Graham Corp., a designer and manufacturer of critical equipment for the oil refining, petrochemical and power industries, on January 6 announced that it has received two orders for ejector systems that total approximately $4 million.

The first order is for an ejector system to be installed at a U.S. refinery that is being modified to process crude oil from the Alberta oil sands. The ejector system is scheduled for delivery in the third quarter of Graham's 2012 fiscal year, which begins on April 1, 2011. The second order is for an ejector system destined for a refinery expansion in China. Delivery for that system is planned for the second quarter of fiscal 2012. The ejector system for China is expected to have certain of its components built in China.

James R. Lines, Graham's President and Chief Executive Officer, commented, "It is encouraging to see a major U.S. refiner preparing its facility to process synthetic crude oil from the Alberta oil sands. Although measurable industry-wide investment had been made prior to the recession to prepare some existing facilities for the processing of Alberta synthetic crude, there has been minimal investment during the last few years. The Alberta oil sands represent the second largest proven concentration of oil in the world after Saudi Arabia. And, with 170 billion barrels of proven recoverable reserves, it is still at a very early stage of development with only about 7 billion barrels of oil recovered to date."

"Even though refinery-related activity has been slow in China for much of the past year, we believe that our strategy of early involvement in major projects led to our participation in the equipment selection process with this refinery. With this project award, we have won nine major refinery projects in China over the past four years. We are confident that we can build on this success as considerable distillation capacity is expected to be added in China over the next five years," Lines noted.

Graham also announced that it had received orders of $17.8 million in its fiscal 2011 third quarter, which ended December 31, 2010. Lines concluded, "Included in our orders for the third quarter were about $800,000 in new orders received by Energy Steel & Supply Co. since our acquisition of the Lapeer, Michigan-based company on December 14, 2010. We view this to be a positive reflection of Energy Steel's solid market penetration and believe that it supports our strategy of broadening our reach into the nuclear power market."

Washington State Affirms $2.4 Mln in Penalties for Tesoro

Washington State's Department of Labor and Industries affirmed all violations and penalties assessed to Anacortes Tesoro Refinery during negotiations that ended December 30.

Tesoro Corp. had until January 20 to pay the record $2.4 million fine, unless the company decided to take its appeal to the state Board of Industrial Insurance Appeals.

The Skagit Valley Herald had received documents through a public records request showing the results of the reassumption hearing, which took place December 3 to discuss the reasons behind Tesoro's appeal. The company appealed L&I's 44 violations and fine soon after they were assessed in October.

Thirty-nine of the citations were considered "willful" violations in which the employer disregarded or was indifferent toward industry requirements.

Overall, L&I's six-month investigation found the violations leading to a blast that killed seven workers at the refinery on April 2 "were preventable."

Tesoro's appeal of those findings put a hold on the requirement to pay penalties and correct violations. That hold would be lifted within two weeks unless the company decided to appeal to the state board.

Court Blocks EPA Plan to Take Over Texas GHG Permits

A federal appeals court has temporarily blocked the EPA's plan to seize control of greenhouse gas permits from Texas.

The U.S. Environmental Protection Agency must wait until the U.S. Circuit Court of Appeals for the District of Columbia can make a decision on Texas' bid to prevent the federal takeover.

The first federal rules on emissions of carbon dioxide and other heat-trapping gases took effect recently. Texas is the only state to refuse to implement the new rules -- a position that prompted the EPA's intervention.

In its petition, the state accuses the EPA of abusing its powers by taking control of the permitting program without proper notice. The agency, in response, criticized Texas officials for filing suit instead of working with it to protect public health.

The delay should not be interpreted as a ruling on the merits of the state's lawsuit, the court said in its order.

The federal rules require new controls for reducing emissions from power plants, oil refineries and other large industrial facilities. Such rules would have a profound impact on Texas, which pumps more carbon dioxide into the air than any other state.

The EPA has said that 167 facilities in Texas would be subject to the new permitting requirements.

Alon Reconfiguration of Bakersfield Refinery Brings Plant Transformation

The former Big West refinery in Bakersfield, CA, isn't expected to look much different when it finally fires up again in another six months or so. But work begun there recently promises to transform the plant.

The Dallas-based company that purchased the refinery out of bankruptcy last year, Alon USA Energy, has advertised to fill about 40 new positions ranging from hourly maintenance workers to salaried engineers. That would raise the plant's payroll to about 100 workers, which would still be well below the 175 jobs eliminated when the plant shut down two years ago amid the bankruptcy of Utah-based former owner Flying J Inc.

Not as much staffing is necessary because Alon plans to run the refinery much differently than Flying J did. Instead of processing locally produced crude oil, Alon intends to refine a substance known as vacuum gas oil left over from its refinery operations in Paramount, near Long Beach in Los Angeles County.

Currently, the Paramount plant sells its gas oil to more complex refineries in the Los Angeles area, as Flying J did at Big West.

Alon's plans have stirred skepticism locally and within the industry -- mainly because the roughly 120 miles to Paramount is a long way to ship a petroleum product into oil country. Also, processing gas oil this way would use only about half of the refinery's existing equipment; Alon plans to sell some of the rest of it.

