august 05 update

ICF Consulting Says Refinery Capacity Investment Lags behind Global Demand Growth

In a report released August 4, ICF Consulting cautions government, consumers, and industry that the lack of adequate refinery capacity may become a greater concern than availability of crude oil over the next 5-10 years. The analysis titled, The Emerging Oil Refinery Capacity Crunch, provides background on global oil demand history and trends, and compares the forecast of demand growth with the refinery capacity outlook. The implications are significant for both the United States and global economies. Our analysis studies the impacts of the Energy Policy Act of 2005 on refiners.

In the mid-1980s, the oil industry suffered from a surplus of refiner capacity. Weak refining margins made investment in new capacity very difficult to justify. Since 1990, this capacity surplus has been slowly wrung out of the global system. Environmental regulations have contributed to refinery closures, and the strong and steady growth of global oil demand has helped increase refinery utilization. Growth in the demand for clean products — gasoline and particularly diesel -- is being fueled by the dramatic rise in the economies of the Far East. These trends are on a collision course.

ICF Consulting's analysis shows that global refinery capacity has decreased to 103 percent of total oil demand in 2004, down from 109 percent in 1990 and 107 percent in 2000. This situation has been overlooked due to the overall oil price explosion and world crude oil spare production capacity issues. The International Energy Agency (IEA) is forecasting a growth in oil demand of more than 5 million barrels per day by 2010. Industry has typically expanded existing refineries only marginally every year through low cost expansions (referred to as 'capacity creep'), but capacity creep may become tougher as the world moves to much lower sulfur levels in products in order to meet environmental regulations.

"The crux of the problem is that new global refinery capacity investment is lagging behind demand," says Zeta Rosenberg, an ICF Consulting Senior VicePresident and fuels expert. "Historically, the oil industry has been able to squeeze out some additional capacity, but the trend increases of the past may not be enough to keep up with forecasted demand. Since mid-2004, refinery margins have stayed very strong and the outlook appears to be the same for the foreseeable future. If supply does not materialize to meet the demand forecast, however, there could be significant negative impacts on global economies and world demand," says Ms. Rosenberg.

Valero Energy Corp. said August 2 that it is experiencing a delay in repairs to the atmospheric crude unit at its St. Charles, La., refinery.

The San Antonio-based oil refiner expected the unit to return to service on Aug. 3.

Failure in the unit's heater tube caused Valero (NYSE: VLO) to shut down the unit on July 27 -- causing the refinery to reduce gasoline production by 12,000 barrels per day and 35,000 barrels per day of distillate, such as diesel.

The St. Charles refinery has a total throughput capacity of 260,000 barrels per day. Valero acquired the refinery -- which is located 15 miles from New Orleans -- in 2003.

The oil refining and marketing company owns and operates 14 refineries in the United States, Canada and the Caribbean. It has the ability of processing 2.5 million barrels of oil per day.

Murphy Oil Corp. is investing about $3 million to improve the safety and security of its Superior refinery.

Kollin Schade, operations manager, said Murphy plans to complete work on a new 23,000-square-foot emergency response station/warehouse yet this year.

The structure, to be located on Hill Avenue, will house new fire trucks, flame-suppressing foam and other emergency gear. It also will accommodate training facilities, locker rooms, offices and living quarters.

The warehouse portion of the structure will store parts and supplies for the refinery in high racks. Concrete panels will serve as walls of the new 27-foot-tall L-shaped building.

Murphy Oil's emergency response station/warehouse could be expanded by 10,000 square feet in 2006 for $2 million as the refinery relocates many of its maintenance functions, said Dan Flake, manager of maintenance and engineering. Murphy has applied for a building permit, but the corporation has yet to fund that phase of the project.

The new building should replace outdated structures Murphy built more than 40 years ago. Siting the new building on the outskirts of the plant should prove advantageous, Schade said. Suppliers delivering items to Murphy's warehouse currently pass through the heart of the refinery, posing potential security issues. Once the new building opens, however, Murphy can receive deliveries at a distance from its most critically sensitive operations.

Williams Engineering of Roseville, Minn., designed the project. Market & Johnson of Eau Claire, Wis., is the general contractor.

BP Plc. said an explosion and fire on July 28 at its massive Texas City, Texas refinery appears to have been caused by a bad pipe.

It said a preliminary inspection found "evidence of internal cracking" in a thick steel pipe located between a compressor and heat exchanger in the third largest U.S. refinery, where 15 people died in an earlier blast on March 23.

The company, in a release put out late on July 29, said it would conduct a "full metallurgical analysis" to understand why the pipe failed.

No one was hurt in the explosion, but it cut crude oil processing at the 460,000 barrel-per-day (bpd) refinery by 70,000 bpd, reduced gasoline output by 35,000 bpd and boosted crude oil prices by 63 cents a barrel to $60.57 a barrel on the NYMEX.

The company blamed the March 23 accident on employees failing to follow proper procedures, but labor union officials attributed it to bad design and management.

The U.S. Chemical Safety and Hazard Investigation Board has been investigating the March 23 blast and said it would look into whether there are any links between the two explosions.

One of Congress' last acts before leaving Washington for its August recess may have been designed to help people who live near chemical plants and oil refineries, but it has left scientists scratching their heads.

Buried deep in the 1,725-page energy bill Congress passed July 29 is an order to the leaders of the U.S. Energy Department and the National Cancer Institute, as well as "other federal government bodies with expertise," to design, conduct, compile and submit a study of the health effects these installations pose to their neighbors.

"This is a directive of Congress," Energy Department spokesman Craig Stevens said. "We would just follow the letter of the law."

U.S. Rep. Gene Green, D-Texas, proposed the study after a newspaper series and state air-pollution data showed that levels of a rubber-making chemical in his Houston district were high enough to pose a cancer risk. However, state data showed no spike in the incidence of cancer cases.

Explaining that he was to get "the most accurate health information possible," Green said, "We have an obligation to get the facts."

However, scientists do not see how backing the study is possible on a nationwide level, given the financial and time constraints.

Increasing the difficulty of the task is the likelihood that data will vary from county to county and parish to parish, based on such factors as the types of factories present and prevailing wind patterns, said Dan Greenbaum, president of the Health Effects Institute, a Boston-based nonprofit research corporation supported by the U.S. Environmental Protection Agency and industry.

Because the law at this point was barely a week old and still awaiting the president's signature, there had been no perceptible progress in designing the study. In carrying out that task, it will be difficult to define the population at risk that is to be examined, said Dr. David Michaels, an industrial-medicine specialist at the George Washington University School of Public Health and Health Services.

"If you're looking at cancer, you're interested in exposures that occurred some years ago, so (current) residents may not be the best to look at," he said.

Besides, Michaels said, the work is bound to be complex, given the abundance of compounds that come from targeted plants and refineries. Even though the cancer institute's involvement implies a strong interest in emissions that might trigger that disease, he said any study of health impacts should include non-cancer complications such as asthma and other respiratory problems.

Such ailments are common near the Chalmette Refinery, which is jointly owned by ExxonMobil and Petroleos de Venezuela, said Janet DeGeorge, who lives near the plant.

In Norco, home to several petrochemical plants, emission levels have dropped since monitors were installed nearly three years ago as the result of a collaboration among industry representatives, residents, the state Department of Environmental Quality and experts from Tulane and Southern universities. Emissions have been well below DEQ limits, said Sal Digirolamo, president of the Norco Civic Association.

DEQ doesn't require monitors, but they generally go up because residents ask for them, said Chris Roberie, administrator of the agency's air-quality assessment division.

They are expensive because each monitor costs upwards of $8,000 and can detect only one group of compounds. But, Roberie said, they are sophisticated enough to detect the source of a certain emission.

A similar system, costing nearly $500,000, is to be in place in St. Bernard Parish by the end of the year, Roberie said.

Monitors there will be good for business, Digirolamo said, because "it's not good economics to let your product go in the air."

In Norco, monitors have worked well, LuAnn White, a Tulane University toxicologist who directs its Center for Applied Environmental Public Health. said, not only because they detect compounds such as benzene, which can cause leukemia, but also because they have detected leaks of relatively innocuous compounds such as ethylene.

"The level was far below the danger level, but they fixed it," she said. "Any time you have monitors, people are more careful."

Rolfes remains dubious about their value in St. Bernard because, she said, some monitors may be too far from refineries to do much good.

Regardless of how effective monitors and the congressionally ordered study may be, White said no one should expect either of them to show an increase in cancer cases for which industry can be blamed.

Exxon Mobil Corp. said its Joliet refinery resumed operations after the failure of a water-cooling system forced a shutdown July 30. The restarting of the refinery began Aug. 6 and continued through August 7, said spokesman Patrick McGinn. "Operations are normal, and we are blending gasoline now," he said. The refinery has the capacity to process 240,000 barrels of crude oil a day.

BP PLC said August 17 that it will form an independent panel to examine safety practices at its five U.S. refineries, including one in Whiting, Ind., after the U.S. Chemical Safety and Hazard Investigation Board issued an urgent recommendation for a safety review for the first time in its eight-year history.

