But it could take years to determine how much oil lies below the 2.9 million-acre, wedge-shaped parcel of ocean bottom off the coast of Virginia, and whether it's economically or environmentally viable to tap into it.

Federal studies come first. Then a revenue-sharing mechanism between the state and federal government must be hashed out. Interested oil exploration companies have to secure government leases on plots of land underwater. Then evaluation wells come, which companies drill to determine if setting up commercial oil production is economically viable.

After that, if companies determine there's enough oil to provide a reasonable revenue stream to justify spending billions on building the infrastructure, a new industry off Virginia's coast is born.

"At the very best, we're certainly talking the better part of a decade, maybe even longer," said Richard Ranger, a senior policy adviser for the American Petroleum Institute, a trade group.

Western Refining Inc.'s Yorktown refinery, besides being Virginia's lone refinery and the only oil processor on the Atlantic Coast from Georgia to Philadelphia, is in position to be the nearest depot for offshore oil by far.

The 54-year-old facility on 570 acres along the York River can handle several types of crude oil and has the capacity to refine about 70,000 barrels a day.

"If all variables are correct, it would make logical sense that we may see some of that oil coming our way," said Gary Hanson, a Western Refining spokesman. Oil drillers "would have a minimal distance to travel to deliver (crude oil), and if it makes economic sense for us, we would want to purchase it."

The refinery, which solely gets its raw crude delivered via seagoing barges and tankers, now is supplied mostly from Canada, the North Sea, South America and the Far East.

Since a new refinery hasn't been built in the United States since the 1970s, the refinery could make the case for a plant expansion to add capacity, Ranger said.

Whether that case could be made will likely depend on how much oil is out there, and how it will be transported to shore.

"You have the classic chicken or egg problem," said Gene Shiels, a spokesman for Baker Hughes Inc., a Houston, Texas-based firm that provides drilling services for many of the world's largest oil companies.

"Is there going to be enough oil out there and commercial interest to justify building a pipeline? It's extremely expensive to build a pipeline in deep water, and the other option is an equally expensive proposition," Shiels said.

Instead of building a pipeline, oil companies could build a floating production, storage and offloading facility, which shuttles tankers from the oil platform to refineries.

With Yorktown's strategic location nearest the proposed drilling area, it may be able to purchase the crude at a far lower price than other refineries farther away may pay.

"If all factors come together, this should be good for us," Hanson said. "But it's just too early right now to tell. We can get all excited right now and not have it be available to us."

DHS Has Fallen Short In Inspecting Refineries, Chemical Plants

Federal officials have known for years that terrorists could use methods as dramatic as an aircraft attack or as mundane as a false shipping order to kill thousands of people and terrorize millions more by attacking chemical plants and refineries in the Houston area and across the nation.

Yet almost a decade after the Sept. 11, 2001, attacks, the Department of Homeland Security has inspected just 12 of the 6,000 facilities that require special security measures.

"That really shocks me," said U.S. Rep. Gene Green, D-Houston, whose district covers much of the industrial and chemical complex near the Houston Ship Channel.

Green said the fact that inspections were barely under way wasn't mentioned during recent discussions on the matter in the House, which last fall passed a bill that would enhance the current security law to cover even more facilities.

The Senate now is debating the issue.

"I am really surprised they haven't had more inspections in all these years since 9/11," Green said.

In a March 2006 podcast, then-Sen. Barack Obama laid out the risks.

"Basically, these plants are stationary weapons of mass destruction spread all across the country," the future president said. "Their security is light, their facilities are easily entered, and their contents are deadly. Now, five years after 9/11, the federal government has done virtually nothing to secure these chemical plants."

That same year, Congress passed legislation requiring DHS to tackle the problem, but the mammoth task of identifying plants most at-risk and developing a new security program has been challenging and time-consuming.

So far, DHS has defined the threat -- enumerating eight possible "attack scenarios" in documents relating to the 3-year-old Chemical Facilities Anti-Terrorism Standards program -- and has identified 6,000 facilities that merit special security.

But the agency, charged with guarding against terrorist attacks, has begun security inspections of only a dozen.

Delays in implementing what some in the industry complain are fuzzy, confusing security standards mean thousands of plants could still be vulnerable.

Whatever is slowing efforts to address the threats, plant security is a key public safety issue for Houston-area residents who work in or live near the 113 facilities in the region identified by DHS and other authorities as potential terror targets.

The facilities -- which include refineries, storage terminals and other installations -- house or use chlorine, hydrofluoric acid and hundreds of other chemicals, the release of which could endanger millions, security experts have warned.

Local security consultants said some clients have been waiting more than six months for DHS to give preliminary approval to proposed security plans for their facilities, which the law requires them to devise and submit.

Once the department signs off on the plans, facilities must make the upgrades, followed by federal inspections later to ensure the facilities are complying.

"We won't know whether they have actually, in fact, secured as they should have until the inspections take place, and my hope is that we will get those inspections taken place as quickly as possible," said Rep. Al Green, D-Houston, whose district also contains numerous vulnerable facilities.

Security consultants said that until clients receive preliminary approval of their site plans, some are reluctant to make investments because they don't know whether DHS will approve their proposals. Having no inspection track record at this point makes it all the more difficult.

"DHS is so tardy," said security consultant Donald Greenwood, a Houston-based security specialist, though he acknowledged the time and resource constraints the federal agency faces in developing a new regulatory regime for the sprawling chemical industry. "Meantime, my clients are suffering and struggling with deadlines that are coming and going without any input."

His firm, Don Greenwood & Associates, helped guide more than 180 chemical facilities through the government screening process used to determine which facilities would be regulated.

Sue Armstrong, the acting deputy assistant secretary for infrastructure protection at DHS, said it has made progress in the anti-terrorism program, Congress has worked to ensure funding, and the industry is aware of requirements.

DHS recently pre-authorized the 12 plans of facilities currently being audited and expects more to get under way this month.

According to the department, the process is delayed partly by site security plans lacking clarity and detail, which must go back to companies for revisions or clarifications.

"We should be substantially further along than we are," said Michael Crocker, president of Michael Crocker CPP & Associations, a Houston-based security advisory firm.