Alon and people who monitor the company say similar projects have succeeded elsewhere. They contend that a more important factor in making the plant viable in a competitive and volatile industry lies in improving its California refining margin, which is the difference between how much Alon pays for crude oil in the state and how much it makes selling fuel and other products. Refining margins reflect global and regional market forces as well as a company's operating efficiencies.

As recently as last fall, Alon's refining margins in California were dismal. While the company earned about $5 for every barrel of oil it refined at its Big Spring refinery in Texas, Alon made only 17 cents a barrel at its refinery in Paramount.

And, observers have taken issue with the company's heavy debt load and its reliance on retail fuel and asphalt sales. In the three months ended September 30, Alon reported losing nearly $16 million, up from about $27 million over the same period a year before.

Without saying how much the project costs or exactly what financial goal it's supposed to achieve, company executives voiced hope that it will improve Alon's financial condition.

"The whole reason we're doing this project is to improve the economics of this refinery through conversion of the gas oil," said Ed Juno, Alon's vice president of West Coast refining. He added that the project should more than double the Paramount plant's productivity.

The actual work of reconfiguring the refinery, Juno said, involves repiping connections between various vessels at the plant, changing out the chemical catalyst in a key piece of equipment called a hydrocracker, and making sure the plant has been sufficiently maintained to handle being started up again after being idled for two years.

Juno said Alon hopes to hire a crew quickly to complete the process, which is expected to take five to seven months, and be complete in June or July.

Last month, Standard & Poor's placed Alon under review because of its recently poor financial performance. In doing so, the credit ratings agency said it will "evaluate" the company's work in Bakersfield, among some other of its activities.

Jim Byrne, an energy analyst with BMO Capital Markets who covers Alon's stock from Calgary, Canada, said unforeseen problems could yet arise as the company prepares to restart its Bakersfield refinery. But he agreed that the idea behind the reconfiguration appears sound, and that depending on what goes on in the global economy, Alon's fortunes could turn around soon.

"They might time (the reconfiguration) well and things could improve this year," he said. But he added, "We're not anticipating much of any improvement."

Byrne added that one potential challenge deals with how Alon will bring gas oil north from Paramount. The company has said it wants to lease a pipeline that runs from Los Angeles County over the Grapevine into Bakersfield.

"It does hinge a little bit on that pipeline," he said.

Juno said the pipeline deal remains two to three years away, and that Alon plans to ship the gas oil by rail or truck in the meantime. The cost is about the same, but a pipeline would be more reliable, he added.

The Motley Fool, a website that provides investment tips, has been more optimistic about Alon than others, saying in a brief late last month that refiners including Alon eventually may see better profit margins.

The Motley Fool also noted that Alon has been able to add refining capacity at a discount -- an apparent reference to the company's purchase of the Bakersfield refinery last spring for $40 million plus the cost of its on-hand fuel inventory. (Alon reported in November that its bankruptcy-court purchase of the Rosedale Highway refinery represented a bargain that saved the company $16.2 million.)

Huhn, the union official, expressed hope that the refinery's restart would coincide with more favorable conditions in the oil and fuel markets.

Texas Loses another Round in GHG Fight with EPA

Texas lost a third round January 12 in its legal fight to halt federal regulation of greenhouse gas emissions.

Texas had asked the Court of Appeals for the District of Columbia Circuit to block a program that awards construction permits to major sources of greenhouse gas emissions, such as cement kilns and oil refineries. Every other state has begun the permit program or allowed EPA to award permits for them.

On January 12, the court denied Texas' request for a stay, clearing the way for the EPA to regulate major sources in Texas. A three-judge panel wrote that Texas didn't satisfy "the stringent standards" required for a stay.

Environmental groups said the decision shows that Gov. Rick Perry and Attorney General Greg Abbott have filed frivolous lawsuits that amount to political statements about global warming.

"Texas is the only state in the nation that refused to let anyone -- the state or the feds -- issue permits for carbon dioxide, the main cause of global warming," David Doniger, the chief global warming lawyer for the Natural Resources Defense Council, wrote on his blog. "The court's ruling now assures that EPA will be able to fill that void for as long as Texas' leaders continue their grandstanding, so that companies can continue building their projects, but with reasonable limits on all of their dangerous pollutants.

Lauren Bean, a spokeswoman for Abbott, said the ruling won't discourage Texas from pressing forward with several lawsuits that challenge the EPA's key climate-change regulations. Texas maintains that EPA doesn't have the legal authority to regulate industrial carbon dioxide emissions under the Clean Air Act.

"While the court declined to proactively prohibit the EPA from continuing its federalization effort, today's ruling did not reach the heart of the State's claim and does not affect Texas' ability to continue pursuing its legal challenge against the agency," Bean said. "With the jobs and livelihoods of thousands of Texas families and businesses at risk, Texas will continue to challenge the EPA's unlawful overreach."

The greenhouse-gas permit program took effect January 2. The rules require businesses to consider the "best available control technology" for reducing greenhouse gas emissions when they build a plant or modify an existing one.

U.S. / BAHAMAS

Buckeye to Acquire Remaining BORCO Stake

Buckeye Partners, L.P. announced in January that Vopak Bahamas B.V. has exercised its right to sell its 20% interest in FR Borco Coop Holdings, L.P. ("FRBCH"), the indirect owner of Bahamas Oil Refining Company International Limited ("BORCO"), to Buckeye.