The agency is investigating a blast and subsequent fire that killed 15 workers and injured 170 at the BP oil refinery in Texas City, Texas, in March. Since then there have been several other serious, but not lethal, incidents at BP facilities.

"An examination of BP's corporate oversight and culture is an essential ingredient for the full understanding of the tragedy in Texas City," said Carolyn Merritt, who heads the board.

She said that the explosion and other incidents involving BP raised questions about the company's safety practices.

"Taken as a whole, these facts point to systematic lapses in organizational decision-making, safety oversight and culture," Merritt said. "If left uncorrected, such lapses could lead to additional serious accidents."

John Browne, BP's chief executive, said the company will organize an independent committee to investigate safety issues.

"The Texas City explosion was the worst tragedy in the recent history of BP, and we will do everything possible to ensure nothing like it happens again," he said in a statement. "Today's recommendation from the CSB is a welcome development, and we take it seriously."

Refineries are routinely inspected for safety by the Occupational Safety and Health Administration and the Environmental Protection Agency, said David Sykuta, executive director of the Illinois Petroleum Council. He said states may also exercise safety authority over refinery operations.

Britain-based BP, the world's second-largest oil company, acquired the Whiting refinery, just across the state line from Chicago, when it bought Chicago-based Amoco Corp. in 1998. The refinery suffered a fire in August 2004 that slightly injured three workers and damaged some equipment.

"The Whiting refinery will be part of [the review]," said BP spokeswoman Valerie Corr.

The accident at BP's Texas City plant occurred March 23 in a part of the refinery that enhances the octane of gasoline.

Although the hazard board has not concluded its investigation, the agency found a number of disturbing factors that may have contributed to the blast.

It said two alarms that should have alerted workers that a serious problem was brewing did not go off. One alarm needed repairs a year before the blast.

Also, a key instrument that could have warned operators transmitted erroneous information. The agency said a work order to repair the instrument was signed by several of the plant's managers 13 days before the explosion.

The United Steelworkers union, which represents some refinery workers, said its experts will participate in the safety committee's investigation.

"What we are finding in Texas City looks like it was a systemic problem throughout the country," said Gary Beevers, a union official. "We have concerns about their commitment to safety."

The hazard board noted that BP has already agreed to take new safety precautions, including removing potentially hazardous equipment and moving workers away from areas that might pose a threat.

CHS Refining dedicated its newly completed diesel fuel sulfur reduction projects and broke ground for a new $325 million coker plant Aug. 10. Montana Lt. Gov. John Bohlinger, Yellowstone County Commissioners and Laurel legislators participated in a ribbon cutting ceremony inside the refinery.

Completion of the three sulfur reduction projects makes the Laurel refinery the state's first refinery to produce ultra-low sulfur diesel fuel, nearly a year ahead of the federal deadline. The Laurel refinery is one of the first in the country to comply with these new standards.

The federal regulations require that refiners reduce both on-road and off-road diesel fuel sulfur levels to 15 parts per million by June 2006.

The $87.5 million sulfur reduction projects include a Tail Gas Treating Unit (TGTU), a Hydrogen Plant and an Ultra Low Sulfur Diesel (ULSD) Unit.

The Laurel refinery processes crude oil from Wyoming and Canada that contains high levels of sulfur. The company's challenge to reduce sulfur content is two-fold. First is to reduce the level of sulfur in products it makes - to reduce the level of sulfur emissions at the tail pipes of vehicles.

The second is to recover the sulfur gases produced in the refining process to prevent them from going out the stacks at the refinery and into the atmosphere.

"With the addition of these units, we have reduced Sulfur Dioxide emissions by more than 90 percent since the early 1990s," said CHS Manager Pat Kimmet.

About half of the nation's refineries have closed since the mid-1980s when the federal government imposed tougher emission regulations and tighter product quality specifications.

The current allowable sulfur content in diesel fuel is 500 ppm. With the completion of the sulfur recovery projects, that content level will drop to 15 ppm.

The company is proud of its safety record. "Not a man day of work was lost during the construction of these three projects. That is more than 600,000 man hours of work without a day of lost time because of accidents," Kimmet told those attending the dedication.

Refinery officials announced the construction of the new coker plant last month. Construction is expected to begin next year with completion planned in 2008. Including the planned coker plant, CHS has invested $600 million in upgrades to the Laurel refinery since 1990.

The coker unit will process the asphalt left from the crude oil refining and break down the asphalt further into more gasoline and diesel fuel, leaving coke as a residual product. The coke is a carbon product similar to coal used as a fuel in power generation plants.

"As we prepare to meet the energy needs of agricultural producers and rural America, it's essential that we can efficiently maximize our production from this refinery," said CHS President and Chief Executive Officer John Johnson. "We believe this is an excellent investment on behalf of our customers and the producers and cooperatives we serve."

Since its construction in 1930, the refinery's capacity has increased from 2,500 barrels a day to the current level of approximately 55,000 barrels (2.3 million gallons) of crude oil per day producing gasoline, diesel fuel, asphalt and related products. The refinery has on-site storage capacity of 2.1 million barrels of refined products and 450,000 barrels of crude oil.

Citgo Cancels Texas Refinery Diesel Project

Citgo Petroleum Corp. has cancelled plans for a $194 million, ultra-low-sulfur diesel project at its 156,000 barrel-per-day (bpd) refinery in Corpus Christi, Texas, according to a report filed with the U.S. Securities and Exchange Commission.

The project was part of 10-year, $828 million expansion plan for the Corpus Christi refinery.

Citgo spokesman Dave McCollum said the ultra-low-sulfur diesel project was not part of a 2004 agreement with the U.S. Environmental Protection Agency for pollution reductions at Citgo's refineries.

According to the SEC filing, Citgo took a $22 million charge for canceling the project.

Valero Energy Corp. could spend close to $50 million to convert refineries to produce fuel with the additive isooctane, should the company choose to pursue that strategy in the wake of announcing it will stop using the controversial fuel additive methyl tertiary-butyl ether (MTBE).

The San Antonio-based oil and refining company made the decision to nix the use of MTBE due to the pending enactment of the Energy Policy Act of 2005 -- a new comprehensive energy law that does not impose limits on MTBE liability. Without the legal protection, many MTBE-based fuel producers are concerned about the threat of litigation from municipal governments, some of which have claimed that the additive has contaminated groundwater and soil throughout the United States.

Some $320 million in legal settlements have been secured in MTBE-related legal cases in California and Texas alone through July 29, according to information gathered by the Washington, D.C.-based National League of Cities. In addition, another 100 MTBE-related legal cases are still outstanding nationwide.

"We are currently looking at the possibility of converting our MTBE (refinery) units to isooctane, but that decision has not yet been made," says Mary Rose Brown, spokeswoman with Valero.

Brown adds that the process could take 18 months to two years to complete. She says it would cost the company roughly $30 million to convert the company's largest plant in Corpus Christi and an additional $20 million to convert the remaining 13 refineries throughout the United States, Canada and the Caribbean.

"With the increased pressure this will cause on the supply/demand picture, we don't expect any negative impact on earnings," Brown says. "We could choose to continue to produce some MTBE for export to Europe."

Brown says decisions on whether to convert all of its refineries for isooctane production, or on whether the company will continue to produce and export some MTBE-based fuel will likely be made at the company's strategic planning meeting scheduled for October.

MTBE is an odorless, colorless synthetic chemical that is used as an octane enhancer in gasoline. It is the most commonly used additive in oxygenated gasoline and reformulated gas. Once in water it does not degrade easily.

Isooctane is a chemical made from petroleum and natural gas products, especially butanes. Isooctane is a clean source of octane for gasoline that can compete with ethanol and other octane-enhancers.

According to the U.S. Environmental Protection Agency (EPA), MTBE has been used in U.S. gasoline at low levels since 1979 to replace lead as an octane enhancer. Since 1992, MTBE has been used in larger concentrations in some gasoline to fulfill the oxygenate requirement set by Congress in the 1990 Clean Air Act.

Although the act does not require the use of MTBE, refiners have used it largely because it is more readily available and more economical than other products, such as ethanol.

"Valero's decision (to stop production of MTBE-based fuel) alone will pull about 60,000 barrels a day off the market," Brown says. "In one to two years, we could get back as much as 30,000 barrels per day if we invest to convert our MTBE units to isooctane."

Brown adds that if the entire refining industry makes the decision to no longer produce MTBE-based fuel, on the first day there will be a loss of 259,000 barrels per day of gasoline production. That, she says, would be like losing more than five world-scale refineries.

Charlie Drevna, director of policy and planning with National Petrochemical and Refiners Association, says the energy act, which was signed by the president on Aug. 8, is forcing many companies like Valero to look at different business options.

"What Valero announced, that's a business decision and I would suspect that other refiners are looking at their particular circumstances," Drevna says. "I think one can fully understand Valero's decision."