The Chemical Facilities Anti-Terrorism Standards program so far has shed light on the potential devastation an attack on a chemical plant could have on nearby populations and made companies more aware of their own vulnerabilities, but the government has not tangibly reduced the risk for those residents, Crocker said.

The risks that could have serious consequences on human life and health, as detailed by DHS:

--Release of toxic, flammable or explosive materials.

--Theft or diversion of chemicals that could be used as weapons or converted to weapons.

--Sabotage or contamination of chemicals that can be deadly if mixed with other, readily available materials.

But it's not clear how much, if at all, those threats are affected by the delays in applying the standards program.

Industry associations for the most part say that members have made significant security upgrades on their own to reduce the likelihood of a successful attack.

The American Chemistry Council, which represents 138 companies with 3,400 plants, said it launched an aggressive security program for members shortly after 9/11 and member companies have spent a combined $8 billion in security upgrades.

Plant security has been debated since soon after the Sept. 11, 2001, attacks, but bills introduced early on didn't pass.

Legislation enacting the Chemical Facilities Anti-Terrorism Standards program came later, giving the industry time to self-regulate through voluntary security programs developed by the large trade associations. Although the chemical industry claims a high voluntary compliance rate, it generally embraces the standards to ensure compliance industry-wide.

"We're always concerned about companies that are nonmembers not complying with a voluntary program," said Bill Allmond, vice president of government relations for the Society of Chemical Manufacturers & Affiliates.

Congress gave DHS the task of developing and enforcing the Chemical Facilities Anti-Terrorism Standards program in 2006, and the agency set the standards in 2007.

Now, Congress is considering new legislation that would beef up the current program by including more facilities and requiring companies to consider using safer substitute chemicals when reasonable.

But Gene Green, who voted for the enhanced regulations in November, said he's now wondering whether it's wise to expand the legislation at this point.

"If they've only inspected that few nationwide, then we need to know if CFATS is working or not before we overlay another level of regulation," he said. "But we need to have inspections and make sure they are complying with the law."

Ethanol's Discount to Gasoline could Pressure Refiners Margins

Corn-ethanol futures are trading at their biggest discount to gasoline futures since the summer of 2008, which could encourage more bio-fuel blending and pressure the margins of oil refiners.

Over the past several weeks, gasoline prices have surged during the usual seasonal rally ahead of the peak summer driving season. Meanwhile, ethanol prices have been dragged lower by rising output of the bio-fuel and a drop in corn prices amid ample supplies and a drop in demand for animal feed.

Attractive ethanol prices could push fuel retailers, the middlemen who deliver fuel and even some refiners to blend more of the bio-fuel, which would damp the recovery in gasoline demand that is crawling back from depressed levels. Refiners are required to blend a certain amount of ethanol into their gasoline or buy credits to meet the mandate.

"One should put as much ethanol as possible into the gasoline pool because ethanol is at a very strong discount to gasoline and corn is relatively weak," said Olivier Jakob, managing director of Swiss consultancy Petromatrix.

On the New York Mercantile Exchange, ethanol for April delivery closed at $1.522 a gallon Thursday, compared with $2.3296 for the front-month benchmark gasoline contract. The 80.8-cent discount is the biggest since August 2008, when it widened to nearly 85 cents largely on the summer's record-breaking rally in crude and gasoline prices, according to data from Thomson Reuters.

The wide spread could hit refiners because higher bio-fuel blending would tamp down demand for crude-derived gasoline and narrow margins.

Nearly all of the gallons of gasoline sold in the U.S. contain nearly or as much as 10% ethanol, the maximum required by U.S. regulators. This so-called blend wall likely will be raised to 15% this summer, which would hurt oil refiners, said Geoff Cooper, vice president of research for the Renewable Fuels Association, a trade association for the ethanol industry.

Meantime, discretionary blending could rise in regions that haven't yet reached the current blend wall, such as the Southwest. This year California, the largest U.S. consumer of gasoline accounting for roughly 15 billion gallons a year, lifted its ethanol blend wall from 5.7% to 10%.

Refiners are concerned because U.S. gasoline demand, which fell sharply during the recession, has only improved incrementally. The high unemployment rate, in particular, has hit fuel demand with fewer commuters on the road.

Corn-ethanol futures sold at a slight premium to gasoline in December, but the discount has deepened as gasoline futures prices rebounded off of the low hit Feb. 5. Since then, the front-month gasoline contract is up 23%, beating the 18% rise in crude oil, which closed just shy of $85 a barrel April1. Meanwhile, ethanol futures fell 13% over the same period.

While the big discount to gasoline is boosting discretionary blending of ethanol, the blend wall will prevent a large increase, said Cooper. However, if regulators allow a 15% blend limit, "with the spread being what it is today, you would see a lot of folks in the marketplace move to E15 or somewhere higher than E10 voluntarily because the economics are just too good not to."

In the meantime, even a slight increase in blending could weigh on the gasoline crack spread--the per-barrel price difference between the motor fuel and crude oil.

The gasoline crack spread has already more than doubled on Nymex to $12.50 from its February low and from the abnormally depressed $2 level hit in September. This has given refiners, struggling to return to profitability, some breathing room but some analysts and traders wonder whether the crack spreads will be sustainable above a healthier level of $15 a barrel, if they even manage to get that high.

Crack spreads have remained fairly pressured through much of 2009 due to high crude oil prices, weak demand for refined products, persistently high inventories and rising global refining capacity. Higher ethanol blending could act as one more bearish factor capping refining margins.

"I don't think it's going to expand very much" from current levels, Jakob said.

Holly Energy Pays Holly Corp $93 Mln for Tanks, Rack Facilities

Holly Energy Partners, L.P. and Holly Corp. on April 1 announced that they have completed their previously announced transaction for the sale by Holly to Holly Energy of petroleum storage tanks with approximately 2 million barrels of capacity and certain rail loading rack facilities at Holly's Tulsa refinery site as well as an asphalt truck loading rack at Holly's Lovington, New Mexico facility.

Holly Energy has paid Holly $93 million in cash for these assets. Holly and Holly Energy have entered into 15-year agreements whereby Holly Energy will provide storage and loading services to Holly utilizing these assets. These agreements provide for minimum annual revenues to Holly Energy of $13.9 million.