The sale will be at the same proportionate price and on the same terms and conditions as those on which Buckeye has agreed to purchase an 80% indirect interest in FRBCH from affiliates of FRC Founders Corporation ("First Reserve"), including the same form of consideration (cash and equity). Buckeye expects the acquisition of Vopak's interest to close as promptly as definitive documentation can be executed and the closing conditions can be satisfied.

Buckeye owns and operates one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered, with approximately 5,400 miles of pipeline. Buckeye also owns 69 refined petroleum products terminals, operates and maintains approximately 2,400 miles of pipeline under agreements with major oil and chemical companies, owns a major natural gas storage facility in northern California, and markets refined petroleum products in certain of the geographic areas served by its pipeline and terminal operations.

CITGO Upgrades ULSD Unit at Corpus Christi Refinery

CITGO Petroleum Corp. on January 26 announced the completion of construction and start-up of a 42,500 BPD unit utilizing the latest technology to produce Ultra Low Sulfur Diesel (ULSD) at its Corpus Christi, Texas refinery. With the completion of this unit, which has been in operation since December, CITGO is now capable of producing 100% ULSD at all of its refineries.

The CITGO shareholder, Petroleos de Venezuela, S.A. (PDVSA), the national oil company of the Bolivarian Republic of Venezuela, was involved in the project. PDVSA's research arm, INTEVEP, participated early in the ULSD process unit design, in such areas as reactor sizing, and reactor internals and catalyst selection.

"Projects such as our innovative ULSD facilities show our commitment to the environment and to the communities CITGO serves. The completion of this corporate-wide effort allows us to further contribute to a cleaner environment for all," said CITGO President and CEO Alejandro Granado. "This initiative is in alignment with the environmental principles endorsed by PDVSA, our shareholder."

The new unit at the Corpus Christi refinery is reducing the sulfur content of the diesel transportation fuel produced at the facility by 99.7%, resulting in a very high quality product with virtually no sulfur emissions. The fuel also complies with new Environmental Protection Agency (EPA) standards for "clean diesel" fuels, supporting the long history CITGO has of supplying quality fuel that meets or exceeds all federal requirements.

With a combined crude capacity of 749,000 barrels per day in its three refineries, CITGO is the third largest and most complex independent refiner in the U.S. Additionally, CITGO leads the industry in coking capacity as a ratio of crude capacity, making CITGO the U.S. leader in heavy crude oils processing.

The steps involved in producing ULSD include adding hydrogen to remove the sulfur from the diesel and then recovering and converting those sulfur compounds into elemental sulfur, which is then sold into the fertilizer market.

The final diesel product from all of the CITGO refineries— including Corpus Christi—meet new Environmental Protection Agency (EPA) standards for "clean diesel" fuels.

The CITGO Corpus Christi Refinery directly employs more than 1,000 local residents while generating more than $625 million per year in support of the local economy through salaries, services and taxes. During peak construction, the ULSD and overall facility improvement projects also generated 750 contractor construction jobs for the local community.

In addition to Corpus Christi, the CITGO Lemont, Ill. refinery recently introduced their own upgraded ULSD facility that is producing 100% ULSD. The CITGO Lake Charles Manufacturing Complex in Louisiana has been producing ULSD since 2006 and is currently producing 100% ULSD to ensure a cleaner community.

Chevron to Build $1.4 Bln Lubricants Plant in Pascagoula by 2013

Chevron Corp. on January 31 announced that Chevron Lubricants will commence construction of a lubricants manufacturing facility at the company's Pascagoula, Miss., refinery. The $1.4 billion Pascagoula Base Oil Project (PBOP) is projected to generate approximately 1,000 jobs over the next two years of construction and about 20 permanent positions once the facility is operating.

The facility will manufacture 25,000 barrels per day of premium base oil, the main ingredient in the production of top-tier motor oil that helps improve fuel economy, lower tail-pipe emissions and extend the time between oil changes.

"Chevron was the first company to produce premium base oil," said Mike Wirth, executive vice president, Chevron Downstream & Chemicals. "With the addition of the Pascagoula facility, Chevron will become the world's largest producer of premium base oil. Demand for this product is increasing in the U.S. and around the world, and Chevron is adding capacity to meet that demand."

Construction is scheduled to be completed by year-end 2013.

"Tom Kovar, general manager of Chevron's Pascagoula refinery said "Chevron's significant investment will benefit both the company and the community. The project will help us grow our business and provide an enormous boost for the local economy."

PBOP will roughly double Chevron's premium base oil production. The company currently manufactures premium base oil at its refinery in Richmond, Calif., and a joint venture facility in Yeosu, Korea. Premium base oil produced in Pascagoula is intended to serve markets in North America, Latin America and Europe. In addition to motor oil, base oil is also used to make lubricants for high-tech machinery and equipment used in the commercial and industrial sectors of the economy.

The base oil facility will use Chevron's ISODEWAXING technology. Chevron began using ISODEWAXING commercially in 1993, resulting in higher yields and enabling a broader range of crude oil to be used in the manufacturing process. About two thirds of the world's premium base oil is manufactured with this technology.