Although Drevna would not speculate on what might happen with gas prices in the wake of the MTBE scare, he did say the changing regulatory landscape is hitting the refinery industry with increased costs. Along with costs associated with addressing the MTBE issue, the industry also must deal with EPA-mandated ultra-low sulfur rules slated to take effect in 2006.

The new rules require cleaner diesel fuel for use in diesel trucks, buses, construction equipment and other mobile sources. Clean diesel, or ultra-low sulfur diesel, allows new emission control equipment on tailpipes to better clean the exhaust. The new equipment requires very low sulfur diesel fuel to work.

"This whole thing of Congress denying what we believe is well-deserved limited liability protection for MTBE could have ramifications beginning as early as 2006," Drevna notes. "This industry is up against it.

"You’re going to have the MTBE issue impact and the ultra-low sulfur rules in the same time frame," he adds. "We have been saying all along with the ultra-low sulfur rules, there would be a supply issue."

A sulfur dioxide gas leak at the Murphy Oil USA refinery in Mereaux, LA led to residents complaining of headaches and nausea, St. Bernard Parish officials said.

Zornes said something triggered an automatic safety shutdown of a unit that removes sulfur from gasoline. That caused the sulfur dioxide gas to be channeled to a flare, where it was burned off.

Groups seeking punishment for the alleged misdeeds of a major oil company may be one step closer following recent revelations that operators at a Texas plant where several accidents have recently occurred apparently neglected to repair known defects.

The findings by the United States Chemical Safety Board (CSB) were released the week of August 14. Over the weekend, the Houston Chronicle reported that the Department of Justice was considering referring the case to its environmental crimes unit.

According to CSB statements, operators at the Texas City British Petroleum North America refinery failed to maintain the plant facilities properly and ignored defects in a unit that exploded on March 23, killing 15 workers and injuring another 170 people. The problems were known as early as two weeks before the incident, but repairs were deferred, the CSB said.

Additionally, safety alarms at the plant that failed to function on the day of the blasts were known to be faulty for some time prior to the incident, yet company mangers delayed repairing or replacing them, CSB Chairman Carolyn W. Merritt said.

Earlier in August, BP closed a portion of the refinery following a toxic leak. The leaks came a week after another explosion at the facility.

Organized labor and allied groups have been demanding accountability from the company and pushing federal investigators to consider criminal sanctions.

Earlier this year, the United Steel Workers of America called on BP to shift its priorities away from public relations and toward workplace safety. Two congressmen followed up those calls by introducing legislation that would make employers accountable for worker safety regardless of whether the worker is a direct employee or under contract.

Joining in is the year-old Campaign to Stop Corporate Killing, a grassroots effort to make companies criminally liable for worker deaths, which spearheaded the National Committees on Occupational Safety and Health (COSH) Network.

In May, two COSH directors – one in Houston, the other on Western New York – told Buffalo Altpress that the Campaign was considering making the BP explosions the centerpiece of local and national efforts to prod criminal prosecutions of companies that "flagrantly and consistently violate safety and health laws and whose actions result in worker deaths."

According to the Chronicle, lawyers with the Environment and Natural Resources Division of the Justice Department will likely oversee any criminal investigation of the Texas City BP refinery.

The company declined to comment on the matter, the Chronicle reported. On August 24, BP announced its intention to release an internal report on the explosion.

In the wake of Hurricane Katrina, which interrupted oil drilling and refining in the Gulf of Mexico, Texas-based Giant Industries is giving new consideration to expanding its Yorktown refinery.

“We are taking a look at it to see if expansion is possible,” said Mark Cox, a spokesman for the company in Scottsdale, Ariz. “But nothing has been firmed up yet.”

The refinery has 120 acres of undeveloped land, some of which has been on the market for years. As recently as two weeks ago, Cox indicated expansion here wasn't even on the radar.

Katrina halted production from hundreds of drilling rigs in the Gulf, and it shut down nearly 10 refineries that dot that region.

The Bush administration was considering freeing up crude oil from the Strategic Oil Reserve to stabilize the industry, but analysts called the gesture hollow since American refineries already lack the capacity to produce more fuel.

“It's a refinery problem, not a shortage of crude oil,” said John Warren, director of the Virginia Division of Energy in Richmond. “Gulf production was at 93% capacity, so it's just a matter of getting it refined and getting it up the pipeline to meet demands.”

Even if Giant would commit to expanding Yorktown, no additional oil could be refined for years. In any case, the expansion would be a boon to York in the way of machinery and tool taxes.

The local operation is the largest of three small refineries owned by Giant. Yorktown is already refining more oil than its stated capacity, producing nearly 62,000 barrels a day through the first half of 2005.

Yorktown sells 10,000-15,000 barrels a day. The refinery ships oil products to metro Washington, the Chesapeake region and Maryland suburbs, Cox said.

Giant executives are monitoring the short-term situation in the Gulf in case of shortages.

“We're concerned about it, but we haven't seen any issues yet, and we don't purchase crude oil out of the Gulf area,” Cox said.

Giant recently spent $9 million for 424 miles of pipeline in Jal, N.M., to help revitalize production at its Bloomfield and Ciniza refineries.

Once the pipeline is up and running, the refineries should boost their combined production to as much as 96% of capacity, to 36,800 barrels a day.

According to New Mexico Business Weekly, the higher productivity could result in expansion projects at the two New Mexico refineries, but until the pipe is up and running no definite plans can be made.

Exxon Mobil Corp. <XOM.N> said on August 31 that restoring products pipeline and marine links, including Mississippi River traffic, was the key to boosting crude runs at its capacity-curbed Baton Rouge, Louisiana, refinery.

Production was slowed from the 494,000 barrel-per-day plant due to the effects of Hurricane Katrina, which slammed into the Gulf Coast August 29, forcing the shutdown of nine other refineries and closing nearly all of the crude output from the Gulf of Mexico.

"The release of the SPR (Strategic Petroleum Reserve) oil may be beneficial to some refiners, but restoring pipeline and marine links is most important to restoring runs at our Baton Rouge refinery," said Exxon Mobil's Prem Nair on August 31.

Exxon Mobil did not comment on whether it had requested oil from the SPR. The Department of Energy said it will loan oil to at least one refiner that had requested it in the wake of Hurricane Katrina.

The company still has no word on the condition of the Chalmette Refinery LLC facility, which was shut ahead of Katrina, and could not confirm Louisiana Senator Mary Landrieu's comments on August 30 that the 190,000 bpd refinery was one of three Louisiana refineries under water.

"We're still gathering information. It's martial law down there and we have not been able to get in to check," said Nair. "We don't know."

Chalmette Refining LLC is a 50-50 joint venture between Exxon Mobil and the state-owned oil company of Venezuela, Petroleos de Venezuela (PDVSA).

Exxon Mobil's refineries at Beaumont and Baytown, Texas, are operating normally, the company said.

Meanwhile, Exxon also said crews were running assessments of its offshore oil and gas production facilities in the Gulf of Mexico. It said damage to the majority of its offshore structures was limited, but 45,000 pbd of oil and 760 million cubic feet per day of natural gas were shut down.

The fury of Hurricane Katrina forced Valero Energy Corp. to shut down its massive 260,000 barrel-per-day refinery in nearby St. Charles, La., located on the outskirts of the city.

Valero (NYSE: VLO) spokeswoman Mary Rose Brown says the company had been working since the previous weekend to ride out the storm.

The refinery, which employs roughly 550 people, sent all non-essential personnel home on Sunday, August 28.

As of August 29, the St. Charles refinery remained closed. Fortunately, the refinery did not suffer any major damage, Brown says. It will take one-to-two weeks before the refinery can start up again, according to the refinery manager.

The major problem is that there is no power at the refinery and there was three-feet of water in the fluid catalytic cracking unit and the alkylation unit. The company will have to repair pumps, electric motors and electrical switchgear, Brown says. It will at least be two to three days before power is restored.

Valero's other Louisiana refinery, its 85,000 barrel-per-day facility in Krotz Springs, La., is still operational.

However, company officials said that some of the pipelines that feed crude oil to the refinery were down, causing the refinery to run only at 70 percent capacity.

Krotz Springs, La., is located halfway between Baton Rouge and Lafayette, La., and was not in the direct path of the hurricane.

The National Weather Service's National Hurricane Center in New Orleans indicated that a surge of storm water 10 to 12 feet high had built up in the southwestern portion of Lake Pontchartrain, affecting the region where the St. Charles refinery is located.

Damage to refineries is less than first thought. Most will be operating shortly. The status of refineries now shut down is as follows:

• Norco, LA - Valero Energy Corp.'s St. Charles refinery, at 260,000 barrels a day, suffered no serious damage, has restored power, and should restart September 12. Access to Motiva Enterprises' refinery here, 225,000 barrels a day, is limited, and they are delaying a damage assessment.

• Convent, LA - Motiva Enterprises' refinery, 235,000 barrels a day, may restart within the week, as damage is light and staffing good.

