drawdown under the senior debt facilities is expected in the coming two months.

Mitsui & Co., which is part of the consortium of contractors building the refinery, is providing US$200 million of subordinated debt financing. The African Development Bank is providing an additional US$25 million of subordinated debt financing.

News of the debt package came just weeks after the International Finance Corporation (IFC) announced it would invest equity of US$100 million in the project.

The refinery, to be located in the Greater Cairo district of Mostorod, will sell its production to the state-owned Egyptian General Petroleum Corp. (EGPC) under a 25-year offtake agreement at international prices.

ERC is a partnership between Citadel Capital, the leading private equity firm in the Middle East and Africa with US$8.3 billion in investments under control, its co-investors and the state-owned Egyptian General Petroleum Corporation (EGPC). EGPC owns 15% of the project; its Cairo Oil Refinery Company (CORC), the nation's largest refinery with 20% of Egypt's current refining capacity, will provide ERC with fuel oil as feedstock.

"Considering the operational, financial and regulatory complexity of building a refinery today, the signing of ERC's debt package has come together remarkably quickly," said Tom Thomason, Chief Executive Officer of ERC. "ERC will improve the environment of greater Cairo by preventing on an annual basis approximately 93,000 tons of sulfur from being released into the atmosphere. It will also invest in improvements to CORC's environmental performance, particularly the emission of greenhouse gases."

ERC has obtained all regulatory and environmental approvals and signed a lump-sum turnkey contract with GS Engineering & Construction / Mitsui & Co. The project's builders expect to complete construction and operational testing of ERC in the second half of 2014 in time for operations to begin in 2015.

Citadel Capital owns approximately 10% of the Opportunity-Specific Fund (OSF) that controls ERC. Citadel Capital has management control of ERC through shareholder agreements with the limited partners who have been invited to invest in the OSF.

UGANDA

China Delegation to Discuss Possible Uganda Refinery

China is sending a high-level delegation of company executives to Uganda next month to explore the possibility of building an oil refinery in the country, Uganda's Daily Monitor Newspaper reported August 19.

The privately owned daily quoted Uganda's ambassador to China, Charles Wagidoso, as saying that a delegation from China Petroleum & Chemical Corp. would be traveling to Uganda in September for talks with government officials over possibly building a refinery following the discovery of commercial oil reserves in the country.

"The president of Uganda has been emphasizing that we will not export crude oil and that we must refine it from here. The minister for energy has been to China for talks," he was quoted as saying.

China's Cnooc Ltd. (CEO) has already entered an agreement with the U.K.'s Tullow Oil PLC (TLW.LN) and France's Total SA (TOT) to develop oil fields in three blocks in Uganda's Lake Albert Basin.

IRAQ

KBR Wins Iraq Refinery Contracts

KBR on August 25 announced that it has been awarded two contracts by the Republic of Iraq Ministry of Oil through the South Refineries Company. KBR will provide licensing and basic engineering services for the construction of Fluid Catalytic Cracking (FCC) and Solvent Deasphalting (SDA) units at the planned grassroots Maissan Refinery in Maissan, Iraq. Work on the projects is expected to commence immediately.

KBR will license its FCC Technology for an anticipated 47,500 barrels per day (BPD) FCC unit and its Residuum Oil Supercritical Extraction (ROSE) technology for a 45,000 BPD SDA unit. The FCC unit will be delivered under a joint marketing alliance between KBR and ExxonMobil Research and Engineering Company (EMRE).

"These awards mark the first wins for KBR's Technology Business in Iraq and provide KBR the opportunity to introduce two of its leading refining technologies into an important, emerging market," said Tim Challand, President, KBR Technology. "We look forward to forging a solid and sustainable relationship with the Ministry and South Refineries Company."

SAUDI ARABIA

Flowserve Wins 400,000 Bpd Yanbu Refinery Contract

Flowserve Corp. announced August 2 that it has received final approval from Saudi Aramco on a master purchase agreement to supply pumps, valves and services for the Yanbu' Export Refinery Project (YERP).

Under the terms of the corporate procurement agreement (CPA) established between Flowserve and Saudi Aramco, Saudi Aramco plans to make significant future purchases of Flowserve pumps, valves and value-added services. Flowserve expects to begin booking orders under the CPA later in 2010.

Flowserve cited its Kingdom of Saudi Arabia manufacturing facility, strong aftermarket support capabilities, broad product portfolio, technology leadership, and long-standing partnership with Saudi Aramco as its key reasons for winning this agreement.

"We are pleased to expand our relationship with Saudi Aramco for the important YERP project, which will help meet expanding global energy demand by increasing refining capacity in the Middle East," said Tom Ferguson, president, Flow Solutions Group. "Flowserve has made significant investments in the Kingdom of Saudi Arabia, including service, repair and manufacturing facilities to support the oil and gas industry, and to help ensure premium service can be provided in-country."

Under construction on the west coast of Saudi Arabia, YERP will be a 400,000 barrel-per-day, full-conversion refinery being built in Yanbu' Industrial City, Saudi Arabia. The refinery is designed to process Arabian heavy crude and will produce high-quality, ultra-low sulfur refined products, including gasoline and diesel fuel. The new refinery is expected to be operational in 2014.

"This agreement reinforces Flowserve's ongoing commitment to delivering valve products and services in Saudi Arabia through our local facilities," said Tom Pajonas, president, Flow Control Division. "This overall Flowserve strategy is supported by the fact that the project will require a majority of the Flowserve control valves to be produced at our new Dammam valve and actuator facility, which we plan to open in the third quarter of 2010. When completed, the facility will be one of several sites Flowserve has in the region."

In addition, Flowserve and its partners operate Quick Response Centers (QRCs) in the Kingdom of Saudi Arabia, which provide service and repair. These operations help support the Saudi Aramco supply chain with access to Flowserve technology and innovative solutions.

McIlvaine Company,

Northfield, IL 60093-2743

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

E-mail: editor@mcilvainecompany.com