As Chevron's largest wholly owned refinery, the Pascagoula facility has a work force of 1,610 and processes up to 330,000 barrels per day of crude oil to produce gasoline, jet fuel, diesel and other products. The refinery began operating in 1963.

BP Plans to Reposition Itself and Sell Texas City, Carson Refineries

Aligned with changing trends in global demand, BP announced February 1 that it intends to reposition its refining and marketing (R&M) business in the U.S. and divest two of its U.S. refineries. It intends to seek buyers for the Texas City, Texas refinery and the Carson refinery near Los Angeles, California, together with its associated integrated marketing business in southern California, Arizona, and Nevada. Subject to regulatory and other approvals, BP plans to complete the sales by the end of 2012, thereby halving BP's U.S. refining capacity.

BP plans to focus future downstream investment in the U.S. on further improving and upgrading its other, more advantaged R&M networks in the country—based around the Whiting, Indiana and Cherry Point, Washington refineries and its 50 percent interest in the Toledo, Ohio refinery. These refineries have greater flexibility to refine a range of crude oils including heavy grades, and on average are more diesel-capable than BP's current portfolio. They are also well-integrated with BP's marketing operations and benefit from advantaged and focused logistics infrastructure.

BP intends to sell both the Texas City refinery and the Carson refinery with its marketing network as going concerns and expects significant market interest in the assets. The planned sales will be subject to regulatory and other approvals, and BP will ensure that fulfillment of the current regulatory obligations associated with Texas City are reflected in any transaction.

"The U.S. remains a very important market for BP's fuels, lubricants and petrochemicals businesses and the moves we have announced today will give BP a smaller, but well-positioned and very competitive portfolio of refining and marketing businesses," said Iain Conn, BP chief executive refining and marketing. "I have no doubt that the businesses we are seeking to divest will prove extremely attractive to other operators."

The Carson refinery, south of Los Angeles, is at the heart of an integrated fuels value chain stretching across southern California, Arizona and Nevada. The refinery, which has 265,000 barrels per day (bpd) refining capacity and supplies some 25 percent of Los Angeles gasoline demand, became part of BP through the 2000 acquisition of ARCO. It employs some 1200 staff and 500 contractors.

The assets associated with the Carson refinery also to be divested include BP's interests in a cogeneration plant on the refinery site, crude and product terminals and also its marketing interests. As part of this sale, BP expects to divest the ARCO brand (though retaining brand rights for northern California, Oregon and Washington) and to retain ownership of and license the ampm brand.

The Texas City refinery became part of BP with the 1998 merger with Amoco. It is a large, highly complex refinery with 475,000 bpd refining capacity— the third-biggest refinery in the U.S., with gasoline manufacturing capability equivalent to approximately three percent of US production. The refinery employs some 2,200 BP staff and, contractor numbers can vary between 2,000 and 4,000 each day.

During the last few years, over $1 billion has been invested in modernizing and improving the plant. However, Texas City lacks strong integration into any BP marketing assets. The assets to be divested associated with the sale of Texas City also include the cogeneration plant. BP intends to retain the Texas City Chemicals complex adjoining the refinery.

BP is currently in the process of carrying out a number of major investments in its other U.S. refineries, including a large investment program to transform its 405,000 bpd capacity Whiting refinery, significantly increasing its capability to process heavy Canadian crude; a clean diesel upgrading project at its 240,000 bpd Cherry Point refinery and the addition of a continuous catalytic reformer to its 160,000 bpd capacity Toledo refinery (a 50:50 joint venture with its partner Husky Energy Inc).

CANADA

Jacobs Wins Newfoundland Turnaround Contract for North Atlantic Refining

Jacobs Engineering Group Inc. announced January 4 that it received a three year contract from North Atlantic Refining Limited for the provision of turnaround and small capital work services at the company's refinery in Newfoundland, Canada.

Officials did not disclose the contract value.

Under the terms of the contract, Jacobs will provide turnaround planning and execution, including pre-planning and post turnaround activities, as well as delivery of small capital works at the site.

In making this announcement, Jacobs Group Vice President Chip Mitchell stated, "We are pleased to expand our services in Atlantic Canada. This is both an opportunity for us to build a long term relationship with North Atlantic Refining Limited and to demonstrate our commitment to a long term presence in Newfoundland."

North Atlantic is a wholly owned subsidiary of Harvest Operations Corp, (Harvest). Harvest, wholly owned by the Korea National Oil Corporation, is a significant operator in Canada's energy industry offering exposure to an integrated structure with upstream (exploration, development and production of crude oil and natural gas) and downstream (refining and marketing of distillate, gasoline and fuel oil) segments.

MEXICO

Mexico to Invest $28 Bln to Add New Pemex Refining Capacity

Mexico plans to invest about $27.6 billion (334 billion pesos) over the next 15 years to increase refining capacity of state-owned oil company Petroleos Mexicanos, or Pemex, particularly for gasoline, according to an Energy Ministry plan.

Imports of gasoline have surged on local demand and because Pemex's outdated refineries produce too little gasoline and too much fuel oil per barrel of crude, according to the ministry's recently published 2010-2025 outlook for refined products noted.