• Meraux, LA - Murphy Oil Corp.'s refinery, 120,000 barrels a day, looks less damaged than feared. Entergy Corp. said the refinery may face power outages longer than 7-10 days due to heavy flooding in the region.

• Chalmette, LA - Exxon Mobil Corp.'s refinery, 183,000 barrels a day, remains shut and evacuated; company has no information on damage or restart. Entergy said the refinery may face power outages longer than 7-10 days due to heavy flooding in the region.

• Belle Chasse, LA - ConocoPhillips' Alliance refinery, 255,000 barrels a day, remains shut; no information on damage or restart.

• Garyville, LA - Marathon Oil Co.'s refinery, 245,000 barrels a day, finds no significant damage. It began production Thursday and plans to start producing gasoline, diesel and jet fuel in the next three to five days.

• Pascagoula, MS - Chevron Corp.'s refinery, 325,000 barrels a day, refinery remains shut and evacuated; area saw severe flooding.

• U.S. Minerals Management Service said about 90 percent of daily oil output and 79 percent of daily natural gas output were shut down in the Gulf as of Thursday - a slight improvement from Wednesday.

• Royal Dutch Shell PLC reports "significant damage" at Mars oil and gas platform and damage to a key offshore pipeline hub.

• Port Fourchon sees no severe flooding, but siltation is a concern and power is out.

• Dominion Resources reports minimal damage at its six large production platforms.

• Newfield Exploration Co. said a production platform at Main Pass 138 appears lost in the storm; facility was producing 1,500 barrels a day.

• Murphy Oil Corp. reported no significant damage apparent at Medusa and Front Runner platforms.

• Anadarko Petroleum Corp. said its Marco Polo platform appeared to have escaped serious damage.

• Kerr-McGee Corp. restarted 55,000 barrels of oil-equivalent a day of Gulf output. Total Gulf output was 130,000 before Katrina.

• U.S. Coast Guard reported five Gulf of Mexico rigs missing, two adrift, two listing and one grounded.

• Devon Energy Corp. said it restored about 50 percent of its Gulf of Mexico oil and natural gas production it had voluntarily suspended prior to the hurricane.

• Nalco Holding Co. said overall operations remain difficult to assess, though manufacturing operations sustained no major damage. Nalco plants in Scott and Port Allen, La., resumed operations with minimal destruction.

• W&T Offshore Inc.'s drilling rigs and production platforms in the Gulf appear to have sustained minimal damage. The company said it expects a majority of its operated production will be back within the next four days.

• Marathon Oil reboarded all of its Gulf of Mexico platforms. It reported minimal damage at its Ewing Bank platform, but said there was some "serious" damage at South Pass, where it operates three platforms.

• El Paso Corp. said first inspections showed minimal damage. Only one platform of 61 inspected out of 77 total, was destroyed. Daily output is down to nearly 80 million cubic feet a day, from about 205 million cubic feet a day before the hurricane.

• One of Helmerich & Payne Inc.'s eight active platform rigs in the Gulf suffered considerable damage. On first assessment, the others are little or not damaged.

Bantrel announced August 3 it has achieved two million hours of work without a lost time injury on Petro-Canada's Edmonton Diesel Desulphurization (EDD) project.

The EDD Project is part of Petro-Canada's commitment to meeting the new federal government regulations limiting sulphur content in diesel fuels to 15 parts per million after mid-2006. Bantrel is providing engineering, procurement and construction services for the desulphurization unit, utilities and offsites and an automation upgrade for plant control systems. The EDD work began in August 2003 and is scheduled for completion in February 2006.

Paul Lovell, Bantrel's Chairman and Chief Executive Officer said the successful execution of the EDD project to date was one of the factors that helped Bantrel win the majority of work for the next major modification at the Petro-Canada refinery. This Refinery Conversion Project (RCP), will enable Petro-Canada's best-in-class Edmonton refinery to upgrade and refine oil sands bitumen. It is planned that by 2008, the refinery will be on a full oil sands "diet" -- processing bitumen-based feedstock into gasoline, diesel and other consumer end products.

At the end of 2004, Bantrel was awarded the front-end engineering and detailed engineering, procurement and construction for Petro-Canada's RCP project at the company's Edmonton refinery. This significant project award includes facilities and infrastructure at the plant in Edmonton, the integrated crude vacuum unit, the delayed coker facility, the revamp of a number of existing refinery process units, and offsites and utilities.

Jamaica and Venezuela sign Oil Accord Energy Agreement
Jamaica and Venezuela the week of August 21 signed the first bilateral energy agreement of the PetroCaribe oil accord, with President Hugo Chavez promising to send 21,000 drums of oil per day to Jamaica’s Petrojam Refinery.

At the signing ceremony, Chavez according to a government information agency, said his government was studying the possibility of investing in Jamaica’s Petrojam refinery to increase its production from 30,000 to 50,000 bpd.

Actually, a separate memorandum of understanding on that aspect was signed in June between Jamaica and Venezuela and they will soon begin negotiations on the investment agreement. Under the MoU, which was signed at the Heads of Government energy meeting held at Puerto la Cruz, the Venezuelan state-owned oil company, PDVSA agreed to provide personnel in September for the preparation of the design basis memoranda and tender documents for the basic engineering to Petrojam to enable construction to commence in late 2006.

Prime Minister P.J. Patterson, noted, that with the oil prices now in the vicinity of $65 to $67 per barrel, Jamaica stood to benefit by way of a $40 loan for each barrel purchsed at a one percent interest rate, in addition to a two-year grace period with a 24-year payment period.

The prime minister, however, pointed out that the supply of 21,000 barrels of crude per day under the facility, would still require Jamaica to purchase refined products to supply its market demands and the country would continue to purchase from Trinidad and Tobago.

The upgrade will expand the capacity of the refinery by about 42 percent to 50,000 barrels per day and through the introduction of new processing technology, increase the proportion of higher quality fuel produced for the crude supplies. PCJ and PDVSA are to be 50/50 partners in the US$500 million expansion of the oil refinery.

Meanwhile, Guyana is said to now be studying the text of a draft bilateral agreement on the PetroCaribe accord, and could soon become the second signatory to the accord. And Belize’s Prime Minister Said Musa was in Caracas, last weekend for talks with Chavez, possibly on securing cheaper oil as the prices continue to sky rocket.

This is as T&T and Barbados continue to “study” the accord that was presented to all Caricom countries in June

PetroCaribe is intended to benefit the Caribbean region through lower energy costs as well as the development of supply infrastructure, joint refining and coordination of hydrocarbon supply and distribution.

St. Kitts Asks Venezuela to Build Refinery
The government of St. Kitts has asked Venezuela to study the possibility of building an oil refinery in St. Kitts as part of a deal to supply petroleum to Caribbean countries under favorable financial conditions.

Public Works Minister Earl Asim Martin made the request during a meeting the last week of July with several Venezuelan oil officials, the St. Kitts government said August 4.

The Venezuelan delegation had been touring several Caribbean countries to follow up on the Petrocaribe agreement signed in June. The deal, which is meant to help small Caribbean economies cope with high fuel prices, offers generous financing for oil sales and favorable rates in exchange goods, services or credit.

Martin and the Venezuelan officials signed a letter of intent to create a joint venture, PDV Caribe St. Kitts, to administer activities under the Petrocaribe initiative.

Martin also proposed building a storage facility for 7,000 barrels of diesel fuel for a power plant on the island. Other ideas included building gas stations, constructing an asphalt plant and creating a distribution system for gas, asphalt and diesel fuel.

Barbados and Trinidad were the only two of 16 countries that did not sign the Petrocaribe agreement. Trinidad Prime Minister Patrick Manning said he was concerned the accord would put his oil-producing nation at a competitive disadvantage. Barbados said it wanted more details before signing.

Uruguay, Venezuela Set up Commission to Study Building Refinery
Venezuela and Uruguay have agreed to set up a commission that will study the feasibility of building a refinery in Uruguay to process Venezuela's heavy crude oil, said Daniel Martínez, the president of Uruguay's state-owned oil firm ANCAP.

Venezuela is interested in finding new export outlets as few countries have refineries capable of processing its heavy-crude oil.

The possibility of refining Venezuelan crude oil in Uruguay was included in the cooperation accords signed in March by the presidents of both countries, Hugo Chavez and Tabare Vazquez.

According to Martinez, the new refinery could cost between 600 mln and 1 bln usd.

Fire Forces Partial Shutdown of Venezuela's Largest Refinery
A brief fire has forced the partial shutdown of Venezuela's Amuay oil refinery at the Paraguana refining complex , an official of the state-owned oil company Petroleos de Venezuela (PDVSA) said.

It is unclear how extensive the blaze was but Jesus Luongo, manager of the Paraguana refining complex said a decision had been made to cut refining capacity from 410,000 barrels per day to 150,000 barrels.

He added that workers had also adjusted refining activities in other units to evaluate the damage.