This transaction has been approved by the Boards of Directors for both Holly Energy and Holly after approvals by the Conflicts Committee for Holly Energy, which is comprised solely of independent outside directors for Holly Energy, and the Holly Audit Committee, which is composed solely of outside directors of Holly. The Boards of Directors for both companies have obtained fairness opinions from financial advisory firms in connection with this proposed transaction.

Holly acquired the Tulsa storage and rail loading facilities as part of its refinery purchase from Sinclair Tulsa Refinery Co. on December 1, 2009 as part of the same transaction in which Holly Energy acquired approximately 1.4 million barrels of storage capacity as well as certain loading racks and pipeline receiving and delivery facilities directly from Sinclair. With the completion of the April 1 announced transaction, Holly Energy, through its subsidiaries, now owns a substantial portion of the in-service storage and logistic assets at Holly's integrated Tulsa refinery location and will provide storage, receiving, delivery and loading requirements of the facility to Holly in support of Holly's refining operations.

Conoco Plans to Shut Borger FCC for Work

ConocoPhillips planned to begin shutting the 56,000 barrel per day (bpd) gasoline-producing fluidic catalytic cracking unit at its 146,000 bpd Borger, Texas, refinery on April 7 for repairs, according to a notice filed with Texas pollution regulators.

The repairs are to correct a malfunction on the unit, according to the notice filed with the Texas Commission on Environmental Quality.

The unit was scheduled to restart on April 14, seven days after the shutdown begins.

The Borger refinery is owned by WRB Refining LLC, a joint-venture between Conoco and EnCana Corp. Conoco manages the refinery.

Tesoro Shutting N.D. Refinery for Maintenance

Tesoro Corp has begun shutting down its 58,000 barrel-per-day refinery in Mandan, North Dakota, for planned maintenance, an environmental regulator said.

Ben Gress, an environmental scientist with the air quality division of the North Dakota Department of Health, said on April 16 Tesoro had begun the shutdown. The restart is scheduled for May 17.

American Petroleum Institute Unveils New Refinery Safety Standards

The American Petroleum Institute (API) has issued two new refinery safety standards. The first will help companies identify and use process safety indicators to reduce risks; the second will provide guidance on reducing fatigue risks. The U.S. Chemical Safety and Hazard Investigation Board (CSB) recommended that API and other stakeholders develop the standards following the CSB’s investigation of the 2005 Texas City refinery incident.

"The new standards will help companies reduce the risks of refinery incidents," said Bob Greco, API's group director for Downstream and Industry Operations." The industry is constantly looking for ways to enhance worker safety and lower the level of incidents: the only acceptable level is zero. These tools will help the industry continue to make refineries a safer place to work."

The first standard, Recommended Practice 754, Process Safety Performance Indicators for the Refining and Petrochemical Industries, provides companies with leading and lagging process safety indicators for recognizing and evaluating events that may predict safety issues. It was developed for the refining and petrochemical industries but may apply to other industries with operating systems and processes where loss of containment can cause harm. For more information, see the RP 754 fact sheet.

The second standard, Recommended Practice 755, Fatigue Risk Management Systems for Personnel in the Refining and Petrochemical Industries, provides guidance to help manage fatigue risk. It was developed for refineries, petrochemical and chemical operations, natural gas liquefaction plants, and other facilities. For more information, see the RP 755 fact sheet.

The American National Standards Institute (ANSI) approved both of the standards as meeting its Essential Requirements. ANSI is the accrediting body for U.S. standards developing organizations.

Kerry, Lieberman, Graham Set to Unveil Latest Climate Bill

A trio of U.S. senators, plan to unveil the latest version of a comprehensive climate bill designed to cut domestic greenhouse gases 17% by 2020.

Senators John Kerry (D., Mass.), Joe Lieberman (I., Conn.) and Lindsey Graham (R., S.C.), have spent months courting industry and lawmakers of all stripes in an effort to forge a bill that will gain the necessary 60-vote margin for passage.

The bill would cap emissions on the utility sector, sharply limit Environmental Protection Agency powers to regulate greenhouse gases, establish fees for transportation fuels, expand offshore drilling and boost funding for the nuclear industry.

Pundit forecasts are divided. Some say the benefits to the environment and economy--and the risk of executive action and loss of international competitiveness--will ultimately fuel consensus on the controversial policy. Others say the efforts are quixotic, pointing to a raft of disagreements over fundamental tenets thought too broad to bridge, not to mention a host of procedural hurdles.

Although the Obama administration hasn't offered its own proposal, the White House has ramped up its public relations efforts. The President and his top lieutenants, including climate czar Carol Browner, have met with key senators, environmentalists and even the Chamber of Commerce to drum up and gauge support. To win Republican backing, the White House has proposed tripling loan guarantees to the nuclear industry and said it would consider opening up new areas offshore to oil and natural gas exploration.

"It is doable because people increasingly believe that we are losing out in the global clean-energy revolution," Browner said April 20.

Downplaying the climate change impacts in the wake of a number of scandals that have weakened the public's confidence in the science of global warming, Democrats are pitching the bill as necessary to help pull the U.S. out of a recession and to compete with countries such as China in new low-carbon technologies.

Proponents say the bill will not only cut greenhouse gases, but create millions of jobs in the clean tech sector and save nearly $2 trillion dollars in crude oil imports.

"Those are pretty compelling benefits," said Dan Lashof, director of the Natural Resources defense Council's climate center.

Despite months of negotiations, it's unclear whether there's a path to get 60 votes in the senate. Lieberman said legislative text will be distributed to his colleagues as early as April 22, and Kerry is aiming to unveil the draft bill publicly April 26. People close to the matter say, however, it's likely that there will be blank sections for some provisions.

Most lawmakers and industry officials have been withholding their support--or their opposition--as the three senators have attempted to find the policy sweet spot that will appease the most and offend the fewest. And, so far, there's been no legislative text to review.

That's because many of the pillars of the policy are contentious, including an emission fee on transportation fuels that opponents labeled a gas tax. It's a policy that has rung a death knell for many a politician in the past.

"There is no gas tax, there was no gas tax and there will never be a gas tax," Kerry said. Regardless of what proposal the trio craft, they're likely to face an ongoing semantics battle over whether the fee is perceived as a tax or not.