The report highlighted the planned construction of a new refinery near an existing one in the central Mexican city of Tula, where it expects Pemex to produce 250,000 barrels a day of refined products, with a focus on regular unleaded gasoline that will account for about 145,000 barrels a day of the facility's total output. That will put total Pemex gasoline production at 735,000 barrels a day by 2016, and 750,000 barrels a day by 2025.

"At the end of the period, the expectation is that the production of gasoline will be 64.7% higher than domestic production in 2009," the report said. Gasoline and diesel will lead the projected 1.7% annual increase in refined products in the period, from an average of 1.139 million barrels a day of crude oil equivalent in 2009 to 1.498 million barrels a day of crude oil equivalent in 2025, it said.

Incoming Energy Minister Jose Antonio Meade, who was named to the top energy post by President Felipe Calderon in January, said that the Tula refinery is going forward, and that significant advances will be made this year toward its construction. The new refinery is named Bicentenary because 2010 marked 200 years since Mexico's independence fight from Spain.

Mexican officials have denied intermittent speculation that the government is looking for an alternative to the Bicentenary's $10 billion price tag, perhaps through buying an existing refinery outside of Mexico.

Pemex recently tendered a bid for the 14-kilometer wall around the refinery site, and detailed the list of work done toward moving the project forward, including selecting the technologies that will be used. It projected that the refinery construction phase will begin in October of 2012, two months before President Felipe Calderon leaves office, and start up more or less on time in late 2015 or early 2016.

Other refinery projects mentioned in the Energy Ministry report include the reconfiguration of the Salamanca refinery that will add 50,000 barrels a day of capacity and programs for cleaner-burning gasoline and diesel over the next four years.

The ministry said refining operations at the end of the period would consume an additional 357,000 barrels a day of crude oil, for a 28% increase to 1.652 million barrels a day. The biggest spike in crude processing comes in 2016 with the projected startup of the Bicentenary refinery. Pemex plans to ramp up crude production from about 2.6 million barrels a day to 3.3 million barrels a day by 2025, it has said.

Pemex's reliance on imported gasoline surged at the end of last year, as two of its six refineries underwent maintenance.

In November, Pemex imported 461,000 barrels a day on average of gasoline on domestic sales of 807,000 barrels a day, according to the company's latest figures. For the first 11 months of the year, Pemex imported an average of 366,000 barrels of gasoline a day on local sales of 796,000 barrels a day. That puts imports for the period at 46% of sales.

For diesel fuel, November's imports averaged 159,000 barrels a day on sales of 390,000 barrels a day. And for the first 11 months of 2010, diesel imports averaged 104,000 barrels a day on local sales of 370,000 barrels a day.

The refinery maintenance also diverted more oil to the export market, and Pemex's crude oil sales abroad surged in November to 1.617 million barrels a day, versus the 11-month average for last year of 1.348 million barrels a day.

Pemex has considered importing small amounts of certain light crude oils that would make its older refining operations more efficient, because the company's oil mix has shifted to heavier crudes since those refineries were built.

But no decision has been taken on the politically charged question of importing oil, which opposition parties have seized on to suggest Mexico is slipping into an era when it will become a net energy importer. Mexican officials deny that will come any time soon, if at all.

VIRGIN ISLANDS

Hovensa Plans Partial Shutdown of St. Croix Refinery

Hovensa LLC reported plans to shut down certain processing units on the west side of its 500,000-b/cd refinery at St. Croix, U.S. Virgin Islands. The shutdown will reduce the facility’s crude distillation capacity to 350,000 b/cd; with no impact on the capacity of its coker or fluid catalytic cracking unit, the company said.

The reconfiguration will be completed in this year’s first quarter, Hovensa said.

The company also is in the process of determining its workforce needs going forward, it said. In the interim, the company reported, it “has placed an immediate hold on filling most open positions and cancelled the 2011 turnarounds previously scheduled for west side units that will be shut down.”

Hovensa Interim Chief Operating Officer John W. George said, “Simplifying our operation by eliminating some older, smaller process units is expected to result in improved efficiency, reliability, and competitiveness. This is an important step toward improving our performance at a time when Hovensa and the refining industry are facing difficult economic conditions.”

Hovensa is jointly owned by Hess Corp. and Petroleos de Venezuela SA (PDVSA).

BRAZIL

Petrobras Says Brazil to Be Self-Sufficient in Diesel Oil by 2017

Brazil will stop importing diesel oil in 2017 when production begins from a new oil refinery in Ceara state in the country's northeast, a manager for Petrobras said December 29.

The new Premium II oil refinery, one of the world's largest with 300,000 barrels per day production capacity, will allow Brazil to gain self-sufficiency in diesel oil, said Mario Tavares, general manager at the refinery, during a ceremony to mark the start of construction at the site.

"The refinery is of extreme importance in our quest to meet Brazilian demand," Petrobras Chief Executive Jose Sergio Gabrielli said at the ceremony.

With domestic demand for fuels growing at about 4.1% a year, Petrobras is building a series of refineries to meet the demand as well as to develop an export market for oil derivatives and to add value to the company's products, company supplies director Paulo Roberto Costa said last month. The company will bring onstream eight new refinery lines or refineries between 2010 and 2018, he said.

In addition to low-sulfur diesel, which will account for 60% of the Ceara refinery's output, the new works will produce aircraft fuel, naphtha, kitchen gas and ship fuel, Costa said.