The massive Paraguana complex, one of the world's largest refining installations, has a stated capacity of 940,000 barrels a day.

CHINA
Xinjiang to Build Oil Refinery for Kazakhstan Petroleum Reprocessing

Kazinform. /Talgat Baimukhambetov/ A subdivision of China’s national oil company CNPC has started construction of the petrochemical works to reprocess Kazakhstan oil in Xingjian Uygur Autonomous Region of China. Kazinform refers to the China’s “Oil newspaper”.

It is planned to invest USD 3.23 billion into the construction. 20 oil-refining installations and 12 petrochemicals production devices are believed to be set up there. Oil-refining part of the complex will be put into operation 2007 and petrochemical one a year later.

It will process 5.5 million tons of oil annually and produce 1.82 million tons of petroleum derivatives. Annual revenue of the complex upon the putting into the rated capacity is expected to hit USD 3.7 billion.

A leading Chinese oil company has entered a deal with a top Australian engineering firm to build a 17 billion yuan, or US$2 billion (US$1 = RM3.80) oil refinery in southern Guangdong province, state press said August 28.

China National Overseas Oil Corp (CNOOC) would build the refinery in Huizhou city in a move that should help alleviate oil shortages in Guangdong, China’s leading industrial powerhouse, the Beijing News reported.

It would be CNOOC’s first foray into the refining business. The company has largely been engaged in offshore and onshore oil exploration and extraction.

A deal to build the refinery was signed August 25 with WorleyParsons, a leading Australian engineering company engaged in the energy sector.

PetroChina, the nation's largest oil and gas producer, plans to upgrade oil refining and petrochemical production bases in Fushun and Dalian in the northeast, and Lanzhou and Dushanzi in the northwest.

Each of the four bases is designed for an annual capacity of at least 10 million tons of crude refining to meet surging demand, PetroChina said.

"PetroChina will speed up the development of the refining and petrochemical businesses within the next five to 10 years to meet the soaring demand in the domestic market as the economy booms," Wu Guanjing, director-general of the Hong Kong-listed oil company's refining and chemical research and development centre, told a cross-Straits petrochemical co-operation conference yesterday in Beijing.

The refining bases will be established through technical and equipment upgrading of existing refineries in the four places, Wu said.

On the petrochemical front, several ethylene plants each with an annual output of 1 million tons, will be set up by PetroChina across the country.

Wu said the company would double its capacity in ethylene and synthetic resin production by 2010.

PetroChina produced 941,000 tons of ethylene in the first half of this year, an increase of 2 per cent year on year, and its synthetic resin output for the same period grew 1 per cent to 1.31 million tons.

Construction of the Dushanzi refining and petrochemical bases in Northwest China's Xinjiang Autonomous Region has already started, and is scheduled to begin operation by 2008 as the largest petrochemical facility in the northwestern region.

Infrastructure construction of PetroChina's other refining and petrochemical production bases will also begin within the end of this year, said Wu, who did not elaborate on the investment.

The booming market has pushed the country's oil majors including PetroChina and China National Offshore Oil Corp (CNOOC) to scale up their refining business, although the sector is still suffering from the government's capped refined oil prices even as global crude prices soar.

PetroChina sources predict the country, the world's second-largest energy consumer after the Untied States, is expected to see consumption of refined oil double to at 256 million tons.

China processed 273 million tons of crude oil last year, and consumption stood at 163.8 million tons.

Last year, the country produced over 6.26 million tons of ethylene, of which PetroChina and Sinopec contributed 97.4 per cent, but it still relied on imports for 60 per cent of domestic demand for ethylene products.

Beijing-based Sinopec told the Hong Kong stock exchange that its net profit for the first half rose 20 per cent to 18.04 billion yuan (US$2.2 billion) compared to 15.04 billion yuan a year ago.

The profit growth was largely due to higher oil prices as output grew only 0.62 percent in the first half.

Operating profit in the oil and gas exploitation sector grew 69 per cent to 17.8 billion yuan (US$2.1 billion) in the six-month period, the refiner said August 29.

Its average oil selling prices jumped more than 33 per cent to US$39.40 per barrel in the first half.

But high crude prices eroded profit margins in the company's refinery division which had an operating loss of 1.3 billion yuan (US$160.3 million) from January to June, compared with an income of 4.3 billion yuan (US$530 million) a year earlier.

"We are suffering from squeezed margins in the refining business, and have great pressures in expanding capacity since we are making no money in the sector," Cao Xianghong, senior vice-president of Sinopec, told China Daily.

India’s Reliance to Double Capacity of Refinery
Reliance Industries, India's biggest non-government company, plans to spend 250 billion rupees (HK$44.6 billion) to double the capacity of its oil refinery, making the plant the world's largest.

The Jamnagar refinery in western India would be able to process 1.2 million barrels of crude oil a day as early as 2010, chairman Mukesh Ambani told shareholders in Mumbai.

Ambani is betting India's 7 percent economic growth will encourage more Indians to buy cars and consumer goods, raising demand for fuels and chemicals.

The refinery, now the world's third-biggest, ran at 96 percent of capacity in the three months ended June, helping Reliance to its ninth straight quarter of record profit.

Mukesh in June ended an eight-month ownership dispute with his younger brother, Anil. Both had been feuding over ownership of the Reliance group, whose US$23 billion in annual sales account for 3.5 percent of India's gross domestic product. The decision to separate the businesses was part of a settlement reached between the brothers. ``With the ownership dispute now settled, Mukesh is able to focus more on operations,'' Thorn said.

According to the agreement, Mukesh Ambani will retain control of the flagship, running oil, gas and chemicals, while younger brother Anil will run the power, cell phone and financial services businesses.

IOC may buy Iran Firm’s Stake CPCL
Indian Oil Corp. Ltd. is in talks with an Iranian firm to buy out its 15 per cent holding in Chennai Petroleum Corp. Ltd., to enable the merger of the two Indian firms, a government minister said on August 18.

The merger would help reduce costs of state-run Indian Oil, the country's largest refiner and a marketing firm, but it needs to acquire the National Iran Oil Company's stake to make that possible, Indian Oil Minister Mani Shankar Aiyar told parliament.

"Once the process is complete, IOC would initiate necessary proposal for merger of CPCL with itself," Aiyar said.

Chennai Petroleum operates a 150,000 barrels per day (bpd) refinery in the southern state of Tamil Nadu, but has no marketing network.

State-run Indian oil marketing firms posted losses in the past quarter because the government had allowed only a 7 per cent rise in pump prices of petrol and diesel in June, despite oil prices soaring about 50 per cent since January. Indian Oil also aims to merge two other subsidiaries -- Bongaigaon Refinery and Petrochemicals Ltd., which runs a 47,000 bpd unit in the troubled northeastern state of Assam, and IBP Company Ltd., a marketing company.

"The boards of IOC and Bongaigaon Refinery have given an in-principle approval for the proposed merger," Aiyar said, adding that the two companies were in the process of appointing agencies to work out a swap ratio.

HPCL Plans New Refinery in Vizag
Hindustan Petroleum Corporation plans to invest Rs 18,000 crore (Rs 180 billion) for building a new 15 million tonne export-oriented refinery at Visakhapatnam in Andhra Pradesh and another Rs 1,635 crore (Rs 16.35 billion) to increase capacity of its existing refinery.

"Our existing 7.5 million tonnes per annum Vizag refinery has space constraints and we cannot expand it beyond a certain capacity. We have drawn plans to build a new refinery some 30-35 kms away from the existing refinery," said M B Lal, chairman and managing director, HPCL.

The company has approached the Andhra Pradesh government to allot 2,500 acres of land in the proposed Special Economic Zone at Vizag for the new refinery.

Lal said HPCL will implement the project through a subsidiary and will seek foreign partners for building the refinery. The equity structure in the new Vizag refinery is similar to the one proposed for the 9 million tonne Bhatinda refinery where HPCL and a foreign partner will have 26 per cent equity each in the subsidiary while the rest 48 per cent would be offered to the public through an IPO.

British Petroleum, Total of France, Malaysia's Petronas and Saudi Aramco of Saudi Arabia have evinced interest in partnering with HPCL in the Rs 12,000 crore (Rs Bhatinda refinery.

"We are in advanced stages of talks with the 3-4 firms and we expect to make an announcement in two months," he said.

The existing Vizag refinery is being raised to 8.3 million tonnes at an investment of Rs 1,635 crore by the end of 2006, he said, adding the refinery would be further expanded to 12 million tonnes by 2007-08.

HPCL, which besides the Vizag refinery also owns a 5.5 million tonne refinery in Mumbai and some 6,800 petrol pumps, also proposed to the government to set up a refinery in Barmer district of Rajasthan where Cairn Energy of UK has found 1.2 billion barrels of oil reserves.

Lal said HPCL would invest Rs 1,152 crore (Rs 11.52 billion) to raise Mumbai refinery capacity from 5.5 million tonnes to 7.9 million tonnes per annum. The expansion would be completed by the third quarter of 2006.

