The Organization of Petroleum Exporting countries said in July global refinery capacity could fall far short of demand by 2015 as rising costs force refiners to postpone or cancel new projects.

In its annual World Oil Outlook, the group forecast 7.6 million barrels a day of new crude distillation capacity to be added to the global refining system by 2015, but warned that actual capacity growth could be much lower if expansion projects aren't given the green light.

"The refining sector has often recorded (project) delays to original time schedules," and frequent cancellations of announced projects, OPEC said. "This has been even more so under the current conditions of higher construction costs and shortages of skilled labor and professionals."

If expansion projects go ahead, supply should exceed requirements between 2010 and 2013, helping to ease tight products markets and soften margins, OPEC said in what it describes as its "reference scenario" for the medium term. The reference scenario is its baseline expectation.

But the group also outlined another "decisions deferred" scenario, which emphasized downside risk to refinery expansions, largely due to a 70% rise in construction costs since 2000.

"This could lead either to delays or the termination of projects," resulting in a 6.4 million barrel a day rise in global distillation capacity by 2015, nearly 16% lower than reference case.

Oil product demand potentially outpaces supply in the second case, "indicating no capacity excess and an implied continuation of tighter margins," OPEC said.

An unclear policy framework was also casting a shadow over refining projects worldwide.

"Many investors, especially in the U.S. and Europe, are deferring final decisions on major projects as they are being confronted with mixed, even confusing, signals from policymakers concerning the future demand levels for refinery products," OPEC said.

The growing supply of biofuels, initiatives to promote greater fuel efficiency and carbon trading could deter investment in the West.

Meanwhile, in China and India, "uncertainties on the pricing policy for petroleum products and tax-breaks for new investments are also adding some risks to the economics of future investments," OPEC said.

In the long term, the non-crude oil supplies - including biofuels, natural gas liquids, coal-to-liquids and gas-to-liquids - would become more widely used and cause a slowdown in refinery expansions between 2015 and 2030, OPEC said.

The oil producers group was more skeptical about pace and volume of refinery capacity growth than its consumer counterparts at the International Energy Agency, the energy watchdog for the Organization for Economic Cooperation and Development.

In its medium-term oil market outlook earlier this month, the IEA predicted 8.8 million barrels a day of crude distillation capacity would come online by 2013.

AMERICAS

U.S.

Enviro Group Challenges $3.8 Billion Whiting Expansion Plan

An environmental group filed a lawsuit asking a federal judge to halt BP's $3.8 billion expansion of its Whiting refinery in northwest Indiana, saying the company needs to obtain a more stringent air permit before it can continue.

The Natural Resources Defense Council contends BP obtained a "minor source" air permit from the Indiana Department of Environmental Management when it should have obtained a "major source" permit under the federal Clean Air Act, according to a lawsuit filed in U.S. District Court in Hammond.

Ann Alexander, a senior attorney with NRDC, said BP failed to account for all the added pollution the expansion will cause, including an increase in sulfur dioxide, nitrogen oxides, volatile organic compounds and particulate matter. The additional pollution will cause health problems such as such as asthma and bronchitis, and environmental problems such as ozone and acid rain, the lawsuit contends.

BP spokeswoman Sarah Howell said the company could not comment on the lawsuit because it had not fully reviewed it. But she said the refinery expansion is in line with calls for more U.S. refining capacity and the nation's energy security.

"This project has and will continue to undergo intense regulatory scrutiny and will comply with state and federal regulations governing protection of human health and the environment," she said.

BP has said the expanded refinery would be the nation's top processor of heavy high-sulfur Canadian crude oil, boosting its annual production of gasoline, diesel fuel and jet fuel by 15 percent to about 4.7 billion gallons annually.

The U.S. Environmental Protection Agency last month approved the air permit issued to BP by IDEM. BP began work on the expansion on May 1, the same day it got final state approval.

The NRDC contends the expansion fails to account for three new flares, which would be used to burn off gases generated in the refining process. Alexander said BP contends it did not have to count pollution from the flares because it does not plan to use them. She called that an "absurd assumption."

"That's not the way it works," she said. "The Clean Air Act says you have to count everything."

The lawsuit contends BP failed to account for other sources of pollution, including sulfur emissions from leaks in valves, flanges and other places and venting from pressure-relief devices.

The air permit also faces challenges at the state level. Several environmental groups last month agreed to drop their attempts to halt the BP construction in exchange for expedited hearings on their appeals.

The NRDC is encouraged by an EPA appeals board's ruling last month in an Illinois case. That decision said the state failed to adequately address questions raised when it granted an air permit to ConocoPhillips for an expansion of a refinery in Roxana, Ill., outside St. Louis.

"The Conoco was a situation where the EPA put its foot down and said, 'No, you don't just get to gloss over flare emissions. They're very important. They're very significant,'" Alexander said. "That does give us confidence that a federal court is going to do the right thing as well."

The lawsuit filed July 9 asks a judge to stop the expansion until BP meets the Clean Air Act requirements and fine BP up to $32,500 a day for each violation of the act.

Valero Concurs with CSB Findings on Refinery Fire

Valero Energy Co. said it agreed with a U.S. federal report that blamed a major fire at its McKee Refinery in Texas on inadequate maintenance and said it has already implemented suggested safety standards.

The U.S. Chemical Safety Board report, attributed the fire at the refinery to inadequate piping maintenance during cold weather and called on an oil industry's trade organization to institute more stringent guidelines.

"Well before the CSB issued its report on the fire and recommendations for changes, Valero had begun its own investigation and developed new safety initiatives throughout its system," Mike Mayo, Valero's Director of Corporate Safety, said in a company statement. "These steps include the creation of a corporate Process Safety Management and Reliability Department to develop and oversee safety and related process reliability measures at all our refineries."

The February 2007 fire injured four workers and shut down the McKee Refinery in Sunray, Texas, for two months. The fire started when piping that hadn't been used in more than a decade froze because it hadn't been properly maintained, according to the CSB report.

The pipe cracked, releasing propane, which ignited a flash fire that injured four workers, three seriously. The blaze shut down the 170,000-barrel-a-day refinery for two months and it didn't return to full rates until a year later.

The CSB estimates the ordeal resulted in $50 million in direct losses. In the first few weeks after the incident, there were spot shortages of reformulated gasoline in Denver.

In releasing the final investigative report, the CSB made recommendations for better practices to Valero and the American Petroleum Institute, a Washington trade group that represents petroleum companies. The federal agency doesn't have the power to levy fines.

"It's extremely important that the refining industry learns from the incident," Don Holmstrom, the CSB's lead investigator said.

The CSB said the fire resulted in two "near misses" of even more serious accidents. The first came when emergency responders pulled back and avoided being exposed to 2.5 tons of chlorine that were released, according to the report.