Structurally, the bill deals with each major emitting sector differently. Limits on industrial emitters such as chemical plants and cement kilns will be phased in over time in an attempt to protect them from international competitors that aren't subject to the same mandates. Power plants will face an early cap on emissions and be able to trade the right to pollute in a market.

Several issues are already framing the debate: whether to allow emission trading at all, whether the federal government shares oil revenues with states, and if the legislation should preempt state or federal regulation of greenhouse gases.

"Drilling is just one piece of controversy in a bill that is obviously very difficult to build," said Senator Lisa Murkowski, (R., Alaska). "Some would suggest that as you try to bring certain members on to an initiative, for every one you get on, you have two that leap out of the wheelbarrow."

For example, Graham has said revenue sharing with the states is necessary to get state approval for drilling offshore, one of the conditions for the administration's consideration to open up new areas. But powerful Democrats such as Sens. Byron Dorgan (D., N.D.) and Jeff Bingaman (D., N.M.) say they will "stand firm" against a proposal they say is "fiscally irresponsible."

On preemption, liberal Democrats and the administration are fighting to maintain authorities under the Clean Air Act, the Clean Water Act and the National Environmental Policy Act that allow it to restrict greenhouse-gas emitting industries. But many senators on both sides of the aisle say they can't back a bill that doesn't preempt federal and state powers.

Given the myriad of controversial issues and the potential for Republicans to use the increased energy costs that could come under a climate law as a campaign issue in the run up to mid-term elections, it's unclear if there will be any GOP backing of the bill besides Graham.

One of the other Republican senators who've said they support a climate bill has offered a competing proposal that wouldn't allow an emissions market at all, a fundamental policy of the Kerry-Lieberman-Graham proposal.

Sen. George Voinovich (R., Ohio), another from his party who has previously expressed interest in a climate bill, said preemption would have to be far broader than the trio is expected to propose.

"I would be surprised if there was any more Republican support," he said.

Tesoro to Temporarily Shut Anacortes Refinery

Tesoro Corp said April 12 it plans to shut its 120,000 barrel-per-day (bpd) Anacortes, Washington, refinery for a temporary, but indefinite period of time, due to the shutdown of hydro-processing equipment following a deadly April 2 fire.

"We will be temporarily ceasing operations at the Anacortes refinery," said Tesoro spokesman Lynn Westfall.

Tesoro said it would begin shutting down production units at the refinery later this month.

"All Tesoro employees have been informed and they will continue to be employed and receive full benefits," Westfall said in an email "We are committed to exploring all opportunities to restart the facility as soon as possible."

In a statement the company said it would boost production at its Alaska, Hawaii, Los Angeles, Salt Lake City and San Francisco refineries plus purchases in the West Coast refined products markets to keep its customers well-supplied.

Tesoro said the shutdown was necessary because the refinery cannot make finished refined products until repairs are complete.

"All available options are being considered," the company said of the refinery's future. "Tesoro cannot predict when operations could resume; however, progress on the various investigations of the incident and the completion of unit repairs are both necessary for a restart."

Five workers lost their lives due to the early morning fire, which suddenly erupted from a heat exchanger on a naphtha hydrotreater. Two other workers were burned.

Shares of Tesoro edged down slightly after the close of regular trading on news of the refinery shutdown.

"The temporary reduction of the Anacortes refinery operations is not expected to have a material impact on the company's financial performance," Tesoro said.

Court Orders New Environmental Review for CA Refinery

A California appeals court ruled April 26 that Chevron and the city of Richmond, CA, will have to complete a new environmental review before the company can proceed with planned construction at its San Francisco-area oil refinery.

In its decision, the California Court of Appeal in San Francisco upheld a decision by a lower court that found that the environmental review completed by Chevron and approved by the city of Richmond was inadequate.

Chevron stopped work at the refinery last summer and let about 1,000 construction workers go after a state Superior Court judge halted work until the city of Richmond had a chance to reconsider its approval of the environmental review of the project to ensure it meets state emissions requirements.

The company wants to replace equipment at the refinery, which can process nearly 243,000 barrels of crude a day, to make it operate more efficiently and allow it to process more types of crude, particularly those with higher sulfur contents. Local environmental groups sued Chevron and the city of Richmond, which issued the company a permit for the project, over allegations that the environmental review for the project was incomplete.

The groups argued that the review doesn't provide enough information about what types of crude will be processed at the renovated plant or whether higher levels of emissions of heavy metals and nitrogen oxides will result.

"It's a huge decision," said Deborah Reames, an attorney with Earthjustice, which represented the plaintiffs. "It says the public has a right to know what Chevron has up its sleeve before Chevron goes ahead with its plans."

In his April 26 decision, California Appeals Court Judge Ignazio John Ruvolo found that Chevron's environmental review doesn't provide decision-makers, and the public, with information about the project that is required by the California Environmental Quality Act. He also found that the review "completely fails to properly establish, analyze and consider an environmental baseline," which is a "fundamental requirement" for a review.

Chevron spokesman Brent Tippen said the company is disappointed with the ruling and hasn't yet decided its next steps.

"Chevron believes that the...project was properly analyzed and permitted," Tippen said.

Over the past several months, state Attorney General Jerry Brown and state lawmakers have offered to help negotiate an agreement between Chevron and plaintiffs in the lawsuit, to keep the project on track, but Chevron demurred.

Chevron and the environmental groups had been in mediation in July, but those talks broke down and were not restarted.

Last year, Chevron insisted the refinery improvements would not result in higher pollution levels. To comply with state rules, Chevron filed a greenhouse-gas emission-reduction plan, which the attorney general said was acceptable.

Judge Ruvolo, however, ordered Chevron to provide more details about how the company plans to cut greenhouse-gas emissions at the Richmond refinery as part of its revised environmental review for the refinery upgrade.

CANADA / TURKMENISTAN

Daekyung Machinery Wins $10.8 Mln in New Equipment Orders

South Korea's Daekyung Machnery & Engineering Co. said April 26 that it has won a total of US$10.8 million in orders to provide oil refinery equipment to plants in Canada and Turkmenistan.

Under a $4 million deal with Bantrel Inc, a leading Canadian engineering, procurement and construction company; the South Korean chemical machinery maker will complete delivery by February 2012, according to a regulatory filing.