Indian Oil to Raise Sour Crude Runs at Refineries
Indian Oil Corp. Ltd. will build new facilities to raise the proportion of sour grades of crude oil it uses, the head of its refining operations, Jaspal Singh, said on August 26.

IOC, India's largest refiner, will build a new delayed coking unit at its 275,000-bpd Koyali refinery to raise the proportion of sour crudes to 58 percent from 20 percent, a $900 million project to be implemented in three years, Singh said.

"Currently 40 percent of the crude oil we use in all our refineries is sour. By the time the Paradip refinery is built, it will rise to 73-74 percent," he said.

By the end of September, IOC will commission a hydro-treating unit at its Panipat refinery to help produce low-sulphur diesel.

India's oil firms could not upgrade their refineries in time to meet tougher fuel standards enforced since April and had to import diesel and petrol, but the new unit at Panipat will make IOC self sufficient, he said.

IOC operates a 120,000-barrel-per-day (bpd) refinery at Panipat, 120 km north of Delhi. Its capacity will be doubled by January and raised to 300,000 bpd in three years.

IOC will also build a refinery at Paradip on the east coast, Singh said. "Half the output from the refinery will be exported but exports will taper off as domestic demand continues to grow."

Vietnam Company Signs Deal for Country’s First Oil Refinery
On August 24 the Vietnam Oil and Gas Corporation signed a contract with foreign bidders for major construction at the country’s first oil refinery in the central province of Quang Ngai.

Under the contract, Technip of France, Technip Geoproduction of Malaysia, JGC of Japan and Tecnicas Reunidas of Spain will be responsible for building tanks for crude oil and finished products, oil pipelines and an offshore oil delivery system at the Dung Quat refinery.

According to a corporation official, contracts had been inked for all the project's packages.

Construction would be expedited to ensure the refinery was completed in 2008 as scheduled, he said.

LITHUANIA

Poland’s PKN Orlen Turns its Sights on Lithuanian Refinery
Oil giant PKN Orlen is seriously considering the purchase of the Lithuanian Możejki refinery, a report which has been confirmed by Orlen's spokesman Dawid Piekarz.

"When the sale of shares is announced we will definitely take part in it," he disclosed. Over 53% of Możejki's shares belong to Russia's Jukos, while the Lithuanian government owns 40.6%. According to Parkiet, both stakes may be put for sale. Apart from the Lithuanian takeover, Orlen is interested in the Turkish oil concern Tupras and Aral gas stations in the Czech Republic. All these plans stem from Orlen's strategy which envisages, "Entering businesses with a high return on investment." The strategy has been criticized by Andrzej Szczęśniak, an oil analyst with the Adam Smith's Center. He believes that Orlen's main problem is that it is badly structured. In related news, PKN Orlen group's net result for Q2 was in accordance with market expectations and amounted to zł.698.1 million. The revenues were 12% higher than in the same period 2004 and amounted to zł.5.58 billion. So far the results do not include the acquisition of Unipetrol, which was finalized in May.

Cost of Upgrading Kenya Petroleum Refinery Hits Sh20 Billion
An upgrading project for the oil refinery in Mombasa will cost Sh20 billion if state-of-the-art technology is to be used.

But the project is still shrouded in doubt because of the huge financial outlay needed and the fact that it is not clear whether private oil companies will buy fuel from the refinery after it is upgraded.

One oil company, which is not a shareholder at the refinery, is said to be fiercely opposed to any upgrading, preferring to continue importing unleaded petrol.

Currently, the Government owns 50 per cent of the shares at the Kenya Petroleum Refinery Limited (KPRL), while Shell and BP owns 34.4 per cent and Caltex 15.6 per cent.

A plan to upgrade the refinery so that it can produce unleaded fuel and low-sulfur diesel - which are currently imported - has been in the works for nearly a decade. However, it has never taken off.

On the lower side, Sh14 billion ($180 million) is needed for new machinery and equipment at the plant so that it can produce unleaded fuel, says Patrick Obath, the managing director of Shell/BP.

A final decision on how to proceed with the project has apparently not yet been made. Says Obath: "The provision of clean fuels, that is, unleaded gasoline and low sulfur diesel from KPRL, will require substantial investment in the refinery to upgrade its equipment. The decision to invest will be made by the board on which Shell and BP are represented. We, however, fully support the Government in seeking the best solution to provide clean fuels."

Recently, there were media reports that some oil firms might consider pulling out of the refinery if the upgrade is not implemented. But the Shell MD says the matter is still under discussion.

"The future of the KPRL has been on the agenda of the Board of Directors meetings for some time. Shell Petroleum Company Ltd and BP Africa Ltd [Shell and BP] are minority shareholders and will go along with the board's decision on KPRL's future," he says.

National Oil Corporation of Kenya (NOCK) managing director, Mary Mukindia, says there is probability of success for the project, because an advisor is already in place to come up with the financial options to raise the money.

But she says some oil firms are against the implementation of the project, because they would want to continue importing their products when they are already refined. There have been at least two studies on how to reform the refinery, but nothing has so far happened on the ground. Ms. Mukindia says that the long-term solution to oil price issues could very well be a discovery of commercial quantities of oil in Kenya.

She says NOCK has been facilitating oil exploration - which is a mandate of the company as a state corporation - and has been receiving increasing interest from foreign firms. A Spanish firm, Sepsa, and the Chinese National Offshore Oil Corporation (CNOOC) have applied to explore oil in Kenya. Others are Stratic Energy of Canada and Upstream Petroleum Consulting of Dubai. "We are negotiating with them," says Ms Mukindia.

To make NOCK more efficient in its work, including exploration, it has formulated a three-year strategic plan to enable it be financially stable.

Already, the company has returned to profitability in the last year making a net profit of Sh34 million (un-audited), in fiscal year 2004/5 from years of losses.

The turnover of the firm has also gone up from Sh1.2 billion as at June 30, 2003 to Sh3.5 billion in 2004/5 financial year.

Before the industry was liberalized in 1994, NOCK supplied 30 per cent of Kenya's crude oil import quota. The deregulation of the sector and liberalization of imports reduced NOCK's commercial activities.

Libya to Award Licenses
Libya will award new exploration licenses in October for 40 blocks in the country's second licensing round since the US eased sanctions last year, reported Reuters citing an energy ministry official. Occidental Petroleum and other US firms won most of the exploration licenses Libya awarded in January, and the official said Occidental was among the bidders this time.

Nigeria’s Orient Refinery to Begin Production in 2006
An oil refinery project conceived by Orient Petroleum Resource Ltd (OPRL), as a means of harnessing the vast but largely untapped mineral, agricultural and human resources, especially hydrocarbon deposits in Anambra State will begin production in December 2006.

OPRL was one of the 18 successful private companies to be granted the first stage licence by the Federal Government in May 2002 to establish private petroleum refineries.

The company was granted the license to establish a petroleum refinery of 55,000 bpd capacity in Anambra State.

OPRL Managing Director, Engr. Nnaemeka Nwawka, said the final approval for the commencement of construction work on what could be the first private refinery in the country had been given.

Nwawka said this while addressing an enlarged meeting of the company's management and directors, representatives of the host communities in Anambra East Council of the state, technical partners, the Shaw Stone /Webstar/Aims as well as the Governor Chris Ngige and members of his executive council and the financial advisors, Intercontinental Bank plc.

The approval to construct the Orient refinery, which he said would be located at Umudora/Umuikwu Anam on the western bank of Anambra River, was issued based on the company's ability to meet Department of Petroleum Resources (DPR)'s request for the detailed engineering, procurement, installation and construction (EPIC) plans.

This approval, he said made OPRL to on behalf of Orient refining request for tenders for EPIC of its 55,000 bpd refinery at Umudora/Umuikwu Anam, Anambra East council area of the state which attracted responses from 22 international companies nine of which were short listed in 2004.

The Shaw Group Inc, comprising Shaw Stone and Webster/ Aims based in the United States he said emerged the preferred Technical partner from the list of the nine short listed companies after the pre-qualification exercise, describing the Shaw Group as a leading global provider of comprehensive services to environmental, infrastructure, powered and process industries.

The refinery, Engr. Nwawka said would be developed in three phases, and with the first phase of the refinery scheduled commenced in 2002, it is projected he said that it will culminate in the start up and the commencement of production by the end of 2006.

"It is projected that first oil will be produced by the refinery by the end of 2006. The phase I1 refinery of 21,222 bpd capacity will be constructed on a fast track basis to provide for early production of gasoline, diesel, kerosene, and lubricating oils, waxes, and asphalts, which are scarce in the country and are currently being imported on large quantities from over-seas.

"The phase s 2 and 3 construction will bring the refinery to its final design capacity of 55,000 bpd and add major processing units for increasing the yield and quality of fuel products", he said.

The location of the proposed Orient Refinery within the relatively unexplored Anambra river basin, Engr Nwawka said has given added impetus to the development of land- locked hydrocarbon reserves, adding that the presence of the refinery in a central location within 30 km of the oil and gas fields discovered in the area has vastly improved the economics of developing these hydrocarbon reserves in Ananmbra basin.