The other near miss hinged on the shifting winds. Although the fire got close enough to chip away at the protective paint on one of the refinery's butane spheres, the heat didn't burst the container. Had the winds blown more strongly from the southeast, it could have been worse. The report said a 1956 incident at the McKee refinery in which there was a similar failure left 19 dead.

The 54-hour fire started when liquid propane was released from cracked control station piping resulting in a blaze at a propane deasphalting unit, or PDA.

It's likely the high-pressure piping froze during a cold snap in the Texas Panhandle.

The control station hadn't been used in 15 years, so it formed a dead-leg, a section of piping connected to the process that has no flow through it. The dead-leg wasn't isolated but was still connected to PDA unit.

The CSB said the refinery failed to review the safety implications when it shut down the control station.

"The McKee refinery had no formal written policy in place to identify, review and freeze-protect dead-legs or infrequently used piping and equipment," the board said.

Furthermore, the board said the API doesn't provide detailed guidance on freeze protection.

API needs to issue freeze protection guidelines and should periodically inspect freeze hazards in dead-legs or infrequently used piping, the report said. The API should also revise its fireproofing and protection standards.

The report also said both Valero and API don't advocate for enough distance between fire hazards and highly flammable chemicals, like chlorine and butane.

The rapidly expanding fire prevented operators from manually closing isolation valves to stop the release of propane, the report said. Valero recommends remote shut-off values, but the McKee Refinery hadn't retrofitted them into the PDA unit. These should be installed, the report said.

Valero also should implement its plan to replace chlorine, which is used as a biocide, with a safer material like sodium hypochlorite, at all its refineries.

In addition, the refinery and the union need to train employees in hazard analysis and conduct quality control checks, according to the report.

In response to the report, Valero said that it has replaced the PDA unit with a new redesigned unit that has better control systems, including remotely operable shut-off values, which can prevent the spread of fire.

Valero is also re-evaluating the fireproofing structures at its refineries and by the end of the year will no longer use chlorine. Instead it will use a safer bleach solution to treat cooling water, the statement said.

$650,000 EPA Grant to Aid Houston in Ship Channel Study

Houston received nearly $650,000 July 15 from the federal Environmental Protection Agency to conduct measurements of toxic chemicals emitted from large refineries and chemical plants along the Ship Channel.

With the grant, the city will be able to use emerging laser technology known as differential absorption lidar, or DIAL, to take a closer look at the chemicals coming out of smokestacks, flares and other sources. The sampling will occur between January and April, with a report due in June, according to the EPA.

Arturo Blanco, Houston's air quality chief, said the city will pick a site that will allow the monitoring of as many large polluters along the Ship Channel as possible.

The grant came five days after Mayor Bill White challenged EPA methods for calculating emissions from refineries and chemical plants, saying the approach significantly under-reports air pollution.

White has said studies show that actual emissions can be 100 times greater than the federal agency's estimates, which are based on industry-provided data. Even with the estimates, the EPA lists Harris County as the nation's leading industrial emitter of the carcinogen benzene.

The EPA should require refineries and chemical plants to verify the accuracy of their emissions with DIAL and fence-line monitors, among other steps, White has said.

Elena Marks, the mayor's director of health and environmental policy, said the EPA didn't award the grant in response to White's formal request for more monitoring last week. The city requested the money several months ago, she said.

"Any data that we can provide that shows reality instead of assumptions will move us ahead," Marks said. "When you have the facts, people react to them."

The city, she said, could use the data to take action against polluters.

Valero’s Ardmore, Memphis Refineries Remain under Review

Amid depressed refining margins, Valero Energy Corp. may not sell its Memphis and Ardmore, Okla., refineries, the company said in an earnings release July 29.

The nation's largest refiner began a strategic review of its assets last year, divesting itself of plants in Lima, Ohio, and Krotz Springs, La. The refiner has three other assets on the block, but now says it will continue to review the prospects of two of those plants.

"We have not yet received a proposal that we believe is in the best interest of our employees and shareholders, so these refineries remain under strategic review," Chief Executive Bill Klesse said in the release. Weakened gasoline margins have lowered asset values, and turmoil in the financial markets has cut the availability of financing for prospective buyers, he said.

Efforts to sell a third refinery, in Aruba, continue, he said. Brazilian national oil company Petroleos Brasileiro SA (PBR) had previously disclosed plans to buy the refinery. The major producer has backed off a bit due to operational problems at the plant and management concerns over the quality of the asset.

Report Says Safety Violations Continue at BP Refinery

Life-threatening safety violations continue to plague a Texas BP refinery, leaving it susceptible to another major accident like the one in 2005 that killed 15 people, according to a report released July 28.

The report was prepared on behalf of blast victims who object to a federal criminal plea deal with London-based BP PLC related to the accident in Texas City.

Engineer Mike Sawyer's report criticized BP for not conducting a detailed audit of the refinery, not making widespread improvements at the facility and for the plant's "abysmal safety record" since the blast, which includes three more worker deaths and several fires and chemical releases.

"This danger continues to exist because BP continues to operate its Texas City refinery in violation of federal process safety laws," Sawyer wrote. "The violations of federal law at the refinery create continuing, unreasonable risk and may lead to another major explosion, hazardous release or fatality at anytime."

In a statement, BP detailed what it has done to make the refinery safer, including spending more than $1 billion on improvements, eliminating equipment that contributed to the accident and removing 200 trailers and hundreds of employees and contractors offsite. All 15 deaths happened in the two trailers closest to the blast site.

"Texas City is a far safer refinery today than it was prior March 2005," BP said. "We have made significant progress towards our goal of becoming a leader in process safety. There is more to do and we are committed to doing it."

The company pleaded guilty in February and agreed to pay a $50 million fine and serve three years' probation for a BP subsidiary.

The victims thought the fine was too low and that the terms of probation do not provide for an independent watchdog to monitor whether BP would meet its safety obligations at the refinery. They are awaiting a decision from U.S. District Judge Lee Rosenthal on whether she will accept the plea deal.

Rosenthal sought Sawyer's report, among other information, to make her decision.

"Unless the court acts decisively to take oversight, we will see a continuation of the fires, explosions and deaths and injuries generated by the Texas City refinery," said David Perry, an attorney for blast victims.

Prosecutors and BP have said the plea agreement is the harshest option available in assessing criminal punishment. A congressional committee is investigating the deal.

Sawyer's report accused BP of ignoring a deal with the U.S. Occupational Safety and Health Administration to conduct detailed audits and inspections of equipment and units at the refinery. OSHA also fined BP more than $21 million.

Sawyer said BP had not done enough to evaluate the equipment, such as piping at the refinery, that ensures that excess pressure and hazardous materials are safely released.