A $3.57 million deal with Dow calls for Daekyung Machinery to deliver equipment by March 2011 to a plant in Canada.

Daekyung will also supply equipment to a plant in Turkmenistan by April 2011 under a $3.23 million deal with Kawasaki.

PERU

Petroperu Pans $1.5 Bln Refinery Upgrade with Help of Bank Loans

State-owned Petroleos del Peru SA, or Petroperu, plans to raise $200 million from local banks to pay for the first phase of its Talara refinery upgrade, various reports said April 29.

Petroperu last month signed a contract with Spain's Tecnicas Reunidas (TRE.MC) for modernization work at Talara. The upgrade will cost up to $1.5 billion, Petroperu has said, and should be completed in December 2015, or early 2016.

"The offer that we have for funds is significant and all the banks want to take part in this project," Petroperu President Luis Rebolledo told government-owned newspaper El Peruano.

Rebolledo said he expects the loan offers to be finalized by the end of May.

He would not name the banks involved. However, he did not rule out help from the company's financial consultant, Peru's state-owned second-tier development bank COFIDE.

At one point, Petroperu suggested it might offer corporate bonds to cover the refinery upgrade costs, but Rebolledo told El Peruano that this was not yet an option.

"We will see, within a year and a half, if we will look for direct financing with bonds, syndicated loans, or, if the law allows, a capital increase," he was quoted as saying.

The refinery overhaul aims to expand daily production to 90,000 barrels, from 62,000 barrels, as well as enabling it to refine heavier, cheaper crude and produce lower sulfur fuel.

Since new laws on petrol sulfur content limits came into effect in Peru in January, the company has been forced to import low-sulfur petroleum.

Petroperu has also become officially listed as a non-traded stock on the Lima stock exchange.

Although Petroperu has said the aim of the listing is to improve financial transparency, officials haven't ruled out looking to the stock exchange as a source of future development funding.

ASIA

INDIA

Technip Wins Diesel Hydrotreater Orders from India’s HPCL

Technip has been awarded two contracts by Hindustan Petroleum Corp. Ltd. (HPCL) for their diesel hydrotreater project in the Visakh refinery, on the east coast of India.

The two contracts, which are scheduled to be completed by the first half of 2012, will be executed by Technip's operating center in New Delhi, India.

The first, worth approximately EUR50 million; covers the license as well as the engineering, procurement, construction and commissioning (EPCC) for a hydrogen generation unit with a capacity of 36,000 tons/year.

The second contract, worth around EUR65 million, is for the EPCC of a diesel hydrotreater unit with a capacity of 2.2 million tons/year.

Chennai Petroleum Eyes $2 Bln Refinery Expansion

Chennai Petroleum Corp. is looking to expand the capacity of its refinery at Manali in southern India as environment-related issues halted its plan to build a new facility, a senior executive said April16.

Chennai Petroleum, majority owned by state-run Indian Oil Corp., accounts for 6% of India's refining capacity with its 9.5-million-metric-ton Manali refinery and 1 MMTPA Nagapattinam unit, both in southern India.

It is now looking to raise the capacity of the Manali unit by 6 MMTPA, Finance Director N.C. Sridharan said on the sidelines of an industry conference.

"We wanted to set up a 9-million-ton greenfield refinery at Ennore, but there were some environmental issues," he said without elaborating on the issues. "So we are looking at brownfield expansion."

The company's plan to expand capacity comes at a time when worldwide demand for finished petroleum products is expected to rise after the economic downturn, and India is trying to become a global hub for oil refining as the country has lower capital costs. Indian Oil and other local refiners like Hindustan Petroleum Corp. and Bharat Petroleum Corp. are also setting up new refineries and expanding existing ones.

Sridharan said after the Ennore project was delayed, the government offered the company an alternative site at Cuddalore for the greenfield plant. However, that site wasn't viable for the project, he added.

He said the company is considering demolishing an existing 3-million-ton crude distillation unit at Manali, and replacing it with a 9-million-ton unit. The expansion is likely to cost INR90 billion to INR100 billion.

"We will start the process of approaching the board (for this plan) by the end of this fiscal year and if we decide to go for brownfield expansion, it should be complete by 2014-15," Sridharan said.

He said Chennai Petroleum is also planning to expand the capacity of one of its crude-distillation units at Manali from 3.8 million tons to 4.4 million tons in the current fiscal year at a cost of INR4 billion. This would take the company's nameplate refining capacity to 11.1 million tons.

Sridharan said its refineries use 70% of sour crude and 30% of sweet at present. "In three years from now, this should change to 85% sour and 15% sweet."

Sour crude is a type of oil that contains more sulfur than sweet crude and is also more difficult to refine.

Meanwhile, Chennai Petroleum is likely to buy 70% of its crude requirements in term contracts and the remaining on the spot market, he said.

In the last financial year, the company bought 0.15 million ton of crude from Reliance Industries Ltd.'s Krishna Godavari basin, he said, adding that it proposes to buy 0.5 million tons from Reliance in the current fiscal year.

Chennai Petroleum is 51.89% owned by Indian Oil and 15.40% by Naftiran Inter Trade Co., a unit of National Iranian Oil Co.

Indian Refiner HPCL Seeks to Triple Capacity by 2017

State-run Hindustan Petroleum aims to nearly triple its refining capacity by March 2017 to feed its growing network of fuel retailing outlets with its own products, its director of refineries said April 27

"This (increased) capacity will be achieved through our own expansion and via the joint venture route," K. Murali told Dow Jones Newswires.

HPCL is targeting to increase its capacity to 800,000 barrels a day, or 40 million metric tons a year, from 280,000 barrels a day, or 14 million tons a year. The company is raising refining capacity as oil product sales at its outlets are more than output, causing it to buy products from other refiners. HPCL sold 25.39 million tons of oil products in the fiscal year through March 2010. It had 8,539 retail outlets at the end of March 2009.

Refiners in India and China are expanding to meet demand from their fast growing economies. These refiners are also playing an important role in the global market with rising exports from their new-generation refineries that can process heavier crude and enjoy better margins. At the same time, many older, simpler refineries elsewhere in Asia, the U.S. and Europe had to shut down due to overcapacity and weaker margins.

HPCL's two refineries, at India's west coast in Mumbai and the east coast in Visakhapatnam, comprise less than a tenth of India's total installed capacity. The company owns about a fourth of India's retail fuel stations.