ASIA

CHINA

China Set to Approve PetroChina-PDVSA Refinery

China's Ministry of Environmental Protection plans to give environmental approval to the joint refinery proposed by PetroChina Co. (PTR) and Petroleos de Venezuela SA in southern Guangdong province, the ministry said.

Getting environmental clearance has become a key hurdle for proposed refineries to receive final approval from the central government. A joint venture refinery and petrochemical complex planned by China Petroleum & Chemical Corp. (SNP) and Kuwait Petroleum Corp. was delayed in 2009 when the original site for the refinery in the more heavily populated Nansha district in Guangdong, was rejected on environmental grounds.

The PetroChina-PDVSA refinery, to be located in Jieyang city, Guangdong, will be built with an investment of CNY57.34 billion and will have a heavy oil processing capacity of 20 million metric tons a year, or 401,644 barrels a day, the ministry said on its website January 5.

Shell Negotiating with CNOOC to Join $7.53 Bln Huizhou Refinery Plan

Royal Dutch Shell Plc is negotiating with China National Offshore Oil Corp (CNOOC) to participate in the latter's Huizhou refinery's second-phase project, which will require more than US$7.53 billion (50 billion yuan) in investment and become operational in 2014, CNOOC officials said.

Shell, which holds 50 percent of CNOOC and Shell Petrochemical Co Ltd (CSPC), based in Daya Bay in the city of Huizhou, Guangdong province, has shown strong interest in becoming involved in CNOOC's refinery sector by participating in the planned second-phase plant, said Zhu Mingcai, the CSPC's deputy chief executive officer. He added that several other international petrochemical companies have shown similar interest.

CSPC was founded in November 2005 with a registered capital of 12.1 billion yuan and is one of the largest Sino-foreign joint ventures in China. It was the first move in CNOOC's expansion into mid- and downstream businesses. But the refining business is excluded from the joint venture, a decision agreed on by the two cooperators after more than a decade of negotiation.

"Until now, the idea has been that CNOOC will shoulder the whole investment and be the sole operator of the second phase, and it has yet to decide on whether to introduce a new foreign investor," said Zhu, formerly the general manager of CNOOC International Ltd.

"The second phase, which is expected to get a green light from the government in the first half of 2011, is to have a refining capacity of 10 million tons and ethylene production of 1 million tons annually. It will cover an area of 4.4 square kilometers," said Dong Xiaoli, general manager of the CNOOC Huizhou refinery, currently the major investor in the plant.

Shell is offering to relinquish about 20 percent of its stake in CSPC to gain about a 30 percent stake in the planned refining plant, several CNOOC officials said without elaborating.

"Even if CNOOC agrees to let Shell participate, it won't get as high a stake as the 50 per cent it has in CSPC because CNOOC is not short on the capital or the technologies needed to build the new plant," said Diao Guotao, secretary of the Communist Party of China Committee of CNOOC Huizhou district.

Li Lusha, a spokeswoman for Shell (China) Ltd, told China Daily the company would not comment on market speculation.

"The cooperation with Shell has brought state-of-the-art technologies and management experience to CNOOC," Zhu said.

CNOOC's Huizhou refinery, which is adjacent to CSPC's, went into operation in 2009. In 2010, it processed 11.28 million tons of crude oil and realized 57.4 billion yuan in sales and a profit of 2.7 billion yuan.

Most of its products are sold in Southern China, which includes Guangdong province, the country's major consumer of petrochemical products.

Under the local government's 11th Five-Year Plan (2006-2010), the province's petrochemical output value was to increase an average of 20 percent annually.

The refining capacity would reach 73 million tons in 2010, compared with 20.45 million tons in 2003, and the ethylene output would increase by 2010 to approximately seven times the 4.4 million tons in 2003.

The second-phase plant is intended to put CNOOC's refining capacity on a larger scale. However, during the 12th Five-Year Plan (2011-2015), Guangdong's refining capacity is expected to surpass 100 million tons, outstripping the expected consumption of 26 million tons of finished oil products, Dong said.

The Huizhou refinery plans to tap into the Hong Kong market to sell aviation oil through China National Aviation Fuel Group Corporation this year, according to Dong. He added that the company is also looking at Southeast Asia for further development to comply with CNOOC's strategy to allow its downstream industry to go abroad.

China Considers Building Local Oil Products Storage System in Addition to Adding Refining Capacity

China is seeking to build a local oil products storage system as a supplement to national strategic petroleum reserves (SPR) to better ensure security of oil market supply capacity, according to a notice released by the Ministry of Commerce (MoC).

The Ministry said building the oil products storage system aims to solve the problem of tight oil products supply, which was the case in late 2010.

MoC's proposal could be eyed as part of the country's efforts to improve its oil distribution system.

Statistics show that China's refining capacity is actually sufficient to meet domestic demand, but the uncompleted distribution system usually cripples the supply.

During the 2011-2015 period China will add 100 million metric tons (tonnes) of refining capacity, boosting the total refining capacity to 600 million tonnes/year in 2015. By then the oil products output may reach 310 million tonnes, indicating a more serious oversupply.