The explosion at the plant about 40 miles (65 kilometers) southeast of Houston occurred after a piece of equipment called a blowdown drum overfilled with highly flammable liquid hydrocarbons.

The excess liquid and vapor hydrocarbons then were vented from the drum and ignited at the startup of the isomerization unit, a device that boosts the octane in gasoline. Alarms and gauges that were supposed to warn of the overfilled equipment did not work properly.

"Unfortunately, there is every reason to believe that mechanically unsafe conditions likely extend far beyond relief valves to vessels, piping, alarms and warning equipment," Sawyer wrote in his report.

Sawyer also criticized OSHA for not doing enough to ensure that BP improves safety at the refinery.

A spokeswoman for OSHA did not immediately return a telephone call seeking comment.

BP said it was in compliance with the OSHA agreement, and that the three follow-up assessments of the refinery conducted by a firm hired by BP are consistent with industry standards and met OSHA's requirements. Prosecutors have also said in court they believe BP is in compliance with the OSHA agreement.

The deal was part of an October agreement by BP to pay $373 million to settle various criminal and civil charges.

The U.S. Chemical Safety and Hazard Investigation Board found BP fostered bad management at the plant and that cost-cutting moves by BP were factors in the explosion.

LA Refinery Operations Normal despite Mississippi River Spill

Louisiana refineries said operations were normal July 28 despite a fuel oil spill on the Mississippi River that cut the waterway's heavy traffic to a trickle between the Gulf of Mexico and New Orleans.

ConocoPhillips, Exxon Mobil Corp, Motiva Enterprises LLC and Valero Energy Corp, which operate some of the state's largest refineries up the Mississippi from New Orleans, said limited traffic had eased worries they might have to cut output.

"We are operating as planned," said Motiva spokeswoman Lily Galland about the company's 242,000-barrel-per-day (bpd) Norco, Louisiana, refinery.

"They are letting some ships in ... especially to the industries along the river," Galland said.

ConocoPhillips spokesman Bill Graham said the company is doing some maintenance at the Belle Chasse refinery that is unrelated to limitations on Mississippi River traffic, but could not provide further details.

The four companies operate refineries in Baton Rouge, Belle Chasse and Norco, Louisiana, with a combined refining capacity of 1.2 million bpd, or about 40 percent of the state's total capacity.

More than 180 ships and barges were awaiting U.S. Coast Guard permission to move along the Mississippi River July 28, the Coast Guard said.

Texas Refinery Back To 95 Percent Capacity by End of ‘08

BP PLC's Texas City, Texas, refinery is expected to be back to 95% of its production capacity by the end of 2008, the head of the U.K. giant's refining operations said July 28.

Speaking to reporters on the side of BP's second-quarter earnings conference, Iain Conn said the restoration to 95% of capacity would come after a reformer unit is back up in the second half of this year.

The refinery, which has a capacity of 460,000 barrels of crude oil each day, has been running under normal rates following an explosion that killed 15 workers in 2005 and a subsequent precautionary shutdown before a hurricane that year.

The executive also said the restart of a second residue hydro treater in the coming days would bring the refinery back to 80% of its normal capacity.

Conn said a last residue hydro treater unit would be brought back in 2009 to complete the full capacity restoration.

The BP executive also said he sees benefits from higher refining throughputs in the second half while the refining and marketing unit will soon begin to see "financial benefit" from overhead cuts.

Conn also said the company is looking at a possible upgrade at its Rotterdam, Netherlands, refinery with a bias for distillates but added that that decision will depend on future refining margins.

He said a small turnaround at the Rotterdam refinery was expected in the second half.

During the conference, Andy Inglis, BP's head of exploration and production, also said the first liquefied natural gas from Tangguh in Indonesia is still due by end year and that BP continues to be in contact with Petroleo Brasileiro SA Petrobras (PBR) over possible Brazilian expansion.

No Harmful Impact from Sulfur Spill at Chevron’s Richmond Refinery

A sulfuric acid spill at the Chevron refinery caused no injuries or adverse effects to surrounding areas, the company said.

A leak in a pipeline containing the chemical was discovered and involved about 1,000 pounds of the liquid, said a Chevron spokesman Walt Gill.

Because the sulfuric acid was in liquid and not vapor form, there was no harmful odor emitted, Gill said. Crews were dispatched to clean up the spill.

Even though the spill did not cause any significant damage or harm, Gill said, the volume of the spill required the company to report it to county and state authorities.

Foster Wheeler Wins Feed for Grassroots Refinery and Petrochemicals Complex In Vietnam

Foster Wheeler Ltd. announced July 29 that its UK-headquartered subsidiary Foster Wheeler Energy Limited, part of its Global Engineering and Construction Group, has been awarded a contract by Nghi Son Refinery & Petrochemical Limited Liability Company (NSRP LLC) for the planned Nghi Son Refinery, which will be Vietnam's second refinery. NSRP LLC is a joint venture company comprising PetroVietnam and its international partners.

The Foster Wheeler contract value for this project was not disclosed, and will be included in the company's third-quarter 2008 bookings.

Foster Wheeler will execute the pre-front-end engineering design (pre-FEED) followed by the FEED for this new complex, which will include a 10 million tonnes per annum refinery and a petrochemical complex. The FEED phase is expected to be completed during the fourth quarter of 2009.

Interline Announces Completion of NorthCut Refinery

Interline Resources Corporation announced that it has completed construction of the NorthCut Refinery in Converse County, Wyoming.

In making the announcement, Michael Williams, Interline Resources CEO stated "We are very pleased that the NorthCut Project is ready for full operation after one year of construction. The facility has been undergoing full testing of all systems during the last month. And the only activities underway are paving of road and loading surfaces, as well as painting of storage tanks."

The refinery is a 5,000 bbl/day topping refinery which is intended to make full use of local crude supplies and produce off-road diesel and virgin gasoline (naphtha) for use in local markets. Williams stated that "We are in the process of purchasing approximately 50,000 bbl of crude on the spot market for August in order to begin limited production until all negotiations and contracts are completed for both crude supplies and buyers of our products."

ExxonMobil Plans $550 Million Expansion of Baton Rouge Refinery

The Baton Rouge, LA, economy is getting a boost with ExxonMobil’s $550 million expansion, according to the Greater Baton Rouge Business Report.

The expansion will allow the Baton Rouge complex, which already produces diesel, to produce a lower sulfur diesel for locomotives which will comply with federal requirements that go into effect in 2010.

ExxonMobil’s decision to expand rather than get out of the business represents confidence in the competitiveness of the refinery. Site preparation began in April for the new production unit for the refinery.