Murali didn't disclose where the new capacities may be built or the investment the company plans to make.

HPCL is building a 180,000-barrels-a-day refinery in an equal joint venture with Mittal Energy Investment Pte. Ltd., Singapore, a group company of billionaire Lakshmi Mittal. The project at Bathinda in Punjab state is expected to be completed in 2011.

The refiner is also seeking land from the Maharashtra state government to set up a new refinery in coastal area. "The feasibility studies for the refinery are on," Murali said.

He said also that HPCL will continue to operate its existing 130,000-barrels-a-day refinery in Mumbai and hasn't taken any decision to close it. Indian media had recently reported that HPCL may sell land of its Mumbai refinery and use the funds to set up a new facility as it can't expand the refinery due to infrastructure constraints.

The company has put on hold a 300,000-barrels-a-day refinery and an adjoining petrochemicals project in Visakhapatnam as joint venture partners Mittal Energy Investments and France's Total SA left the alliance, HPCL Finance Director Bhaswar Mukherjee said earlier this month.

Murali didn't say if the project may be revived in coming months.

HPCL has shut a crude distillation unit at its Mumbai refinery for 45 days starting April 15, as it seeks to improve energy efficiency and raise capacity by up to 15%, Murali said.

"Since we are expanding the capacity, so overall there will be no impact on crude throughput for the full year due to the shutdown," he said.

The refiner plans to shutdown a fluid catalytic cracking unit, or FCCU, at its Visakhapatnam refinery for about 70 days in June, after the Mumbai shutdown is over, he said.

HPCL expects to mechanically complete its new 1.456-million-tons-a-year FCCU unit at the Mumbai refinery in June and the commissioning will take place by September, Murali said. This will enhance the production of liquefied natural gas, gasoline and diesel.

HPCL also expects to install diesel hydrotreaters at both its refineries by September 2011 to produce fuels that can meet higher emission standards, Murli said.

INDONESIA

Indonesia's Chandra Asri May Join Aramco to Build $1 Bln Refinery

Indonesia's PT Chandra Asri, will likely team up with Arabian American Oil Company (Aramco) to build a US$1 billion oil refinery to produce naphtha.

The Saudi company is the only one serious in guaranteeing crude oil supply to feed the naphtha factory planned by the country's largest petrochemical company, a company official said.

There are a number of other companies indicating interest but all talks are still in the initial phase, Budi Susanto S, a company director, told the newspaper Investor Daily.

Susanto said imports have to be made for the crude oil needed by the plant as Indonesian crude oil production is not large enough to be set aside partly to feed naphtha plant.

Chandra Asri will need naphtha to guarantee supply of the feedstock for its ethylene and propylene production units, he said.

The company has an annual production capacity of 525,000 tons of ethylene and 240,000 tons of propylene.

Earlier Susanto said was reported that Chandra was studying plans to build a US$7 billion naphtha cracker to feed its petrochemical factory in Cilegon.

The project, which will need 300,000 barrels of crude oil per day is expected to be completed in 2012, he said.

He said so far Chandra Asri has imported up to 600,000 tons of naphtha every year to be processed into ethylene.

JAPAN

Petrobras May Buy Remaining Stake in Japanese Refinery

Petrobras announced that it received a notice April 1 from Sumitomo Corp. indicating the Japanese company's interest in exercising its put option to sell 12.5% of the capital stock it holds in the Nansei Sekiyu KK Refinery (Nansei) to Petrobras. The remaining portion of Nansei's share capital (87.5%) has been owned by Petrobras since 2008.

Petrobras will analyze Sumitomo's interest based on the terms set forth in the shareholders agreement currently in force. Sumitomo also informed that its interest to sell its participation is part of the revision of its strategy in the downstream segment.

Nansei has a refinery located in the Japanese province of Okinawa, with capacity to process 100,000 barrels of light oil per day and which produces high-quality products, within the standards in effect in the Japanese market. It also has an oil and oil products terminal with capacity to store 9.6 million barrels, three piers which are able to receive product vessels of up to 97,000 dwt and a monobuoy to load tankers of the Very Large Crude Carrier (VLCC) type of up to 280,000 dwt.

Japan’s Idemitsu to Cut Oil Refining Capacity 16% by 2013

Japan's Idemitsu Kosan Co. plans to lower its daily oil refining capacity by roughly 16 percent, or around 100,000 barrels, by fiscal 2013, down from 640,000 barrels at present, in response to declining demand. The move is part of the major oil wholesaler's medium-term business plan.

By restructuring its sluggish domestic oil business and channeling more resources into growth areas, the company aims to boost its group operating profit to 120 billion yen (US $1.285 billion) by fiscal 2012, up 160 percent from estimates for fiscal 2009, which ended last month.

The medium-term blueprint also calls for cost cuts. Idemitsu plans to reduce its roughly 7,000-member work force 11 percent by fiscal 2012, shaving 8 billion yen from its payroll. By also rationalizing sales and distribution, it is eyeing cost reductions totaling 50 billion yen by fiscal 2012.

At the same time, the firm is looking to actively invest in strategic business fields. Of the 370 billion yen it has earmarked over three years, 40 per cent, or 145 billion yen, will be allocated for oil, coal and other natural resources development. By fiscal 2012, Idemitsu intends to lift its combined daily output of crude oil and natural gas to 38,000 barrels, up 27 percent from fiscal 2009. The company also aims to boost its coal output by 13 percent from fiscal 2009 to 11 million tons a year by fiscal 2012.

In addition, Idemitsu is considering stepping up sales of organic electroluminescent materials, lubricating oil and other highly functional materials both in and outside Japan.

SINGAPORE

Sinopec Considers Plan to Build Refining Complex in Singapore

China Petroleum & Chemical Corp. (SNP), the nation's largest refiner by capacity, is "studying the investment opportunity" to build a large refining and petrochemical complex in Singapore, a company spokesman said April 20.

The National Development and Reform Commission, China's top economic planner, in January approved the company's plan to invest and build a lubricant plant in Singapore. The company is considering expanding the plant into a complex, said Huang Wensheng, who didn't provide further details.