To improve the efficiency of distribution system, the Chinese energy authorities have been planning to work out a five-year development program on oil distribution as a sub-program of the 12th Five-Year Program for the country's energy sector.

JAPAN

Japan to Develop Technology Using Hydrogen from Refineries to Power Fuel Cell Vehicles

The Japanese government will launch a public-private initiative to develop technology for applying hydrogen used in oil refining to power fuel cell vehicles.

With Japan moving toward wide adoption of fuel cell vehicles by fiscal 2015, the Ministry of Economy, Trade and Industry seeks to secure a steady supply of high-purity hydrogen.

Hydrogen used in fuel cells is 99.99 percent pure, while the hydrogen that oil distributors use in removing sulfur content from oil is about 90 percent pure.

Those firms, in collaboration with METI, will develop technology to extract high-purity hydrogen, with an eye toward creating a new source of income. The undertaking -- from technology development to trials -- is estimated to cost 500 million yen over a three-year period from fiscal 2011. The ministry will pay half of the cost.

EUROPE / AFRICA / MIDDLE EAST

FRANCE / UNITED KINGDOM

PetroChina, Ineos Enter Framework Agreement for Trading and Refining JV in France and the UK

PetroChina and INEOS Group Holdings plc (INEOS) announced that on January 10, PetroChina International Company Limited, a wholly owned subsidiary of PetroChina, entered into a framework agreement with INEOS European Holdings Limited and INEOS Investments International Limited, each a wholly owned subsidiary of INEOS.

The Framework Agreement sets out the main principles pursuant to which the parties will work toward forming joint ventures related to trading and refining activities at the Grangemouth refinery in Scotland and the Lavera refinery in France.

All companies will work toward the formation of the proposed joint ventures by the end of June 2011.

INEOS and PetroChina's ultimate parent company, China National Petroleum Corp (CNPC), on January 10 also signed a strategic cooperation agreement to share refining and petrochemical technology and expertise between their respective businesses.

The deals will create a true strategic partnership between the two companies. They will improve the long-term sustainability of the INEOS refineries, enhance security of supply for customers and secure jobs and skills in both the UK and France.

"These deals are the start of a long-term relationship between INEOS and PetroChina, creating a partnership between one of the world's largest petrochemical companies and one of the world's largest energy companies," said Calum MacLean CEO, INEOS Refining. "They present a clear opportunity for INEOS to progress its aim of forming strategic partnerships to help grow and strengthen its business. The agreements will provide further investment in our refineries, securing their competitiveness in European markets, and will secure jobs and skills in the UK and France."

If the deals are completed successfully, they will be of great importance for PetroChina's global allocation of resources and market portfolio, exploring the high-end European market, as well as establishing PetroChina's European oil and gas operation centre.

"The framework agreement to work towards forming trading and refining related joint ventures with INEOS is consistent with PetroChina's strategy of building a broader business platform in Europe and of becoming a leading international energy company," said Si Bingjun, General Manager of PetroChina International London.

The Grangemouth refinery is located on the Firth of Forth with direct access to crude oil and gas from the North Sea. The Grangemouth refinery processes around 210,000 barrels of crude oil per day and provides fuel to Scotland, Northern England and Northern Ireland.

The Lavera refinery processes 210,000 barrels of crude oil per day. It is located on the coast of the Mediterranean crude oil trading basin, next to the port of Marseille and adjacent to a crude oil terminal. The refinery supplies fuel by pipelines into France, Switzerland and Southern Germany.

Both sites are integrated into INEOS' downstream petrochemical production and remain strategic to its long-term business.

Subsequent to the signing of the framework agreement, which defines the principles under which INEOS and PetroChina International will work towards forming the joint ventures, related to refining and trading, there will be a period of consultation prior to signing a binding agreement, subject to the approval of related regulatory bodies.

ROMANIA

Petromidia Refinery to Process 100% Sour Kazakh Oil after Upgrades

The Petromidia Refinery in Romania, a part of KazMunaiGaz's (KMG) subsidiary in Romania Rompetrol, will be able to process 100-percent sour Kazakh oil after modernization, Rompetrol CEO Saduokhas Meralyiev said.

"In late 2011-early 2012, we will complete the full modernization of the refinery. The goal is to create a flexible technology that will be able to process 100-percent Kazakh oil, which is known to be sour," Meralyiev said.

He stressed that after the modernization of oil refineries in Romania, the design capacity of the plant will grow from 4 million to 5 million tons of oil annually.

In addition, the refinery will fully produce Euro-5 standard and Euro-6 standard gasoline production in 2014.

"In early 2012, we will launch our latest modernization project, and are studying two projects due to the fact that Europe will reduce its consumption of gasoline and diesel," he added.

He underscored that the company has seven oil storage facilities in Romania.

"We have our own gas stations and we are setting the goal of strengthening petroleum product sales in general," Meralyiev said.

Rompetrol sells over 1 million tons of petroleum products in the domestic Romanian market, and intends to increase this figure to 1 million 800 tons.

According to him, Rompetrol plans to expand its presence in neighboring Bulgaria, Georgia, where it has subsidiaries.

The Rompetrol Group NV is a 100-percent subsidiary of KMG Processing and Marketing.