ExxonMobil had projected a year ago that the project expansion would cost about $350 million. The higher project total was finalized in late June when the company appropriated funds for the project.

Total Restarts 9 Units at Port Arthur Refinery

Total Petrochemicals USA was restarting nine units at its 232,000 barrel per day (bpd) Port Arthur, Texas, refinery on July 27, according to a notice filed with state pollution regulators.

The restart of units 804, 805, 810, 819, 822, 823, 824, 825 and 836 began July 27 and was expected to take until July 31, according to a notice filed with the Texas Commission on Environmental Quality.

The units were shut on July 9 for reasons unstated in notices with the commission.

On July 10, traders told Reuters one of the units was a reformer and all of the units were taken down because of poor refining margins.

Court Orders Apex Oil to Perform $150 Million Environmental Cleanup

Apex Oil Company Inc. has been ordered to remediate extensive soil and groundwater contamination from its former refinery operations in Hartford, Ill., the Justice Department and Environmental Protection Agency announced July 30.

In a decision issued on July 28, 2008, Chief Judge David R. Herndon of the U.S. District Court for the Southern District of Illinois ordered Apex Oil Company Inc. to clean up the contamination, at an expected cost of at least $150 million. The court's decision is based on evidence presented at a five-week trial in January and February 2008, in a federal lawsuit filed by the Justice Department and EPA.

The soil and groundwater beneath Hartford has been contaminated with more than one million gallons of leaded gasoline and other petroleum products from refinery and pipeline leaks and spills. For years, Hartford residents have been forced to evacuate when vapors emanating from that contamination have seeped into homes and public buildings.

The court ruled that Apex Oil was responsible for multiple leaks and spills that contributed to the contamination beneath Hartford. The evidence also showed that the pollution amounts to an "imminent and substantial endangerment" to human health and the environment under the federal waste management law, known as the Resource Conservation and Recovery Act. At the government's request, the judge ordered Apex Oil to begin work promptly on the final soil and groundwater remedy for Hartford, in accordance with a formal cleanup plan that has already been approved by EPA. That cleanup plan will require installation of an extensive liquid and vapor extraction system to remove and treat petroleum hydrocarbon contamination that is smeared into soils and floating atop the groundwater beneath the village.

"This court ruling represents a victory for the environment and for the people of Hartford," said Ronald J. Tenpas, Assistant Attorney General for the Justice Department's Environment and Natural Resources Division. "It requires a major polluter to clean up the mess it made, and dedicated professionals from EPA will oversee the project."

Preliminary cleanup work in Hartford began under a 2004 agreement that EPA negotiated with four other oil companies Shell Oil, Valero Energy, BP Amoco and Sinclair Oil.

The Justice Department filed suit against Apex Oil in 2005 after the company refused to assist with that cleanup effort. Apex Oil is the legal successor to Clark Oil and Refining Corporation, which owned a refinery next to the Village of Hartford from 1967 to 1988. Apex Oil currently operates as a privately-owned oil trading firm, headquartered in Clayton, Mo.

Although the other oil companies that contributed to the contamination were not named as defendants in the government's lawsuit against Apex Oil, the judge's ruling against Apex Oil makes clear that it does not relieve those other companies of their joint responsibility for all remaining cleanup work, including ongoing work required under their 2004 agreement with EPA.

Richmond OK's Chevron's $1 Billion Refinery Upgrade

The Richmond City Council narrowly upheld Chevron Corp.'s plan to spend nearly $1 billion to upgrade its century-old Richmond refinery.

The council voted 5-4 to back the city Planning Commission's June approval of the project environmental impact report, and 6-1 to approve the commission's OK of a conditional use permit for the project.

Both Chevron and project opponents appealed the planning commission decisions to the council.

In approving the EIR last month, the commission restricted the types of crude oil the refinery can process as a mitigation measure.

Project opponents, including environmentalists, wanted the EIR recirculated, plus tougher restrictions and other provisions they said would benefit the public.

The San Ramon oil giant first proposed the upgrade more than three years ago. It includes a new, larger hydrogen plant, a new power plant and reformer, and several smaller components such as replacing or adding new storage tanks and the construction of other new facilities.

The upgrades will increase energy efficiency and equipment reliability, and boost production of gasoline for the California market. The refinery's overall processing capacity of about 240,000 barrels of crude oil a day will not change.

The process upgrades will allow Chevron to process more types of crude oil, however, which project opponents said could increase pollution.

Valero Cutting Back to Survive Refining Downturn

To survive a downturn in the refining sector, Valero Energy Corp. (VLO) is retrenching, cutting back on its spending and reducing production as necessary, Chief Executive Bill Klesse said July 29.

Tight refining margins bit into the largest U.S. refiner's second-quarter results, with profit falling 67% as the cost of crude oil outpaced the price of gasoline. Margins, the difference between the price of the crude Valero must buy, and the products the refinery makes, have been squeezed by record high crude prices in the past quarter. Weak gasoline demand due to high prices has also put pressure on Valero's returns.

While total oil consumption is still increasing, the company forecasts continuing weak gasoline demand through 2009.

"You have to be lean, mean, and tough," Klesse said, speaking to analysts on a call that focused on Valero's efforts to maintain its financial solvency despite weak refining margins.

"We are eliminating a lot of things, and delaying a lot of things in our budget," Klesse said. The refiner has committed $4.5 billion to projects going into 2009, and plans a large investment at its Benicia, Calif. refinery, which is required by environmental regulations. After that, other projects may be trimmed down, Klesse said.

Projects that may be deferred include a para-xylene chemical project at the St. Charles refinery in Norco, La. Margins for that business may not justify Valero's entry at this time, Klesse said.

"We are in the middle of strategic planning, and also looking at the real world of the current cracks, and looking at our cash flows and maintaining our strategic efforts here," he said. Klesse said the company is reviewing each project in its portfolio, to decide whether it's viable at current margin levels.

While projects focusing on diesel may be seen as beneficial, since the fuel has been one bright spot for refiners recently, Klesse said Valero will focus on projects that will aid in exporting diesel, since the majority of demand growth is overseas. In the past quarter, Valero has sent diesel to Europe and South America, Klesse said.

The company will also cut back on operations at some of its plants, as necessary, Klesse said. "I think it's fair to say that cat crackers will continue to have reduced operating rates," Klesse said, referring to the primary type of gasoline production unit.

The company will instead strive to maintain its credit rating with the agencies, he said, calling the rating the "most important" thing for Valero to sustain. While Valero has always talked about maintaining shareholder value, the company's focus on its viability as an investment vehicle was new, as Klesse repeated the importance of riding out a difficult time for the industry.