The complex would be located on Singapore's Jurong Island, with a crude oil reserve depot and a large refinery in addition to the lubricant plant, China Business News reported quoting an unnamed official with Singapore's Economic Development Board.

A spokesperson for the EDB on April 20 confirmed ongoing talks with Sinopec but declined to elaborate what project was under discussion. "We're speaking to Sinopec. The discussions are ongoing and it's premature to disclose any details," she said.

The Beijing-based company, known as Sinopec, is making a foray into overseas downstream projects following its domestic rival PetroChina Co. (PTR), which last year acquired a 45.51% stake in Singapore Petroleum Co. (S99-SG).

Sinopec's parent, China Petrochemical Corp., or Sinopec Group, which relies on imported crude oil to meet 70% of its refineries' needs, has been active in tapping global upstream oil assets.

Recently Sinopec Group agreed to purchase ConocoPhillips's (COP) 9.03% stake in the Syncrude oil sands project in Canada for C$4.675 billion.

The company also signed a cooperation agreement earlier this month with Brazil state oil company Petroleo Brasileiro SA (PBR), or Petrobras, which includes provisions that Petrobras may sell to the Chinese oil giant part of its interest in blocks BM-PAMA-3 and BM-PAMA-8, located in the Para-Maranhao Basin offshore northern Brazil, according to Petrobras.

EUROPE / AFRICA / MIDDLE EAST

FRANCE

Petroplus Considers Selling French Reichstett Refinery

Petroplus Holdings AG announced April 1 that it is evaluating strategic alternatives at its Reichstett Refinery.

The Board of Directors has reviewed the refinery operations and based on required future capital investments at the site, Petroplus management will evaluate strategic alternatives, including the potential sale of the refinery. During this process, the company plans to operate the refinery and make the necessary investments required for compliance with environmental, health and safety standards. Petroplus remains committed to the supply of oil products to its customers in the community.

Petroplus Holdings AG focuses on refining and currently owns and operates six refineries across Europe: the Coryton Refinery on the Thames Estuary in the United Kingdom, the Belgium Refining Corporation Refinery in Antwerp, Belgium, the Petit Couronne Refinery in Petit Couronne, France, the Ingolstadt Refinery in Ingolstadt, Germany, the Reichstett Refinery near Strasbourg, France, and the Cressier Refinery in the canton of Neuchatel, Switzerland. The refineries have a combined throughput capacity of approximately 752,000 barrels per day. The company also owns the Teesside facility in Teesside, United Kingdom.

Total Outlines Plan for Renewing Refining Competitiveness

Total participated in the national roundtable on the refining industry, sponsored by the French Ministry of Ecology, Sustainable Development and the Sea, on April 16.

The Group reiterated its strategy, objectives and commitments to overcome the structural challenges affecting the refining industry in Europe and in France in particular. It will:

continue to adjust its refining base in response to shrinking demand in Europe and France (gasoline/diesel fuel imbalance);
address the impact of the restructuring of its activities in affected regions;
keep refineries open in metropolitan France during the next five years;
comply with European Union regulations, especially those concerning the environment;
implement a significant capital expenditure program in Europe for one billion euros per year, half of which will be allocated to France.

In addition, the Group stressed that the long-term viability of the industry depends not only on a necessary reduction in refining capacity, but also on restoring its competitiveness. In order to achieve this, it would be appropriate to:

correct the tax distortions that are the cause of the gasoline/diesel fuel imbalance we are struggling with;
resist the more stringent requirements on biofuel blending;
apply realistic European Union directives;
encourage development of logistics and port infrastructure according to industry needs.

Three working groups have been set up: one to study the factors influencing refining industry competitiveness, one to examine ways to balance supply and demand, and one to identify future issues related to R&D, training and longer-term developments in the refining industry.

FINLAND

Neste Oil Begins its Porvoo Refinery Turnaround

Neste Oil Corp. announced that it began a planned maintenance turnaround April 6 at its Porvoo, Finland refinery. The actual maintenance work will continue for approximately four weeks. Following this, the refinery unit start-up will take another week.

Regular maintenance turnarounds every four to six years play an important part in keeping operations at Neste Oil's refineries safe and running at peak efficiency. Statutory pressure vessel inspections and maintenance also call for shutdowns at regular intervals.

The turnaround is estimated to involve close to a million man-hours of work and will employ some 2,500 people from outside contractors on site. During the major turnaround Neste Oil will sell products from storage.

The previous major maintenance turnaround at Porvoo took place in 2005. The next major turnaround in another Neste Oil refinery in Finland, in Naantali, is scheduled for 2012.

PORTUGAL

GE Supplying Turbines to Galp Portuguese Refinery

GE will be supply two Frame 6B gas turbines for Galp Energia's Matosinhos cogeneration plant near Porto, Portugal. The two new tubines will replace older oil-fired technology at the site and are meant to increase the plant's efficiency and reduce its environmental impact in line with the Portuguese government's regulation to promote efficiency and reduce CO2 emissions.

The Frame 6B gas turbines are expected to provide all of the steam requirements for the nearby Galp Energia’s Matosinhos refinery and also will enable Galp Energia to produce electricity and sell it to Portugal’s national grid.

GE‘s scope of supply for the Matosinhos project also includes gas turbine auxiliary equipment, technical advisory and training services, during construction and commissioning. A contractual service agreement also has been signed, providing for ongoing maintenance of the GE gas turbines.

ROMANIA

Foster Wheeler Wins Refinery Modernization Contracts in Romania

Foster Wheeler AG announced that a subsidiary of its Global Engineering and Construction Group has been awarded contracts by PETROM S.A. for investments which form part of PETROM's Petrobrazi Modernization Project, a major refinery modernization project being implemented at the Petrobrazi Refinery in Ploesti, Romania. PETROM is majority-owned by OMV AG of Austria and is described as the largest oil and gas producer in Southeast Europe.

Foster Wheeler will provide front-end engineering design (FEED) modification services and engineering, procurement and construction management (EPCm) for the revamp of an atmospheric/vacuum distillation unit at the refinery. In addition, the company has been awarded an EPCm contract for a new amine unit and the FEED for the revamp of a delayed coking unit.

The Foster Wheeler contract value for these awards was not disclosed and has been included in the company's fourth-quarter 2009 bookings.