To secure crude oil feedstock supply to its refinery, OPRL, Nwawka intimated applied and was granted the oil prospecting lease (OPRLS) 915 and 916 by the Federal government in February this year with the condition that these concessions must be developed concurrently with the construction of the Orient Refinery. He said that 18 oil wells had been drilled in the Anambra basin and five were found to have abundant hydrocarbons.

The refinery, he also said was secured in terms of agreement to source crude from brass. He stated that an Environmental Impact Assessment (EIA) had been carried out over two years ago and was granted EIA certificate in 2002, by the Federal Ministry of Environment and that based on the completion of the basic design in 2003, contract for its construction had been awarded.

He said that the Anambra State Government had paid the sum of N100m to buy part of its 3% equity in OPRL and called on members of the public to take advantage of the company's public share offer and invest in the company.

He made case for the construction of Aguleri-kogi- Abuja road running through the refinery area to enable them on commencement of production distribute its products to the northern parts of the country. He assured that the refinery products would not be limited by the scope of market, as the existing market he noted is very vast.

Anambra State Governor, Dr. Chris Ngige in his appraisal of the Orient refiner story so far said the state Government had been playing a duel role of both a facilitator and investor in the venture to show good faith and understanding, adding that as a facilitator the government will continue to encourage the project. Already a certificate of occupancy on the land occupied by the company, he said had been given by the state government with an approval of a differed payment on the premium. The state government, he also said had paid the sum of N100m of its 3% equity share in the venture even as he assured that the state Government, would provide the necessary infrastructure needed in the refinery.

Vetra Retrained for Construction of Sahara’s 70,000 b/d Refinery in Nigeria
Global Environmental Energy Corporation has confirmed that its subsidiary, Sahara Petroleum Exploration Corporation, a corporation registered in the Commonwealth of the Bahamas will retain the services of the Vetra Group A.V.V. (VETRA) to project and manage SAHARA’s 70,000 barrel per day oil refinery in Nigeria.

VETRA personnel have extensive experience in all aspects of building, operating and managing refineries having done so on Petroleos de Venezuela, S.A., Venezuelan Oil Refining assets worldwide. VETRA’s experience has been focused on the design, engineering and operation for projects having completed the following projects:

The new Sahara refinery will refine 25 million barrels of Nigerian oil in Nigeria per year, representing a cashflow at today’s market process of approximately USD$1.5 billion per annum. It is Sahara’s intention to refine a large portion of its own oil at the new Nigerian refinery. In March 2005, Sahara appointed Mr. Humberto Calderon Berti & Mr. Karl Mazeika, Mr Alfredo Gruber, and Mr. Iker Anzola, from Vetra to its advisory board. Mr. Calderon Berti is former President of OPEC, President of Petroleos de Venezuela, S.A., Minister of Energy and Mines and Minister of Foreign Relations. Mr. Karl Mazeika is former Vice President of Pequiven and member of the Board of Directors of several of its joint ventures. He has also acted as Executive Director of Exploration, Production and Upgrading, and Vice President of Petroleos de Venezuela, S.A.

Nigeria has a population of over 110 million people and an abundance of natural resources, especially hydrocarbons. Nigeria is a member of OPEC. Its crude oils have a gravity between 21 API and 45 API. Its main export crude’s are Bonny Light (37) and Forcados (31).

About 65% of Nigeria’s oil is above 35 API, with a very low sulfur content. Nigeria’s OPEC quota is 1.89 million bbl/d. It is the 10th largest oil producer in the world, the third largest in Africa and the most prolific oil producer in Sub-Saharan Africa.

The Nigerian economy is largely dependent on its oil sector, which supplies 95% of its foreign exchange earnings. In January 2005 Oil and Gas Journal estimated that Nigeria contains proven oil reserves totaling 35.2 billion barrels. The Nigerian government plans to expand its proven reserves to 40 billion barrels by 2010.

The upstream oil industry is the single most important sector in the country’s economy, providing over 90% of its total exports.

The country has four main refineries with a nameplate capacity of 438,750 bbl/d and there are eight oil companies and 750 independents all active in the marketing petroleum products. Sahara Petroleum Exploration Corp, was initially formed as a subsidiary of Global Environmental Energy Corp, (OTC Bulletin Board).

Sahara Petroleum Exploration Corp. intends to become a fully reporting and trading company in the future if accepted by the SEC and the NASD for trading. Sahara Petroleum Exploration Corp., is becoming a fully integrated energy company whose interests include traditional oil and gas exploration and development.

New Oil Refinery in the Pipeline for South Africa’s KZN Province
Six hundred hectares of sugar and commercial plantations between Empangeni and Richards Bay could make way for a multi-million-rand new-generation oil refinery.

Rumours of this massive development for the uMhlathuze region, boosting the city's already healthy economy, have turned into a serious proposal put to the government, organized business and the local council.

A "cautiously optimistic" Mayor of uMhlathuze, Denny Moffatt, said the proposal for a $4-billion (about R25.8 billion), 300 000-barrels-a-day refinery had a long way to go, with "a lot of environmental issues and planning that still need to be done".

The developers are South African-owned and registered Drako Oil and Energy Corporation, whose spokesperson, entrepreneur Anthony van der Merwe, seems confident that the refinery will be given the green light.

Sudan’s Khartoum Refinery Shuts down until Mid-Sept
Sudan’s 70,000-barrel-per-day (bpd) Khartoum Refinery Co. (KRC) is shut down for regular maintenance until mid-September, a senior official at the refinery said on August 16.

Khartoum Refinery produces 70,000-barrel-per-day, and has plans for further growth.

The refinery has been closed since Aug. 1 as part of a general maintenance program, under which the refinery will shut down every two years.

The source said the refinery remained on target to complete a planned upgrade by the end of the year.

Under the plan, the refinery’s capacity will be expanded to 100,000 bpd to cope with the country’s increasing diesel demand.

The Khartoum refinery processes the domestic Nile Blend crude. Exports of the medium heavy sweet crude have increased since the shutdown to more than 6 million barrels per month, against around 4.5 million barrels.

Sudan is discussing with Malaysia’s Petronas [PETR.UL] to build a new 100,000-bpd refinery to process the new high acidic Dar Blend crude.

Sudan, Petronas to Jointly Build 100,000 B/D Oil Refinery
Malaysia's state-owned oil and natural gas company, Petroliam Nasional Bhd. (PET.YY), or Petronas, said August 30 that it has signed an agreement with Sudan to jointly develop an oil refinery at Port Sudan.

The Port Sudan Refinery project involves building a complex refinery with a total refining capacity of 100,000 barrels a day.

Petronas International Corp., a wholly owned unit of Petronas, has a 50% stake in the refinery project, while the remaining share is held by Sudan's Ministry of Energy and Mining.

Both Petronas and the ministry will jointly invest, develop and operate the refinery, which can produce refined products that meet Euro IV specifications once it turns fully operational by early 2009, Petronas said.

According to a report by the Sudan News Agency, the refinery will be built at a cost of around US$1 billion, to be equally shared by the Sudanese government and Petronas.

Sudan's Minister of Energy and Mining Awad Ahmed El-Jaz was also quoted by the report as saying there is an agreement between the government and Petronas to expand the refinery to 150,000 b/d eventually.

Petronas has been active in the downstream oil retailing and upstream oil sectors in Sudan.

In March 2003, it acquired Mobil Oil Sudan Ltd.'s oil distribution network via its unit Petronas Marketing Sudan Ltd.

Moscow to Upgrade Refinery
Moscow has ordered a $630 million upgrade of its oil refinery with the aim of boosting output of light products to meet local demand and cutting fuel oil output by 2010, Vedomosti reported on August 8.

The business daily cited a resolution signed by Moscow Mayor Yury Luzhkov ordering the plant to invest $147 million in the renovation in 2005-07 and another $484 million in 2008-10.

The upgrade should result in better product yields while output of fuel oil would be cut to 0.9 million tons per year from the current 2.9 million tons. Total throughput at the refinery would remain unchanged at 9.6 million tons per year (190,000 barrels per day).

Output of diesel fuel would rise to 3.5 million tons, of which 1.4 million tons would meet Euro-3 quality standards and 2.1 million tons Euro-4 standards.

Currently, the plant produces 2.6 million tons of diesel, of which only 0.67 million tons meet Euro-2 standards.

The city's Moscow Oil and Gas Co. controls 38 percent of the plant, including 51 percent of voting shares. Private oil firm Sibneft and mid-sized Tatneft hold the remaining 56 percent, including a 46 percent voting stake.

Luzhkov's decree says that the plant's renovation should be financed from the refinery's cash flows and by key owners, but analysts said the ongoing dispute between the city and Sibneft over a number of assets could jeopardize the plan.