CANADA

BP To Upgrade Refinery to Run 80 Percent Canada Heavy Crude

Oil major BP PLC (BP) has taken the final investment decision to upgrade its Whiting refinery in Indiana in order to run on 80% Canadian heavy crude oil, the company said in its second-quarter results January 29

While construction on the Indiana project has stayed on course in recent months, BP faced persistent criticism from environmentalists over the effects of upgrading the "heavy" low-quality Canadian crude. Earlier this month, the Natural Resources Defense Council, or NRDC, challenged the multi-billion-dollar expansion project in federal court.

"We are confident our permits will withstand court review," the refinery's business unit leader, Dan Sajkowski, said in a statement released by BP

NRDC argues that increased pollution from the expansion requires that the refinery control its pollution more effectively and operate under a more stringent permit. Ann Alexander, an attorney for the NRDC in Chicago, said the environmental group's goal has never been to stop the expansion - but to make sure it proceeds lawfully. She said the group will continue with those efforts.

"Their massive profits for this quarter are all the more reason for it not to be a problem for them to obey the law," Alexander said.

The legal proceedings have not shut down construction on the project which began in May, according to BP spokesman Scott Dean.

The final cost of the upgrade wasn't provided in the second-quarter results.

The Whiting expansion is scheduled to be completed in 2011 and will increase gasoline production by 1.7 million gallons a day, according to the company. BP has also faced challenges over water permits.

On March 21, the Whiting refinery was restored to its full fuel capacity of 360,000 barrels a day.

BP processed an average of 2.239 million barrels a day through its refineries in the second quarter and increase over the same quarter last year.

The higher output was mainly from recoveries at the Texas City and Whiting refineries. The company posted a 28% rise in second-quarter net profit, from skyrocketing oil prices and its Russian joint venture.

BRAZIL

ABB Signs $61 Million Frame Agreement for Petrobras Refineries

ABB has signed an exclusive $61-million frame agreement with Petrobras to supply process automation systems and related services to eight oil refineries in Brazil over the next five years.

ABB will supply its extended automation System 800xA for process automation with integrated substation automation functions, software and hardware, upgrades of existing installed ABB control systems, as well as other project management and engineering services. The agreement includes $29 million for engineering services.

ABB's process automation technology will help Petrobras expand production at its refineries, maximize energy efficiency, and optimize maintenance and operation costs. It will also help produce fuels with lower sulfur content, which have fewer emissions than other fuel blend

"This important agreement underscores ABB's commitment to providing the leading-edge technologies and services our customers need to compete and thrive in today's global environment," said Veli-Matti Reinikkala, head of ABB's Process Automation division. "As our petrochemical customers expand their operations to meet strong demand, we help them to achieve these targets while improving their overall productivity and energy efficiency."

Brazil-based Petrobras is an integrated energy company with activities in oil exploration, production, refining, marketing and transportation. Petrobras represents one of the largest installations of ABB automation systems within the petrochemical industry.

Siemens Wins Landmark Process Compression Order from Petrobras

Siemens Energy has received an order from the Brazilian oil & gas company Petrobras for the supply of ten compressor trains. The compressors plus their drives will be installed in desulfurization units at eight existing oil refineries in Brazil. The order is part of a major investment program initiated by Petrobras to make eco-friendly low-sulfur fuels available at all of Brazil's gas stations. The Siemens compressor trains will be delivered to the refineries starting in August 2009. The volume of the order is more than EUR75 million.

Seven of the ten single shaft compressors Siemens is supplying to Petrobras will be driven by steam turbines. These steam turbines are also included in the scope of supply and will be fed with process steam from the refineries. A further three compressors will be driven by electric motors. The use of different drive technologies will enable optimized utilization of available steam resources in the refinery process and thus make the production of low-sulfur fuels highly efficient.

"The new order from Petrobras is the biggest single order in the field of process compression that Siemens has ever received", said Thomas Dalstein, CEO of the Siemens Process Compression Business Unit. "With our technology we can support Petrobras in producing cleaner low-sulfur fuels for Brazil. Furthermore, our machines work very efficiently and therefore guarantee the best use of resources," Dalstein added.

ECUADOR

Venezuela, Ecuador Plan $6.6 Billion Pacific Coast Refinery Complex

Venezuelan President Hugo Chavez and Ecuadorean President Rafael Correa on July 15 officially unveiled plans for a joint-venture refinery to be located on Ecuador's Pacific coast.

Ecuadorean Energy and Mines Minister Galo Chiriboga said the "Refinery of the Pacific" will include a petrochemical project.

Work on the refinery complex is scheduled to start in 2010 and the aim is to have it in operation by 2013.

The refinery, located in the Manabi province of Ecuador, will handle 300,000 barrels a day.

The conceptual engineering plan should be ready by the end of the year, Chiriboga said.

The complex will require a $6.6 billion investment, he said.

"Obviously this investment won't come just from Petroecuador or from Petroleos de Venezuela," he said. "President Correa hopes that in the future we will be able to include as shareholders other Latin American state-owned companies. But without doubt, we will have to go to international capital markets to finance the project."

PdVSA will hold a 49% stake in the Refineria del Pacifico-CEM, and Petroecuador will have 51%.

The new refinery project is important for Ecuador, which has to import processed petroleum products such as gasoline because of a lack of refining capacity.

Many of the new oil discoveries in Ecuador are heavy crude and cannot be processed at the country's three existing light-crude refineries.

The new refinery is part of a strategy to integrate Latin American companies that began in February 2007 with an agreement to swap Ecuadorean oil for Venezuelan diesel and naphtha.

TRINIDAD & TOBAGO

Brazil, Trinidad-Tobago to Assess Refinery Projects

Brazilian President Luiz Inacio Lula da Silva and Trinidad and Tobago's Primer Minister Patrick Manning signed an agreement on July 23, calling for oil companies in both countries to cooperate to explore oil and gas in Trinidad and Tobago.

The agreement includes an assessment of refinery projects in Trinidad and Tobago, promotion and commercialization of refined products, development of ethanol and bio-diesel projects, application of gas-related new technologies and expansion of the gas industry.

In his speech, Lula said the bilateral ties could serve as a bridge between the Caribbean and South America. He described Trinidad and Tobago as "almost a South American country" concerning its productivity and energy storage.

"The regional integration is facilitated by an economic and trade agreement between the Common Market of the South and the Caribbean Community," said Lula.

Lula said he would host a summit between South American and Caribbean countries in December, after the biannual meeting of the Common Market of the South.

The regional integration, promoted by the Union of South American Nations, should be expanded to Central America and the Caribbean, he said.

VENEZUELA

Venezuela Plans $4.3 Billion Refinery in Cuba

Venezuela aims to build a new refinery in Cuba to process 150,000 barrels a day with the technology necessary to handle heavy crudes.