"These projects are part of a very ambitious plan," said Neil A. Morgan, Executive Board Member, Refining Division, PETROM. "We are determined to position Petrobrazi as the premier refinery in Romania and to succeed in such a challenging endeavor; we have engaged a reliable, highly reputable and experienced contractor like Foster Wheeler."

Petrom is the largest Romanian oil and gas group, with activities in the business segments of Exploration and Production, Refining and Marketing as well as Gas and Power. Petrom exploits estimated proved oil and gas reserves of 0.823 bn boe in Romania (0.854 bn boe at Group level), has an annual refining capacity of 8 mn t and holds around 550 filling stations in Romania. The company also has an international network of 268 filling stations located in Moldova, Bulgaria and Serbia. In 2009 the turnover of Petrom was EUR 3,029 mn, EBITDA was EUR 696 mn. OMV Aktiengesellschaft, the leading energy group in the European growth belt holds a 51.01% share in Petrom. OMV is active in 13 Central European countries in its Refining and Marketing business segment and in 17 countries on four continents in Exploration and Production. Ministry of Economy holds 20.64% of Petrom shares, Property Fund SA holds 20.11%, the European Bank for Reconstruction and Development 2.03% and 6.21% are owned by minority shareholders.

LIBYA

Libya Seeks JV Partner for Azzawiya Refinery Revamp

Libya is expected to finalize the sale of a 50%-stake in state-owned Azzawiya refinery this year as part of plans to modernize the country's refining sector and help it meet rising domestic product demand, the country's top oil official said April 15.

"We are looking for a 50-50 joint venture partnership for Azzawiya refinery," National Oil Co., or NOC, chairman Shokri Ghanem told Zawya Dow Jones.

Libya plans to sell the share in its second-largest refinery to an international oil company as it seeks to upgrade and expand its domestic facilities.

Azzawiya, which has capacity to process 120,000 barrels a day of crude and largely supplies the local market, is in need of investment and a revamp, Ghanem said. Talks between NOC and interested parties are now entering their final stages, he added.

"They can buy half of it; we need better technology and management, and investment to revamp and upgrade. There are American and European companies, and Azzawiya should be finalized later this year because we need gasoline for the local market," Ghanem said without providing any further details on the interested firms.

In recent years, Libya has embarked on a strategy to bring on board international joint venture partners to help it upgrade and run its refineries. The country's largest refinery at Ras Lanuf, which has a capacity of about 220,000 barrels a day, is already run by a 50-50 joint venture of NOC and the U.A.E.-based Star Consortium.

Libya has five refineries with a total topping capacity of about 342,000 barrels a day. NOC owns and operates the refineries through subsidiaries.

RUSSIA

TNK-BP to Build $300 Mln Isomerization Unit at Saratov Refinery

Investment in the renovation and modernization of the Russia’s OJSC Saratov Oil Refinery, part of TNK-BP Group, grew to 70 million rubles in the first quarter of 2010. It was nearly double the amount invested during the same period a year earlier.

Between 2010-2012, TNK-BP is planning to implement a series of large-scale investment projects at the refinery. They include construction of an isomerization unit, renovation of the diesel hydrotreating unit and sulfur unit, and modernization of the railway oil product loading rack. The implementation of this investment program, expected to cost $300 million, will allow the refinery to produce competitive products and achieve a leadership position in the industry.

In January-March 2010, the OJSC Saratov Oil Refinery (part of TNK-BP Group) processed 1,586 million tons of oil, a 60,000 ton increase over the same period last year. During that period, gasoline production increased by 6 percent and diesel production grew by 2.8 percent. Fuel oil production was up 16.3 percent and petroleum bitumen production grew by 8 percent.

SAUDI ARABIA

Alfa Laval Wins Heat Exchanger Order for Saudi Refinery

Alfa Laval announced that it has received an order for Alfa Laval Packinox heat exchangers from a Saudi Arabian refinery. The order value is about 90 MSEK and delivery is scheduled for 2011.

The Alfa Laval Packinox plate heat exchangers will be used in the catalytic processing section in the production of mixed xylenes, which, among other things, can be used for production of synthetic fibers such as nylons.

"Our Alfa Laval Packinox heat exchangers keep proving their unmatched energy efficiency within the refinery and petrochemical industries," said Lars Renstroem, President and CEO of the Alfa Laval Group. "This unique heat exchanger is -- despite its huge size -- a compact solution compared to alternative solutions."

According to Alfa Laval, one of its heat exchangers can replace up to four of the largest shell and tube heat exchangers and thereby also saving the same amount of space in the refinery.

Alfa Laval is a leading global provider of specialized products and engineering solutions based on its key technologies of heat transfer, separation, and fluid handling

ConocoPhillips Opts Out of Yanbu Refinery Project

ConocoPhillips has informed Saudi Aramco that it will end participation in the new refinery project being built in Yanbu Industrial City.

"The quality of Saudi Aramco as a partner and significantly reduced capital costs from the recent re-bidding process made it a very difficult decision for us," said Willie Chiang, senior vice president, Refining, Marketing and Transportation, ConocoPhillips. "We ultimately decided this project was not consistent with our current strategy to reduce our downstream footprint. We value and look forward to continuing our relationship with Saudi Aramco."

Saudi Aramco Evaluates Options for Yanbu

Saudi Aramco received a formal written notice from ConocoPhillips of its withdrawal from the new export refinery project to be built at Yanbu’ on Saudi Arabia’s Western Red Sea coast.

According to Khalid G. Al-Buainain, senior vice president of Refining, Marketing and International in Saudi Aramco, "The Yanbu' Export Refinery is a full-conversion refinery designed to process Arabian heavy crude. It will produce high-quality, ultra-low sulfur refined products, including about 265,000 barrels per day of diesel and 90,000 barrels per day of gasoline. These products will meet the strictest international specifications, and can be sold globally to the highest valued markets."

"The project is anticipated to generate strong returns due to attractive capital costs, a best in class operating cost structure, and an ideal location for serving local and global markets. Having these advantages plus the highest quality of finished products, we anticipate that the Yanbu' Export Refinery will become one of the most competitive refineries in the world."

Saudi Aramco stated that while regretting ConocoPhillips' departure from the Project; it was evaluating options to progress the Yanbu’ Project.

McIlvaine Company,

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