Rompetrol is a large holding company. Most of its operations and assets are located in France, Romania, Spain, and southeastern Europe. The group is active primarily in refining and marketing downstream, with additional operations in exploration, production and other services for the oil industry. It owns two oil refineries (Petromidia and Vega), and some 630 gas stations in Europe (Romania, France, Spain, Moldova, Ukraine, Bulgaria, Albania, and Georgia).

The company owns a 25 percent share of the petroleum product retail sales market in Romania, a 3.5 percent share of the market in France, and a 1.5-percent stake of the market in Spain. Rompetrol works in 13 countries in service and trading.

UGANDA

Uganda Plans Public/Private 20,000 to 40,000 bpd Refinery Partnership by 2012

The Ugandan government is planning to develop an oil refinery on a public/private partnership basis when oil production commences in the next couple of years, the Ugandan president said January 1.

In a national address, President Yoweri Museveni said that the refinery would be developed in a phased manner starting an initial capacity of around 20,000 to 40,000 barrels a day in 2012 and eventually going up to at least 200,000 barrels by 2016.

"With the prospect of large oil revenues, Uganda will soon be free from external influence in the implementation of our investment program," he said. "Government has moved to improve the regulatory environment of the [oil and gas] sector to ensure that it achieves maximum benefit from these resources."

Oil exploration companies have discovered at least 800 million barrels of recoverable oil reserves in Uganda's Lake Albert rift basin, along the border with mineral-rich but lawless Eastern Congo.

Museveni said the government will pass new legislation on access to oil and gas rights, regulating exploration and production, refining and gas processing and managing petroleum revenue.

At least 20,000 jobs are expected to be directly generated by the oil industry and another 100,000 jobs generated as a result of the multiplier effect, President Museveni added.

China's CNOOC Ltd. and French oil major Total SA have already entered a joint operating deal with the U.K.'s Tullow Oil PLC for the development of Uganda's oil assets in three blocks. The deal is pending government approval.

QATAR

Kentz Corp Wins Qatar Pearl GTL Contract

Kentz Corp. Ltd., the holding company of the Kentz Engineering and Construction Group has been awarded a framework agreement to provide services in executing plant change requests by Qatar Shell GTL Limited.

Under the framework agreement, Kentz will provide engineering design, construction supervision and procurement services for plant changes and projects at Pearl Gas to Liquids (GTL) plant at Ras Laffan Industrial City, Qatar, as well as to its offshore platforms, harbor tank farms, offloading jetties and connecting infrastructure.

The duration of the contract is for three years with a two year extension option. The services will be executed in the Kentz Doha office using existing multidiscipline engineering teams, project management and project services resources.

Pearl GTL is the largest GTL project in the world and is being jointly developed by Qatar Petroleum (QP) and Shell. At peak production the facility will produce 140,000 bbl/d of high-quality GTL fuels and products and 120,000 boe/d of natural gas liquids and ethane from two trains.

This latest award follows Kentz's successful completion of a number of multi-million contracts over the past five years on the Pearl GTL Project. These contracts have encompassed all three of Kentz's Global Business Units; Specialist Engineering, Procurement and Construction (EPC), Construction, and Technical Support Services.

Hugh O'Donnell, the chief executive of Kentz, commented: "Having been involved in this world scale project from initial site works through to current commissioning activities, we are delighted to continue working with Shell in the operational and maintenance phase of the project with brown field engineering services over the coming years."

Kentz is currently working with Shell on projects in Qatar as well as elsewhere in the Middle East, Russia, and Europe.

SAUDI ARABIA

Saudi Aramco Unit Awards Design Contract to Jacobs for $1 Bln Yanbu Refinery Expansion

Saudi Aramco Lubricating Oil Refining Company (Luberef) has awarded a contract to design the expansion of its Yanbu refinery to Jacobs Engineering Group.

The company said initial costs of the project, the biggest since 1997, would amount to 3.7 billion Saudi riyals (Dh3.62 billion).

The project aims to produce group two and three high quality base oil to meet increasing demand in the domestic and international markets.

The project, to be executed in phases, is due to go online in 2015.

On January 30, Engineer Ali Al Hazmi, Luberef President and CEO said the project was significant for Saudi Arabia and proved Luberef's commitment to meeting the market's growing demand.

He pointed out that the project was in line with the company's mission to supply high quality base oil on time at a competitive price, while at the same time maintaining international performance levels in terms of safety and environmental protection.

He added that the expansion included two lubricating oil refineries — one in Jeddah and the other in the Yanbu industrial area. They were owned by Saudi Aramco and Jadwa Industrial Investment Company with 70 per cent and 30 per cent stakes respectively.

Hassan Azoz, director of marketing, explained that Luberef's current capacity was around 550,000 tonnes per year of oil lubricants (Group 1).

He added that the company was a leading supplier of these products to the local market as well as to the markets of the Gulf Cooperation Council (GCC) states, Yemen and Jordan.

Azoz pointed out that due to the industry's continuing development, Luberef had committed itself to being able to cope with this development and to shift for the production of Group 2 high quality base oil.

The project's additional production capacity would amount to 750,000 tons of high quality base oil (Group 2), and the total production capacity would jump to 1.3 million metric tons, he said.

The company would expand its operations with the aim of having shares in markets in Europe and East Asia, he said.

McIlvaine Company,

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