The new plant project, now in the pre-commissioning phase, would make it the third refining venture led by Petroleos de Venezuela SA, or PdVSA, in the island nation, according to PetroCaribe's first-half management report.

Venezuelan President Hugo Chavez, who keeps close political ties with Cuba's Fidel and Raul Castro, has made it clear his administration intends to keep up economic and energy cooperation with the Castro government. The strengthening ties between the two countries in energy matters suggest that Cuba will serve as Venezuela's key energy distribution hub in the region in years to come.

Construction of the new deep-conversion refinery would take place in the Cuban city of Matanzas and would cost an estimated $4.3 billion, the document shows. The plant would become operational in 2015. The refining initiative is part of Venezuela's PetroCaribe program, a plan that includes energy infrastructure investments in Central America and the Caribbean. PetroCaribe also offers member countries generous financing terms for their oil purchases. Buyers can finance up to 50% of their oil bill payable in 25 years with a 1% fixed interest rate.

As part of its infrastructure plans for Cuba, PdVSA has already invested $166 million to revamp a former Soviet refinery in Cienfuegos so it can process 65,000 barrels a day. A second phase is planned to upgrade that facility to process up to 150,000 barrels a day.

Similarly, PdVSA is also increasing the processing capacity of Cuba's Hermanos Diaz refinery in Santiago, to 50,000 barrels a day from 22,000 barrels a day, with a deep-conversion unit as well. Investment in the Hermanos Diaz plant would run $855 million, according to the PetroCaribe report, and it's expected to begin operations in 2013.

Pdvsa Fixes Cracker in Venezuela’s Amuay Refinery

Venezuela’s state-run oil company Petróleos de Venezuela (Pdvsa) got operations in Amuay refinery back to normal after fixing a failure in a compressor of the catalytic cracking unit, a source of the plant told Reuters.

"There was a problem in the cracker gas compressor on July 25 and 26, but it has been fixed already," said the source of the facilities located in north-western Falcón state.

Previously, another source reported that the damage to the compressor unleashed fire due to the gas that usually goes to the alkylation unit.

A Pdvsa spokesperson said on July 28 that the company had no news of any troubles in the refinery that processes about 640,000 bpd of oil.

Exports of oil and byproducts to the United States, Venezuela's major oil customer, sank by almost 30 percent during the first quarter in 2008, in the face of continued problems in the refining circuit.

ASIA

CHINA

PetroChina Awards UOP Contract for Integrated Complex

UOP LLC announced July 10 that PetroChina Sichuan Petrochemical Co., Ltd., a subsidiary of the PetroChina Company Limited, has selected UOP to supply technology, basic engineering services and equipment for a new integrated refining and petrochemicals complex to be installed at its facility near Chengdu, Sichuan Province.

Engineering design is currently in progress.

"This project is a true collaboration between PetroChina and UOP and will be one of the most integrated facilities in the world," said Peter Piotrowski, senior vice president for UOP's Process Technology and Equipment business unit.

The new plant is a grassroots installation that will produce both fuels and petrochemicals, including 600 thousand metric tons per annum of para-xylene using the UOP Parex process. Para-xylene is a key ingredient in the production of PTA (purified terephthalic acid), which is used to make polyester for fabric and PET (polyethylene terephthalate) chips for carbonated soft drink and water bottles. The new plant will also produce more than 350 thousand metric tons per annum of benzene, also a building block in plastics production. The demand for para-xylene in China is expected to grow at an annual rate of 11 percent over the next 10 years driven largely by the downstream market.

Feedstock to the aromatics complex will in part be provided by a new UOP Unicracking process unit that will process 2.2 million tons per year of heavy gas oil from crude oil and convert it to more usable products such as diesel, kerosene, and naphtha. The para-xylene complex will also include a UOP CCR Platforming process unit to convert naphtha to aromatics and hydrogen, a UOP Isomar process unit to convert other xylenes to para-xylene, and a UOP Tatoray process unit to increase the yield of para-xylene and benzene.

This will be the fifth aromatics complex UOP has designed for PetroChina and the sixth Unicracking unit.

With 2.69 million barrels per day of crude production and 4.6 billion cubic feet per day of natural gas production, China National Petroleum Corp. (CNPC) is China's largest producer and supplier of energy. PetroChina is the largest subsidiary of CNPC and is responsible for its domestic operations in the areas of oil and gas exploration and development, oil refining and petrochemical production, marketing, pipeline transportation, and natural gas sales and utilization.

Qatargas, CNPC and Shell to Build Joint Venture Refinery in China

China National Petroleum Corporation (CNPC), Royal Dutch Shell (plc) and Qatargas signed a letter of intent in Doha to form a joint venture to build an oil refinery and petrochemical products manufacturing complex in China.

The three parties will conduct a joint evaluation regarding the feasibility of the proposed project. The complex will manufacture finely treated fuel and petrochemical products. CNPC will hold 51% of the shares at the refining and petrochemical integrated complex; Qatargas and Shell will each hold 24.5% of the shares.

INDIA

India’s Chennai Petro to Shut Refinery Units in August

India’s Chennai Petroleum Corp will shut units at its 190,000 barrels per day refinery in the southern state of Tamil Nadu in August for planned maintenance, cutting output by up to 33 percent in the month.

It will shut a diesel hydro de-sulphurization unit (DHDS) and a 60,000 barrels per day crude distillation unit (CDU) at the Chennai plant for most of August.

“We will shut the DHDS from August 4 for four weeks, and one to two days after that we will take a three-week shutdown of a three million tonnes (a year) CDU,” Managing Director K.K. Acharya said.

The closures would reduce throughput by 27-33 percent but Chennai Petroleum would continue to export normal volumes of both naphtha and fuel oil, Acharya said.

Chennai Petroleum, a subsidiary of the country's biggest oil retailer Indian Oil Corp, operates two refineries in Tamil Nadu with a total capacity of 210,000 bpd.

An IOC official, who did not wish to be identified, said the planned shutdown of the diesel unit had forced it to buy “extra light” grades like N’Kossa, Mallitah and Marib Light.

“We will export the normal 0.8 million tonnes of naphtha this year. There will be no impact on fuel oil exports, but our September-loading cargo could be delayed. It will be a late offer,” Acharya said.

Chennai Petroleum offers a 30,000-35,000 tonne cargo of naphtha in a month for loading in the next month, and one 30,000-tonne parcel of fuel oil on average every three weeks.

INDONESIA

Pertamina Eyes Building Refinery with Kuwaiti Investor

Indonesian state oil and gas company PT Pertamina is looking into the possibility of cooperating with a Kuwaiti investor to build an oil refinery to better ensure domestic fuel oil supplies.