"In our view, the upgrade program will be principally financed through the company's cash flows and new borrowings, given that shareholders are unlikely to find a way to contribute funds including through new share issues," the United Financial Group brokerage said.

Lightning Stops Ukrainian Oil Refinery
An excerpt from a report by the Interfax-Ukraine news agency says that a compressor and a catalytic reforming facility were broken at the Lysychansk oil refinery by lightning that struck high-voltage electricity lines in Kiev.

Before the incident at the Lysychansk oil refinery, three out of six Ukrainian oil refineries had been stopped: in Odessa, Kherson and Drohobych. LUKoil, which stopped its refinery in Odessa on 26 July for reconstruction and modernization, said that it had moved oil processing to the Lysychansk and Nadvirnyansk refineries.

The Lysychansk refinery increased oil processing by 6.6 per cent in 2004 compared to 2003 and reached 6.6m tonnes. The refinery is owned by the Linik limited company, which is part of international giant TNK-BP.

[The Ukrainian government earlier accused Russian companies of stopping oil refineries and creating an artificial petrol deficit in Ukraine, which led to high petrol prices.]

Ukrainian President Viktor Yushchenko has ordered construction of a new oil refinery on the Black Sea coast to increase domestic fuel supplies, after the country ran short of gasoline in May.

The refinery will be built in the port of Yuzhny in the Odessa region of southern Ukraine, according to the decree signed by Yushchenko on Aug. 5 and posted on the president's web site.

The refinery will process about 8 million tons (160,000 barrels per day) of crude per year. The government will prepare tender terms for investors within a month period.

Ukraine, which relies on imports to meet about 80 percent of its fuel demand, is trying to ease dependence on Russian oil companies, which control Ukraine's three largest refineries. "This is more a political project than economically justified," said Valery Nesterov, an oil and gas analyst at Troika Dialog.

Pentene Unit of Kermanshah Oil Refinery Operational
The pentene unit of Kermanshah oil refinery was put into operation on August 2 in the presence of Deputy Oil Minister and Managing Director of National Petrochemical Company (NPC) of Iran Mohammad-Reza Nematzadeh.

Director of the pentene project in Kermanshah oil refinery Jamshid Zarkesh said the project, costing rls 70 billion, is scheduled to produce 7,000 tons of pentene and other solvents annually.

Zarkesh said the project has other advantages such as generation of high value-added, creation of jobs and promotion of gasoline quality.

The pentene unit has the capacity to obtain up to 10,000 bpd light crude from heavy and ultra heavy crude in case sufficient investment is made, said the official.

The official added that Kermanshah oil refinery has launched another project worth about 250 million dollars through using domestic technology.

Iran’s Ilam Gas Refinery to be Operational Next Year
Ilam gas refinery that is expected to come on stream in the next 14 months, has so far experienced 61% physical progress, according to MNA.

Mohammad Mallaki, the managing director of National Iranian Gas Company (NIGC), in a visit to Ilam, western Iran, stated that Ilam gas refinery is being built on a 250-hectare land with a total investment of 2,500 billion rials and expected to be fully operational by October of 2006. In this trip, he was being accompanied by the Oil Minister and some deputies from the Ministry of Oil.

The managing director also pointed out that there has been no delay in this ongoing plan and the refinery would fulfill its commitment in due time. He added, “The refinery will produce 10 million cubic meters of natural gas per day, and within the same interval it will offer 5.8 million of methane and ethane as the petrochemical feedstock, valued at $84m and $6.6m respectively.” The construction of the refinery started back in 2000, he gave an account, elaborating that 21% of equipment installation has been completed and 1.5 million man-hours would be required to conclude the first stage of the project.

It should be noted that Ilam Province holds 11% of the country’s natural gas reserves, about 14 trillion cubic meters, while it is the only province in Iran with no pipelines to enjoy this energy. Furthermore, based on the surveys done in this province, some 3.15% of Iran’s onshore oil reserves, with a total volume of 11.78 billion barrels, sit in Ilam.

Kuwait has raised the estimated cost of its new oil refinery to more than US $6.3 billion, from the original figure of $5 billion, to increase the capacity of the planned facility.

The increase is aimed at raising capacity to more than 600,000 barrels per day (bpd) from the initial 460,000 bpd and to allow the use of state-of-the-art technology, said project manager, Ahmad Al Jeemaz. “A reason for the rise is also the recent increase in the prices of raw materials to be used in the construction of the refinery,” he said.

Around eight international firms are believed to have entered the bidding for the contract to build the refinery. Kuwait National Petroleum Company (KNPC), which has responsibility for the country’s refineries, initially invited firms to apply for pre-qualification. If they pass this hurdle, they will then be allowed to bid for the contract to build the refinery.

The new plant will replace the ageing 200,000 bpd Shuaiba refinery, which is scheduled to be shut down by 2010. The Shuiba refinery was the first refinery built by the national oil company, Kuwait Petroleum Corporation (KPC), in the region, in April 1968.

Iran Oil Co. not to Exit CPCL
"We would rather stay in a small house of our own rather than rent a room in a big palace," was how M.B. Samiei Khonsari, National Iranian Oil Company's nominee on the board of Chennai Petroleum Corporation Ltd (CPCL), described NIOC's position, when asked if his company would swap CPCL's shares for the refiner's parent, Indian Oil Corporation.

Speaking on the sidelines of the annual general meeting of CPCL, Khonsari practically ruled out NIOC quitting CPCL. NIOC's stake in CPCL is the only hurdle to the company being merged with IOC.

At the annual general meeting, CPCL's Chairman, S. Behuria, informed the shareholders that the company would undertake a de-bottlenecking exercise to raise the capacity of the newly-built refinery-III unit from 3 million tonnes to 4 mt.

He said that the company would invest Rs 52 crore in replacing the existing, old pipeline that brings crude oil from the Chennai port to the refinery.

Iran’s Isfahan Refinery to Boost Production by 70,000 bpd
Isfahan Refinery is to increase gasoline production by 70,000 bpd through implementation of development plan and optimization of pertinent units.

Shahrokh Darvish, the executive manager of the project, stated that after completion of optimization project, the set capacity should reach 360,000 barrels per day; that is an 80,000-barrel reduction in heavy oil production which paves the way for 70,000 more barrels of gasoline. He maintained that the development plan would allow the refinery to produce about 6,000 barrels of propylene as a new product and would also increase LPG (liquefied petroleum gas) production by 8,000 barrels. Moreover, the refinery could increase its kerosene and gas oil production by 7,000 barrels, he added.

Elsewhere in his remarks, Darvish said, “In this project, the construction of a gas oil refining unit will put total production at 100,000 barrels and the refined product will be of good quality, offering suitable fuel for diesel engines while taking environmental concerns into consideration.”

According to the official, the Italian Technip has already accomplished preliminary studies on construction of units that would refine, process and offer designated feedstock. Consequently the technical and financial proposals were studied and the best licensees of the required technical know-how were selected and announced.

Kuwait Increases Refinery Budget
A $36.9 million contract aimed at keeping Shuiba running efficiently until its planned closure was awarded last month to Kuwait’s Heavy Engineering Industry and Shipbuilding Company (HEISCO). “The tender is for developing a safe, clean environment and revamping boilers and furnaces at the Shuaiba refinery,” said a statement.

An official in the new refineries section of KNPC told Oil&Gas Middle East that the bids for the new refinery were due to be submitted by August 8. The plant will produce low-sulfur fuel oil to be used in Kuwait’s water and electricity generating plants.

The completion of this project, together with another project for developing the existing oil refineries in Ahmadi and Abdullah, will take the country’s total oil refining capacity to between 1.2 and 1.3 million bpd.

KNPC said the new facility will include over 15 process units plus buildings, utilities, and offsite facilities. The company anticipates the work will be executed using not more than three EPC contractors.

Last month, KNPC engaged the services of US-based Fluor as the overall project manager, responsible for overseeing its execution and serving as the front end engineering design (FEED) engineer.

KNPC is one of eight subsidiaries of Kuwait Petroleum Corporation, which overseas Kuwait’s upstream and downstream energy sector. KNPC currently runs three refineries with a combined maximum capacity of 930,000 bpd.

Kuwait produces around 2.6 million barrels of oil per day and has ambitions to raise that figure to four million. It has stated reserves of 99 billion barrels.

Saudi and Sumitomo Sign $8.5bn Refining, Petro Project
Saudi Aramco and Sumitomo Chemical Company have signed an agreement to become joint venture partners in the development of an integrated refining and petrochemical complex in the Red Sea town of Rabigh, on the Kingdom's west coast. The project will cost about $8.5bn, double the amount initially estimated, said Sumitomo Chemical.

Gas Exploration in UAE’s Ras Al Khaimah
Indonesia-based Medco Energi Internasional will drill for gas in Ras Al Khaimah through its Australian oil unit Novus Petroleum, reported Bloomberg. Novus is set to drill a wildcat well in September to search for gas at a depth of 15,000 ft in the Hagil structure near the Hajar mountain range of the United Arab Emirates.