"We have begun discussing the planned construction of an oil refinery with a number of Middle Eastern investors, including from Kuwait," Pertamina President Director Ari H Soemarno said in Jakarta July 18.

But he stopped short of revealing where the refinery would be set up and the amount of investment needed for the project.

Asked about Pertamina's plan to build an oil refinery in Banten province in cooperation with the Iranian government, he said it would be built on a plot of land owned by state port operator PT Pelindo in the Bojanegara area.

"We are in the middle of making engineering preparations. And in August this year, the Iranian oil minister will come (to Indonesia to inspect the location)," he said.

He said the Banten oil refinery would be built in two stages.

"The Banten oil refiney will consist of two trains with each of them expected to process 150,000 barrels per day," he said.

SK Energy Completes Lube Base Oil Plant in Indonesia

SK Energy, the largest refiner in South Korea, announced that the company completed its third lubricant base oil (LBO) plant in Dumai, Indonesia. Over 400 guests and SK Energy's executives, which include Heon Cheol Shin, Vice Chairman & CEO of SK Energy, Jeong Joon Yu, President of SK Energy's Resource & Chemical Business, Sofyan Djalil, Minister of State Enterprise in Indonesia, and Ari Sumarno, President of Pertamina, attended the commercial operation celebration of the new plant in Dumai, Indonesia on July 15.

The new LBO plant will produce Group III base oil, the raw material of lubricant, with daily production capacity of 7,500 barrels.

SK Energy currently produces 21,000 barrels of base oil per day at its first and second LBO plants in Ulsan Complex, Korea. With the additional production at the new LBO plant, SK Energy will solidify its prominent leadership in high quality lubricant base oil market (Group III).

SK Energy initially signed a joint venture agreement to establish the new LBO plant with Pertamina in April, 2006, which was followed by commencement of construction in November, 2006. The new plant had its mechanical completion in March of this year, which was approximately two months ahead of its schedule.

Vice Chairman Shin said, "The new LBO plant will serve as a strong foundation of more comprehensive cooperation between SK Energy and Pertamina in the future. We will strengthen our ties in various business areas such as joint projects in resource development, increase in trade, exchange of technology and technical information, engineer education, supply channel development, new business development." He added, "SK Energy will further strengthen its 'Southeast Asian Triangle,' which connects the logistics base in Singapore, the resource development project in Vietnam, and the new LBO plant in Indonesia, to stay ahead of competition."

SK Energy initially made inroads into higher quality lubricant base oil market in 1995 by completing its first LBO plant in Korea. The company now exports its base oil products to over 200 companies in 50 countries, including major international petroleum companies.

Lubricant base oil is basic oil ingredient (raw material) of lubricant, which includes lubricant for engine and industrial purpose, and grease. Generally, Lubricant is made of lubricant base oil (80~99%) and the additives (1~20%).

Lubricant base oil is categorized into 5 groups - Group 1, 2, 3, 4 and 5. Comparing to Group 1 and 2 which accounts for the most of regular lubricant base oil, Group 3 lubricant base oil is a high quality product with high viscosity index level. Group 4 and 5 are chemical products such as polyalpha olefin.

VIETNAM

Vietnam, Venezuela May Build Refinery

Venezuela and Vietnam are discussing energy and oil cooperation, Vietnam state media reported July 11, citing government officials.

"The companies of the two countries will soon start explore oil and gas in the Oricono area of Venezuela, and build an oil refinery in Vietnam," the An Ninh Thu Do newspaper quoted Venezuelan Ambassador Jorge Rondon as saying.

The Dau Tu newspaper, published by the Ministry of Planning and Investment, cited PetroVietnam Chairman Dinh La Thang as saying the two countries are preparing to sign a contract in November to build an oil refinery in southern Vietnam.

The Long Son refinery, which will be built in Ba Ria-Vung Tau province and located about 100 kilometers east of Ho Chi Minh City, will be supplied with crude oil from Venezuela, Thang was quoted as saying.

EUROPE / AFRICA / MIDDLE EAST

ITALY

Foster Wheeler Awarded Italy Refinery Expansion Contract

Mariisky NPZ Ltd has awarded a contract to Foster Wheeler Italiana SpA, Milan, for the expansion of the Mari-El refinery's capacity to 90,000b/sd from 27,000b/sd, scheduled for start-up in 2012.

According to Foster Wheeler, Mariisky plans to install a new train, which will include new crude and vacuum distillation units, hydrocracking, hydrodesulfurization, amine and sulfur recovery units, a solvent deasphalting unit, a hydrogen production unit, and sour water stripping facilities.

The expansion also will include a power plant that will burn asphalt from the solvent deasphalting unit to produce steam for electric power generation both for the refinery and for export to a public network.

Foster Wheeler will define the design basis, undertake the basic design package for non-licensed process units, power plant, utilities and off-sites, and front-end engineering design for the entire expansion project.

TURKEY

Lukoil Expands its Network by Acquiring Turkish Fuel Distributor Akpet

Russia’s major oil company Lukoil agreed to buy Turkish fuel distributor Akpet for a little more than $500 million on July 28. With this selling, Lukoil secured 5 percent of Turkey’s oil product market.

Lukoil President Vagit Alekperov said that, Lukoil, Russia’s second largest oil market plans to increase its share in Turkish oil market to 10 percent in a decade by buying oil product terminals with total capacity of 300,000 cubic meters.

Last month, Lukoil took its first major initiative in Europe by purchasing 49 percent of Italian Refiner ERG SPA’s Isab di Priolo oil refinery on Sicily.

Lukoil’s acquisition of Akpet enables Lukoil to control five liquefied natural gas storage tanks with total capacity of 7,650 cubic meters. Lukoil also acquired 693 gas filling stations arount Turkey as well as three jet fuel terminals, a motor oil production and packaging plant.

Lukoil will supply its new Turkish retail network from the Lukoil refinery in Bourgas, Bulgaria and the Sicilian oil refinary, Isab di Priolo, which is also a month-old refinery for Lukoil. The refinery in Bourgas will supply petrol and aviation fuel while the Sicilian refinery will provide diesel fuel and kerosene.

Lukoil’s deal fits well into its downstream strategy. According to Lukoil’s president Alekperov, buying Akpet “…represents a key element in Lukoil's strategy to develop its downstream business on the Black and Mediterranean Sea markets, especially in terms of delivering high value-added products to end users." Also, Lukoil increased its foreign retail network by 18 percent by acquiring Akpet.

Lukoil accounts for 1.3 percent of the world oil reserves, approximately 2.1 percent of the world oil production and 18 percent of production and refining in Russia. Company is private and its market value is about $92.5 billion. President Alekperov and executive team controls 30 percent of the company whereas ConocoPhilips holds 20 percent of Lukoil. The other 50 percent is being hold by various minor shareholders.

LIBYA

Star Consortium, Libya's NOC Reach $2 Billion Upgrade Refinery Deal

The Star Consortium, comprising the Al Ghurair Investments' subsidiary TransAsia Gas International and ETA Ascon Star Group's Star Petro Energy, has concluded a $2 billion deal with the National Oil Company (NOC) of Libya to set up a joint venture company to own and upgrade its Ras Lanuf refinery.

The companies had signed a Joint Venture framework agreement in February earlier this year confirming their intentions to form the Joint Venture Company which has now been concluded after signing of the Shareholders Agreement. The shareholder agreement was signed by Dr. Shukri Ghanem, Chairman of National Oil Corporation of Libya, and Abdullah Ahmad Al Ghurair, Chairman Al Ghurair Investments and Star Consortium.

The proposed Joint Venture Company will be incorporated and registered in one of the free zones in Dubai, with offices in Ras Lanuf, Tripoli and Dubai. The consortium is considering the DMCC, among the free zones in UAE, to set up the JV. The company will be a 50/50 Joint Venture between the Star Consortium and NOC. Ras Lanuf refinery produces 10 Million tones of refined petroleum products per year which are sold locally as well as exported to America and Europe.

The project which is estimated to cost $2 billion will take five years to complete and would start immediately. It will involve revamping and refurbishment of the existing plant to increase capacity and improve efficiency as well as upgrading and expansion of the refinery, using state-of-the-art technology to improve the quality of products to meet latest international standards.

Abdullah Ahmad Al Ghurair, Chairman of Al Ghurair, said: "This deal with Libyan National Oil Company is a major achievement for TransAsia Gas International, which clearly demonstrates its capacity to carry out work on large scale refinery projects. By winning this JV contract, the company has moved one step closer to becoming a fully integrated energy company. We are confident that and the Star Consortium, including TransAsia Gas International, would meet the expectations of our JV partners."

Syed Salahuddin, Managing Director, ETA Ascon Star Group, said: "Star Petro Energy is proud to be part of the Star Consortium in the deal with Libyan NOC to revamp one of its refineries. We will contribute our best of efforts to make this project a role model for other UAE companies seeking to spread into North African markets."

RUSSIA

Foster Wheeler Gets Russia Refinery Expansion Contract

Foster Wheeler Ltd has announced that Milan-based Foster Wheeler Italiana SpA, part of its Global Engineering and Construction Group, has been awarded a services contract by Mariisky NPZ Ltd for the planned expansion of the Mari-El refinery, located in the Republic of Mari-El, Russian Federation.

The objective of the expansion is to increase the refinery's crude processing capacity from 27,000 barrels per stream day (BPSD) to 90,000BPSD and to increase its ability to convert lower-value products into higher-value products. Mariisky NPZ Ltd plans to install a new refinery train including new crude and vacuum distillation units, hydrocracking, hydrodesulfurization, amine and sulfur recovery units based on Shell technology, a solvent deasphalting unit, a hydrogen production unit based on Foster Wheeler technology, and sour water stripping facilities.

In addition, a power plant will be built to burn asphalt from a solvent deasphalting unit to produce steam for electric power generation for the refinery and for export to a public network. Nitrogen oxide and sulfur oxide removal systems will be installed to clean the boiler flue gases. New utility systems and storage and auxiliary facilities also form part of the expansion project.

Foster Wheeler Italiana will define the design basis; then undertake the basic design package for the non-licensed process units, power plant, utilities and offsites, and front-end engineering design for the entire expansion project. The company also will provide assistance to the Russian design institute, which will undertake the permitting activities, and it will also coordinate and provide support to the licensors who will prepare the basic engineering packages for the licensed units.

Foster Wheeler Italiana will also develop a schedule and execution strategy for the engineering, procurement and construction phase of this expansion project, and it will coordinate and supervise the various entities working on the project, including the selected EPC contractor(s), up to "ready for start-up" of the new facilities, which is scheduled for 2012.

IRAN

Iran to Shut 180,000 bpd Crude Unit at Largest Refinery for Maintenance

Iran will shut a 180,000 barrels per day (bpd) crude unit at its largest refinery in Abadan sometime at the end of October for routine maintenance, a source from National Iranian Oil Company (NIOC) said July 23.

The maintenance at the 450,000-bpd Abadan refinery could last between 30 and 40 days, and is part of the OPEC member's multi-billion dollar effort to expand and upgrade its domestic refineries to 3.0 million bpd by around 2012, from about 1.6 million bpd, the source said.

Iran, the world's fourth-largest oil exporter, lacks refining capacity and must import huge amounts of costly gasoline to meet its needs, a sensitive issue as the West continues to seek ways to penalize Tehran for its persistent nuclear work.

Traders said the shutdown of the plant, located at the delta of the Shatt al Arab waterway, could prompt Iran to cover some of its distillate demand via spot imports and could offer some solace to the weakening gasoline market which is inundated by supplies.

The price difference between gasoline and crude oil sank into discount levels during July for the first time in recent years, pressured by excess supply and softening global demand, traders said.

"Because they have planned this shutdown in advance, they will likely be buying more products before the shutdown in October," a Middle East based trader said.

Iran launched gasoline rationing last June to curb consumption, which had risen well beyond the country's ability to refine crude, forcing the government to rely on expensive imports.

Analysts have dismissed Iran's plan to bolster its refining capacity, saying that surging costs and poor state funding for these projects will likely see the target date of completion pushed back.

Iran's access to financing mega-projects have also been hampered by curbs from European banks and energy firms to do business with the Islamic Republic. Most recently Royal Dutch Shell scrapped investments in Iran because of pressure from Western governments, while France put its plans on hold due to political tensions. But Russian and Asian firms have stepped in to fill the gap.

In May, Iran officials had said via local media reports that it had started with the construction of seven refineries at the cost of $23.22 billion.

KUWAIT

Kuwait to Offer $3 Billion Refinery Contracts

State refiner Kuwait National Petroleum Co (KNPC) plans to invite bids by September for contracts worth a total of $3 billion for its new 615,000 barrel per day al-Zour oil refinery, a newspaper said July 29.

The tender will be open to local contractors, al-Seyassah reported without disclosing the source of the information. KNPC could not be immediately reached for comment.

In May, KNPC awarded deals worth $8.4 billion to build the refinery, the Middle East's largest, to four South Korean firms and a Japanese company.

Kuwait has budgeted about $15 billion for the project. The refinery is scheduled to start operations in 2012, two years later than initially planned.

The world's seventh-largest oil exporter plans to boost refining capacity to 1.415 million bpd from 930,000 bpd with the new plant.

McIlvaine Company,

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